INDIAN ACCOUNTING STANDARDS

CHAPTER – 2

PROVISIONS UNDER ACCOUNTING STANDARD FOR ITEMS

APPEARING IN FINANCIAL STATEMENTS

PROBLEMS:
Problems on Ind AS 16 (Property, Plant and Equipment)
1. Shivani Ltd purchased a high end xerox machine. The price paid for machine is
Rs.1,50,000 (Rs.1,00,000 plus GST of Rs.50,000). The entity gets a credit of Rs.50,000
while calculating the tax payable on finished goods sold. Additional costs are freight
Rs.3,000, import duty Rs.7,000 installation expenses Rs.1,500. The initial estimate of
dismantling and removing the item is Rs.3,500. After the machine was put to use
Rs.2,000 was spent for maintenance. Calculate the initial cost of the asset.

2. Ganesh Manufacturers on 1st July 2024 spent Rs.80,000 to replace their equipment. The
equipment has been acquired 5 years back and had a carrying value at July 2022
amounting to Rs. 1,92,500 of this amount Rs.17,500 related to original equipment.
Calculate the carrying cost of the equipment.

3. Skanda Ltd set up a manufacturing plant near industrial area. The price paid for the
equipment is Rs.2,50,000 including GST of Rs.25,000. To finance the equipment, the
company took a bank loan of Rs.50,000 at an interest rate of 14.50% p.a. additional
costs include freight Rs.6,000, customs duty Rs.5,000. Installation expenses of
Rs.5,000. Rs.1,000 will be incurred on cleaning the spare parts after the equipment was
put to use. Calculate the original cost of the asset according to Ind AS 16.

4. Hari Traders purchased a plant from Shivam ltd on 30/09/2024 with quoted price of
Rs.200 lakhs. Shivam ltd offer 3 months credit with a condition that discount of 1.5%
will be allowed if the payment were made within one month. GST is 14% on the quoted
price. Company incurred 2% on transportation cost and 3% on erection cost of the
quoted price. Pre-operative cost amounted to Rs.2 lakhs. Estimated life of the plant is
8 years. Residual value of the plant 20 lakhs.
a) Calculate the original cost of the plant
b) Carrying amount of the plant on 31/03/2025

VANDANA RAMESH - ASST PROF, MCOM KSET 1

 INDIAN ACCOUNTING STANDARDS

5. Dharma Ltd is installing a new plant at its production facility. It has incurred these costs.
a. Cost of the plant (cost per supplies invoice plus taxes) – Rs.2,50,000
b. Cost of site preparation – Rs.6,00,000
c. Consultants used for advice on the acquisition of the plant – Rs.7,00,000
d. Interest charges paid to supplier of plant for deferred credit – Rs.2,00,000
e. Estimated dismantling costs to be incurred after 7 years – Rs.3,00,000
f. Operating losses before commercial production – Rs.4,00,000
Calculate the cost need to be capitalised according to Ind AS 16.

6. ABC speciality gases company set up a boiler near its manufacturing shed. The price
paid for the equipment is Rs.2,20,000 inclusive of GST of Rs.20,000. The entity gets a
credit of GST while calculating the tax payable on the finished goods sold.
Additional costs are freight Rs.5,000, customs duty Rs.10,000, installation expenses
Rs.4,000. The estimate of dismantling and removing the item would be Rs.5,000. After
the equipment was put to use Rs.2,500 was spent for maintenance. Calculate the cost
of the asset in accordance with Ind AS 16.

7. Ravi ltd purchased a equipment for its company the price paid for the equipment is
Rs.2,50,000 inclusive of value added tax of Rs.60,000. The entity gets a credit of GST
while calculating the tax payable on the finished goods sold.
Additional cost incurred are:
a. Freight Rs.10,000
b. Customs duty Rs.8,000
c. Installation expenses Rs. 5,000
d. The estimate of dismantling and removing the item would be Rs.5,000
e. After the equipment was put to use Rs.5,000 was spent on cleaning the spare parts.
Calculate the cost of the asset according to Ind As 16.

8. Ganesh ltd ordered a laptop in flipkart. The price of laptop is Rs.40,000, allowed 10%
discount at the time of purchase and charged 18% GST which is not refundable.
Shipping charges Rs.500, software installation charges Rs.3,000 and annual service
charges Rs.3,000. Calculate the initial cost of laptop and give reasons as per Ind AS 16.

VANDANA RAMESH - ASST PROF, MCOM KSET 2

 INDIAN ACCOUNTING STANDARDS

Ind AS 23 – BORROWING COST

1. Calculate the borrowing cost in the case of P ltd., a distillery unit.
a. 6 crores arranged by 10% debentures repayable after 8 years, 2 crores by 8 years
loan from IFCI and 2 crores from OD with Canara bank. The IFCI interest is 9%
p.a. and OD interest is 13% p.a.
b. The cost of issue of debentures is Rs.20 lakhs
c. The service charges for IFCI loan and consultancy charges together amounted 5%
of loan.
d. Debentures repayable at 5% premium.

2. On 1/12/2024, Mansvi ltd began construction of homes for those families that were hit
by tsunami disaster. The construction is expected to take 3.5 years. It is being financed
by issuance of bonds for Rs.7 lakhs at 12% p.a. The bonds were issued at the beginning
of the construction. The bonds carry a 1.5% issuance cost. The project is also financed
by issuance of share capital with a 14% cost of capital. Mansvi ltd has opted under Ind
AS 23 to capitalise borrowing costs.
What is the total borrowing cost that need to be capitalised under Ind AS 23.
3. Calculate the borrowing cost in the case of Indraprastha Co. Ltd.:
i) 30 crores arranged by 12% p.a. debentures payable after 10 years, 10 crores by
12 years loan from SBI and 10 crores from Indian Bank. The SBI interest rate
is 14% p.a. and Indian Bank interest rate is 16% p.a.
ii) Debentures repayable at 10% premium.
iii) The cost of issue of debentures is Rs.22 lakhs
iv) The service charges for SBI loan 8%.

4. Nirmala Co. construction power generation plant. This project requires totally 12
crores, which are raised as follows:
a. Rs.4 crores from IFCI for 10 years @11% interest rate.
b. Rs.2 crores of loan from HDFC bank for 6 years @ 10% interest rate.
c. Rs. 2 crores of loan from SBI bank for 4 years @12% interest rate
d. Rs.3 crores from 10% debentures for 5 years @ 5% discount
e. Rs.1 crore as overdraft from corporation bank @ 4% interest rate.

VANDANA RAMESH - ASST PROF, MCOM KSET 3

 INDIAN ACCOUNTING STANDARDS

f. Out of total borrowed fund Rs.5 crores are kept in HUDCO bank as short term
deposit for 6 months @5% rate.
g. IFCI bank loan is borrowed through consultation and the consultancy charges are
2% of total loan amount.
Calculate total borrowing cost accordance with Ind As 23.

5. Calculate the borrowing cost of Sanjana Ltd.

a. Rs.8 crores arranged by issuing 8% debentures repayable after 10 years.
b. Rs.3 crores by a loan from IDBI with 10 years term at interest of 10% p.a.
c. Rs.3 crores overdraft from Canara bank at interest of 10% p.a.
d. Cost of issue of debentures is Rs.15,00,000
e. Processing and consultancy charges for IDBI loan – 5% loan
f. Debentures are repayable at 5% premium.

6. Mary Co. Constructing power generating plant. This project requires totally 12 crores,
which are raised as follows:
a. Rs.4 crores from IFCI for 10 years @11% interest rate.
b. Rs.2 crores of loan from HDFC bank for 6 years @10% interest rate.
c. Rs.2 crores of loan from SBI bank for 4 years @12% interest rate.
d. Rs.3 crores from 10% debentures for 5 years @5% discount
e. Rs.1 crore as overdraft from corporation bank @4% interest rate.
f. Out of total borrowed fund Rs.5 crores are kept in HUDCO bank as short term
deposit for 6 months @5% rate.
g. IFCI bank loan is borrowed through consultation charges are 2% of total loan
amount calculate total borrowing cost accordance with Ind AS 23.

Ind AS 36 – IMPAIRMENT OF ASSETS

1. Mallika ltd is carrying out an impairment review of a piece of production machinery at
31st December 2021. Budgeted information concerning net cash flows for the next three
years has been provided by the marketing department as follows:
2022 Rs.35,000
2023 Rs.30,000
2024 Rs.15,000

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 INDIAN ACCOUNTING STANDARDS

The production director has estimated that the scrap value of the machinery would be
Rs.10,000 in 2024. Mallika ltd currently borrows at a rate of 10%.

2. Naga Ltd has a carrying value of Rs.2 lakhs. An impairment review shows that the
recoverable amount is 1.1 lakh and that the intangible assets have a net realisable
value of Rs.20,000. The assets making up of Naga Ltd is as follows:
Goodwill 30
Intangible asset 50
Tangible asset 120
2 lakh
Calculate impairment loss and show how this would be allocated.

3. Padma Ltd has identified on indication of impairment and is conducting a review. The
summarised information of the balance sheet of Padma ltd is as follows:
Particulars Rs (in lakhs)
Plant 2,400
Property 2,600
Goodwill 2,400
Net current assets 670
Total Assets 8,070
Share capital reserve 8,070
Total liabilities 8,070
a. Whole company is considered to be a cash generating unit
b. The net realisable value of the property is Rs.10,00,000
c. Assume net asset value is at the lower of the cost and the net realisable value.
d. The present value of future cash flows is estimated at Rs.5 million.

VANDANA RAMESH - ASST PROF, MCOM KSET 5