CA-FINAL FINANCIAL REPO N Module-8: (As per Latest Amendments Made by ICAI & MCA) BY: CA.PARVEEN JINDAL B.COM (H), F.C.A, M.B.A.(FINANCE) ©.A. RANK HOLDER (DIPLOMA IN IFRS:ACCA LONDON) OF ACCOUNTING STANDARD BOARD OF ICAI 2004-05 & 2012-13 PUBLISHED BY: PARVEEN JINDAL’S CLASSES PVT. LTD. BRANCH OFFICE 238 U.G-F. GAGAN VIHAR 4/34, GROUND FLOOR, LALITA PARK, DELHI-110051 VIKAS MARG, BEHIND GURUDWARA, METRO PILLAR NO. 23, LAXMI NAGAR, DELHI - 92COPYRIGHT © 2023-24 by PARVEEN JINDAL This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired ‘out, or otherwise circulated without PARVEEN JINDAL'S prior written consent in any form of binding or cover other than that in which itis published and without a similar condition including this condition being imposed on the subsequent purchaser and without limiting the rights under copyright reserved above, No part ofthis publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means of electronic, mechanical and photocopying or otherwise, without the prior permission from the Author. PRICE:NOT FOR SALE (ONLY FOR PRIVATE CIRCULATION) PUBLISHED BY: PARVEEN JINDAL’S CLASSES PVT. LTD. BRANCH OFFICE ;} 1/34, GROUND FLOOR, LALITA PARK, VIKAS MARG, BEHIND GURUDWARA, METRO PILLAR NO. 23, LAXMI NAGAR, DELHI - 92Dedicated to BABA VISHAN PURI JI MAHARAJ BABA LAKSHMAN PURI JI MAHARAJCONTENTS : MODULE VIII ESE MODULE | IND AS 2 - INVENTORIES IND AS 16 - PROPERTY PLANT AND EQUIPMENT IND AS 23 - BORROWING COSTS. IND AS 36 - IMPAIRMENT OF ASSETS IND AS 38 - INTANGIBLE ASSETS IND AS 40 - INVESTMENT PROPERTY IND AS 105 - NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS IND AS 116 - LEASES IND AS 19 - EMPLOYEE BENEFITS IND AS 37 - PROVISIONS CONTINGENT LIABILITIES AND CONTINGENT ASSETS MODULE II IND AS 21 - THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES IND AS 12 - INCOME TAXES IND AS 24 - RELATED PARTY DISCLOSURES IND AS 33 - EARNINGS PER SHARE IND AS 108 - OPERATING SEGMENTS IND AS 20 - ACCOUNTING FOR GOVERNMENT GRANTS: AND DISCLOSURE OF GOVERNMENT ASSISTANCE IND AS 41 - AGRICULTURE IND AS 102 - SHARE BASED PAYMENT 19. ACCOUNTING AND REPORTING OF FINANCIAL INSTRUMENTS = 53- 54MODULE IV 20. IND AS 115 - REVENUE FROM CONTRACT WITH THE CUSTOMERS $55 - 58 MODULE V IND AS 103 - BUSINESS COMBINATION AND CORPORATE RESTRUCTURING 59-60 IND AS 110 - CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (It includes Ind AS 110, Ind AS 111, Ind AS 27, Ind AS 28 & Ind AS 112) 61-62 MODULE VI IND AS 1 - PRESENTATION OF FINANCIAL STATEMENTS 63-64 IND AS 34 - INTERIM FINANCIAL REPORTING 65-66 IND AS 7 - STATEMENT OF CASH FLOWS 67-70 IND AS 8 - ACCOUNTING POLICIES CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1-74 IND AS 10 - EVENTS AFTER THE REPORTING PERIOD 75-78 IND AS 113 - FAIR VALUE MEASUREMENT 79 - 80 MODULE VII IND AS 101 - FIRST-TIME ADOPTION OF IND AS 81-82 ANALYSIS OF FINANCIAL STATEMENTS 83 - 84 PROFESSIONAL AND ETHICAL DUTIES OF ACCOUNTANTS 85-86 INTRODUCTION TO GENERAL PURPOSE FINANCIAL STATEMENTS AS PER INDIAN ACCOUNTING STANDARD (IND AS) 87 -88 CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING UNDER INDIAN ACCOUNTING STANDARDS (IND AS) 89-92 CASE SCENARIO ASSESSMENT 93 - 112ACCOUNTING STANDARDS 2 @ 1 IND AS 2 - INVENTORIES 1. At the end of an accounting period, the cost of a company's inventory is % 4,50,000. This includes damaged items with a cost of = 25,000 which are expected to be sold for only % 10,000 (less selling expenses of 5%). All other items of inventory have a net realisable value which exceeds cost. As per Ind AS 2, the amount at which the company's inventory should be recognized at the end of the period is : (a) %4,25,000 (b) %4,50,000 (c) %4,34,500 (d) %4,35,000 2. ALtd, shipped inventory on consignment to B Ltd. How should the consigned inventory to be treated assuming the in inventory is unsold by B Ltd.? (a) To be measured as Inventory in A Ltd. book (b) To be measured as Inventory in B Ltd. book () To be recognized as revenue in A Ltd (d) To be recognized as liability in B Ltd. 3. Vanessa Private Ltd. has appointed you as an auditor for financial year 20X1-20X2. They are into trading of cake mix. The cake mix is bought in boxes. Whether these boxes will fall within the meaning of inventory, as per Ind AS 2, and how will they be valued? (a) Yes, Since, they are used in the process of production for sale. They will be valued at lower of cost or NRV. (6) ()_ No. They will not qualify as inventory and will be valued at lower of cost or NRV. No, They will not qualify as inventory and will be valued at NRV. (d) Yes. Since, they are used in the process of production for sale. They will be value at NRV. 4. Normal Annual Capacity of the Plant X is 1,000 Units. During the year ended 31* March 20X2, the company is able to produce only 700 units (due to sudden strike of union labour). During the current year, company have incurred % 21,000 of fixed overheads. Inventory Quantity as at 31.3.20X2 is 200 Units. Determine the amount of fixed overheads allocation that needs to be done on the inventory lying in hand as at 31.3.20X2 as per Ind AS 2? (a) %6,000 (b) % 10,0002 @ MULTIPLE CHOICE QUESTIONS (MCQs) () 4,200 (d) % 21,000 Which of the following inventory would be measured at lower of cost and net realisable value? (a) Sand (b) Barite (©) Plastic (d) Limestone XYZ Ltd. has been valuing inventory on a first-in-first-out basis but in line with methods used by industry peers, the company has decided to move to weighted average method. What is your advice with regard to the disclosure of the change under Ind AS? (a) Reasons for change in accounting policy must be disclosed and comparative information for prior period must be Restated, (b) Reasons for change must be disclosed, the amount of adjustments must be presented but comparative information for prior period must not be restated. (c) Reasons for change need not be disclosed, the amount of adjustments must be presented and comparative information for prior period must be restated (d) Reasons for change must be disclosed, the amount of adjustments must be presented and comparative information for prior period must be restated. W Limited, a company manufacturers and sells towels and bedsheets using cotton, yarn, dyes and chemicals. W Limited also sells cotton and inter-mediator product yarn occasionally in exceptional cases. Which of the following items are to be classified as inventories in books of accounts of W Limited : (a) Cotton, Yarn, Towel, Bedsheets, Dyes and Chemicals (b) Towel and Bedsheets only () Coton, Yarn, Dyes and Chemicals only (d) None of the above P Ltd. has a plant with the normal capacity to produce 5,00,000 units of a product per annum and the expected fixed overhead is € 15,00,000. However, actual production is 3,75,000 units. Amount of fixed overhead to be included in the cost of inventory would be (a) %15,00,000 (b) %11,25,000 (ce) %3,75,000 (d) NilACCOUNTING STANDARDS 2 ( y 9. VLtd. purchases cars from several countries and sells them to Asian countries. V Ltd incurred many expenses during the period on such cars from their purchase to sale. Which of the following cost is allowed for inclusion in the cost of inventory? (a) % 20,00,000 as Salaries of accounting department (b) € 15,00,000 of Sales commission paid to sales agents () €30,00,000 as after sales warranty costs (d) %10,00,000 as Insurance of purchases 10. Hari Limited is a manufacturer of Carton Boxes. The cost of the stock as on 31.12.20X1 was @ 50 per box. The accountant noted that the subsequent sale was made on 31.1.20X2 at @ 40 per box. The accountant also noted that there were subsequent expenses for some rectification on the entire physical stock that was available as at year end at the rate of % 15per box to saleable condition. The company seeks your opinion as to the amount of net realisable value and written down loss for the closing stock as per Ind AS 2. (a) % 25 and% 10 (b) % 25 and 25 (©) €40 and 15 (d) %50andz0 ANSEWRS : 1 © 2 [@ 3 |» 4 [oOo [5 |o [6 |[@ 7 |@ [8 |e) [9 |@ [10 [e)ACCOUNTING STANDARDS 16 @ 5 IND AS 16 - PROPERTY PLANT AND EQUIPMEN 1. When an asset is sold or disposed of, where is the gain or loss recognized? (a) Asset disposal account (b) Profit and loss (©) Revaluation reserve (d) Depreciation 2. Progress Ltd. chooses to revalue property under Ind AS 16. On 31% March 20X1, their head office building is valued at = 30 lakh when it is recorded in the financial statements at historical cost of % 25 lakh with % 4.5 lakh of accumulated depreciation charged against it. Which of the following statement is true regarding the accounting treatment of the property? (a) A revaluation gain of € 5 lakh should be recorded through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss (b) A revaluation gain of = 5 lakh should be recorded through profit or loss () A revaluation gain of ® 9.5 lakh should be recorded through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss (d) A revaluation gain of % 9.5 lakh should be recorded through other comprehensive income, grouped with other items that will subsequently be reclassified to profit or loss 3. If one large asset has a number of individual components with different useful lives, how should this be depreciated? (a) Treat as one asset and depreciate in accordance with highest useful life of the component (b) Break down into different components and depreciate every component separately as per the useful life of that component (©) Expense it all (d) Treat as one asset, but disclose only in the notes to the financial statements 4, When the revaluation model is used for PPE the gain on revaluation should be treated as (a) Income in the Statement of profit and loss for the period (b) Gain from revaluation in the income statement6 @ MULTIPLE CHOICE QUESTIONS (MCQs) (c) Arrevaluation surplus accounted in OCT (d) An extraordinary gain or loss in the income statement What it is that future economic benefits associated with an asset will flow to the entity, and the cost of the asset can be measured, it should be recognized as an asset. (a) Possible, reasonably (b) Possible, reliably (c) Probable, reliably (d) Probable, reasonably Which of these is an allowable cost of an asset for capitalisation under Ind AS 16? (a) Professional fees (b) General overheads (c) Initial operating losses (d) Administration expenses A Limited has stopped manufacturing operations in its plant for 3 months in the year ended 31:' March, 20X1. How should A limited account for depreciation relating to the 3 months in which plant was idle under Ind AS 16? (a) No depreciation should be charged for 3 months (b) Depreciation for 3 months in which plant was idle should be recognized in other comprehensive income (c) Depreciation for 3 months in which plant was idle should be recognized in retained earnings (d) Depreciation for 3 months in which plant was idle should be recognized in profit or loss India Turnings Limited has adopted revaluation model, as per Ind AS, since 1° April, 20X1 to measure its property, plant and equipment (PPE) and have revalued it as follows: (i) As on 1* April, 20X1 - PPE has been revalued up by € 3,00,000, (ii) As on 31 March, 20X2 - PPE has been revalued down by % 3.60.000. (iii) As on 315 March, 20X3 - PPE has been revalued up by % 5,00,000. How will the increase in year 20X2-20X3 be recognized in the financials of India Turnings Limited? (a) %5,00,000 is credited to other comprehensive income (b) % 60,000 is credited to profit and loss account and % 440,000 is credited to other comprehensive incomeACCOUNTING STANDARDS 16 GO 7 — (c) % 60,000 is credited to other comprehensive income and % 4,40,000 is credited to profit and loss account (d) %5,00,000 is credited to profit and loss account 9. Under Ind AS 16, how of ten should the useful life of an asset be reviewed? (a) At least at each financial year end (b) Every six months (c) At management's discretion (d) Never 10. Under Ind AS 16, which two subsequent accounting treatments are allowed subsequently to initial recognition? (2) Cost model and present value model (b) Cost model and revaluation model (c) Fair value model and revaluation model (d) Fair value model and cost model ANSEWRS = 1. ® 2 (Oo 3B © | [© 5 |O | |@ 7. @ |e |e [9 |[@ fio |eACCOUNTING STANDARDS 23 @ 9 IND AS 23 - BORROWING COSTS 1. Which of the following is not a qualifying asset? (a) Financial assets (b) Investment properties (c) Intangible plants (d) Bearer plants 2. Adit Labs are planning to expand their business and open two more branches in the vicinity of two new hospitals being built in the area. The enterprise is using funds from their general borrowings for this expansion project. The finance director of the company has briefly read about the capitalisation of the interest paid on the borrowings. He has sought your clarification on this matter if his entity can capitalise interest of 10% which is the highest interest rate of all the borrowings they have made during the year. Which of the following are correct about the capitalisation of interest on borrowings made by a company as per Ind AS 23 ‘Borrowing Costs’? (a) Finance director is right, and he can use 10% as capitalisation rate for calculating the eligible borrowing costs to be capitalised on the qualifying asset (b) Capitalisation rate should be weighted average of all the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset © Interest paid on general borrowing have to be calculated in accordance with ICDS (Income Computation and Disclosure Standards) which is also required for calculation of current tax and deferred tax (d Entity should use the lowest interest rate of all the borrowings outstanding during the period as capitalisation rate to calculate the eligible borrowing costs 3. The capitalisation rate is (2) The weighted average of the borrowing costs applicable to all the general borrowings of the entity that are outstanding during the period (b) The weighted average of the borrowing costs applicable to all the general and specific borrowings of the entity that are outstanding during the period (c)_ The weighted average of the borrowing costs applicable to all the specific borrowings of the entity that are outstanding during the period (d) The weighted average of the borrowing costs applicable to those general borrowings of the entity only that are used during the period for construction of that particular qualifying asset10 @ MULTIPLE CHOICE QUESTIONS (MCQs) 4. Indetermining the borrowing costs to be capitalised, the amount of expenditure on a qualifying asset include only those expenditures that have resulted in (a) Payments of cash (b) Transfers of other assets (c)_ The assumption of interest-bearing liabilities (d) All of the above 5. When will the specific borrowings be considered as general borrowings? (a) When substantially all the activities necessary to prepare the qualifying asset (for which specific borrowings was taken) for its intended use or sale are complete (b) When activities necessary to prepare the qualifying asset (for which specific borrowings was taken) for its intended use or sale have been started (c) When substantially all the activities necessary to prepare the qualifying asset (for which specific borrowings was taken) for its intended use or sale are near to complete (d) Specific borrowing are never considered as general borrowings inany circumstances 6. Borrowing costs do not include (a) Interest expense calculated using the effective interest rate method as described in Ind AS 109 Financial Instruments (b) Interest in respect of lease liabilities recognized in accordance with Ind AS 116, Leases (c) Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs (d) Interest expenses on own finance resources or interest notional expenses 7. Indetermining the borrowing costs to be capitalised, the amount of expenditure ona qualifying asset are not reduced by (a) Progress payments received (b) Grants received in connection with the asset () Income on temporary investment of specific borrowings (d) Both (a) and (b) 8. What will be the treatment of exchange difference resulting into unrealised gain while capitalising the borrowing cost on foreign currency borrowings taken for construction of a qualifying asset? (a) Tt would not be adjusted to interest even if there was an adjustment to interest in the previous year on account of unrealised exchange loss on settlement or translation of same borrowingsACCOUNTING STANDARDS 23 G 11 (b) It would be adjusted to interest to the extent of an adjustment to interest in the previous year on account of unrealised exchange loss on settlement or translation of same borrowings (c)_ It will be adjusted to interest irrespective of the fact that whether there was an adjustment to interest in the previous year on account of unrealised exchange loss (on settlement or translation of same borrowings) or not (d) It will be adjusted to interest fully only if there was an adjustment to interest in the previous year on account of unrealised exchange loss on settlement or translation of same borrowings 9. Incase of specific borrowings, the borrowing cost is capitalized - (a) To the extent the borrowings are utilised for construction of the qualifying asset (b) To the extent of the expenditure incurred on construction of the qualifying asset (c)_ On total amount of specific borrowings from commencement date less income on ‘temporary investment made out of such borrowings (d) Onhalf of the specific borrowing amount 10. Which of the following would be considered as borrowing cost to be capitalised? (a) Interest on working capital (b) Interest on borrowings used for manufacturing inventories in large quantities on a repetitive basis (c) Interest on borrowings utilised to acquire biological assets measured at fair value (d) Dividend paid on redeemable preference shares used to fund the development of a qualifying asset ANSEWRS : 1 @ 2 |® 3 [@ [4 |[@ [5 |@ [6 |@ 7 |© [8 |e) [9 | 10 [@ACCOUNTING STANDARDS 36 @ 13 IND AS 36 - IMPAIRMENT OF AS. ) is considered as recoverable amount when it is not possible to measure the fair value less costs of disposal for an asset. (a) Market value (b) Replacement value (©) Value in use (4) Carrying amount When an impairment loss occurs, the carrying amount of the asset should be reduced to its (@) Fair Value (b) Recoverable amount (c) Fair Value less cost to disposal (d) Value in use In measuring value in use, cash flow projections should be based on the budgets / forecasts covering a maximum period of unless a longer period can be justified. (a) Three years (b) Five years (c) Ten years (d) Life of asset which is subject to impairment assessment Recoverable amount of an asset or cash generating unit is (a) Higher of ‘Fair value less costs of disposal’ and ‘Value in use’ (b) Lower of net realisable value and cost (©) Higher of fair value and value in use (d) Higher of market value less costs of disposal and value in use Smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets is known as (a) Cash-generating unit (b) Branch (c) Department (d) Operating Segment14 @ MULTIPLE CHOICE QUESTIONS (MCQs) 6. Which of the following is not an internal indication of impairment? (a) Economic performance of the asset is worse than expected (b) Physical damage of the asset (c) Decline in market value (d) Asset is part of a plans to discontinue or restructure the operation 7. Which of the following is required to be tested for impairment annually irrespective of the presence of indications of impairment or not? (a) Intangible asset with an indefinite useful life (b) Intangible asset not yet available for use (c) Goodwill acquired in a business combination (d)_ All of the above 8. Which of the following is not covered by Ind AS 36, Impairment of Assets? (a) Deferred tax assets (b) Inventory (c) Financial assets (d)_ All of the above 9. Incase of estimation of cash flows for calculating value in use, future cash flows are estimated in the currency in which they will be generated and then discounted using a discount rate appropriate for that currency. An entity translates the present value using the at the date of the value in use calculation (a) Closing rate (b) Spot exchange rate () Average rate (d) Incremental borrowing rate 10. When a cash-generating unit has an impairment loss, the loss must be firstly applied to (a) Asset with obvious impairment (b) Goodwill (c) Other assets of CGU on a pro-rata basis (c) Based on management discretion ANSEWRS : 1 {2 |b) 3. fe) 4) Sf) (©) 7. (d)_ {8 qd) 9. (b)__|10. (b)ACCOUNTING STANDARDS 38 @ 15 IND AS 38 INGIBLE ASSETS AG Limited has purchased a computer with various additional software, These are integral part of the computer. Which of the following are true in the context of Ind AS 38? (a) Recognize Computer and software as tangible asset (b) Recognize tangible and intangible separately (c) Recognize computer and software as intangible asset (d) None of the above With respect to valuation of goodwill and recognition of the same on acquisition of another entity. Ind AS 38 ‘Intangibles assets’ establishes general principles for the recognition and measurement of intangible assets in the financial statements. The standard requires any entity to recognize the intangible assets in the financial statements if and only if i) it is probable that the future economic benefits which are attributable to the asset will flow to the enterprise; ii) the cost of the asset can be reliably measured Which of the following is NOT correct about the intangible assets? (a) The above recognition criteria are applicable to both the costs incurred to acquire intangible assets and those generated internally (b) Internally generated goodwill is prohibited to be recognized by the standard Only acquired goodwill can be recognized as an intangible asset in the financial statements (c) Incase of brands, mastheads, publishing titles, and similar intangible assets can be recognized both when generated internally as well as acquired separately (d) In case of research and development phase of an internally generated assets, standard permits capitalisation only in the development phase A newly set up dot-com entity has recently completed one of its highly publicized research and development projects. It seeks your advice on the accuracy of the following statements made by one of its stakeholders. State which one is true? (a) Costs incurred during the ‘research phase’ can be capitalized (b) Costs incurred during the ‘development phase’ can be capitalized if criteria such as technical feasibility of the project being established are met (c) Training costs of technicians used in research can be capitalized (d)_ Designing of jigs and tools qualify as research activities16 @ MULTIPLE CHOICE QUESTIONS (MCQs) 4. Which of the following items qualify as an intangible asset under Ind AS 38? (a) Advertising and promotion on the launch of a huge product (b) Operating losses during the initial stages of the project (c) College tuition fees paid to employees who decide to enrol in an executive M.B.A. program at Harvard University while working with the company (d) Legal costs paid to intellectual property lawyers to register a patent 5. Which of the following is not covered within the scope of Ind AS 38? (a) Intangible assets held-for-sale in the ordinary course of business (b) Assets arising from employee benefits (c) Non-current intangible assets held for sale (d) All of the above 6. AG Limited is developing a new production process. During 20X1-20X2, expenditure incurred was @ 11 lakhs of which ® 8 lakhs was incurred before 1** January, 20X2 and % 3 lakhs was incurred between January and March 20X2. The company is liable to demonstrate that on 1% January, 20X2, the production process met the criteria for recognition as an intangible asset. The recoverable amount of the know-how embodied in the process (including future cash outflows to complete the process before it is available for use) is estimated to be ® 2 lakhs as at 31% March, 20X2, What is the carrying value of intangible asset at the end of the year? (@) 11 lakhs (b) €8 lakhs (c) %2 lakhs (d) 3 lakhs 7. Anintangible asset with a finite useful life should be amortised over (a) Its expected useful life (b) A period determined by management (©) Five years (d) No foreseeable limit 8. Which of the following is required to be tested for impairment annually irrespective of the presence of indications of impairment or not? (a) Intangible asset with an indefinite useful life (b) Intangible asset not yet available for use () Goodwill acquired in a business combination (d) All of the aboveACCOUNTING STANDARDS 38 9. Amortisation of an intangible asset ceases (a) When the asset is derecognized (b) When the asset is withdrawn from use ()_ At the earlier when the asset is classified as held for sale or when the asset is derecognized (d) At the later of asset is classified as held for sale or derecognized 10. AG Ltd. acquired copyrights for % 7,50,000 on 1" April, 20X1. The Management assessed the copyright’s useful life at 25 years from the date of acquisition. The entity will consume the copyright's future economic benefits evenly over 25 years from the date of acquisition, The fair value of the copyright at 31% March, 20X3 is % 7,00,000. The entity shall measure the carrying amount of the copyright on 31" March, 20X3 at (2) %7,00,000 (b) % 6,90,000 (c) %7,20,000 (4) 7,50,000 ANSEWRS + 1 @ 2 jo B |» | |[@ [5 |@ [6 [oO 7 |@ [8 |i) [9 |tc) 10. |)ACCOUNTING STANDARDS 40 @ 19 pie eee Na eld a 1. Which of the following is an example of Investment Property? (a) Property held for sale in the ordinary course of sale or in the process of construction or development for such sale (b) Right of use asset related to property used for business purposes (c) Property leased to another entity for finance lease (d) Right of use asset related to building held by the entity and leased out under one or more operating leases 2. Which of the following characteristics distinguish investment property from owner- occupied property? (a) Property held for sale in the ordinary course of sale (b) Property held to earn rental or capital appreciation (c) Property classified as held for sale (d) Property held for use in the production or supply of goods or services or for administrative purposes 3. Which of the following is an example of investment property? (a) Land held for construction of factory (b) Building rented out to employees as staff quarters (c) Lawn rented out to third parties for events / private functions (d) Parking lot attached to land on which the Company's factory is constructed 4. At what value the reclassification or transfers between investment property and property, plant and equipment are made? @ Transfers are made at the carrying amount of the property transferred (b) Transfers are made at the fair value of the property transferred « (d) Transfers are made at the higher of fair value and carrying amount of the property transferred 5. On 1* April 20X1, ABC Limited purchased a new head office building for % 60 crore and on the same day leased out top 3 floors to its subsidiary on a long-term operating lease. The annual rent receivables was % 2 crore starting from 31° March 20X2. On 1" April 20X1, the Directors of the Company estimated that the initial cost of the building should be allocated - ¢ 15 million to the top 3 floors, remainder of the building & 20 million and land component % 25 million. On 31% March 20X2, the property had a fair value of % 64 million out of which 25% was attributable to the top 3 floors. Transfers are made at the revalued amount of the property transferred20 @ MULTIPLE CHOICE QUESTIONS (MCQs) The useful life of the building is 60 years. The carrying value of investment property in the separate / standalone financial statements of ABC Limited at 31% March 20X2 is: (a) %16 million (b) €15 million (©) 14.75 million (d) No investment property is recognized in the financial statements as the asset is leased out to a subsidiary AG Limited has purchased a commercial building and let out the same to one of its Subsidiaries. How it should be reflected in the consolidated financial statements? (a) Owner-occupied from the perspective of the group (b) Investment property measured at fair value (c) Investment property measured at cost (d) Eliminated as intercompany balance Which of the following is not considered as a transfer from or to investment property? (a) Commencement of operating lease from undetermined use (b) Commencement of owner-occupation (c) Commencement of development with a view to sale (d)_ End of owner-occupation Real Estate Limited have acquired an investment property within the meaning of Ind AS 40 ‘Investment Property’. The company has details of costs and other related expenses, but it is not sure as to what would be the correct accounting treatment of the said items. Identify the correct statement. (a) Start-up costs are not to be capitalised to cost of the investment property except cases where they are necessary to bring the property to the condition necessary for it to be capable of operating in the manner intended by the management (b) Operating losses incurred before the investment property achieves the planned level of occupancy are not to be capitalised to the cost of investment property (c) Abnormal amounts of wasted materials, labour and other resources incurred in constructing or developing the property are not to be capitalised to the cost of investment property (d) All of the above AG India Limited uses portion of building for their administrative use and let out the remainder portion. Which is not the right approach for dealing with this situation while accounting in the books of the company in accordance with Ind AS 40?ACCOUNTING STANDARDS 40 al @ (b) (©) (d) Account for the portion separately, if these portions can be sold separately An investment property, if portions could not be sold separately and insignificant portion can be held for administrative use As owner occupied property, if portions could not be sold separately and insignificant portion is rent out It will be treated as right-of-use asset depending upon the significance of self- usage and let out 10. State which of the following statement is true. (a) An investment property may be a qualifying asset under Ind AS 23 ‘Borrowing Costs’ (b) Anentity is not required to capitalise the borrowing cost in respect of investment properties even if they are qualifying assets (c) Investment property can be measured at fair value of each reporting date on an asset-by-asset basis (d) Investment property measured at fair value is not depreciated or tested for impairment under Ind AS 40 ANSEWRS : 1 qd) 2. (ob) |3. (©) |4. (5. ©) |6 (a) 7. @) (8. @)_ |9. @__|10.[(b)ACCOUNTING STANDARDS 105 @ 23 IND AS 105 - NO 3 SALE AND DISCONTINUED OPERATIONS How to present a non-current assets (or disposal group) classified as held for sale in the balance sheet? () Pooled with other current assets (b) Pooled with other non-current assets (c) Separately from other assets (d) Based on management intention Gain or loss on re-measurement of non-current asset classified as held for sale which does not meet the definition of discontinued operation should be included in (a) Profit or loss from continuing operations in statement of profit and loss (b) Notes to the financial statements (c) Statement of changes in equity (d) Other comprehensive income A disposal group is a group of assets (a) To be disposed in one single transaction (b) Falling in cash generating unit (c)_ Being part of discontinuing operation (d) Having no disposal cost SA Ltd. bought 30% share in RA Ltd. with a view of selling that investment within six months. The investment has been classified as held for sale in accordance with Ind AS 105. How should the investment be treated in the financial statement of the entity? @ (b} Tt should be accounted as per the equity method The assets and liabilities should be presented separately from other assets in the balance sheet under Ind AS 105 (c)_ The investment should be dealt with under Ind AS 29 (d) Purchase accounting should be used for this investment As per Ind AS 105, which of the following is not allowed as a ‘Cost to sell’? (a) Finance cost (b) Auctioneers commission () Advertisement cost (d) Legal fee for drafting contract of sale24 @ MULTIPLE CHOICE QUESTIONS (MCQs) 6. The results of discontinued operation should be disclosed under (a) Single amount in the statement of profit and loss (b) Part of normal trading profit and loss in the statement of profit and loss (c) Notes to the financial statements (d) Statement of changes in equity 7. Which of the following is not a requirement to classify an asset (or disposal group) as “held for sale’? (a) Appropriate level of management has an intention to sell the asset (b) Active programme to locate a buyer have been initiated (c) Actively marketed for sale at a reasonable price (d) Tt is likely that significant changes to the plan will be made or that the plan will be withdrawn 8. SALtd. acquires a subsidiary RA Ltd. exclusively with a view of selling it. The subsidiary meets the criteria to be classified as held for sale. The subsidiary remains unsold at the end of close of the year. It will be valued at (a) Lower of recoverable value or carrying value (b) Fair value less cost to sell (c) Present value of future cash flows (d) Lower of carrying amount and fair value less cost to sell 9. How to measure a non-current asset (or disposal group) that ceases to be classified as held for sale? (a) Lower of carrying amount which would have been had the asset not been classified as held for sale (adjsuted for any depreciation, amortisation or revaluations, if any) and recoverable amount at the date of the subsequent decision not to sell or distribute (b) Lower of carrying amount on the date the asset ceased to be classified as held for sale and recoverable amount at the date of the subsequent decision not to sell or distribute (c)_ Lower of carrying amount and fair value less cost to disposal (c) Lower of carrying amount and the amount which would have been had the asset not been classified as held for sale 10. Non-current asset is classified as held for sale, if it is available for sale and sale isACCOUNTING STANDARDS 105 (a) Tnstant, most likely (b) Immediate, probable (c)_ Immediate, highly probable (d) Distant future, reasonably assured ANSEWRS = 1 (©) 2. (a) 3. (a) 4. (b) 5. (a) (a) 7. (dd) {8 (d)__ | 9. (a) 10. |(c)ACCOUNTING STANDARDS 116 @ 27 An entity is required to assess whether the contract is or contains, a lease at/on (2) Commencement of lease term (b) Obtaining the possession of identified asset (c) Inception of contract (4) Beginning of the relevant annual year A lessee is required to measure the right of use asset in the financial statements initially at (a) Fair value (b) Net realizable value () Cost (d) Present value of lease payment According to Ind AS 116, the right of use asset in the books of Lessee shall be depreciated over the (a) Lower of the lease term and the asset's useful life (b) Higher of the lease term and the asset's useful life (c) Entire lease term (d) Useful life of the asset According to Ind AS 116, initial measurement of the right of use asset does not include: (a) Lease liability (b) Initial direct cost (c) Estimate of dismantling and restoration (d) Contingent rent The lease payments shall be discounted using the (a) Interest rate implicit in the lease or general borrowing rate (b) Weighted average cost of capital or interest rate implicit in the lease (c) Interest rate implicit in the lease or incremental borrowing rate (d) LIBOR or weighted average cost of capital In case of a contract that contains a lease component and one or more additional lease or non-lease component, lessee is required to allocate the contract consideration to each lease component on the basis of their relative: (a) Value in use (b) Stand-alone price28 @ MULTIPLE CHOICE QUESTIONS (MCQs) (c) Market price (d) Cost According to Ind AS 116, lease liability does not include (a) Present value of fixed payment (b) Guaranteed residual value (c)_ Unguaranteed residual value (d) Lease termination penalty An entity shall revise the lease term if there is a change in (a) Non-cancellable period (b) Economic life of underlying asset (c) Secondary period (d) Useful life of the underlying asset SALtd. has taken a building on lease from RA Ltd. for 10 years to operate a restaurant. As per the contract, SA Ltd. has decision-making right regarding all the operations and usage of the restaurant. However, as per the contract, RA Ltd. has a right to restrict SA Ltd. from selling any kind of non-vegetarian item in the restaurant. The restriction rights of RA Ltd. will become exercisable only after 6 years. Whether the contract contains a lease? (@ in nature (b) Contract contains a lease for 6 years as the lessee has a right to control the use of the asset for a portion of period G of the asset for a portion of period (d) None of the above Lease term includes the periods covered by an extension option if exercise of that option by the lessee is (a) Remote (b) Highly probable () Reasonably certain (d) Virtually certain ANSEWRS = (a) () (Oe (d)__ 5. ©) |6 (b) © [8 @ [9 () [10 [© Contract contains a lease for 10 years as the rights of the lessor are protective Contract contains a lease for 4 years as the lessor has rights to control the useACCOUNTING STANDARDS 19 @ 29 ND AS 19 - EMPLOYEE BENEFITS 1. How should we treat maternity or paternity leaves while accruing liability for compensated absences as per actuarial valuation? (a) Depends on accounting policy of the company (b) Should be included for actuarial valuation ()_ Should not be included for actuarial valuation (d) Only maternity leaves should be included for actuarial valuation 2. While accounting for a defined benefit obligation, there is net interest to be recognized in profit or loss. Based on the prevailing accounting practices, which of the following statement is true? (a) Net interest cost shall be recognized as ‘Employee Benefit Expenses’ in the statement of profit or loss (b) Net interest cost shall be recognized as ‘Finance Cost’ in the statement of profit or loss (c) Net interest cost shall be recognized as ‘Other Expenses’ in the statement of profit or loss (d) The Company has an accounting policy choice of recognizing net interest cost either in Employee Benefit Expenses’ or ‘Finance Cost’ 3. While recognizing the expenses for paid leave to employees which are carried forward to next year if unutilized. An employee can utilize such carry forward leaves anytime subject to maximum of 30 accumulated leaves. How should the Company recognize re- measurement of liability comprising the actual gain / loss? (a) In the statement of profit of loss (b) In other comprehensive income as item to be reclassified to profit or loss (©) In other comprehensive income as item not to be reclassified to profit or loss (d) Directly in equity 4. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be determined by reference to 60 years of service rather than 80 years of service. As a result the deemed benefit pension liability will increase by % 2 Crores The average remaining service lives of its employees is 10 years. The Company wants to understand as to how should the increase in pension liability by % 2 Crores be treated in the financial statements? (a) The past service cost should be charged against retained profit (b) The past service cost should be charged against profit or loss for the year30 MULTIPLE CHOICE QUESTIONS (MCQs) (c) The past service cost should be spread over the remaining working lives of the employees (d) The past service cost should not be recognised From the following items, identify what must be classified as other long-term benefits under Ind AS 19? (a) Paid maternity leave (b) Cash bonus payable in August 20X3 for results obtained up to 31*' March, 20X3 () Deferred compensation payable 20 months after the period in which it is earned (d) Lump sum retirement benefit of & 10 lakh that vests after five years of service ANSEWRS = 1 © [2 @)__—|3. @)_ |4. (b) |S. ©ACCOUNTING STANDARDS 37 @ 31 IND AS 37 - PROVISIONS CONTINGENT IABILITIES AND CONTINGENT ASSETS Which one of the following is a correct statement in relation to provisions and contingencies? (a) An item of a contingent nature may be recognised, but not disclosed, in the body of the financial statements (b) Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets applies to provisions to perform land rehabilitation activity (c) Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets applies to contingent liabilities and contingent assets of insurers that result from insurance contracts (d) A present obligation exists in all circumstances where a company may have some choice in whether or not to make a future sacrifice of economic benefits in settlement of an obligation As at 31 March 20X1 (reporting date), ABC Ltd. is involved in a legal dispute with one of it's supplier in relation to the early termination of the exclusive licence agreement between the two companies. The supplier seeks damages of % 50 crore. The directors of ABC believe that, they will be successful in defending this claim. ABC's lawyers have advised that there is 90% chances that the entity would not be made liable for this claim. In accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets, which one of the following is the most appropriate option for ABC while preparing its financial statements for 31 March 20X1? (a) Neither recognition of provision nor disclosure of contingent liability is required (b) Disclose information about the possible liability as a contingent liability (c) Recognise a provision for the best estimate of the obligation to the supplier (d) Recognise a contingent liability for the best estimate of the obligation to the supplier As per Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets’, where measurement uncertainty exists, which one of the following methods is NOT an appropriate valuation for a provision based on accounting standards? (a) The mid-point of a range of equally likely outcomes of expenditure (b) No provision should be recognised where measurement uncertainty exists (c) The minimum amount expected to represent a best estimate, where the other option is omission