CA Final September 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

September 2025

Notes · Sample Papers · Previous Year Papers · Mock Tests

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PAPER – 1 : FINANCIAL REPORTING
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c. o Part I - Multiple Choice Questions s e m
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Case Scenario
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g l a Limited manufactures and sells various paper products & relateda
amachinery and equipment.
Saumya

(i) On 1st June, 2024, Saumya Limited sold a machinery for ` 42,02,230 to a new
customer. To get into a long-term relationship with the customer, the terms
of sales include after sales service to be provided free of cost for the next four
years after the initial warranty period of 1 year. In general practice, the
Company sells the after-sales service contract separately which is purchased

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by the customer after the initial warranty period of 1 year at ` 7,41,570.

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(ii) Saumya Limited had 5,000 packets of computer paper inventory as on

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31st March, 2025 recorded at a carrying amount of ` 340 per packet. The

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market price as on 31 st March, 2025 was ` 280 per packet at which these
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packets could be sold. Saumya Limited had a firm sales contract with
Javin Limited to sell 2,760 packets at ` 380 per packet, which cannot be
settled net. Estimated incremental selling cost was ` 20 per packet.
(iii) Saumya Ltd. bought 100 acres of land on 30 th June, 2024 for growing bamboo
to be used for paper production. On 1st October, 2024, Saumya Limited
purchased 10 dogs for the security of the aforesaid land.
(iv) Saumya Limited acquired software for its internal use costing ` 3,20,000. The
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amount paid for the software was ` 1,00,000 immediately and ` 2,20,000 in
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one year's time. It also incurred purchase tax of ` 24,000, entry tax of 10%

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(recoverable later from tax department) and legal fees of ` 42,000. The cost

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las of capital of the company is 10%.
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a Cooperative Bank
ag (v) Saumya Ltd. obtained a term loan of ` 50 lakhs from Wood
in 2018-2019 and paid 1% as loan processing fees and commitment charges.
In May 2024, Saumya Ltd. availed fresh loan of ` 30 Lakhs from Iron
Cooperative Bank to pay off the old loan taken from Wood Cooperative Bank.

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FINAL EXAMINATION: SEPTEMBER 2025

The Company paid ` 20,000 as prepayment premium to Wood Cooperative
Bank to clear the old term loan and paid 1% as processing fees to Iron
Cooperative Bank for the new term loan.
(vi) Saumya Ltd. purchased a building in Chandigarh on 1 st September, 2023 for
its administrative purposes and disclosed it as Property, Plant and Equipment
in the financial statements of 2023-2024. Due to some policy changes of the
government, it relocated its office to Delhi in April 2024. On 1st May 2024,
Saumya Ltd. leased out the building to Ms. Lessee.

Answer the below questions 1 – 6 based on the information given above in
line with the relevant Ind AS:
1. How much revenue be recognised in the books of Saumya Ltd. for the
machinery sold on 1 st June, 2024 as per Ind AS 115?
(A) ` 42,02,230
(B) ` 40,16,838
(C) ` 34,60,660
(D) ` 35,71,896 (2 Marks)
2. The value of closing inventory of computer paper as on 31 st March, 2025 is
(A) ` 15,76,000
(B) ` 16,76,000
(C) ` 13,00,000
(D) ` 14,00,000 (2 Marks)
3. Assertion (I): Purchase of dogs by Saumya Limited will not fall under the
scope of Ind AS 41.
Reason (II) : Ind AS 41 applies to agricultural produce at the time of
harvest; not prior or subsequent to harvest.
(A) Both (I) & (II) are true and (II) is the correct explanation of (I).
(B) Both (I) & (II) are true but (II) is not the correct explanation of (I).
(C) (I) is true but (II) is false.
(D) (I) is false but (II) is true. (2 Marks)
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4. The cost of the software on initial recognition using the principles of
Ind AS 38 is

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(A) ` 4,18,000

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(B) ` 3,86,000
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(C) `m a
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g a ` 3,96,000
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a5. Unamortised processing fees of old loan will be
(2 Marks)

(A) Added to new loan amount.

(B) Charged to Other Comprehensive Income.
(C) Charged to Statement of Profit and Loss.
(D) Added as transaction cost while calculating effective interest rate for new

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loan. (2 Marks)

m . reclassify the leased building from
Property, Planteand Equipment to Investment Property in
6. Assertion (I): Saumya Ltd. should

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agin classification of a building from Property, Plant
the financial year 2024-2025.
Reason (II) : A change
and Equipment to Investment Property due to a change in
purpose for which it is held by the entity is a change in
accounting policy.
(A) Both (I) & (II) are true and (II) is the correct explanation of (I).

(B) Both (I) & (II) are true but (II) is not the correct explanation of (I).
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(C) (I) is true but (II) is false.
c(2. oMarks)
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Case Scenario - II

ag Hans Ltd. is engaged in the business of manufacturing of automotive accessories
with its registered office in Bhiwadi and is listed on the National Stock Exchange.
It also owns a chain of retail stores across 15 different locations in the twin cities
of Delhi and Noida. Following are the brief facts about the transactions entered

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FINAL EXAMINATION: SEPTEMBER 2025

into by the company for which accounting advice is sought by the Accountant of
Hans Ltd. from you:
(i) As per Company's policy, on 1 st April, 2023, Hans Ltd. granted 15,000 share
options each to each of its 3,000 key employees. The options are due to vest
on 31 st March, 2027 provided that the employees remain in employment as
at 31 st March, 2026. On 1st April, 2023, the directors of Hans Ltd. estimated
that 80% of the key employees would satisfy the vesting conditions. However,
actual employee turnover was such that this estimate was revised to 82% on
31st March, 2024 and 92% on 31 st March, 2025.
On 1st April, 2023 the fair value of each share option was estimated at ` 3.
The estimate was revised to ` 4 on 31 st March, 2024 and ` 5 on
31st March 2025. Hans Ltd. correctly recognised this transaction in the
financial statements for the year ended 31 st March, 2024 but, however, the
company did not make additional adjustment in the financial statements for
the year ended 31 st March, 2025.
(ii) On 1st September, 2024, a local statute was passed which necessitated
Hans Ltd. to undertake modifications to its automotive accessories to enable
reduction of harmful emissions. The modifications should have been
completed by 31 st January, 2025 at an estimated cost to Hans Ltd. of
` 50 lakhs. As a matter of fact, by 31 st March, 2025 none of the accessories
had been modified although they continued to be used. It is quite likely that
Hans Ltd. will be fined ` 3 lakhs per month for the illegal use of the
accessories. The directors of Hans Ltd. intend to carry out the modifications
during the year to be ended on 31 st March, 2026. They expect that a penalty
will become payable very shortly as legal action has commenced against
Hans Ltd.
(iii) On 1st April, 2024, Hans Ltd. issued preference shares for a consideration of
` 10 lakhs to an investor. The holder has an option to convert these
preference shares to a fixed number of equity shares of Hans Limited anytime
upto a period of 3 years. If the option is not exercised by the holder, the
preference shares are redeemed at the end of 3 years. The preference shares
carry a fixed coupon of 6% per annum which is payable at the end of every
year. The prevailing market rate for similar preference shares, without the
conversion feature, is 9% per annum.

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FINANCIAL REPORTING

(iv) On 1st April, 2024, Hans Limited entered into a loan agreement with a bank.
The loan is repayable in five equal annual instalments starting from

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31st March, 2027. One of the loan covenants is that an amount equivalent to

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50% of the loan amount should be contributed by the promoters by

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28th February, 2025 failing which the loan becomes payable on demand. In
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anticipation that the company may not be able to mobilize the promoters'
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contribution by due date, it approached the bank on 15 th January, 2025 and
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got the compliance date extended up to 31 st May, 2025 for getting promoters'
contribution.
(v) Hans Limited entered into a transaction to purchase 1,000 grams of silver on
15th January, 2025. The transaction provides for a price payable which is
equal to market value of 1,000 grams of silver on 15 th April, 2025 and shall
be settled by issue of such number of equity shares of Hans Limited as is
required to settle the aforementioned transaction, at a price of ` 100 per
share on 15 th April, 2025.
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(vi) On 1st May, 2024, Hans Limited acquired 100% of the equity and voting rights

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of MNO Limited, a subsidiary of a property investment group. It paid

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` 600 lakhs in cash and issued 1,00,000 Equity Shares of the face value of
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` 100 each at a fair value of ` 185 per share to the selling shareholders of
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MNO Limited. MNO Limited owns three investment properties. Fair values
of the said properties are estimated to be ` 700 lakhs. The properties are
single tenant industrial warehouses subject to long term leases. The leases
oblige MNO Limited to provide basic maintenance and security services,
which have been outsourced to third party specialist providers. The
administration of MNO Limited's leases was carried out by an executive of its
former parent company on a part time basis but the said executive does not

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transfer to the new owner. The financial statements for the year ended and

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as on 31 st March, 2025 are still under finalization.
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c. o Answer the below questions 7 – 12 based on the information given
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in line with the relevant Ind AS.

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7. What will be the amount of share-based payment to be recognised in
Statement of Profit or Loss for the financial year 2024-2025?
(A) ` 2,76,75,000

(B) ` 6,21,00,000

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FINAL EXAMINATION: SEPTEMBER 2025

(C) ` 3,44,25,000
(D) ` 12,42,00,000 (2 Marks)

8. What will be the amount of provision of fine for illegal use of automotives
accessories, which Hans Ltd. should make as on 31 st March, 2025?
(A) ` 50,00,000

(B) ` 2,00,000
(C) ` 6,00,000
(D) ` 24,00,000 (2 Marks)
9. What will be the finance cost of convertible loan notes  issued by Hans Ltd.,
for the year ending 31 st March, 2025?
(A) ` 60,000
(B) ` 55,450 (approx)
(C) ` 83,150 (approx)
(D) ` 90,000 (2 Marks)
10. How would the loan be classified in the financials of the Company for the
year ended on 31 st March, 2025?
(A) Non-current financial liability
(B) Other non-current liability
(C) Current financial liability
(D) Other current liability (2 Marks)
11. How would the transaction to purchase silver be classified and measured in
the books of Hans Limited as on 31 st March, 2025 assuming that the own use
assumption does not apply?
(A) Derivative financial liability measured at FVTOCI
(B) Derivative financial liability measured at FVTPL


PS: Read ‘loan notes’ as ‘preference shares’.

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(C) The contract does not fall within the scope of Ind AS 109
(D) Equity measured at fair value on the date of transaction (2 Marks)
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12. How would the acquisition of MNO Limited be accounted for in the books of
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Hans Limited?
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(A) As

g l(B)a As a purchase of business with goodwill
a (C) As an asset purchase
(D) As a joint arrangement under Ind AS 111 (2 Marks)
13. Albert Ltd. is a multinational company having various subsidiaries and
associate companies. Albert Ltd. approached ABCD Bank for loan of
` 100 crores to be utilised for business purposes, which will enhance
company's profits. To lend ` 100 crores, bank required strong projected cash
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flows. However, the current projected statement of cash flows of Albert Ltd.
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did not satisfy the bank's criteria for lending, but directors assured the bank

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that the company is in an excellent financial position and the financial results

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and cash flow projections will meet the criteria. CA Tarun, senior manager
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in Albert Ltd., prepared a report showing cash flow projections meeting the
bank's criteria under directors' pressure and submitted it to the bank. If
CA Tarun refuses to do so, he may lose his job. By knowingly disclosing
incorrect information to the bank, which fundamental principles were
compromised by CA Tarun?
(A) Objectivity & Confidentiality

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(B) Objectivity & Professional Competence

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(C) Objectivity, Professional Competence & Integrity

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(D) Confidentiality, Professional Competence & Integrity

s 14. Mohan Limited had made certain investments in thel convertible debt
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instruments of Rohan Limited. The conversion rightsaare substantive rights
ag and would provide Mohan Limited with control over Rohan Limited.
Mohan Limited has evaluated that Rohan Limited would be treated as its
subsidiary under Ind AS and hence, would require consolidation in its Ind AS

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FINAL EXAMINATION: SEPTEMBER 2025

consolidated financial statements. Rohan Limited was not considered as a
subsidiary, associate or a joint venture under previous GAAP.

Which of the following statement(s) is / are correct if Rohan Limited is to be
consolidated on transition to Ind AS assuming that Mohan Limited has opted
to avail the exemption from retrospective restatement of past business
combinations?
Statements:
(i) No adjustment is needed as the investments in the convertible debt
instruments of Rohan Limited were made before the transition date.
(ii) The Assets and Liabilities of the subsidiary would be included in the
Opening Consolidated Financial Statements of Mohan Limited at such
values as would appear in the separate financial statements of the
subsidiary if it were to adopt the Ind AS at the date of transition of
Mohan Limited.
(iii) The subsidiary's financial statements would be prepared as if it was a
first-time adopter of Ind AS.
(iv) The business combination should be restated retrospectively in
accordance with Ind AS 103.
Options:
(A) Statement (i) is correct.
(B) Statement (ii) is correct.
(C) Statement (ii) and (iii) are correct.
(D) Statement (iv) is correct. (2 Marks)

15. Zebra Ltd. holds 80% stake of issued equity share capital of Camel Ltd. and
25% of issued irredeemable preference shares. This acquisition was made on
1st October, 2024. Issued equity and preference share capital of Camel Ltd.
as on 31st March, 2025 is ` 30 crores and ` 9 crores respectively; and closing
balance of retained earnings as at 31 st March, 2025 is ` 60 crores. All the
book values of assets and liabilities were same as their fair values except for
an asset having a life of 6 years as on the date of acquisition of control. The

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FINANCIAL REPORTING

carrying amount of the asset was ` 6 crores on date of acquisition and its fair
value was ` 9 crores. The asset is depreciated on SLM basis.

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Based on aforesaid information, compute non-controlling interest in

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Camel Ltd. in the consolidated financial statement of Zebra Ltd. You need to

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undertake adjustment of depreciation on the asset arising due to its fair
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valuation.
l(A) ` 12.75 Crores ag
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a (B) ` 24.70 Crores
(C) ` 24.75 Crores
(D) ` 12.70 Crores (2 Marks)
Answer Key

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MCQ No. Correct Option
1. (D)
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2. (A)

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3. (B)
4. (C)
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5. (C)
6. (C)
7. (C)
8. (C)
9. (C)

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10. (A)

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11. (B)

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12. (C)
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ag 14. (C)
15. No Correct Option

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FINAL EXAMINATION: SEPTEMBER 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
R Limited is a subsidiary of Z Limited. Their respective balance sheet as at
31st March, 2025 is as under:
Note Z Ltd. R Ltd.
No. (` in lakhs) (` in lakhs)
I. Assets
Non-current assets
(i) Property, plant and equipment 4 450 248
(ii) Intangible assets 5 75 45
(iii) Investments 375 68
Current assets
(i) Inventories 75 75
(ii) Financial assets
a. Trade receivables 6 110 120
b. Cash and cash equivalents 85 135
Total Assets 1,170 691
II. Equity and Liabilities
Equity
(i) Share Capital 1 720 360
(ii) Other Equity 2 315 225
Liabilities
Current Liabilities
(i) Financial liabilities
a. Bank overdraft 45 30
b. Trade payables 3 90 76
Total Equity and Liabilities 1,170 691

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FINANCIAL REPORTING

Notes to the Balance Sheet:

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Note Z Ltd. R Ltd.

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No. (` in Lakhs) (` in Lakhs)

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(i) .Equity shares of ` 10 each e
1. Share capital:

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600 300

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120 60

a2. Other equity: 720 360

(i) General reserve 120 75
(ii) Retained earnings 195 150
315 225
3. Trade payables:

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(i) Sundry creditors 90 69
(ii) Bills payable
. c Nil 7

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4. Property, plant and equipment:
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(i) Machinery a 210 135
(ii) Furniture and fixture 240 113
450 248
5. Intangible asset:
Goodwill 75 45
6. Trade receivables:

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(i) Sundry debtors 106 120

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(ii) Bills receivable 4

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120

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Additional Information

ag (a) Z Ltd. acquired 12,00,000 equity shares of R Ltd. on 1 April, 2024 and further
st
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acquired 13,50,000 equity shares of R Ltd. on 1 January, 2025 at a cost of
` 1,44,00,000 and ` 1,55,25,000 respectively.

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FINAL EXAMINATION: SEPTEMBER 2025

(b) The Preference share capital of R Ltd. includes nominal value of ` 22,50,000
held by Z Ltd. acquired on 1 st April, 2024 at a cost of ` 54,00,000.
(c) The retained earnings of R Ltd. had a credit balance of ` 45,00,000 as on
1st April, 2024 and that of General Reserve on that date was ` 30,00,000.
(d) R Ltd. had paid dividend @ 12% on its paid-up equity share capital out of its
retained earnings' balance on 1 st April, 2024 for the year 2023-2024. The
entire dividend received by Z Ltd. in August 2024 has been credited to its
retained earnings.
(e) On 1st October, 2024, machinery of R Ltd. was overvalued by ` 15,00,000 for
which necessary adjustments are to be made. The Company charges
depreciation @ 10% on W.D.V. basis.
(f) Bills receivables of Z Ltd. were drawn upon R Ltd. out of which bills amounting
to ` 3,00,000 have been discounted with bank.
You are required to prepare consolidated balance sheet (In ` without rounding
off) of Z Ltd. and its subsidiary R Ltd. as on 31 st March, 2025 with the assumption
that the group has adopted fair value method to measures NCI and the fair value
of each equity share of R Ltd. is ` 14 per share as on the date of acquisition of
control by Z Ltd. and also on 31 st March 2025. Ignore taxation and adjustment,
if any, of preference dividend. (14 Marks)
Answer
Consolidated Balance Sheet of Z Ltd. as at 31 st March 2025

Notes No. `
Assets
Non-current assets
(i) Property, plant and equipment 1 6,83,75,000
(ii) Intangible assets 1 75,00,000
(iii) Financial assets
a. Investments 1 89,75,000
Current assets
(i) Inventories 1 1,50,00,000

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(ii) Financial assets
a. Trade receivables 1 2,26,00,000
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b. Cash and cash equivalents 1 2,20,00,000

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Equity and .Liabilities e
Total 14,44,50,000

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Equitys g
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a (ii) Other equity 2
3
7,20,00,000
3,79,96,875
(iii) Non-controlling interest (W.N.3) 1,07,53,125
Current Liabilities
(i) Financial liabilities
a. Bank overdraft 1 75,00,000

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b. Trade payables 1 1,62,00,000
Total 14,44,50,000

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Notes to Accounts

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Note 1: Assets and Liabilities
Particulars Z Ltd. R Ltd. Adjustments `
Property, Plant and 4,50,00,000 2,48,00,000 -15,00,000 + 6,83,75,000
Equipment 75,000
Intangible Assets 75,00,000 45,00,000 -45,00,000 75,00,000
Investments 3,75,00,000 68,00,000 -1,44,00,000 - 89,75,000
1,55,25,000 -

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54,00,000

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Inventories 75,00,000 75,00,000
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1,50,00,000

c. o Trade Receivables 1,10,00,000 1,20,00,000
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e 2,20,00,000
-4,00,000 2,26,00,000

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Cash and Cash Equivalents 85,00,000 1,35,00,000

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a-4,00,000 1,62,00,000
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Bank Overdraft 45,00,000 30,00,000
Trade Payables 90,00,000 76,00,000

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FINAL EXAMINATION: SEPTEMBER 2025

Note 2: Share Capital
`
60 lakhs Equity shares of ` 10 each, fully paid 6,00,00,000
10%, 12 lakhs Preference Share of ` 10 each fully paid 1,20,00,000
7,20,00,000

Note 3: Consolidated Other Equity
`
General Reserve W.N.1 1,29,56,250
Retained Earnings W.N.1 2,17,78,125
Capital Reserve W.N.2 32,62,500
3,79,96,875

Working Notes:
1. Consolidated Other Equity `

Particulars General Retained
Reserve Earnings

Standalone - Z Ltd. 1,20,00,000 1,95,00,000

Add: Fair Value gain of existing stake
[(12 lakh x 14) – 144 lakhs] 24,00,000

Less: Loss on cancellation of preference
shares (54 lakhs - 22.5 lakhs) (31,50,000)

Add: Share in post-acquisition Profits
(W.N.4(i)) 9,56,250
(W.N.4(ii)) 30,28,125

1,29,56,250 2,17,78,125

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2. Computation of bargain purchase i.e. capital reserve
(i) Computation of net worth (net identifiable assets) as on
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1st January 2025

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. Capital
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e Pre-acquisition Retained Earnings (after adjusting l a
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3,00,00,000

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ag Pre-acquisition General Reserve
downward revaluation of machinery) 1,00,12,500
63,75,000
Adjustment for Goodwill since it has no fair value (45,00,000)
Net worth or Net Identifiable assets 4,18,87,500

(ii) Computation of bargain purchase i.e. capital reserve

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Net worth or Net identifiable assets 4,18,87,500
Purchase consideration
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NCI [30 lakhs sharesgxl15% x ` 14]
(155.25 lakhs + 168 lakhs) 3,23,25,000

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Bargain purchase (capital reserve)
63,00,000 (3,86,25,000)
32,62,500

3. Non-Controlling Interest A/c (at Fair Value)

`
NCI at fair value as on 1 st January 2025 63,00,000

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Post-acquisition General Reserve (W.N.4(i)) 1,68,750

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Post-acquisition Retained Earnings (W.N.4(ii)) 5,34,375
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Preference share capital (60 lakh – 22.50 lakh)
se 37,50,000
la 1,07,53,125
las NCI at fair value as on 31 st March 2025
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FINAL EXAMINATION: SEPTEMBER 2025

4. Analysis of Other Equity
(i) General Reserve

`
Closing balance as on 31 st March 2025 75,00,000
Less: Opening Balance (45.00 - 36.00) pre (30,00,000)
Net Profit transferred during the year 45,00,000
For 9 months till 31 December 2024
st
pre 33,75,000
For 3 months from 1 st Jan. 2025 to 31 st Mar. 2025 post 11,25,000
Total pre-acquisition reserve (30.00 lakh+33.75 lakh) pre 63,75,000
Share of Z Ltd. in post-acquisition reserve (85%) post 9,56,250
Share of NCI in post-acquisition reserve (15%) post 1,68,750

(ii) Retained Earnings (RE)

`
Closing balance as on 31 March, 2025
st
1,50,00,000
Less: Opening balance 45,00,000
Less: Dividend @12% (300 lakhx12%) (36,00,000) Pre (9,00,000)
During the year 1,41,00,000
For 9 months till 31 December, 2024
st
Pre 1,05,75,000
For 3 months from 1 st Jan. 2025 to 31 st Mar. 2025 Post 35,25,000
Add: Saving in Depreciation for 3 months (from
1st January 2025 to March 2025) 37,500
Net post-acquisition RE Post 35,62,500
Total pre-acquisition RE (9.00 + 105.75) Pre 1,14,75,000
Less: Downward revaluation of machinery (15,00,000)
Add: Saving in depreciation for 3 months (from
1st October 2024 to 31 st December 2024) 37,500
Pre 1,00,12,500
Share of Z Ltd. in post-acquisition RE (85%) Post 30,28,125
Share of NCI in post-acquisition RE (15%) Post 5,34,375

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FINANCIAL REPORTING

Note:
1. At page 4 of the Question Paper under additional information (a) the
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second acquisition of 13,50,000 equity shares on 1 st January 2025 has
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been done at ` 1,55,25,000. This implies that fair value per share is

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` 11.50 (1,55,25,000/13,50,000). However, in the last para of the question
s e
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at the same page, the fair value of R Ltd.’s share is mentioned as ` 14 per
l a
l a share on the date of acquisition.
a
ag The above solution has been drawn considering fair value of R Ltd.’s share
as ` 14 per share for the purpose of computation of gain or loss on
existing stake and bargain purchase.
However, alternatively one can draw a solution considering fair value of
R Ltd.’s share as ` 11.5 per share for the purpose of computation of gain
or loss on existing stake and bargain purchase only. In such a case, the
amount of consolidated retained earnings and bargain purchase i.e.

m
capital reserve will be ` 1,87,78,125 and ` 62,62,500 respectively.
2.
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Furthermore, the above solution has been drawn considering goodwill

s em
being residuary in nature, has no fair value. However, one may draw a

l a
solution considering goodwill as an identifiable asset.

g
Question 2
(a)
a
On 1st April, 2021, Galaxy Limited issued 15,000, 8% Convertible
Debentures with a face value of ` 100 each maturing on 31 st March, 2026.
The debentures are convertible into equity shares of Galaxy Limited at the
option of the holder at a conversion price of ` 105 per share or are
redeemable at face value of ` 100 each. Interest is payable annually in
cash. At the date of issue, Galaxy Limited could have issued non-convertible

m
debt with a 5 years term bearing a coupon interest rate of 12%. On

m .co
1st April, 2024, the convertible debentures have a fair value of ` 15,75,000.

c. o m
Galaxy Limited made a tender offer to debenture holders to repurchase the

em la se
debentures for ` 15,75,000, which the holders accepted. At the date of

s g
repurchase, Galaxy Limited could have issued non-convertible debt with a

gla 2 years term bearing a coupon interest rate of 9%.
a
a You are required to:
(i) Provide the appropriate accounting entries for initial recognition as
per the relevant Ind AS in the books of Galaxy Limited.

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FINAL EXAMINATION: SEPTEMBER 2025

(ii) Calculate the stream of Interest Expenses across the five years of the
term of the Debentures. (Rounding off adjustment, if any, be made in
the interest calculation of financial year 2025-2026).
(iii) Provide the accounting entries at the time of repurchase of the
convertible debentures.
The following present values of ` 1 at 8%, 9%, and 12% are supplied to you:

Interest Rate Year 1 Year 2 Year 3 Year 4 Year 5
8% 0.926 0.857 0.794 0.735 0.681
9% 0.917 0.842 0.772 0.708 0.650
12% 0.893 0.797 0.712 0.636 0.567

(10 Marks)
(b) Modern Limited, whose functional currency is Indian Rupee, had a balance
of cash and cash equivalents of ` 5,00,000, but there are no other assets or
liabilities in its financial statements as on 1 st April, 2024. During the year
2024-2025, the company has entered into the following foreign currency
transactions:
(i) It purchased goods for resale from Spain for Euro 1,00,000 when the
exchange rate was 1 Euro = ` 77. This balance is still unpaid at
31st March, 2025 when the exchange rate was 1 Euro = ` 72. An
exchange gain of ` 5,00,000 on the retranslation of Trade Payables is
recorded in the Statement of Profit and Loss.
(ii) It sold the goods to an American client for US $ 1,00,000 when the
exchange rate was 1 US $ = ` 82. This amount was settled when the
exchange rate was 1 US $= ` 85. The exchange gain regarding the
Trade Receivable is recorded in the Statement of Profit and Loss.
(iii) Modern Limited also borrowed Euro 1,00,000 under a long-term loan
agreement when the exchange rate was 1 Euro = ` 75 and
immediately converted it into ` 75,00,000. The loan was retranslated
at 31st March, 2025 at ` 72, with an exchange gain recorded in the
Statement of Profit and Loss. The loan is still payable.

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FINANCIAL REPORTING

Modern Limited, therefore, records a cumulative exchange gain of
` 11,00,000 (5,00,000 + 3,00,000 + 3,00,000) in arriving at its profit for the

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year. Besides it also records a trading profit of ` 5,00,000 (` 82,00,000 -

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` 77,00,000) on the sale of goods.

m . s e
e a
How would the cash flows arising from the above transactions be reported in

s l
a ag
the Statement of Cash flows of Modern Limited prepared under Indirect

g l
aAnswer
Method as per applicable Ind AS? Ignore taxation. (4 Marks)

(a) (i) At the time of initial recognition
`
Liability component
Present value of 5 yearly interest payments of
` 1,20,000, discounted at 12% annuity (1,20,000 x 3.605) 4,32,600

m
co
Present value of ` 15,00,000 due at the end of 5 years,

.
em
discounted at 12%, compounded yearly (15,00,000 x 0.567) 8,50,500

s
12,83,100

l a
ag
Equity component
(` 15,00,000 – ` 12,83,100) 2,16,900
Total proceeds 15,00,000

Note: Since ` 105 is the conversion price of debentures into equity
shares and not the redemption price, the liability component is
calculated @ ` 100 each only.

Journal Entry

o m
c
` `

m .
c. o m
Bank Dr. 15,00,000

em
To 8% Debentures (Liability component)

la se 12,83,100
las To 8% Debentures (Equity component)
a g 2,16,900

ag (Being debentures initially recorded at fair
value)

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FINAL EXAMINATION: SEPTEMBER 2025

(ii) Calculation of stream of interest expenses during the term of
Debentures

Opening Finance cost Interest 8% Closing
Balance @ 12% Balance
1 12,83,100 1,53,972 1,20,000 13,17,072
2 13,17,072 1,58,049 1,20,000 13,55,121
3 13,55,121 1,62,615 1,20,000 13,97,736
4 13,97,736 1,67,728 1,20,000 14,45,464
5 14,45,464 1,74,536* 1,20,000 15,00,000

* Difference of ` 1,080 (1,74,536 – 1,73,456) in the finance cost is due
to rounding off and approximation to the nearest absolute figure
(iii) At the time of repurchase of convertible debentures
The repurchase price is allocated as follows:
Carrying Fair Difference
Value @ Value @
12% 9%
` ` `
Liability component
Present value of 2 remaining yearly
interest payments discounted at
12% and 9%, respectively.
[` 1,20,000 x (0.893 + 0.797)] 2,02,800
[1,20,000 x (0.917 + 0.842)] 2,11,080
Present value of ` 15,00,000 due in
2 years, discounted at 12% and 9%,
compounded yearly, respectively
(15,00,000 x (0.797) 11,95,500
(15,00,000 x (0.842) 12,63,000
Liability component 13,98,300 14,74,080 (75,780)
Equity component 2,16,900 1,00,920 1,15,980
Total 16,15,200 15,75,000 40,200

*See Note (i)
**` 15,75,000 – ` 14,74,080 = ` 1,00,920

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FINANCIAL REPORTING

Journal Entries

m
` `

m c. o
8% Debentures (Liability component) Dr. 13,98,300

c o
To .Bank A/c
Profit and loss A/c (Debt settlement expense) Dr. 75,780
em
m
e the repurchase of the liability component
14,74,080
l a s
l a s
(Being
ag
g
a 8% Debentures (Equity component)
recognised)
Dr. 2,16,900
To Bank A/c 1,00,920
To Retained Earnings/Reserves and Surplus A/c 1,15,980
(Being the cash paid for the equity component
recognised)

Note: Alternatively, one may adjust the liability component of debentures

m
taking the closing balance as per amortization table and pass the
following journal entry:
. co
s em ` `

g l a
8% Debentures (Liability component) Dr. 13,97,736

To Bank A/c
a
Profit and loss A/c (Debt settlement expense) Dr. 76,344
14,74,080
(Being the repurchase of the liability component
recognised)

Loss on Debt Settlement = ` 14,74,080 – ` 13,97,736 = ` 76,344.
(b) An exchange gain on retranslation of the trade payable of ` 5,00,000 is

m
recorded in profit or loss [€ 1,00,000 x (77 – 72) = ` 5,00,000].

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A further exchange gain of ` 3,00,000 regarding the trade receivable is

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recorded in the statement of profit or loss [$ 1,00,000 x (85 – 82)

em la
= ` 3,00,000].

las a g
The loan was retranslated at 31 st March 2025 @ ` 72 = ` 72,00,000, with a

ag further exchange gain of ` 3,00,000 recorded in the statement of profit or
loss.

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FINAL EXAMINATION: SEPTEMBER 2025

Statement of Cash Flows

Particulars `

Cash flows from operating activities (Indirect method)
Profit before taxation (5,00,000 + 11,00,000) 16,00,000
Adjustment for unrealised exchange gains / losses:
Foreign exchange gain on long term loan (3,00,000)
Foreign Exchange gain on trade payables (5,00,000)
Operating cash flow before working capital changes 8,00,000
Changes in working capital (Due to increase in trade
payables) 77,00,000
Net cash inflow from operating activities 85,00,000
Cash inflow from financing activity 75,00,000
Net increase in cash and cash equivalents 1,60,00,000
Cash and cash equivalents at the beginning of the
period 5,00,000
Cash and cash equivalents at the end of the period
(Refer W.N.) 1,65,00,000

Working Note:
Closing Cash and Cash Equivalents

Particulars `
Opening balance of cash and cash equivalents 5,00,000
Add: Received from settlement of Trade Receivables 85,00,000
Add: Received from conversion of loan 75,00,000
1,65,00,000

Note: One may show changes in working capital net of foreign exchange
gain of ` 72,00,000.

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FINANCIAL REPORTING

Question 3
(a) XYZ Ltd. operates a defined retirement benefits plan on behalf of current
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and former employees. XYZ Ltd. receives advice from actuaries regarding
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contribution levels and overall liabilities of the plan to pay benefits. On

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1st April, 2024, the actuaries advised that the present value of the defined
s e
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benefit obligation was ` 90 lakhs. On the same day, the fair value of the

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assets of the defined benefit plan was ` 78 lakhs. On 1 st April, 2024, the
annual market yield on high quality corporate bonds  was 6%. During the
year ended 31 st March, 2025, XYZ Ltd. made contributions of ` 10,50,000
into the plan and the plan paid out benefits of ` 6,30,000 to retired
members. Assume that both these payments were made on
31st March, 2025. The actuaries advised that the current service cost for
the year ended 31 st March, 2025 was ` 9,30,000.
On 28th February, 2025, the rules of the plan were amended with

m
retrospective effect. These amendments meant that the present value of

. co
defined benefit obligation was increased by ` 2,25,000 from that date.

em
During the year ended 31 st March, 2025, XYZ Ltd. was in negotiation with

a s
employees' representatives regarding redundancies. The negotiations were
l
g
completed shortly before the year and the redundancy packages were
a
agreed. The impact of these redundancies was to reduce the present value
of the defined benefit obligation by ` 12,00,000. Before 31st March, 2025,
XYZ Ltd. made payments of ` 11,25,000 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. On
31st March, 2025, the actuaries advised that the present value of the defined
benefit obligation was ` 1,02,00,000. On the same day, the fair value of

m
the assets of the defined benefit plan were ` 84,00,000.

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You are required to suggest the accounting treatment of the above under

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the provisions of relevant Ind AS. Please note that the finance cost is to be

em la
computed on the opening balance. (8 Marks)

las a g
ag

PS: Read ‘annual market yield on high quality corporate bonds’ as ‘market yields on
government bonds’.

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FINAL EXAMINATION: SEPTEMBER 2025

(b) On 31 st March, 2024, Vanshika Ltd. granted options to its employees that
gave them right to subscribe for equity shares in next 3 years at ` 112 per
share. It also issued 2 lakhs warrants convertible into shares at ` 84.
As on 31 st March, 2025:

Options outstanding 1,40,000
Profit after Tax, attributable to equity shareholders ` 91,20,000
Average market price of equity shares ` 140
Issued Equity share capital (Face value ` 10 each) ` 50,00,000
There were no grants, exercises or lapses of options during the year. Also,
none of the warrants was converted into shares during the year.
You are required to calculate Basic and Diluted EPS as at 31 st March, 2025.
(6 Marks)
Answer
(a) On 31st March 2025, XYZ Ltd. will report a net pension liability in the Balance
sheet. The amount of the liability will be ` 18,00,000 (` 1,02,00,000 –
` 84,00,000).
For the year ended 31 st March 2025, XYZ Ltd. will report the current service
cost as an operating cost in the statement of profit and loss. The amount
reported will be ` 9,30,000. The same treatment applies to the past service
cost of ` 2,25,000.
For the year ended 31 st March 2025, XYZ Ltd. will report a finance cost in
profit or loss based on the net pension liability at the start of the year of
` 12,00,000 (` 90,00,000 – ` 78,00,000). The amount of the finance cost will
be ` 72,000 (` 12,00,000 x 6%).
The redundancy programme represents the partial settlement of the
curtailment of a defined benefit obligation. The gain on settlement of
` 75,000 (` 12,00,000 – ` 11,25,000) will be reported in the statement of
profit and loss.
Other movements in the net pension liability will be reported as
remeasurement gains or losses in other comprehensive income.

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FINANCIAL REPORTING

For the year ended 31 st March 2025, the remeasurement loss will be
` 4,98,000 (Refer W. N.).

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Working Note:
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.co em
Remeasurement of gain or loss

em l a s
s g
`

g a
lCurrent service cost
Liability at the start of the year ( ` 90,00,000 – ` 78,00,000) 12,00,000
a
a 9,30,000
Past service cost 2,25,000
Net finance cost 72,000
Gain on settlement (75,000)
Contributions to plan (10,50,000)
Remeasurement loss (balancing figure) 4,98,000

om
Liability at the end of the year ( ` 1,02,00,000 – ` 84,00,000) 18,00,000

. c
em
In the Statement of Profit and loss, the following will be recognised:

l a s `
Current service cost
a g 9,30,000
Finance Cost (Net interest) on net defined liability
[(` 90,00,000 – ` 78,00,000) x 6%] 72,000
Past Service Cost 2,25,000
Gain on Settlement (75,000)
Defined benefit re-measurements recognised in Other

m
Comprehensive Income:

c. o
`

m
c. o
Loss on defined benefit obligation (4,98,000)
In the Balance sheet, the following will be recognised: m
s e
em Defined benefit liability (` 1,02,00,000 – ` 84,00,000) la
`

las a g 18,00,000

ag Note:
Alternatively, one may work out remeasurement gain/loss by making
statement or ledger account of defined benefit obligation and plan assets
as follows:

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FINAL EXAMINATION: SEPTEMBER 2025

Statement to Calculate Actuarial Gain or Loss on Defined Benefit
Liability and Plan Assets
Plan Defined Benefit
Assets obligation
` `
Fair Value/Present Value as on
1st April, 2024 78,00,000 90,00,000
Interest @ 6% 4,68,000 5,40,000
Current Service Cost 9,30,000
Past Service Cost 2,25,000
Redundancy benefit (11,25,000) (12,00,000)
Contribution received 10,50,000
Contribution paid (6,30,000) (6,30,000)
Return on Plan Assets (Balancing
Figure) 8,37,000
Actuarial loss (Balancing Figure) 13,35,000
st
Closing Balance as on 31 March, 2025 84,00,000 1,02,00,000

(b) Calculation of Basic Earnings Per Share (EPS)

2024-2025
Profit after tax ` 91,20,000
Number of shares (` 50,00,000 / ` 10 per share) 5,00,000
Basic EPS ` 18.24

Calculation of Diluted EPS

(i) Adjusted number of shares
a. Number of shares under options:
Issued at full market price
[(1,40,000 × 112) /140] = 1,12,000
Options issued at nil consideration (dilutive) 28,000
(1,40,000 – 1,12,000)

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FINANCIAL REPORTING

b. Number of shares under warrants:
Issued at full market price
m
m c. o
[(2,00,000 × 84) / 140] = 1,20,000

c. o (2,00,000 – 1,20,000) em
Warrants issued at nil consideration (dilutive)

m
e Number of dilutive shares under options and
80,000
l a s
a s
l warrants
1,08,000
ag
g
a (ii) Calculation of Diluted EPS:
Number of equity shares for basic EPS 5,00,000
Number of dilutive shares under options and 1,08,000
warrants
Adjusted number of shares (A) 6,08,000
Profit after tax (B) ` 91,20,000

m
c. o
Diluted EPS (B/A) ` 15

em
Question 4

l a s
g
(a) R Limited commenced the construction of a factory building on

a
1st January, 2023. The construction process is expected to take about
18 months from 1 st January, 2023 to 30 th June, 2024. The factory building
meets the definition of a qualifying asset. R Limited has incurred the
following expenditure for the construction:

Date Amount (` in lakhs)
1st January, 2023 10
30th June, 2023 40

o m
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st
31 March, 2024 30

c. o m
elakhs from a
th
30 June, 2024 20

em s
a proceeds from
lThe
s g
st
On 1 July, 2023, R Limited obtained a term loan of ` 100

la a which it uses to
nationalized bank at an interest rate of 12% per annum.

ag the loan form a part of the company's general borrowings,
finance the construction of the factory building. R Limited had no borrowings
(general or specific) before 1 st July, 2023 and did not incur any borrowing
costs before that date. R Limited incurred ` 50 lakhs of construction costs

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FINAL EXAMINATION: SEPTEMBER 2025

before obtaining general borrowings on 1 st July, 2023 and ` 50 lakhs after
obtaining the general borrowings.
You are required to calculate the borrowing costs that R Limited is permitted
to capitalize as a part of the building cost for each of the financial years
ended 31st March, 2023, 31 st March, 2024 and 31 st March, 2025. (6 Marks)
(b) Drape Ltd. took a long-term loan of USD 30,000 from an entity registered in
U.S.A. on 1st April, 2024. Interest of USD 2,400 is payable annually on
31st March, starting from 31 st March, 2025. The loan is repayable in USD on
31st March, 2030 and the effective annual interest rate implicit in the loan is
11%. The appropriate measurement basis for this loan is amortised cost.
Relevant exchange rates are as follows:
- 1st April, 2024-USD 1 = ` 74.
- 31st March, 2025-USD 1 = ` 78.
- Average rate for the year ended 31 st March, 2025 - USD 1 = ` 72.
The functional currency of the group is Indian Rupee.
Calculate (a) the initial measurement amount for the loan, (b) finance cost
for the year 2024-2025, (c) closing balance of loan as at 31 st March 2025 and
(d) exchange gain / loss for the year 2024-2025. (8 Marks)
Answer
(a) All figures are ` in lakhs.
Calculation of borrowing cost for financial year 2022-2023

Expenditure Capitalization Weighted average
Period Accumulated
(current year) Expenditure
Date Amount
1st January 2023 ` 10 Lakhs 0/3 Nil

Borrowing Costs eligible for capitalisation for financial year 2022-2023 =
NIL. R Ltd. cannot capitalise borrowing costs before 1 st July 2023 (the day
it starts to incur borrowing costs).

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FINANCIAL REPORTING

Calculation of borrowing cost for financial year 2023-2024

m
Date Expenditure Capitalization Weighted average

c. o
amount period (current accumulated
m
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year) expenditure

m . s e
a
1st January 2023 ` 10 Lakhs 9/12 7.50

s e l
a ag
30th June 2023 ` 40 Lakhs 9/12 30.00

g l Total
st
31 March 2024 ` 30 Lakhs 0/12 Nil
a 37.50
Borrowing Costs eligible for capitalisation for financial year 2023-2024
= 37.50 x 12% = ` 4.50 Lakh
Cost of the Qualifying asset till date i.e. 31st March 2024
= ` 10 Lakhs + ` 40 Lakhs + ` 30 Lakhs + ` 4.50 Lakhs = ` 84.50 Lakhs

m
Calculation of borrowing cost for financial year 2024-2025

. co
em
Expenditure Capitalization Weighted average

s
Period Accumulated

g l a (current year) Expenditure
Date
1st January, 2023
aAmount
` 10 Lakhs 3/12 ` 2.5 Lakhs
30th June, 2023 ` 40 Lakhs 3/12 ` 10 Lakhs
st
31 March, 2024 ` 30 Lakhs 3/12 ` 7.5 Lakhs
st
31 March, 2024 ` 4.50 Lakhs 3/12 1.125 Lakhs
th
30 June, 2024 ` 20 Lakhs 0/12 NIL
Total ` 21.125 Lakhs

o m
c
Borrowing costs eligible for capitalisation = ` 21.125 lakh x 12%
m .
c. o = ` 2.535 lakh

s em
s em Note:
g la cost to be
gla a
Alternatively, one may present the calculation of borrowing

a capitalised for the financial year 2024-2025 as follows:
Cost as on 1 st April 2024 = [(` 84.50 Lakhs x 3/12) + (` 20 Lakhs x 0/12)]
= 21.125 Lakhs

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FINAL EXAMINATION: SEPTEMBER 2025

(b) (i) Initial carrying amount of loan in books

Loan amount received = USD 30,000

Present value of loan

Cash flow of interest USD 30,000 x 8% = 2,400 for 6 years.

PV of cash flow of interest USD 2,400 x 4.2305 = 10,153.20

PV of Repayment of loan USD 30,000 x 0.5346 = 16,038.00

Total 26,191.20

When effective interest rate is different from the contractual rate, it
results into transaction cost due to which the initial present value of
the loan is different from the transaction price. Accordingly, here
difference of USD 3,808.80 (USD 30,000 – USD 26,191.20) will be
recorded as transaction cost.

As per Ind AS 21, foreign currency transactions are initially recorded
at the rate of exchange in force when the transaction was first
recognized.

Loan to be converted in Rupees (`) = USD 26,191.20 x ` 74/
USD = ` 19,38,149

Therefore, the loan would initially be recorded at ` 19,38,149.

(ii) Calculation of Finance Cost for the year 2024-2025

The finance cost = USD 26,191.20 x 11% = USD 2,881

The finance cost would be recorded at an average rate for the period
since it accrues over a period of time. Hence, the finance cost for
financial year 2024-2025 in Rupees (`) is ` 2,07,432 (USD 2,881 x
` 72/USD)

The actual payment of interest would be recorded at USD 2,400 x
` 78/ USD = ` 1,87,200

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FINANCIAL REPORTING

(iii) Calculation of closing balance of loan as at 31st March 2025

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Period Opening Interest Cash Closing

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Financial @ 11% outflow balance

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Liability EIR (USD) (USD) of loan

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s e
s e l a
a ag
A B C A+B-C

l 2024-2025
ag (iv) Computation of Exchange Gain/Loss for the year 2024 -2025
26,191.20 2,881 2,400 26,672.20

The loan balance is a monetary item, so it is translated at the rate of
exchange at the reporting date.
So, the closing loan balance in Rupees (`) is USD 26,672.20 x ` 78/USD

= ` 20,80,432

m
c. o
In this case, the exchange difference is ` [20,80,432 - (19,38,149 +

em is taken to profit and loss account.
2,07,432 – 1,87,200)] = ` 1,22,051.

la s
This exchange loss of ` 1,22,051
Note:
a g
Effective interest rate is more than the contractual rate of interest in
general when an entity incurs any transaction cost or repayment of loan
is not at par value. Since in the question, there is no transaction cost or
no repayment information different from par value, effective interest rate
should have been equivalent to contractual interest rate.
The above solution has been drawn considering Effective Interest Rate of
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11%, leading to calculation of initial recognition of loan amount on the
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c. o m
date of acquisition of loan and difference being treated as transaction

em
cost.

la se
las However, alternatively one may draw the solution considering Effective
a g
ag Interest Rate of 11% (as given) only for calculation of finance cost without
change in the initial recognition of loan amount on the date of acquisition
of loan or considering interest rate of 8%.

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FINAL EXAMINATION: SEPTEMBER 2025

In both the case the solutions will be drawn as follows:

Alternative: Considering Effective Interest Rate of 11% (as given) only
for calculation of finance cost without change in the initial
recognition of loan amount on the date of acquisition of loan
(i) Initial carrying amount of loan in books
Loan amount received = USD 30,000
As per Ind AS 21, foreign currency transactions are initially recorded at
the rate of exchange in force when the transaction was first recognized.
Loan to be converted in Rupees (`) = USD 30,000 x ` 74 / USD
= ` 22,20,000
Therefore, the loan would initially be recorded at ` 22,20,000.
(ii) Calculation of Finance Cost for the year 2024-2025
The finance cost = USD 30,000 x 11% = USD 3,300
The finance cost would be recorded at an average rate for the period
since it accrues over a period of time. Hence, the finance cost for
financial year 2024-2025 in Rupees (`) is ` 2,37,600 (USD 3,300 x ` 72
/ USD)
The actual payment of interest would be recorded at USD 2,400 x ` 78/
USD = ` 1,87,200
(iii) Calculation of closing balance of loan as at 31st March, 2025

Period Opening Interest Cash Closing
Financial @ 11% outflow balance of
Liability EIR (USD) loan (USD)
(USD) (USD)
A B C A+B-C
2024-2025 30,000 3,300 2,400 30,900

(iv) Computation of Exchange Gain/Loss for the year 2024 -2025
The loan balance is a monetary item, so it is translated at the rate of
exchange at the reporting date.

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FINANCIAL REPORTING

So, the closing loan balance in Rupees (`) is USD 30,900 x ` 78 / USD
= ` 24,10,200

m
c. o
In this case, the exchange difference is ` [24,10,200 - (22,20,000 +
m
co m
2,37,600 – 1,87,200)] = ` 1,39,800

m . s e
e a
This exchange loss of ` 1,39,800 is taken to profit and loss account.

s l
a
l(i) Initial carrying amount of loan in books ag
Alternative: Considering Interest rate of 8% (as computed)

ag
Loan amount received = USD 30,000
As per Ind AS 21, foreign currency transactions are initially recorded
at the rate of exchange in force when the transaction was first
recognized.
Loan to be converted in Rupees (`) = USD 30,000 x ` 74 USD

m
= ` 22,20,000

c. o
Therefore, the loan would initially be recorded at ` 22,20,000.
(ii) Calculation of Finance Costm
s e for the year 2024-2025
The finance cost = USD a
l
ag be recorded at an average rate for the period
2,400 as given in the question
The finance cost would
since it accrues over a period of time. Hence, the finance cost for
financial year 2024-2025 in Rupees (`) is ` 1,72,800 (USD 2,400 x ` 72/
USD)
The actual payment of interest would be recorded at USD 2,400 x
` 78/ USD = ` 1,87,200

m
(iii) Calculation of closing balance of loan as at 31st March, 2025

m . c o
c. o
Period Opening Interest Interest Closing
m
e (USD)
s
Financial @ 8% paid Financial

s em gla
Liability (USD) (USD) Liability

la a
A B A+B-C

ag 2024-2025 30,000 2,400 2,400 30,000

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FINAL EXAMINATION: SEPTEMBER 2025

(iv) Computation of Exchange Gain/Loss for the year 2024 -2025
The loan balance is a monetary item, so it is translated at the rate of
exchange at the reporting date.
So, the closing loan balance in Rupees (`) is USD 30,000 x ` 78/USD =
` 23,40,000
In this case, the exchange difference is ` [23,40,000 – (22,20,000 +
1,72,800-1,87,200)] = ` 1,34,400
This exchange loss of ` 1,34,400 is taken to profit and loss.
Question 5
(a) On 1st April, 2023, Shivank Limited entered into a contract with Amey Limited
to build an asset for consideration of ` 1,20,00,000 with a bonus of
` 35,00,000 if the asset is completed within 30 months. At the inception of
the contract, Shivank Limited correctly accounted for the promised bundle of
goods and services as a single performance obligation in accordance with
Ind AS 115 and expected the costs to be ` 71,00,000. At the same time, it
was concluded that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will occur. Completion of the asset
was highly susceptible to factors outside of the Company's influence, mainly
due to difficulties with the supply of components.
At 31 st March, 2024, Shivank Limited had satisfied 60% of its performance
obligation on the basis of costs incurred to date and concluded that the
variable consideration was still constrained in accordance with Ind AS 115.
However, on 30 th April, 2024, the contract was modified with the result that
the fixed consideration and expected costs increased by ` 15,50,000 and
` 7,60,000 respectively. The time allowable for achieving the bonus was
extended by four months with the result that Shivank Limited concluded that
it is highly probable that the bonus will be achieved and that the contract
remained a single performance obligation.
You are required to give your opinion on the accounting treatment of
contract for the years 2023-2024 and 2024-2025 with reference to the
provisions of Ind AS 115. (5 Marks)
(b) Bee Kay Limited has voluntarily opted to adopt Indian Accounting Standards
(Ind AS) from 1 st April, 2025 in accordance with the Companies (Indian
Accounting Standards) Rules, 2015.

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The management has identified the following issues and has sought your
guidance so that the Opening Ind AS Balance Sheet as on the date of

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transition can be prepared:

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(i) Property, Plant and Equipment (PPE) comprise land held for capital

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appreciation purposes costing ` 15,00,000 and qualifies to be treated as
s e
s eInvestment Property as per Ind AS. Besides Exchange differences of
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` 1,50,000 were capitalized to depreciable PPE on which accumulated

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depreciation of ` 37,500 was recognized. The management intends to
avail deemed cost exemption for using the previous GAAP carrying
values as deemed cost at the date of transition.
(ii) Bee Kay Limited had acquired 70% shares of X Private Limited a few
years ago thereby acquiring the control upon it at that time. It
recognized a goodwill of ` 1,25,000 as per the erstwhile Accounting
Standard by accounting the excess of consideration paid over the net
assets acquired at the date of acquisition. Fair value exercise was not

o m
c
done at the time of acquisition.

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e
(iii) Company had given a loan of ` 10,00,000 at an interest rate of 7% per

separately for this loan. a
annum to an entity six years
s ago. Transaction costs were incurred
l The loan is repayable in 10 equal instalments
over the period of tengyears along with accrued interest at the close of
a
each year. The fair value of the loan as on the date of transition is
` 5,00,000 against the carrying amount of ` 4,00,000. The management
says that it is a tedious task to compute the value of the loan by applying
the effective interest rate method and has expressed its reluctance in
doing so.
You are required to state necessary explanation for each of the items

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presented by the management of Bee Kay Limited in the form of notes, which

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may or may not require the adjustment on the date of transition. (5 Marks)

c. o (c) EITHER
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As per the statutory requirements, exceptional items are required to be

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disclosed whereas Ind AS requires separate disclosure of material items and
how these are to be presented in financial statements. Does that imply that
"exceptional" means "material"? How should these exceptional/material
items be presented in the financial statements? Give four examples of
exceptional items. (4 Marks)

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FINAL EXAMINATION: SEPTEMBER 2025

OR
Define Equity, Income and Expenses as per 'Conceptual Framework' to
Ind AS. How the information with respect to income and expenses helps the
users in understanding of the financial statements? (4 Marks)
Answer
(a) For the year 2023-2024
Shivank Limited accounts for the promised bundle of goods and services
as a single performance obligation satisfied over time in accordance with
Ind AS 115. At the inception of the contract, Shivank Limited expects the
following:
Transaction price – ` 1,20,00,000
Expected costs – (` 71,00,000)
Expected profit (40.83%) – ` 49,00,000
At contract inception, Shivank Limited excludes ` 35,00,000 bonus from the
transaction price because it has been concluded that it is highly probable
that a significant reversal in the amount of cumulative revenue recognised
will occur. Completion of the construction of asset is highly susceptible to
factors outside the entity’s influence.
By the end of the first year, the entity has satisfied 60% of its performance
obligation on the basis of costs incurred to date. Costs incurred to date
are therefore ` 42,60,000 and Shivank Limited reassesses the variable
consideration and concludes that the amount is still constrained. Therefore
at 31st March 2024, the following would be recognised:
Revenue (A) – ` 72,00,000 (` 1,20,00,000 x 60%)
Costs (B) – (` 42,60,000) (` 71,00,000 x 60%)
Gross profit (C) i.e.(A-B) – ` 29,40,000
For the year 2024-2025
On 30th April 2024, the contract was modified. As a result, the fixed
consideration and expected costs increase by ` 15,50,000 and ` 7,60,000,
respectively.

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FINANCIAL REPORTING

The total potential consideration after the modification is ` 1,70,50,000
[which is ` 1,35,50,000 (i.e. 1,20,00,000 + 15,50,000) fixed consideration +

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` 35,00,000 completion bonus]. In addition, the allowable time for

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achieving the bonus is extended by four months with the result that Shivank

.co
Limited concludes that it is highly probable that including the bonus in the
s em
em
transaction price will not result in a significant reversal in the amount of
l a
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cumulative revenue recognised in accordance with Ind AS 115. Therefore,

ag Shivank Limited also concludes that the contract remains a single
the bonus of ` 35,00,000 can be included in the transaction price.

performance obligation. Thus, Shivank Limited accounts for the contract
modification as if it were part of the original contract. Therefore, Shivank
Limited updates its estimates of costs and revenue as follows:
Shivank Limited has satisfied 54.20% of its performance obligation
(` 42,60,000 actual costs incurred compared to ` 78,60,000 total expected
costs). The entity recognises additional revenue of ` 20,41,100 [(54.20% of
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` 1,70,50,000) – ` 72,00,000 revenue recognised to date] at the date of

m Since the land held for capital
modification i.e. on 30 th April 2024 as a cumulative catch-up adjustment.

s e
appreciation purposes aqualifies as investment property, such
(b) (i) Property, Plant & Equipment:

investment property g
l
a should be reclassified from property, plant and
equipment (PPE) to investment property and presented separately. As
the Company has adopted the previous GAAP carrying values as
deemed cost, all items of PPE and investment property should be
carried at its previous GAAP carrying values of ` 15,00,000. As such,
the past capitalised exchange differences require no adjustment in this
case.

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(ii) Goodwill: Ind AS 103 mandatorily requires measuring the assets and

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liabilities of the acquiree at its fair value as on the date of acquisition.

c. o se
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However, a first-time adopter may elect not to apply the provisions of

em la
Ind AS 103 with retrospective effect that occurred prior to the date of

las transition to Ind AS. Hence, company can continue to carry the
a g
g
goodwill in its books of account as per the previous GAAP.

a (iii) Loan: Para B8C of Ind AS 101 states that if it is impracticable (as
defined in Ind AS 8) for an entity to apply retrospectively the effective
interest method in Ind AS 109, the fair value of the financial asset or

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FINAL EXAMINATION: SEPTEMBER 2025

the financial liability at the date of transition to Ind AS shall be the new
gross carrying amount of that financial asset or the new amortised cost
of that financial liability at the date of transition to Ind AS. Accordingly,
` 5,00,000 would be the gross carrying amount of loan and difference
of ` 1,00,000 (` 5,00,000 – ` 4,00,000) would be adjusted to retained
earnings.
(c) EITHER
Exceptional items is neither defined in Division II Schedule III nor in Ind AS.
However, paragraph 85, 86, 97 and 98 of Ind AS 1 has reference to such
items.
Para 85 of Ind AS 1 states that additional line items, headings and subtotals
in the statement of profit and loss shall be presented, when such
presentation is relevant to an understanding of the entity’s financial
performance.
Further, para 86 of Ind AS 1 states that disclosing the components of
financial performance assists users in understanding the financial
performance achieved and in making projections of future financial
performance. An entity considers factors including materiality and the
nature and function of the items of income and expense.
Para 97 of Ind AS 1 states that when items of income or expense are
material, an entity shall disclose their nature and amount separately.
As per Ind AS 1, materiality depends on the size and nature of the omission
or misstatement judged in the surrounding circumstances. The size or
nature of the item, or a combination of both, could be the determining
factor.
The format of Statement of Profit and Loss requires determination of
profit(loss) before exceptional items and tax and thereafter exceptional
items are required to be shown.
Hence, all material items are not exceptional items. In other words,
exceptional items are those items which meet the test of ‘materiality’ (size
and nature) and the test of ‘incidence’.
Generally, items of income or expense fulfilling the above-mentioned
criteria are classified as exceptional items and are disclosed separately.

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Para 98 of Ind AS states that circumstances that would give rise to the
separate disclosure of items of income and expense includes:

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(a) write-downs of inventories to net realisable value or of property, plant
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and equipment to recoverable amount, as well as reversals of such

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write-downs;
s e
(b) erestructurings of the activities of an entity and reversals of any
s g l a
g l a provisions for the costs of restructuring;
a
a (c) disposals of items of property, plant and equipment;
(d) disposals of investments;
(e) discontinued operations;
(f) litigation settlements; and
(g) other reversals of provisions

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Note: Students may answer any of the four examples out of the seven

. co
examples stated above or can provide any other valid example not

em
covered in the above list.

l a s OR
g
(c)
Definition of Equity a
Equity claims are claims on the residual interest in the assets of the entity
after deducting all its liabilities. In other words, they are claims against the
entity that do not meet the definition of a liability.
Definition of Income
Income is increases in assets, or decreases in liabilities, that result in

m
increases in equity, other than those relating to contributions from holders

m
of equity claims.
.c o
c. o Definition of Expenses
s
m
ethat result in
s em g la to holders of
Expenses are decreases in assets, or increases in liabilities,

gla a of equity claims are
decreases in equity, other than those relating to distributions

a equity claims. However, contributions from holders
not income, and distributions to holders of equity claims are not expenses.
How information with respect to income and expenses helps the users in
understanding the financial statements?
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FINAL EXAMINATION: SEPTEMBER 2025

Income and expenses are the elements of financial statements that relate
to an entity’s financial performance. Users of financial statements need
information about both an entity’s financial position and its financial
performance. Hence, although income and expenses are defined in terms
of changes in assets and liabilities, information about income and expenses
is just as important as information about assets and liabilities.
Providing information separately about income and expenses with different
characteristics can help users of financial statements to understand the
entity’s financial performance.
Question 6
(a) Which specific Computer Technology can be used in under-mentioned
scenarios to reduce burden and streamline the process? Give reasons in
support of your answer.
(i) Koyal Ltd. has 8 subsidiaries including 2 foreign subsidiaries and 2
foreign associate companies, each maintaining their own financial data
independently. Koyal Ltd. prepares consolidated financial statements in
accordance with Ind AS 110 every year. This whole process needs to be
accurate, consistent and completed in time, but Koyal Ltd. is struggling
for the same.
(ii) Doham Ltd. is a financial institution which deals with high-profile people
and Mr. Salil, who works for Doham Ltd. handles sensitive customer data,
such as personal information and transaction records. He is under stress
all the time and needs support. (5 Marks)
(b) Nancy Ltd. owns various machines including a machine used in the
manufacture of air conditioners. The performance of this machine
deteriorated significantly in last few months. This machine is expected to
work for next five years after 31 st March, 2025 at a reduced level and after
that it will be scrapped. The cash flow projections for the machine for the
next five years are as follows:

Year 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030
Amount in ` 24,70,000 18,60,000 16,30,000 10,10,000 8,50,000

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Additional Information
(i) The above cash inflows should be assumed to occur on the last day of
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each financial year.
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(ii) The pre-tax discount rate is 10%. Present value factor of ` 1 at 10% is as

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e 2025-2026 2026-2027 2027-2028 2028-2029 2029-2030 g
under:
l a s
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a (iii) The machine could have been sold at 31 March, 2025 for ` 60,00,000
0.909 0.826 0.751 0.683 0.621
st

and related selling expenses in this regard could have been ` 11,50,000.
(iv) The machine had been revalued previously, and at 31 st March, 2025 an
amount of ` 3,80,000 was held in revaluation surplus in respect of this
machine.
(v) The carrying value of the machine at 31 st March, 2025 was ` 68,20,000.
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You are required to calculate impairment loss for the year 2024-2025, if any

em
and revised depreciation of the machine for subsequent years. The machine
is depreciated on SLM basis.
l a s (5 Marks)

a g
(c) While preparing the financial statements for the year ended 31 st March, 2025,
Gama Ltd. observed two issues in the previous year Ind AS financial
statements (i.e. 31 st March, 2024) which are as follows:
Issue 1:
The company had presented certain material liabilities as non-current in its
financial statements as on 31 st March, 2024. While preparing annual
financial statements for the year ended 31 st March, 2025, management

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discovers that these liabilities should have been classified as current. The

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management intends to restate the comparative amounts for the prior period

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i.e. as at 31 st March, 2024.

em
Issue 2:
la se
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g
The company had charged off certain expenses as finance costs in the year

a ended 31 st March, 2024. While preparing annual financial statements for the
year ended 31 st March, 2025, it discovered that these expenses should have
been classified as other expenses instead of finance costs. The error occurred
because the management inadvertently misinterpreted certain facts. The

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FINAL EXAMINATION: SEPTEMBER 2025

entity intends to restate the comparative amounts for the prior period in
which the error occurred i.e. year ended 31 st March, 2024.
You are required to analyze the above issues and give your recommendation
as to their treatment in preparation of the financial statements for the
financial year 2024-2025. (4 Marks)
Answer
(a) (i) In the given scenario, to streamline its financial reporting processes,
Koyal Ltd. should leverage Robotic Process Automation (RPA) to
automate the process of extracting financial data from the subsidiary
systems and consolidating it into the parent company's financial
system.
The bots retrieve the relevant financial information, perform necessary
currency conversions, and reconcile intercompany transactions,
ensuring accurate and timely consolidation.
RPA bots are programmed to identify intercompany transactions within
the consolidated financial data. The bots automatically eliminate these
transactions by adjusting the corresponding accounts and generating
elimination entries, simplifying the process and reducing the potential
for errors.
The bots retrieve the consolidated financial data from the parent
company's financial system and apply the necessary consolidation
adjustments. They perform calculations for non-controlling interests,
equity, and comprehensive income attributable to the parent and non-
controlling interests.
The bots generate the consolidated balance sheet, income statement,
statement of changes in equity, and cash flow statement, ensuring
accuracy and consistency in the financial reporting process.
(ii) In the given scenario, to streamline its financial reporting processes
and to handle sensitive customer data, an entity should utilize
blockchain technology. Doham Ltd., being a financial institution, can
implement a secure and encrypted blockchain network to store and
share customer data. The finance professional can ensure the integrity
and security of the data by leveraging blockchain's cryptographic

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algorithms and consensus mechanisms. This eliminates the risk of
unauthorized access, data tampering, or data loss.

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With blockchain, the finance professional can confidently handle
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customer data, knowing that it is protected by a robust and transparent

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system, enhancing data privacy, and maintaining the trust of customers
s e
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and regulatory bodies.
l a
g l a
(b) Calculation of Value in Use
ag
a Year ended Cash flow (`) Discount factor @ 9% Amount (`)
31st March, 2026 24,70,000 0.909 22,45,230
31st March, 2027 18,60,000 0.826 15,36,360
31 March, 2028
st
16,30,000 0.751 12,24,130
31 March, 2029
st
10,10,000 0.683 6,89,830
31st March, 2030 8,50,000 0.621 5,27,850

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Total (Value in Use) 62,23,400

em
Calculation of Recoverable Amount

Particulars
la s Amount

Value in use a g (`)
62,23,400
Fair value less costs of disposal (60,00,000 – 11,50,000) 48,50,000
Recoverable amount (Higher of value in use and fair value
less costs of disposal) 62,23,400

Calculation of Impairment Loss

m
Particulars Amount (`)

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Carrying amount 68,20,000

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se 5,96,600
Less: Recoverable amount (Revised carrying amount) (62,23,400)

s em Impairment loss
g la
gla a
a
Set off of Impairment Loss:
The impairment loss of ` 5,96,600 must first be set off against any
revaluation surplus in relation to the same asset. Therefore, the revaluation
surplus of ` 3,80,000 is eliminated against impairment loss, and the

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FINAL EXAMINATION: SEPTEMBER 2025

remainder of the impairment loss ` 2,16,600 (` 5,96,600 – ` 3,80,000) is
charged to profit and loss.
Calculation of Revised Carrying Amount

Particulars Amount (`)
Carrying amount 68,20,000
Less: Impairment loss (5,96,600)
Revised carrying amount 62,23,400

Calculation of Revised Depreciation:
(Revised carrying amount – Residual value)/Remaining life
Revised Depreciation = (62,23,400 - 0)/5 = ` 12,44,680 per annum
(c) As per paragraph 41 of Ind AS 8, errors can arise in respect of the
recognition, measurement, presentation or disclosure of elements of
financial statements. Financial statements do not comply with Ind AS if
they contain either material errors or immaterial errors made intentionally
to achieve a particular presentation of an entity’s financial position,
financial performance or cash flows.
Issue 1
In accordance with the guidance provided above, the reclassification of
liabilities from non-current to current would be considered as correction
of an error under Ind AS 8. Accordingly, in the financial statements for
the year ended 31 st March 2025, the comparative amounts as at 31 st March
2024 would be restated to reflect the correct classification.
Issue 2
The reclassification of expenses from finance costs to other expenses would
be considered as correction of an error under Ind AS 8. Accordingly, in the
financial statements for the year ended 31 st March 2025, the comparative
amounts for the year ended 31 st March 2024 would be restated to reflect
the correct classification.
In the given case, the retrospective restatement of relevant items in
statement of profit and loss has no effect on the information in the balance
sheet at the beginning of the preceding period (1 st April 2023). Therefore,
the entity is not required to present a third balance sheet.

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