A.

Non-Current assets
1. Classification:
Property (Self use) – PPE; and Property (Rental or Capital appreciation) – IP
Plant and equipment (Any use) - PPE

2. Initial recognition @ COST and subsequent recognition @ Cost / Revaluation model.

3. Few points for revaluation model:

 For PPE/ Intangible assets, revaluation model will be applied to whole class or group of assets in
that class;
 For PPE/ Intangible assets, revaluation gain will be transferred to Revaluation reserve (OCI then
Equity).
 For Intangible assets, revaluation model can be applied only if ACTIVE MARKET exists;
 For Investment property (IP), all of the IP will either be cost or revaluation.
 For IP, if revaluation model is used, revaluation gain will be transferred to SPL and NO
DEPRECIATION to be charged.

4. Transfer from PPE to IP or IP to PPE, follow old method till date of transfer and then
subsequent to DOT, follow new method.

Example:
IP @ cost is transferred to PPE @ Fair value, then FV on Date of transfer = FV of PPE and CA of IP
on DOT - FV on DOT = SPL

5. Borrowing costs (Add to cost of assets)

 Commence only if (Relevant activities + Expenditure + Borrowing) has started;
 For general borrowings: Amount to be capitalised = Average expenditure x Average rate
 For Specific borrowings: Amount to be capitalised = Actual borrowing costs from
commencement date (refer above) Less Investment income from temporary funds.
 Suspension (abnormal activities like labour strike)

6. Intangible assets
 Internally generated IA will not be recognised.

 Research and development costs

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 B. LEASES
1. Initial recognition
Right of Use asset Debit Lease liability + Initial direct costs + Amount already paid
To Lease liability Credit PV of Future lease payments

2. Subsequently
 Record lease liability using amortised cost (Financial liability) and record finance cost in SPL.
 Depreciate ROU asset over lease term.
 If Lessee has purchase option, and lessee is reasonably certain, then depreciate over useful life.

3. Sale and leaseback

If sale is at fair value
Bank a/c Debit Sale proceeds
Right of Use asset a/c Debit Carrying amount x Lease liability / Fair value
To Asset Credit Carrying amount
To Lease liability Credit PV of Future lease payments
To gain on SLB Credit Balancing figure

If sale price > Fair value

Bank a/c Debit Sale proceeds
Right of Use asset a/c Debit Carrying amount x Lease liability / Fair value
To Asset Credit Carrying amount
To Lease liability Credit PV of Future lease payments - AFL
To Additional FL (AFL) Credit Sale Proceeds - Fair Value
To gain on SLB Credit Balancing figure

4. Practical exemption (Low value asset or Lease term upto 12 months)

Record lease payments in SPL as rent expense in Straight line method

C. REVENUE
 Identify contract > Identify PO > Determine TP> Allocate TP to each PO > Recognise revenue
as PO gets satisfied.
 Allocate TP to each PO in the ratio of their standalone SP
 Non cash consideration: Add to TP
 Existence of Significant financing component: TP = Present value of contractual amounts at
market rate
 Long term contracts
Input method
Calculate Percentage of completion (POC)= Costs incurred till date/ Total estimated costs
Revenue to be recognised = (Contract price * POC) - Revenue recognised till PY
Cost of sales = Actual costs incurred till date - Costs recognised till PY
Output method
POC = Work certified / Contract Price
Revenue to be recognised = Work certified
Cost of sales = (Total estimated costs * POC) - Costs recognised till PY

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 D. IMPAIRMENT OF ASSETS
 All NCA to be tested for impairment only if impairment indicator gets triggered.
 Calculation of Impairment loss
Step 1: Calculate CA
Step 2: Calculate Recoverable amount (Higher of Value in use and FV)
Step 3: Impairment loss = CA – RA

 Reversal of impairment loss should be limited to CA of asset had there been no impairment.
 For a CGU, impair goodwill first and then allocate impairment loss to all the remaining non-current
assets (if not impaired individually).

E. FINANCIAL INSTRUMENTS
1. Split accounting for Compound FI: Process of separating equity and liability portion of compound
FI is called as SPLIT ACCOUNTING.
Step 1: Identify contractual cash flows
Step 2: Calculate Present value @ market rate without conversion option = Financial liability
Step 3: Calculate Equity component = Issue proceeds - Financial liability.

2. Classification of FINANCIAL ASSET

BUSINESS MODEL TEST
BMT 1: To hold the asset till maturity (Can be sold in worst or stress case scenario)
BMT 2: To hold the asset till maturity, but can be sold if better returns are available.
CONTRACTUAL CASH FLOW TEST
Right to receive solely Principal and Interest on specified dates with no other rights.
CRUX
BMT 1 + CCFT = Amortised cost
BMT 2 + CCFT = FVTOCI
Any other = FVTPL

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3. Measurement of Financial asset
FA @ Amortised cost FA @ FVTOCI FA @ FVTPL
Initial recognition
Amount Paid + Transaction costs -do- Amount Paid
JE: Transaction costs will be t/f to SPL.
Financial asset Debit
To Bank
Subsequent recognition
We will prepare amortisation We will prepare amortisation We will not prepare amortisation
schedule i.e. schedule i.e. schedule, rather we will just record
Closing FA = Opening FA + Finance Closing FA = Opening FA + Finance the FA @ Fair value and the
income @ EIR - Contractual Receipts income @ EIR - Receipts difference in FV will be transferred
The closing balance will then be to SPL.
compared to FV and the difference
on account of FV is transferred to
OCI.

4. Measurement of Financial liability (Amortised Cost only)

 Initially financial liability is measured at amount received - Transaction costs pai
 Subsequently, Closing FL = Opening FL + Finance cost @ EIR - Contractual Payments

5. Derecognition of Financial asse

Right to receive cash flow expires or is transferred to a third party along with risk or control.

F. PROVISIONS
1. Outflow (Liability/ Provision/ Contingent liability)
 Present obligation + Amount is certain = Liability
 Present obligation + Amount is Uncertain but can be estimated = Provision
 Probable (Chances > 50% but less than 95%) + Amount can be estimated = Provision
 Possible (Chances less than 50%) = Contingent liability
 Remote (Chances less than 5 %) = Ignore
2. Inflow (Asset/ Contingent asset)
 Chances of inflow > 95% = Asset
 Chances of inflow > 50% but less than 95% = Contingent asset
 Chances of inflow less than 50% = Ignore

G. Events occurring after reporting date

 Condition existed before reporting date but got confirmed after reporting date but before
authorisation of FS - Adjusting events (will be recognised in BS and PL)
 Others - Non adjusting events, (will be disclosed in FS, if significant)
 If non adjusting event is in nature of GOING CONCERN, it will be treated as adjusting
event.

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 H. TAXATION
1. Meaning of Tax expense: Current tax + Deferred tax
2. Current tax:
 Tax expense calculated as per provisions of Income Tax act.
 If the amount paid in CY > Provision in PY; Debit balance of Provision = Add it to CY expense
 If the amount paid in CY < Provision in PY; Credit balance of Provision = Deduct it from CY
expense
 Current tax = Provision required for CY + Under provision PY - Over provision PY
 JE:
Current tax Debit (Transferred to SPL as tax expense)
To Provision for Tax (Transferred to BS as tax liability)

3. Concept of Deferred tax

 Temporary Difference: Carrying amount of an asset/ liability - Tax base of an asset or liability
 Tax base of asset: If the asset has FEB + Those FEB are taxable, Tax base of an asset = Future
deduction, Else (FEB are not taxable), Tax base of an asset = Carrying amount
 Tax base of liability = CA - Future deductions

4. Movement of Deferred tax : Closing DTL/DTA - Opening DTL/DTA = Charged or credited to

SPL as deferred tax charge or credit.

5. Special cases
 Deferred tax impact will be recognised at the same place where the underlying transaction is
treated for.
 Deferred tax impact of Revaluation of non-current asset will also be recognised in OCI.

BPP Practice KIT Q138

The trial balance of Highwood Co at 31 March 20X6 showed credit balances of $800,000 on
current tax and $2.6 million on deferred tax. A property was revalued during the year giving rise
to deferred tax of $3.75 million. This has been included in the deferred tax provision of $6.75
million at 31 March 20X6.
The income tax liability for the year ended 31 March 20X6 is estimated at $19.4 million.
What will be shown as the income tax charge in the statement of profit or loss of Highwood
at 31 March 20X6?

Current Tax to be charged to SPL = 19.4 - 0.8 = 18.6

Deferred tax
Opening DTL = 2.6 million
Closing DTL = 6.75 million (Out of which 3.75 pertains to property revaluation - which is an OCI
component)
Closing DTL (SPL Component) = 6.75 -3.75 = 3
Increase in DTL = 0.4 million = Deferred tax charge
In SPL: Tax expense (SPL) = Current tax + Deferred tax charge = 18.6 + 0.4 = 19
In OCI: Now comes the question what about the remaining 3.75, this will be recognised as
Deferred tax charge in OCI.
In Balance Sheet:
Provision for current tax @ 0.8 + 18.6 = 19.4 million; and
Deferred tax liability @ 2.6 + 0.4 (SPL) + 3.75 (OCI) = 6.75 million.

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I. Group Accounting
1. Parent Company – Subsidiary via CONTROL; (Power over investee + Exposure to variable
returns + Ability to use its power to affect returns
Parent Company – Associates via SIGNIFICANT INFLUENCE; Power to participate.

2. Valuation of investments
Mode of consideration Treatment on DOA Treatment on every reporting date
Cash consideration Investments Debit No treatment
To Bank
Deferred consideration -do- at Present value Unwind the present value and give the impact to
consolidated reserves.
Consolidated reserves (Finance costs)
To Deferred consideration
Contingent consideration -do- at Fair value Changes in fair value to be accounted for in
Consolidated reserves
Consolidated reserves (Changes in Fair value)
To Contingent consideration
Share exchange Investments Debit No treatment
To Share capital
To Share premium
Increase equity and reserves of
Parent in SFS and CFS both.

3. Goodwill = Investments + Value of NCI – Fair value of net assets

4. Non-controlling interest:
On Date of acquisition: Proportional share of net assets or Fair value
On each reporting date: Add: Post acquisition profits – Goodwill impairment (if NCI @ FV)

5. Do not forget time adjustment to do TIME ADJUSTMENT in MID YEAR ACQUISITION.

6. Consolidated statement of financial position

i. Consolidated reserves
Balance of reserves of Parent on Reporting date
Add: Post acquisition profits of Subsidiary
Add: Gain on Bargain purchase
Less: Impairment of goodwill (Parent %)
Less: Unrealised profit (Downstream)
Less: Finance costs on Deferred consideration
Less: Dividend from Subsidiary (Parent %)
Add/Less: Changes in FV of Contingent consideration

ii. Statement of net assets

 Allocate Reserves of subsidiary into Pre and Post.
 Add back dividend paid by subsidiary (if adjusted in profits).
 Time adjustment in case of mid-year acquisition
 FV adjustment on DOA (Also consider FV of assets not recognised in BS of subsidiary like
customer lists, brand name, etc.)
 Consequential impact of FV adjustment in Post-acquisition (Excess depreciation/ amortisation
on FV adjustment, etc.)
 Unrealised profit (Upstream, i.e., profits earned by subsidiary)

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  Allocate post period profits or loss into Parent and NCI based on their holdings.

iii. Dividend paid by Subsidiary (Add back if adjusted in profits and then reduce from
Consolidated reserved and NCI in ratio of their holding).

7. Consolidated SPL
Intragroup trading: Reduce from revenue and cost and add unrealised profit to cost.
Reduce dividend income (Parent share) from investment income

8. Allocation of Profit to NCI (Consolidated SPL)

Profit earned by Subsidiary (Given in Question) x Time adjustment
Add/less: Any adjustment which impacts profits of subsidiary
- Impairment of goodwill if NCI @ Fair value
Add/ less: Elimination of Intra group finance income/ costs/ any other intra group transactions
= Net Profit
Amount allocable to NCI = Net profit calculated above * NCI %

9. Disposal of subsidiary
Recognise: Sale proceeds
Derecognise: Net assets, Goodwill and NCI on date of sale
Difference is gain or loss on disposal

10. Associates (Equity method)

Value of Investment in associate = Cost + Post acquisition profits – Impairment – unrealised
profit (share of associate) – Dividend from associate
Intragroup trading = Reduce consolidated reserves and Investment in associate by value of
unrealised profit x share of associate.

J. Inventories
1. Initial @ cost
2. Subsequent @ lower of cost or NRV
3. Subsequent cost @ FIFO/ Weighted average
4. NRV = Expected SP – Costs to complete (in case of WIP) – Costs to sell

K. Biological assets
Recognised at Fair value less costs to disposal and difference if any will be charged to SPL.

L. Non- current assets held for sale

Impairment loss (SPL) = CA on the date of change of classification after depreciation and
revaluation (if any) – FV less CTD
Discontinued operation (Separate major line of business or Subsidiary acquired for re-sale)

M. Government grant
 GRI (Recognise as grant income in ratio of compliance costs)
 GRA (Gross method: Recognise as grant income in ratio of depreciation)
 GRA (Net method): Reduce the grant received from value of assets
 If gross method is used, the balance grant is recognised as deferred grant income.

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N. Foreign currency
 Record all Foreign currency transactions @ exchange rate on transaction date.
 For Foreign currency monetary items, restate the balance to exchange rate on closing date
 Any exchange difference will be transferred to SPL.

O. EPS
i. Fresh issue = Time adjustment
ii. For bonus issue, bonus factor = 1+ Bonus ratio
iii. For rights issue,
- Calculate TERP =
((No of shares before rights x FV before Rights) + Right proceeds)
Total shares
- Paid part = Rights shares X Right price/ TERP
- Bonus factor = FV before right / TERP
iv. Diluted EPS = Earning + Impact on earnings
Weighted no of shares + Impact on number of shares

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