CA Final May 2024 Suggested Answers Paper 1 Financial Reporting

FOR CA FINAL EXAM PREPARATION

CA Final 2024
Suggested Answers ·
Paper 1 Financial
Reporting
EXAM YEAR TYPE SUBJECT

CA Final 2024 Suggested Answers Paper 1 Financial Reporting
DATE

May 2024

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1 : FINANCIAL REPORTING
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Question No.1 is compulsory. Candidates are required to answer any four
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l 1s Working notes should form part of the answer.
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Question
The Accountant Mr. Ramesh Kanna of ‘H’ Limited submitted to you the following
Standalone Balance Sheet extracts as at 31 st March 2024:
Amount in `

H Ltd. S Ltd. A Ltd.
Assets
Non-current assets
om
c. 4,80,000
em
(a) Property, Plant and 5,50,000 2,50,000
Equipment

l a s
(b) Financial Assets
Investments: a g 4,80,000 2,50,000
14,000 shares in
S Ltd. 5,60,000
4,000 shares in
A Ltd. 1,00,000 12,10,000
Current assets

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(a) Inventory 4,85,000 3,82,500 2,45,500

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(b) Financial Assets

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Cash and cash

s gla
equivalents 89,000 98,000 1,77,000

gla Trade receivables 3,95,000 9,69,000 3,05,000
a
7,85,500 1,78,500 6,01,000

a Total Assets 21,79,000 12,65,500 8,51,000

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Equity & Liabilities
Shareholder’s Equity
(a) Equity Share
Capital (` 10 per
share) 5,00,000 2,00,000 1,00,000
(b) Other Equity
Retained earnings 9,00,000 14,00,000 7,50,000 9,50,000 4,24,000 5,24,000
Non-current
liabilities
(a) Financial Liabilities
Borrowing–Term
Loans 4,00,000 1,50,000 1,00,000
Current liabilities
(a) Financial Liabilities
Trade payables 3,79,000 1,65,500 2,27,000
Total Equity and
Liabilities 21,79,000 12,65,500 8,51,000

The following additional information is made available in respect of these
companies:
(i) H Limited purchased the shares in S Limited on 31st October 2023 when
retrained earnings of S Limited was ` 500,000 and the shares in A Limited
were acquired on 30th June 2023 when its retained earnings stood at
` 1,75,000.
(ii) Inventory of A Limited as on 31st March, 2024 include inventory valued at
` 60,000 which had been purchased from H Limited, on 1st January, 2024 at
cost plus 20%.
(iii) Trade payable of H Limited includes ` 25,000 payable to A Limited, the
amount receivable being recorded in the receivables of A Limited.
(iv) Goodwill in respect of the acquisition of S Limited has been fully impaired.
The recoverable amount of the investment in A Limited exceeds its’ carrying
value at 31st March 2024. Non-controlling interest is valued at the
proportionate share of the identifiable net assets.

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SUGGESTED ANSWER FINANCIAL REPORTING

(v) 10% dividends we declared by both H Limited and S Limited whereas A
Limited declared 15% dividend for the year 2023-24.

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(vi) On 31st March, 2024, S Limited made a bonus issue of one equity share for

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every two shares held by the shareholders of S Limited.

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(vii) Dividends were declared but were not accounted for by all these companies

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in the books before the year end. Similarly, the bonus issued by S Limited

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g are required to take note of the above available information and draw the
was not reflected in the balance sheet as on 31st March, 2024.
a
aYou
consolidated Balance Sheet of H Limited as at 31 March 2024. Notes to accounts
st

are not required. (14 Marks)
Answer
Note: Since adjustments (v) and (vii) of the question state that dividend has been
declared by all the entities but no information is provided whether it has been paid
or due. In this regard, it may be noted that since dividend is paid for the entire
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year 2023-2024, it is assumed as final dividend which is approved in the Annual
General Meeting conducted at later point time from the reporting date.
m possible based on which alternative
Accordingly, following assumptionseare
solutions have been provided: a
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A. Ignored the adjustmentag for dividend completely as dividend has to be
approved in the Annual General Meeting.
B. Considered dividend as declared but not paid.
C. Considered dividend as declared and paid.
Alternative A: Ignored the adjustment for dividend completely as it has
to be approved in the AGM.

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Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd.

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and Associate A Ltd. as at 31st March, 2024
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las Assets
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ag Non-current assets
Property, plant and equipment (` 5,50,000 + ` 4,80,000) 10,30,000
Goodwill (` 70,000- Impaired ` 70,000) Nil

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Financial assets
Investment in A Ltd. (W.N.1 (iii)) 2,05,600
Current assets
Inventory (` 4,85,000+ ` 3,82,500) 8,67,500
Financial assets
Cash and cash equivalents (` 89,000 + ` 98,000) 1,87,000
Trade receivables (` 3,95,000+` 3,05,000) 7,00,000
Total 29,90,100
Equity and Liabilities
Equity
Share capital - Equity shares of ` 10 each 5,00,000
Other equity (W.N.4+ W.N.1(i)) 11,10,600
Non-controlling interest (W.N.3) 2,85,000
Non-current liabilities
Financial liabilities
Borrowings-term loans (` 4,00,000 + ` 1,50,000) 5,50,000
Current Liabilities
Financial liabilities
Trade payables (`3,79,000+` 1,65,500) 5,44,500
Total 29,90,100

Working Notes:
1. Computation of Investment in Associate A Ltd. as per Equity
method

(i) Capital reserve on the date of acquisition
The cost of the investment is lower than the net fair value of the
investee’s identifiable assets and liabilities. Hence there is capital
reserve calculated as follows:

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SUGGESTED ANSWER FINANCIAL REPORTING

`
Cost of acquisition of investment 1,00,000
H Ltd.’s share in fair value of net assets of A Ltd.
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on the date of acquisition [(1,00,000 + 1,75,000)
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e Capital reserve is recorded directly in equity.
Capital Reserve 10,000
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l (ii) Share in profit of A Ltd. ag
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`

Share in post-acquisition profit of A Ltd. [(4,24,000 99,600
- 1,75,000) x 40%]

(iii) Closing balance of investment of Associate A Ltd. at the end
of the year

o m
. c `

e m
Cost of acquisition of investment
Add: Capital reserves
1,00,000

g l a 10,000

a
Share in post-acquisition profit
Less: Unrealised gain on inventory [(60,000 x
99,600

20/120) x 40%] (4,000)
Closing balance of investment 2,05,600
2. Analysis of Retained Earnings of S Ltd.
(i) Retained Earnings (RE) of S Ltd. `

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Closing balance as on 31st March, 2024 7,50,000

m Less: Pre-acquisition as on 31 October, 2023
st

.c o
(5,00,000)

c. o Post-acquisition Profit
se
m2,50,000

s em g la
la
(ii) Computation of net worth (net identifiable assets) as on

g
31 st October, 2023 a
a
`

Share Capital of S Ltd. 2,00,000
Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

(iii) Computation of Goodwill on acquisition date of S Ltd. `
Purchase consideration 5,60,000
NCI as per proportionate share
method (7,00,000 x 30%) 2,10,000 7,70,000
Less: Net worth or Net Identifiable
Assets (7,00,000)
Goodwill 70,000

3. Non-Controlling Interest as on 31st March, 2024 `

NCI (by proportionate share method) as on
31st October, 2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 75,000
NCI as on 31st March, 2024 2,85,000

4. Consolidated Retained Earnings

Particulars H Ltd S Ltd.
` `
Opening Balance of Retained Earnings 9,00,000
Post-acquisition Retained Earnings 2,50,000
(W.N.2(i))
Less: Unrealised gain on downstream (4,000)
transaction with Associate A Ltd.
Less: Impairment of Goodwill on (70,000)
acquisition of S Ltd.
Add: Share of profit and loss in Associate 99,600
A Ltd.
Less: Share of NCI in post-acquisition
Retained Earnings [2,50,000 x 30%] (75,000)
9,25,600 1,75,000
Total Consolidated Retained Earnings 11,00,600

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SUGGESTED ANSWER FINANCIAL REPORTING

Note: Bonus issue by a subsidiary is a transaction with owner in their
capacity as owner. Therefore, bonus issue is only a transfer from one
component of equity to the other thereby not changing the equity.
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Accordingly, though bonus issue shall be accounted in the individual
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financial statements of subsidiary, the same shall not have any effect in
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consolidated financial statements of the Group.
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Alternative B:Considered dividend as declared but not paid
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ag Consolidated Associate
Balance Sheet of H Ltd. and its subsidiary S Ltd. and
A Ltd. as at 31 March, 2024 st

`
Assets
Non-current assets
Property, plant and equipment (` 5,50,000 +

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` 4,80,000) 10,30,000
Goodwill (` 70,000- Impaired ` 70,000)
. co Nil
Financial assets
s em
l a
Investment in A Ltd. (Refer W.N.1 (iii))
g
1,99,600
Current assets
a
Inventory (` 4,85,000 + ` 3,82,500) 8,67,500
Financial assets
Cash and cash equivalents (` 89,000+ ` 98,000) 1,87,000
Trade receivables (` 3,95,000+` 3,05,000) 7,00,000
Other Receivables

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(Dividend receivable from A Ltd. (` 15,000 x 40%) 6,000

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Total 29,90,100
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Equity and Liabilities

s em Equity
g la
gla Share capital - Equity shares of ` 10 each a 5,00,000
a Other equity (W.N.4+W.N.1(i)) 10,60,600
Non-controlling interest (W.N.3) 2,79,000

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Non-current liabilities
Financial liabilities
Borrowings- term loans (` 4,00,000 + ` 1,50,000) 5,50,000
Current Liabilities
Financial liabilities
Trade payables (` 3,79,000+` 1,65,500) 5,44,500
Other payables 56,000
[Dividend payable to NCI by S Ltd. (` 20,000 x
30%) ` 6,000+ Dividend payable by H Ltd. to its
shareholders ` 50,000)
Total 29,90,100

Working Notes:
1. Computation of Investment in Associate A Ltd. as per Equity
method
(i) Capital reserve on the date of acquisition
The cost of the investment is lower than the net fair value of the
investee’s identifiable assets and liabilities. Hence there is capital
reserve calculated as follows:
`
Cost of acquisition of investment 1,00,000
Less: H Ltd.’s share in fair value of net assets of A
Ltd. on the date of acquisition [(1,00,000 +
1,75,000) x 40%] (1,10,000)
Capital Reserve 10,000
Capital reserve is recorded directly in equity.
(ii) Share in profit of A Ltd.
`
Share in post-acquisition profit of A Ltd.
[(4,24,000-1,75,000) x 40%] 99,600
Less: Dividend (1,00,000 x 15% x 40%) (6,000)
Share in profit of A Ltd. 93,600

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SUGGESTED ANSWER FINANCIAL REPORTING

(iii) Closing balance of investment of Associate A Ltd. at the end
of the year

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om of acquisition of investment c. o
`

c. Add:
Cost 1,00,000
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e m Capital reserve 10,000
l a s
l a s Share in post-acquisition profit 93,600
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ag Less: Unrealised gain on inventory
[(60,000 x 20/120) x 40%] (4,000)
Closing balance of investment 1,99,600

2. Analysis of Retained Earnings of S Ltd.
(i) Retained Earnings (RE) of S Ltd. `

Closing balance as on 31st March, 2024 7,50,000

om
Less: Pre-acquisition as on 31 October, 2023
st
(5,00,000)

. c
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Post-acquisition Profit 2,50,000

(ii) Computation of netseworth (net identifiable assets) as on
31 October, 2023la
a g
st
`

Share Capital of S Ltd. 2,00,000
Add: Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000

(iii) Computation of Goodwill on acquisition date of S Ltd. `

Purchase consideration 5,60,000

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NCI as per proportionate share
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method (7,00,000 x 30%) 2,10,000 7,70,000
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Less: Net worth or Net Identifiable

la se (7,00,000)
s g
Assets

gla Goodwill a 70,000
a

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

3. Non-Controlling Interest as on 31st March, 2024 `

NCI (by proportionate share method) as on
31st October, 2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 69,000
NCI as on 31 March, 2024
st
2,79,000

4. Consolidated Retained Earnings

Particulars H Ltd. S Ltd.
` `
Opening Balance of Retained Earnings 9,00,000
Post-acquisition Retained Earnings (W.N.2(i)) 2,50,000
Less: Unrealised gain on downstream
transaction with Associate A Ltd. (4,000)
Less: Impairment of Goodwill on acquisition
of S Ltd. (70,000)
Add: Share of profit and loss in Associate
A Ltd. 93,600
Less: Dividend payable by H Ltd. (50,000) (20,000)
Add: Dividend Income receivable from S Ltd. 14,000
Add: Dividend income receivable from A Ltd. 6,000
Less: Share of NCI in post-acquisition
Retained Earnings
[(2,50,000 - 20,000) x 30%] (69,000)
8,89,600 1,61,000
Total Consolidated Retained Earnings 10,50,600

Note: Bonus issue by a subsidiary is a transaction with owner in their
capacity as owner. Therefore, bonus issue is only a transfer from one
component of equity to the other thereby not changing the equity.
Accordingly, though bonus issue shall be accounted in the individual
financial statements of subsidiary, the same shall not have any effect in
consolidated financial statements of the Group.

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SUGGESTED ANSWER FINANCIAL REPORTING

Alternative C: Considered dividend as declared and paid
Consolidated Balance Sheet of H Ltd. and its subsidiary S Ltd. and
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Associate A Ltd. as at 31 st March, 2024

o m m
Assets.
c `

s e
s em g l a
la Property, plant and equipment (` 5,50,000 + a
Non-current assets

ag ` 4,80,000) 10,30,000
Goodwill (` 70,000- Impaired ` 70,000) Nil
Financial assets
Investment in A Ltd. (Refer W.N.1 (iii)) 1,99,600
Current assets
Inventory (` 4,85,000+ ` 3,82,500) 8,67,500

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Financial assets

.
Cash and cash equivalents [(` 89,000 - ` 50,000 +

s em
` 14,000 + ` 6,000) + (` 98,000 - ` 20,000)] 1,37,000

g l a
Trade receivables (` 3,95,000+` 3,05,000) 7,00,000
Total a 29,34,100
Equity and Liabilities
Equity
Share capital - Equity shares of ` 10 each 5,00,000
Other equity (W.N.4+W.N.1(i)) 10,60,600
Non-controlling interest (W.N.3) 2,79,000

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Non-current liabilities

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Financial liabilities
.c o
c. o Borrowings- term loans (` 4,00,000 + ` 1,50,000)
s em5,50,000

s em Current Liabilities
g la
gla Financial liabilities
a
a Total
Trade payables (` 3,79,000+` 1,65,500) 5,44,500
29,34,100

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Working Notes:
1. Computation of Investment in Associate A Ltd. as per Equity
method
(i) Capital reserve on the date of acquisition
The cost of the investment is lower than the net fair value of the
investee’s identifiable assets and liabilities. Hence there is capital
reserve calculated as follows:
`
Cost of acquisition of investment 1,00,000
Less: H Ltd.’s share in fair value of net assets of
A Ltd. on the date of acquisition
[(1,00,000 + 1,75,000) x 40%] (1,10,000)
Capital Reserve 10,000

Capital reserve is recorded directly in equity.
(ii) Share in profit of A Ltd.
`
Share in post-acquisition profit of A Ltd. [(4,24,000 - 99,600
1,75,000) x 40%]
Less: Dividend (1,00,000 x 15% x 40%) (6,000)
Share in profit of A Ltd. 93,600

(iii) Closing balance of investment of Associate A Ltd. at the end
of the year
`
Cost of acquisition of investment 1,00,000
Add: Capital reserve 10,000
Share in post-acquisition profit 93,600
Less: Unrealised gain on inventory [(60,000 x
20/120) x 40%] (4,000)
Closing balance of investment 1,99,600

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SUGGESTED ANSWER FINANCIAL REPORTING

2. Analysis of Retained Earnings of S Ltd.
(i) Retained Earnings (RE) of S Ltd.
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`

om Pre-acquisition as on 31 October, 2023
Closing balance as on 31st March, 2024 7,50,000
c. o
c. Less: (5,00,000)
em
s
st

m Post-acquisition Profit
e l a
s
2,50,000

l (ii) Computation of net worth (net identifiable assets) as onag
a
ag 31 st October, 2023 `

Share Capital of S Ltd. 2,00,000
Pre-acquisition Retained Earnings 5,00,000
Net Identifiable assets 7,00,000

(iii) Computation of Goodwill on acquisition date of S Ltd. `

m share
Purchase consideration 5,60,000

c o
method (7,00,000 x 30%) .
NCI as per proportionate

e m 2,10,000 7,70,000
Less: Net worth ors Net Identifiable
Assets gl
a
Goodwill
a (7,00,000)
70,000

3. Non-Controlling Interest as on 31st March, 2024 `

NCI (by proportionate share method) as on
31st October, 2023 2,10,000
Post-acquisition Retained Earnings (W.N.4) 69,000
NCI as on 31st March, 2024
m2,79,000

m c. o `
c. o m S Ltd.
4. Consolidated Retained Earnings

H Ltd.se
em la
Particulars

las Opening Balance of Retained Earnings
a g
9,00,000

ag Post-acquisition Retained Earnings
(W.N.2(i)) 2,50,000

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Less: Unrealised gain on downstream
transaction with Associate A Ltd. (4,000)
Less: Impairment of Goodwill on
acquisition of S Ltd. (70,000)
Add: Share of profit and loss in Associate
A Ltd. 93,600
Less: Dividend paid (50,000) (20,000)
Add: Dividend Income received from
S Ltd. 14,000
Add: Dividend income received from
A Ltd. 6,000
Less: Share of NCI in post-acquisition
Retained Earnings
[(2,50,000 - 20,000) x 30%] (69,000)
8,89,600 1,61,000
Total Consolidated Retained Earnings 10,50,600

Note: Bonus issue by a subsidiary is a transaction with owner in their
capacity as owner. Therefore, bonus issue is only a transfer from one
component of equity to the other thereby not changing the equity.
Accordingly, though bonus issue shall be accounted in the individual
financial statements of subsidiary, the same shall not have any effect in
consolidated financial statements of the Group.
Question 2
(a) Dark Limited is engaged in the construction and operation of thermal power
plants in the country. It has entered into a purchase contract for USD 2,00,000
with Bright Limited, on 1st October, 2023 for purchase of power plant
equipment on 31st March 2024. It is pertinent to note that the functional
currency of both companies is INR. Dark Limited and Bright Limited are listed
companies in India and prepare their financial statements on a quarterly
basis as per Ind AS.

Spot Rate as on 1st October, 2023 `/USD 75
Spot Rate as on 31st December ,2023 `/USD 82

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SUGGESTED ANSWER FINANCIAL REPORTING

Three month forward rate on 31st December, 2023 `/USD 70
Six month forward rate on 1st October, 2023 `/USD 80
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Spot Rate on31 March, 2024 `/ USD 85
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Assume that this contract has an embedded derivative that is not closely
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related and requires separation. You are required to pass the necessary
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Journal Entries in the books of Bright Limited from the inception of the
a g
a(b)g In December, 2022, X Limited entered into a loan agreement with a Bank.
contract till the actual sale of equipment. (10 Marks)

The loan is repayable in five annual instalments commencing from
1st October, 2024. One of the material provisions of the loan agreement is
that X limited should create an equitable mortgage on its assets in favour of
the Bank by 31st March, 2023 failing which the loan would become payable
on demand. X Limited is not able to create the equitable mortgage by
31st March, 2023. In April, 2023, X Limited started negotiation with the Bank

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and requested it not to demand payment due to non-creation of the equitable
mortgage.

s eformissueof onX 30Limited
Meanwhile the financial statements for the year ended

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ag that the payment would not be demanded
31 March, 2023 were approved
st
May, 2023. In the month
th

of June, 2023, the Bank agreed
immediately as a consequence of breach of the material provision. How
would the loan liability be classified by X Limited as at 31st March, 2023?
(4 Marks)
Answer
(a) The contract should be separated using the 6-month USD / ` forward
exchange rate, as at the date of the contract (1 USD = ` 80). The two

o m
c
components of the contract are therefore:
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c. o • A sale contract for USD 2,00,000

s
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e at ` 80
s em • A six-month currency forward to purchase USD 2,00,000
g laa corresponding
gla •
a
This gives rise to a gain or loss on the derivative, and

a derivative asset or liability.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

On delivery
1. Bright Ltd. records the sales at the amount of the host contract =
` 1,60,00,000
2. The embedded derivative is considered to expire.
3. The derivative asset or liability (i.e. the cumulative gain or loss) is
settled by becoming part of the financial asset on delivery.
4. In this case, the carrying value of the currency forward at
31st March 2024 on maturity is = ` 2,00,000 (85 – 80) = ` 10,00,000
(profit/asset)
Below is the table summarising the computation of gain/ loss to be
recorded at every period end
Date Transaction Sales Debtors Derivative (Profit)
Asset Loss
(Liability)
` ` ` `
1 Oct. Embedded
st
Nil Value
2023 Derivative
31st Dec. Change in Fair (20,00,000) 20,00,000
2023 Value of
Embedded
Derivatives MTM
(80 - 70) x
2,00,000
31st Mar. Change in Fair 30,00,000 (30,00,000)
2024 Value of
Embedded
Derivatives (85 -
70) x 2,00,000
31st Mar. Recording sales (1,60,00,000) 1,60,00,000
2024 at forward rate
31st Mar. Embedded 10,00,000 (10,00,000)
2024 derivative-
settled against
debtors

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SUGGESTED ANSWER FINANCIAL REPORTING

Journal Entries to be recorded at every period end
1st October, 2023 – No entry to be made
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31st December, 2023
c. o
.co
Particulars Dr. Cr.
s em
e m l a
s
Amount Amount

a
l Profit and loss A/c ag
(`) (`)

ag Dr. 20,00,000
To Derivative financial liability A/c 20,00,000
(Being loss on mark to market of embedded
derivative booked)

31 st March, 2024

Particulars Dr. Cr.

m
Amount Amount

c o
. Dr.
(`) (`)
Derivative financial asset A/c
m
e Dr. 10,00,000

l a s
Derivative financial liability A/c 20,00,000

ag
To Profit and loss A/c 30,00,000
(Being gain on embedded derivative based
on spot rate at the date of settlement
booked)

31 st March, 2024

Particulars Dr. Cr.

m
Amount Amount

m .c o (`) (`)

c. o Trade Receivable A/c Dr. 1,60,00,000
s
m
e1,60,00,000
s em To Sales A/c
g la
gla (Being sale booked at forward rate on the
a
a date of transaction)

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

31 st March, 2024

Particulars Dr. Cr.
Amount Amount
(`) (`)
Trade Receivable A/c Dr. 10,00,000
To Derivative financial asset A/c 10,00,000
(Being derivative asset re-classified as a part
of trade receivables, bringing it to spot rate
on the date of sale)

(b) As per Ind AS 1 “Presentation of Financial Statements”, where there is a
breach of a material provision of a long-term loan arrangement on or
before the end of the reporting period with the effect that the liability
becomes payable on demand on the reporting date, the entity does not
classify the liability as current, if the lender agreed, after the reporting
period and before the approval of the financial statements for issue, not to
demand payment as a consequence of the breach.
An entity classifies the liability as non-current if the lender agreed by the
end of the reporting period to provide a period of grace ending at least
twelve months after the reporting period, within which the entity can rectify
the breach and during which the lender cannot demand immediate
repayment.
In the given case, bank (the lender) agreed for not to demand payment but
only after the reporting date and the financial statements were approved
for issuance. The financial statements were approved for issuance on
30th May 2023 and the Bank agreed for not to demand payment in the
month of June 2023 although negotiation started in the month of April
2023 but could not agree before May 2023 when financial statements were
approved for issuance.
Hence, the liability should be classified as current in the financial statement
as at 31st March, 2023.

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SUGGESTED ANSWER FINANCIAL REPORTING

Question 3
(a) Sun Limited has entered into a Lease Agreement with Moon Limited for
m
c. o
taking on lease an office building of 1000 square feet at the rate of ` 500 per
m
co
square feet per annum for a period of 10 years. The annual lease payments

. em
s
are payable at the end of each year. The interest rate implicit in the lease

e m l a
s
cannot be readily determined. Sun Limited’s incremental rate of borrowing

l a ag
at the commencement date is 6% per annum. At the beginning of the year

ag
7, the lessor and the lessee agree to amend the original lease by extending
the contractual lease term by another four years. The annual lease payments
are unchanged for the extended period also. Sun Limited’s incremental rate
of borrowing at the commencement of Year is 7% per annum.
How should the said modification be accounted for in the books of Sun
Limited? Give your calculation by adopting the Present Value factor as under:

Year 1 2 3 4 5 6 7 8 9 10 Cumul.
7%
m
o 0.665 0.627 0.592 0.558 7.359
0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508
6% 0.943 0.890 0.840 0.792 0.747 c
7.023

. 0.705

s em
(b) The CFO of GOLD Limited,la
(8 Marks)

g a manufacturing company, provided you the
following information forayour valuable opinion.
The Company had issued 8% convertible debentures amounting to
` 320 Lakhs on 1st April, 2022 and repayable on 31st March, 2026 at par.
Interest is payable annually. As an alternative to repayment at par, the
holder on maturity can elect to exchange their convertible debentures for
250 Lakhs ordinary shares in the company. On 1st April, 2022, the prevailing
market interest rate for four-year convertible debentures which had no right

m
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of conversion was 10%. Using an annual discount rate of 10%, the present

m .
c. o
value of ` 1 payable in 4th year is 0.683 and the cumulative present value of
m
se
` 1 payable at the end of years one to four is 3.169. From the above

em la
information you are required to calculate the finance cost of convertible

las a g
debentures and its closing balance as on 31st March, 2024 to be presented in

ag the financial statements. (6 Marks)

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Answer
(a) At the effective date of the modification (at the beginning of Year 7),
Sun Ltd. (Lessee) remeasures the lease liability based on:
(a) An eight-year remaining lease term
(b) Annual payments of ` 5,00,000 and
(c) Lessee’s incremental borrowing rate of 7% p.a.
1. Calculation of Lease liability as at commencement date

Year Lease Payment Present value Present value
factor @ 6% of lease
payments
(A) (B) (A x B = C)

` ` `

1 5,00,000 0.943 4,71,500
2 5,00,000 0.890 4,45,000
3 5,00,000 0.840 4,20,000
4 5,00,000 0.792 3,96,000
5 5,00,000 0.747 3,73,500
6 5,00,000 0.705 3,52,500
7 5,00,000 0.665 3,32,500
8 5,00,000 0.627 3,13,500
9 5,00,000 0.592 2,96,000
10 5,00,000 0.558 2,79,000
Lease liability as at commencement date 36,79,500

Alternatively, Present Value of lease liability may be calculated as
follows:
= ` 5,00,000 x 7.359 = ` 36,79,500.

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SUGGESTED ANSWER FINANCIAL REPORTING

2. Calculation of Lease liability immediately before modification
date

m
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Year Opening Interest Lease Closing
m
co m
lease liability @ 6% payments liability

m . (A) (B) =[A x 6%] (C) (D) = [A+B-C]
s e
s e l a
l a ag
` ` ` `

ag
1 36,79,500 2,20,770 5,00,000 34,00,270
(W.N.1)
2 34,00,270 2,04,016 5,00,000 31,04,286
3 31,04,286 1,86,257 5,00,000 27,90,543
4 27,90,543 1,67,433 5,00,000 24,57,976
5 24,57,976 1,47,479 5,00,000 21,05,455
6 21,05,455 1,26,327 5,00,000 17,31,782

o m
c
Lease liability as at modification date
17,31,782

3. Calculation of modifiedm
.
s e lease liability

g l
Year Lease Payment a Present value Present value of
a (A) factor @ 7% (B)
lease payments
(A x B=C)
` `
7 5,00,000 0.935 4,67,500
8 5,00,000 0.873 4,36,500
9 5,00,000 0.816 4,08,000
10 5,00,000 0.763
m
3,81,500

m c. o
c. o
11 5,00,000 0.713 3,56,500
m3,33,000
em se
12 5,00,000 0.666

s g la
la
13 5,00,000 0.623 3,11,500
0.582a
ag 14 5,00,000
Modified lease liability
2,91,000
29,85,500

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Alternatively, Present Value of lease payment of modified lease
term may be calculated as follows:
= ` 5,00,000 x 5.971 = ` 29,85,500.
4. Adjustment to ROU asset `

Modified Lease liability (W.N.3) 29,85,500
Original Lease liability as at modification date
(W.N.2) (17,31,782)
Adjustment to ROU asset 12,53,718
The modified lease liability equals ` 29,85,500 (W.N. 3). The lease
liability immediately before the modification (including the recognition
of the interest expense until the end of Year 6) is ` 17,31,782 (W.N.2).
Sun Ltd. (Lessee) recognises the difference between the carrying
amount of the modified lease liability and the carrying amount of the
lease liability immediately before the modification (i.e., ` 12,53,718)
(W.N.4) as an adjustment to the ROU Asset.
The ROU asset will be increased by ` 12,53,718 on the date of
modification.
(b) This instrument has two components –
(1) Mandatory annual interest to be paid by the issuer on convertible
debentures of ` 3,20,00,000 @ 8% till 4 years, and
(2) Payment of the principal amount at the end of 4th year.
However, since the holder has the option to convert the debentures into
shares on maturity, as per Ind AS 32, the instrument is a compound financial
instrument which carries elements of both liability and equity.
Statement showing computation of liability and equity component in
the compound financial instrument.
`
Present value of interest payable during 4 years
discounted at 10% (i.e. ` 3,20,00,000 x 8% x 3.169) 81,12,640
Present value of principal payable at the end of 4 thyear
discounted at 10% (` 3,20,00,000 x 0.683) 2,18,56,000

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SUGGESTED ANSWER FINANCIAL REPORTING

Liability component of the compound financial 2,99,68,640
instrument

m
c. o
Equity component of the financial instrument

m
co
(Balancing Figure) 20,31,360

. e m
s
Total proceed 3,20,00,000
m
e of finance cost to be charged to the financial l a
l a s
Computation
a g
ag
instrument
Date Opening Finance cost Interest outflow Outstanding balance
balance at the end of the year
a b =a x 10% 3,20,00,000 x 8% d = (a+b-c)
` ` ` `
31.3.2023 2,99,68,640 29,96,864 25,60,000 3,04,05,504
31.3.2024 3,04,05,504 30,40,550 25,60,000 3,08,86,054
31.3.2025 3,08,86,054 30,88,605 25,60,000 3,14,14,654

m
31.3.2026 3,14,14,654 31,45,346 25,60,000 3,20,00,000

. co
` 31,45,346 - ` 31,41,466 = ` 3,880 is due to approximation and rounding

em
off.

l a s
According to the above table, finance cost to be charged in the Statement

a
of Profit and Loss = ` 30,40,550. g
The closing balance of liability component of convertible debentures to
be presented in the balance sheet would be ` 3,08,86,054 and equity
component would be ` 20,31,360.
Question 4
(a) Based on the advice from actuaries regarding contribution levels and overall
liabilities of the defined benefit retirement plan to pay benefits to past and
m
c. o
present employees, the Accountant Mr. Krishna of TUNA Limited provides the

m
c. o
following information:

emthe present
em s
(i) On 1 April, 2023, the actuaries of the company advised that
a
st

s l
fair value of the assets of the defined benefit plangwas ` 2,49,670 and
value of the defined obligation was ` 2,88,420. On the same date, the

gla a
a the annual market yield on government bonds was 8%.
(ii) During the year ended 31st March, 2004, TUNA Limited made
contributions of ` 33,650 into the plan and the plan paid out benefits of

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

` 20,160 to retired members. Both these payments were made on
31 March 2024
st

(iii) The actuaries advised that the current service cost for the year ended
31st March, 2024 was ` 29,760. On 28th February 2024, the rules of the
plan were amended with retrospective effect. These amendments meant
that the present value of the defined obligation was increased by ` 7,280
from that date.
(iv) During the year ended 31st March, 2024, TUNA Limited was in
negotiation with employee representatives regarding planned
redundancies. The negotiations were completed shortly before the year
end and redundancy packages were agreed. The impact of these
redundancies was to reduce the present value of the defined benefit
obligation by ` 38,390. Before 31st March, 2024, TUNA Limited made
payments of ` 36,270 to the employees affected by the redundancies in
compensation for the curtailment of their benefits. These payments were
made out of the assets of the retirement benefits plan.
(v) On 31st March, 2024, the actuaries advised that the present value of the
defined benefit obligation was ` 3,26,480. On the same date, the fair
value of the assets of the defined benefits plan were ` 2,68,340.
Examine and present how the above events would be reported in the financial
statements of TUNA Ltd. for the year ended 31st March, 2024 as per Ind AS.
Please note that the finance cost is to be computed on the opening balance.
(8 Marks)
(b) ABC Limited has received the following grants for its newly started venture
of manufacturing defense equipment in the defense corridor:
(i) ` 25 lakhs received as an incentive for setting up industry in the defense
corridor without any further condition.
(ii) ` 50 lakhs received for carrying out research and development in the
field of innovation of defense equipment.
(ii) Besides ABC Limited is awarded a government grant of ` 6 lakhs payable
over three years (` 4 lakhs in the first year, ` 1 lakh each in year 2 and
3), on the condition of creating 10 new jobs and maintaining them for 3
years. The employees are recruited at a cost of ` 3,60,000 and the wage
bill for the first year is ` 8,00,000, rising by ` 80,000 in each of the next

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SUGGESTED ANSWER FINANCIAL REPORTING

2 years. ABC Limited has a reasonable assurance that it will comply with
the conditions. attached to them and the grants will be received.

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How should ABC Limited account for the above grants including the deferred
m
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income if any in its books of account? (6 Marks)

. em
Answer
em l a s
l a s
(a) Remeasurement of gain or loss
a g
g
a Liability at the start of the year (` 2,88,420 -` 2,49,670) `
38,750
Current service cost 29,760
Past service cost 7,280
Net finance cost 3,100
Gain on settlement (2,120)

om
Contributions to plan (33,650)
Benefits paid
. c NIL
Remeasurement loss (balancingm
e
s (` 3,26,480 - ` 2,68,340)
figure) 15,020

g l a
Liability at the end of the year 58,140

On 31 March 2024, Tuna
st a Ltd. will report a net pension liability in the
balance sheet. The amount of the liability will be ` 58,140 (` 3,26,480 –
` 2,68,340).
For the year ended 31st March 2024, Tuna Ltd. will report the current service
cost as an operating cost in the statement of profit or loss. The amount
reported will be ` 29,760. The same treatment applies to the past service
cost of ` 7,280.
m
m c. o
For the year ended 31st March 2024, Tuna Ltd. will report a finance cost in

c. o em
profit or loss at the start of the year of ` 38,750 (` 2,88,420 - ` 2,49,670).

em la s
The amount of the finance cost will be ` 3,100 (` 38,750 x 8%).

las The redundancy programme represents the partialg settlement of the
a
ag curtailment of a defined benefit obligation. The gain on settlement of
` 2,120 (` 38,390 – ` 36,270) will be reported in the statement of profit and
loss.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Other movements in the net pension liability will be reported as
remeasurement gains or losses in other comprehensive income.
For the year ended 31st March, 2024, the remeasurement loss will be
` 15,020 (Refer above table).
In the Statement of Profit and loss, the following will be recognised:
`

Current service cost 29,760
Net interest on net defined liability (` 23,074 – ` 19,974) 3,100
Gain on settlement (` 38,390 – ` 36,270) 2,120
Defined benefit re-measurements recognised in Other Comprehensive
Income: `

Loss on defined benefit obligation (36,496)
Gain on plan assets 21,476
Gain on remeasurement (15,020)

In the Balance Sheet, the following will be recognised: `

Net defined benefit liability (` 3,26,480 – ` 2,68,340) 58,140

(b) ABC Ltd. should recognise the grants in the following manner:
(i) ` 25 lakhs have been received as an incentive for setting up industry in
the defence corridor. This should be recognised in Statement of Profit
and Loss immediately as there are no further conditions attached to
the grant.
(ii) ` 50 lakhs should be recognised in profit or loss immediately assuming
that no further conditions are attached to the grant.
Alternatively, in case it is assumed that grant for carrying out
research and development in the field of innovation of defense
equipment has conditions attached to it, then ` 50 lakhs should be
recognised in profit or loss on a systematic basis over the periods in
which ABC Ltd. recognises as expense the Research and Development
costs for which the grant is intended to compensate.

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(iii) Since there is reasonable assurance that the entity will comply with the
conditions attaching to them and the grant will be received, the grant
of ` 6,00,000 should be recognised at the beginning of the first year as
m
m
receivable and will be compensated for the related costs over three
o c. o
.c
years.
e m
m Loss for the years 1,2 and 3 would be ` 2,32,000, ` 1,76,000 and la
eand s
s
Therefore, grant income to be recognised in the Statement of Profit

l a a g
ag The amount of grant that has not yet been credited to the statement
` 1,92,000 respectively. (Refer W.N 1 below)

of profit and loss i.e. deferred income is to be shown on the balance
sheet. Hence, deferred income balance as at end of year 1, 2 and 3 are
` 3,68,000, ` 1,92,000 and Nil respectively. (Refer W.N.1 below)
Working Note:
Calculation of grant income and deferred income:

m Income
. co
Year Labour Grant Computation Deferred Computation of

em
Cost Income of Grant at deferred income

s
Income the end of at the end of the

l
g` a the year year

1
`
a
11,60,000 2,32,000 6,00,000 x
`
3,68,000
` `
(6,00,000 –
(1,160/3,000) 2,32,000)
2 8,80,000 1,76,000 6,00,000 x 1,92,000 (3,68,000 –
(880/3,000) 1,76,000)
3 9,60,000 1,92,000 6,00,000 x Nil (1,92,000 –
(960/3,000) 1,92,000)

m
30,00,000 6,00,000

m c o
c. o (a) Q Limited offers a new product X for sale to its customersseatm.a price of
Question 5

s em l a
g purchases up to
` 1,500. As a part of the Scheme, Q Limited gives the customers a discount

l a a
ag
voucher which entitles them a 30% discount on any future
` 1,500 in the next 30 days. Q Limited intends to offer a 5% discount on all
sales during the next 30 days as a part of the seasonal promotion. The 5%
discount cannot be used in addition to the 30% discount voucher. Q Limited

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

believes that there is 80% likelihood that a customer will redeem the voucher
and on an average, a customer will purchase ` 1,000 of additional products.
Find out is there any performance obligation on the part of Q Limited and if
so calculate the stand alone and allocated transaction price. (5 Marks)
(b) A Limited has chosen to elect the deemed cost exemption for carrying value
of its property, plant and equipment as per previous GAAP in accordance
with Ind AS 101. However, it does not wish to select the exemption available
as per Ind AS 101 of capitalising exchange fluctuation on long-term foreign
currency monetary items to property, plant and equipment and accordingly,
it did not opt to avail the exemption available as per Ind AS 101 for previous
GAAP policy of capitalizing exchange fluctuation to PPE.
In such a case, how would the company be required to treat the foreign
exchange fluctuation already capitalised to the cost of property, plant and
equipment under previous GAAP and also what will be the treatment of
fluctuation on long-term foreign currency monetary items on transition date
and after the transition date to Ind AS by the company in light of the above
options exercised by the company? (5 Marks)
(c) EITHER
Explain the criteria in the Conceptual Framework for Financial Reporting for
the recognition and de-recognition of an asset.
OR
List out the entities which were covered under Phase I & II under the
Companies (Indian Accounting Standards) Rules 2015 as notified by the MCA
along with the specific date of coverage with its exclusions, if any. (4 Marks)
Answer
(a) Since all customers will receive a 5% discount on purchases during the next
30 days, the only additional discount that provides the customer with a
material right is the incremental discount of 25% on the products
purchased. The entity accounts for the promise to provide the incremental
discount as a separate performance obligation in the contract for the sale
of Product X.
The entity believes there is 80% likelihood that a customer will redeem the
voucher and, on an average, a customer will purchase ` 1,000 worth of

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additional products. Consequently, the entity’s estimated stand-alone
selling price of the discount voucher is ` 200 (` 1,000 average purchase
price of additional products x 25% incremental discount x 80% likelihood
m
m
of exercising the option). The stand-alone selling prices of Product X and
c. o
.co
the discount voucher and the resulting allocation of the ` 1,500 transaction
s em
e m
price are as follows:
l a
l a s
Performance obligations Stand-alone
ag
ag Product X selling price `
1,500
Discount voucher 200
Total 1,700

Performance Allocated transaction
obligations
m price `

c. o
`
Product X (1,500 ÷ 1,700 × 1,500) 1,324
Discount voucher
s em × 1,500)
(200 ÷ 1,700 176
Total
g la 1,500

The entity allocates ` a
1,324 to Product X and recognizes revenue for
Product X when control transfers.
The entity allocates ` 176 to the discount voucher and recognizes revenue
for the voucher when the customer redeems it for goods or services or
when it expires.
(b) Ind AS 101 permits to continue with the carrying value for all of its property,

m
plant and equipment as per the previous GAAP and use that as deemed

m
cost for the purposes of first-time adoption of Ind AS. Accordingly, the
.co
c. o carrying value of property, plant and equipment as per previous GAAP as

se
m
em la
at the date of transition need not be adjusted for the exchange fluctuations

las capitalized to property, plant and equipment.
Separately, it allows a company to continue with a
g
ag its existing policy for
accounting for exchange differences arising from translation of long-term
foreign currency monetary items recognised in the financial statements for

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

the period ending immediately before the beginning of the first Ind AS
financial reporting period as per the previous GAAP.
Accordingly, given that Ind AS 101 provides these two choices independent
of each other, it may be possible for an entity to choose the deemed cost
exemption for all of its property, plant and equipment and not elect the
exemption of continuing the previous GAAP policy of capitalising exchange
fluctuation to property, plant and equipment.
In such a case, a harmonious interpretation of the two exemptions would
require the company to recognise the property, plant and equipment at the
transition date at the previous GAAP carrying value (without any
adjustment for the exchanges differences capitalized under previous GAAP)
But, for the purposes of the first (and all subsequent) Ind AS financial
statements, foreign exchange fluctuation on all long-term foreign currency
borrowings that arose after the transition date would be recognised in the
statement of profit and loss.
(c) Either
Recognition of assets
The Conceptual Framework for Financial Reporting defines an asset as a
present economic resource controlled by the entity as a result of past
events. An economic resource is a right that has the potential to produce
economic benefits. Assets should be recognized if they meet the
Conceptual Framework definition of an asset and such recognition provides
users of financial statements with information that is useful i.e.
with(a)relevant information; and(b)a faithful representation of the asset.
(i) Relevance
Information about assets is relevant to users of financial statements.
However, recognition of a particular asset may not always provide
relevant information like when:
(i) it is uncertain whether an asset exists; or
(ii) an asset exists, but the probability of an inflow or outflow of
economic benefits is low
It may be a combination of factors and not any single factor that
determines whether recognition provides relevant information.

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Whether or not the asset is recognised, explanatory information
about the uncertainties associated with it, may need to be provided
in the financial statements.
m
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(ii) Faithful representation

. em
e m
Recognition of a particular asset is appropriate if it provides not only
l a s
l a s relevant information, but also a faithful representation of that asset
ag
ag
and of any resulting income, expenses or changes in equity. Whether
a faithful representation can be provided may be affected by the level
of measurement uncertainty associated with the asset or by other
factors.
Faithful representation of a recognised asset involves not only
recognition of that item, but also its measurement as well as
presentation and disclosure of information about it.
Derecognition of assets

m
c. o
Derecognition is the removal of all or part of a recognised asset from an

Derecognition normally occursem
entity’s balance sheet.

a s when that item no longer meets the
l the entity loses control of all or part of the
recognised asset. a g
definition of an asset i.e. when

In some cases, an entity might appear to transfer an asset but
derecognition of that asset is not appropriate. For example, if an entity has
apparently transferred an assetbut retains exposure to significant positive
or negative variations in the amount of economic benefits that may be
produced by the asset, this sometimes indicates that the entity might
continue to control that asset. If an entity has transferred an asset to

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another party that holds the asset as an agent for the entity1 the transferor
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still controls the asset.
.c
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e Rules,
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l as MCA has notified the Companies (Indian
g
Accounting
a
Standards)

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2015. Accordingly, it has notified 39 Ind AS and has laid down mandatory
Ind AS transition roadmap for companies and non- banking finance
companies excluding banking companies and insurance companies under
following two phases:

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

Phase I
Following companies were covered under Phase I for accounting periods
beginning on or after 1st April 2016, with the comparatives for the periods
ending on 31st March 2016:
(a) companies whose equity or debt securities are listed or are in the
process of being listed on any stock exchange in India or outside India
and having net worth of rupees five hundred crore or more;
(b) companies other than those covered by sub-clause (a) above and
having net worth of rupees five hundred crore or more;
(c) holding, subsidiary, joint venture or associate companies of
companies covered by sub-clause (a) and sub-clause (b) as mentioned
above.
Phase II
Following companies were covered under Phase II for accounting periods
beginning on or after 1st April 2017, with the comparatives for the periods
ending on 31st March 2017:
(a) companies whose equity or debt securities are listed or are in the
process of being listed on any stock exchange in India or outside India
and having net worth of less than rupees five hundred crore;
(b) companies other than those covered in sub-clause (a) above i.e.
unlisted companies having net worth of rupees two hundred and fifty
crore or more but less than rupees five hundred crore.
(c) holding, subsidiary, joint venture or associate companies of
companies covered by sub-clause (a) and sub-clause (b) as mentioned
above.
Exclusions:
The roadmap shall not be applicable to companies whose securities are
listed or are in the process of being listed on SME without initial public
offering in accordance with the provisions of SEBI (Issue of Capital and
Disclosure Requirements) Regulations, 2009.

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Ind AS would not be applicable to companies other than listed companies
whose net worth is less than ` 250 Crores and they will continue to follow
AS. However, they can voluntary adopt Ind AS any time.
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Question 6

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(a) Discuss how "Cloud Computing" has positively impacted the accounting
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function and list out the challenges faced by the users of it in cloud
a g
a(b)g Y Limited purchased a building for ` 30,00,000 on 1 April, 2021. The useful
computing environment. (5 Marks)
st

life of the building is estimated at 15 years. On 31st March, 2023, Y Limited
classified the said building as held for sale. The impairment testing provides
the estimated recoverable amount as ` 23,50,000.
The fair value less cost to sell on 31st March, 2023 was ` 23,00,000. On
31st March, 2024 the management of Y Limited changed the plan, as the
building no longer met the criteria of held for sale. The recoverable amount

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as at 31st March, 2024 is ` 25,00,000.

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You are required to recommend the accounting treatment of events for the

s
year ending 31st March, 2023 and 31st March, 2024 and value the property

l a
at the end of 31st March, 2023 and 31st March, 2024. (5 Marks)
g company, sells television to various companies
a
(c) Dhruv Limited, a production
all over India. Company's financial year ends on 31 March. For the financial
st

year 2022-2023, the company had a net profit after taxes of ` 2.4 crores. It
prepares and publishes an interim financial report for each quarter of the
year. The net profit of the company for the second quarter of 2023-2024 is
` 56 Lakhs.
Following adjustments are to be made while computing the net profit of
second quarter:
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(i) The company has a practice of declaring bonus of 5% of its profit after
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taxes of previous financial year. It has a history of doing so and the

s em amount is recognised equally in each quarter. It declared bonus on
g la
la a
1st June 2023 but recognised the full amount in second quarter.

ag (ii) The company intends to incur major repair and renovation expense for
the office building. For this purpose, it has started seeking quotations
from vendors. It also has tentatively identified a vendor and expected
costs are ` 34 lakhs. It provided for the same in this quarter.

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

(iii) Exceptional loss of ` 4.2 Lakhs incurred during the second quarter due to
workers’ strike. 50% of exceptional loss has been deferred to next
quarter.
Ascertain the correct net profit with reasons to be shown in the Interim
Financial Report of second quarter to be presented to the Board of Directors.
(4 Marks)
Answer
(a) Cloud computing refers to the delivery of computing services over the
internet. It allows accountants to access their data and software from any
device with an internet connection.
Following are some of the ways in which Cloud Computing has positively
impacted accounting:
1. Improved accessibility: Cloud-based accounting software allows
users to access their financial data from any location with an internet
connection. This has increased accessibility and flexibility for
accountants and business owners, allowing them to work remotely
and collaborate in real-time.
2. Enhanced security: Cloud-based accounting software providers
typically offer advanced security features such as encryption, firewalls,
and multi-factor authentication helping in the protection of sensitive
financial data from cyber threats and data breaches.
3. Increased scalability: Cloud-based accounting software allows
businesses to easily scale up or down based on their changing needs.
As a business grows, it can easily add new users and features without
having to invest in additional hardware or software.
4. Reduced costs: Cloud-based accounting software typically requires
less upfront investment in hardware and software, as well as ongoing
maintenance costs. This can help businesses save money on IT
expenses and redirect those funds to other areas of the business. For
example, the costs of installing Microsoft Office Suite on a laptop or
desktop is far more expensive than subscribing to the Office 365
Suite, which is a web-based download. Further, the web-based
download also provides the options of continuous free updates unlike
its Office Suite offline counterpart.

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5. Streamlined collaboration: Cloud-based accounting software allows
multiple users to collaborate in real-time, reducing the need for
manual data entry and communication. This can help to streamline
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workflows and reduce errors caused by miscommunication.
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Improved reporting and analytics: Cloud-based accounting
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software often includes powerful reporting and analytics tools that

l a ag
allow businesses to gain deeper insights into their financial

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performance. This can help businesses make more informed
decisions and identify areas for improvement.
Challenges in Cloud Computing
Following are the potential challenges which may emerge in cloud
computing:
1. Since cloud-based software are completely online, they could be
prone to hackers who could ‘steal’ data or passwords or compromise

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the integrity of the processed data, thereby causing disruptions to
the businesses.

s ea mhuge
2. Strong net connectivity is a must for cloud-computing to be a success.
Though there has been
l a surge in network and mobile
g decade, connectivity in non-metros, tier-2 or
tier-3 cities is not a
connectivity in the past
well-developed, which could create accessibility
issues to the users of the cloud-based accounting software.
(b) 1. Value of property immediately before the classification as held for
sale, as per Ind AS 16, as on 31st March, 2023
`
Purchase Price 30,00,000

o m
c
Less: Accumulated Depreciation (for two years i.e.
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` 2,00,000 per year) (4,00,000)

em la se 26,00,000
las Less: Impairment loss (` 26,00,000 – ` 23,50,000)
a g (2,50,000)

ag Carrying Amount 23,50,000

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SUGGESTED ANSWER
FINAL EXAMINATION: MAY 2024

On initial classification as held for sale on 31st March, 2023, the
value will be lower of:

Carrying amount after impairment ` 23,50,000
Fair Value less Cost to sell ` 23,00,000

On 31st March, 2023, non-current asset classified as held for sale will
be recorded at ` 23,00,000.
Depreciation of ` 2,00,000 (for the year) and Impairment Loss of
` 3,00,000(` 2,50,000 +` 50,000) is charged in profit or loss for the
year ended 31st March, 2023.
2. On 31st March, 2024, held for sale property is reclassified as criteria
is not met. The value will be lower of:
Carrying amount immediately before classification
on 31st March, 2023 ` 23,50,000
Less: Depreciation based on 13 years balance life (` 1,80,769)
Carrying amount had the asset is not classified as
held for sale ` 21,69,231

Recoverable Amount ` 25,00,000
Property will be valued at ` 21,69,231on 31st March, 2024.
Adjustment to the carrying amount of ` 1,30,769 (` 23,00,000 –
` 21,69,231) is charged to the profit or loss.
(c) In the instant case, the quarterly net profit has not been correctly stated.
As per Ind AS 34, Interim Financial Reporting, the quarterly net profit should
be adjusted and restated as follows:
(i) A liability for bonus may arise out of legal agreement or constructive
obligation because of which it has no alternative but to pay the bonus
and accordingly, needs to be accrued in the annual financial
statements. Bonus liability is accrued in interim financial statements on
the same basis as they are accrued for annual financial statements.
In the given case, since the company has past record of declaring
annual bonus every year, the same may be accrued using a reasonable

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estimate (applying the principles of Ind AS 19, Employee Benefits) while
preparing its interim results.

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Accordingly, Bonus amount to be charged in the second quarter
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would be ` 2,40,00,000 x 5% x ¼ = ` 3,00,000.

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Bonus of ` 9,00,000 (` 12,00,000 – ` 3,00,000) must be reversed.
(ii)seThe cost of a planned major repair and renovation that is expected to l a s
l a occur in later part of the year is not considered for interim reportinga
g
ag purposes unless an event has caused the entity to have a legal or
constructive obligation. The mere intention or necessity to incur
expenditure related to the future is not sufficient to give rise to an
obligation.
Hence, ` 34,00,000 provided in the second quarter must be reversed.
(iii) Treatment of exceptional loss is not as per the principles of
Ind AS 34, as the entire amount of ` 4,20,000 incurred during the

o m
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second quarter should be recognized in the same quarter.

m . should be deducted from the
e
Hence, ` 2,10,000 which was deferred

a s
profits of second quarter only.
Thus, considering thegl
a
above, the correct net profits to be shown in
Interim Financial Report of the second quarter shall be:
` 96,90,000 (` 56,00,000 + ` 9,00,000 + ` 34,00,000 - ` 2,10,000).

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