CA Final Financial Reporting Guideline Answers May 2015
CA Final Financial Reporting Guideline Answers May 2015
CA Final Financial Reporting Guideline Answers May 2015
in/
Gurukripas Guideline Answers for May 2015 CA Final Financial Reporting Exam
Question 1 (a): AS 2
From the following information, value the Inventories as on 31st March, 2015:
5 Marks
Raw Material has been purchased at ` 125 per kg. Prices of Raw Material are on the decline. The Finished Goods being
manufactured with the Raw Material is also being sold at below Cost. The Stock of Raw Material is of 15,000 kg and the
Replacement Cost of Raw Material is ` 100 per kg.
Cost of Finished Goods per kg is as under:
Particulars
` per kg
Material Cost
125
Direct Labour Cost
20
Direct Variable Production Overhead
10
Fixed Production Overhead for the year for a normal capacity of 1,00,000 kgs of production is ` 10 Lakhs. At the year end, there
were 2,000 kgs of Finished Goods in stock. Net Realisable Value of Finished Goods is ` 140 per kg.
Solution:
Similar to Page 2.4, Q.No.16, Page 2.15, Q.No.50 of Padhukas Students Referencer on A/cg Standards[N 00]
1. Conversion Cost per kg of Finished Product = Direct Labour + Direct Variable Production OH + Fixed Production OH
` 10 Lakhs
= ` 40 per kg.
= ` 20 + ` 10 +
1 Lakh Kgs
2. Inventory Valuation is as under
(A) For Finished Goods
(a) Cost per kg for Finished Product = Material + Conversion
(c) Hence, Valuation Rate for Finished Goods = (a) or (b), whichever is lower.
(d) Value of Inventory 2,000 kg of Finished Product
` 140 per kg
2,000 kgs ` 140 = ` 2,80,000
(c) Valuation Rate for Raw Material (i.e. least of Cost or NRV, least of (a) and (b)
` 100 per kg
(d) Value of Inventory 15,000 kg of Raw Material
15,000 kgs` 100= ` 15,00,000
Note: When the Finished Products in which the Raw Material is incorporated, are expected to be sold below Cost
(NRV ` 140 vs Cost ` 165), it is preferable to sell the product without Conversion. In such case, the Raw
Materials will be valued below cost, i.e. at NRV, being the Replacement Cost.
Question 1 (b): AS 26 Impairment of Assets
5 Marks
SMC Limited is having a Plant (an Asset) whose Carrying Amount as on 01102012 is ` 38,000 Lakhs and the Plant was
having a useful life till 31032020. The estimated Residual Value is ` 900 Lakhs. The Selling Price on 31st March 2015 is
expected to be ` 20,000 Lakhs and the Cost of Disposal is expected to be ` 100 Lakhs.
The Expected Cash Flows from the Plant are as under
Financial Year
20152016
20162017
4,100
5,900
Cash Flow ` Lakhs
20172018
6,000
20182019
7,800
20192020
4,500
The Company expects the Discount Rate of 10%. Discount Factor at 10% for 1, 2, 3, 4 and 5 years are 0.909, 0.826, 0.751, 0.683
and 0.621 respectively. The Company provides depreciation on SLM basis. You are required to determine as at 31st March 2015:
May 2015.1
Value in Use
` 3,726.90 Lakhs
` 4,873.40 Lakhs
` 4,506.00 Lakhs
` 5,327.40 Lakhs
` 3,353.40 Lakhs
` 21,787.10 Lakhs
` Lakhs
1. Original Cost
2. Depreciation for Fin.Years 20122013, 20132014 and 20142015 (See Note below)
3. Carrying Amount on 31.03.2015 before Impairment (1 2)
4. Recoverable Amount (Net Selling Price 19,900 [or] Value in Use 21,787.10, whichever is higher)
5. Impairment Loss = Carrying Amount Less Recoverable Amount (3 4)
6. Revised Carrying Amount = Old Carrying Amount Less Impairment Loss (3 5)
7. Depreciation Charge from 20152016 onwards (21,787.10 900) 5 Years
Note:
38,000.00
(8,656.67)
29,343.33
21,787.10
7,556.23
21,787.10
4,177.42
Depreciation as per Initial Cost, etc. = Depreciable Value (38,000 900) = ` 37,100 Lakhs divided by 7.5 years (i.e.
from 01.10.2012 to 31.03.2020) = ` 4,946.67 Lakhs for each of the full financial years (20132014 onwards), and X
` 4,946.67 Lakhs = ` 2,473.33 Lakhs for the period 01.10.2012 to 31.03.2013 (6 months).
Principle: Delivery made, giving the Buyer an unlimited right of return: [Mar 2012 CA Journal Page 1355]:
(a) A Provision should be created on the B/S date, for Sales Returns after the Balance Sheet date, at the best estimate
of the loss expected, along with any estimated incremental cost that would be necessary to resell the goods
expected to be returned.
(b) Necessary adjustments to the provision should be made for actual sales return after Balance Sheet date up to the
date of approval of Financial Statements.
2.
Feb 2015
March 2015
` 30 Lakhs
` 36 Lakhs
9% 8% = 1%
9%
Feb 2015
March 2015
` 30,000
` 24,000
` 6,000
` 3,24,000
` 2,59,200
` 64,800
Marketing Promotional
Expenses
Loss on Disposal of
Business Segment
Loss due to change in
method of Valuation
Gain on Invts Sale
Treatment
Property Taxes of ` 60,000 relatable to the entire calendar year should be apportioned
on time basis, i.e. 3 months period expense ` 15,000 will be reported as Expense.
Costs should be anticipated or deferred only when
It is appropriate to anticipate that type of cost at the end of the fin.year, and
Costs are incurred unevenly during the fin.year of an Enterprise. [Para 38]
In this case, recognition of 1/5th of Expense is not proper.
Net Loss on Disposal of Business Segment ` 2,00,000 should be reported in full, since
the loss was incurred during the Interim Period.
The amount relating to earlier quarters to be taken and adjusted against those respective
periods.
Apportioned Gain on Sale of Investments in first quarter to be reversed.
Particulars
PBT as reported
Add:
Property Taxes to be recognised on time basis (0.60 0.15 to be recognised)
Loss on change in method of Inventory Valuation relating to previous quarters
Less: Sales Promotion Expenses relating to this Quarter (4/5th i.e. 80% 15.00)
Loss on Disposal of Business Segment to be reported in full (balance 50% of 2.00)
Apportioned Gain on Sale of Investments in first quarter to be reversed (15.00 4)
Adjusted PBT for the Second Quarter
Note: The Company should also restate the results of the previous quarters based on the above adjustments.
` Lakhs
8.00
0.45
2.00
(12.00)
(1.00)
(3.75)
(6.30)
May 2015.3
Loans Funds:
Current Liabilities:
Fixed Assets:
Liabilities
Equity Shares (FV ` 100)
10% Preference Shares (FV ` 100)
Revaluation Reserve
Capital Reserve
Statutory Reserves
Profit and Loss Account
Secured Loans: 12.5% Debentures (FV ` 100)
Unsecured Loans
Trade Payables
Total
Assets
Land and Building
Plant and Machinery
Investments
Current Assets:
X Limited
750
420
125
270
60
35
50
25
165
1,900
Y Limited
725
180
75
190
40
12
28
0
75
1,325
470
310
75
345
345
355
1,900
290
210
50
270
254
251
1,325
Trade Receivables
Inventories
Cash and Cash Equivalents
Total
Before amalgamation, X Ltd and Y Ltd will make the following adjustments in their BalanceSheets:
(i) Pay off the Unsecured Loans.
(ii) X Limited will revalue its Land and Building by enhancing the Book Value by 10% and Y Limited will revalue the Land and
Building at ` 330 Lakhs.
(iii) Y Limited will revalue its Plant and Machinery at ` 220 Lakhs.
(iv) Investments will be disposed off. X Limited sold its Investments for ` 67 Lakhs and Y Limited disposed the same for ` 52 Lakhs.
(v) Debentureholders of X Limited and Y Limited will be discharged by XY Limited by issued of 15% Debentures of ` 100 each
for such an amount which will not put any additional burden of interest outgo on XY Limited than presently payable by X
Limited and Y Limited.
(vi) Preference Shareholders of X Limited and Y Limited will be issued 15% Preference Shares in XY Limited in the ratio 2:3,
i.e. 2 Shares will be issued for every 3 Shares held at a premium of ` 25.
(vii) Equity Shares in XY Limited will be issued as under:
(a) Shareholders of X Limited in the ratio of 4:1 at ` 35 per Share, and
(b) Shareholders of Y Limited in the ratio of 3:1 at ` 32 per Share.
(viii) Statutory Reserves having met its purpose will be merged with Capital Reserves.
Prepare the amalgamated Balance Sheet of XY Limited as on 31st March 2015 as per Schedule III to the Companies Act, 2013
with Notes to Accounts.
Solution:
Selling Co: X Ltd, Y Ltd
Buying Co: XY Ltd
1. Basic Information
Date of B/S : 31.03.2015
Nature of Amalgamation:
Purchase
(since
all Assets are not taken over at Book Value)
Date of Amg: 31.03.2015
2. Computation of Purchase Consideration:
X Ltd
Particulars
Number of Equity Shares
Number of Preference Shares
Purchase Consideration
Equity Share Capital (` 10)
Premium on ESC at ` 25 & ` 22
(A)
Y Ltd
Total
750 4
= 30 Lakh Equity Shares
100 1
725 3
=21.75 Lakh Equity Shares
100 1
51.75
420 2
= 2.8 Lakh Pref. Shares
100 3
180 2
= 1.2 Lakh Pref. Shares
100 3
4.20
` in Lakhs
3010 = 300.00
30 25 = 750.00
1,050.00
` in Lakhs
21.75 10 = 217.50
21.75 22 = 478.50
696.00
May 2015.4
Total
517.50
1,228.50
1,746.00
X Ltd
2.8 100 = 280.00
2.8 25 = 70.00
350.00
1,400.00
Y Ltd
1.2 100 = 120.00
1.2 25 = 30.00
150.00
846.00
Total
400.00
100.00
500.00
2,246.00
= 0.65 Lakhs
15%
100
Thus, Total Value of 15% Debentures issued = 0.65 Lakhs 100 = ` 65 Lakhs (X: Y as 50:28, i.e. ` 41.67 & ` 23.30 Lakhs)
I
(1)
(2)
(3)
II
(1)
(2)
369
28
75
1,377
470 + 47 = 517
310
Given = 330
220
345
345
397
1,914
254
270
303
1,377
X Ltd
125+10% of 470= 172
270 + 60 = 330
35 8 = 27
529
Y Ltd
75+40+10 = 125
190+40 = 230
12 + 2 = 14
369
X Ltd
355
(25)
67
397
Y Ltd
251
52
303
Y Ltd
in ` Lakhs
Total
330
220
270
254
303
1,377
847
530
615
599
700
3,291
725
180
529
50
165
1,914
A)
in ` Lakhs
Y Ltd
Less:
Less:
Particulars
Liabilities taken over
(a) Trade Payables
(b) Debentures issued
Total [B]
Net Worth [AB]
Purchase Consideration
Capital Reserve
X Ltd
Y Ltd
Total
165
41.67
206.67
75
23.30
98.30
240
65
305
2,986
2,246
740
6. Other Adjustments
(a) Subscribers to the Memorandum (Promoters) subscribed 1 Lakh Equity Shares at ` 10 each = ` 10 Lakhs.
(b) Preliminary Expenses incurred = ` 8.09 Lakhs. Hence, Balance Cash in Hand = 10 8.09 = ` 1.91 Lakhs.
7. Balance Sheet of XY Ltd as on 31.03.2015 in ` Lakhs
Particulars as at 31st March
Note
This Year
Prev. Yr
I
EQUITY AND LIABILITIES
(1) Shareholders Funds:
(a) Share Capital
1
927.50
(b) Reserves & Surplus
2
2,068.50
(2) NonCurrent Liabilities:
Long Term Borrowings Secured Loan 15% Debentures
65.00
(3) Current Liabilities:
Trade Payables (Creditors)
240.00
Total
3,301.00
II
ASSETS
(1) NonCurrent Assets
(a) Fixed Assets:
(517 + 330 + 310 + 220)
1,377.00
(2) Current Assets
(a) Inventories
599.00
(b) Trade Receivables
615.00
(c) Cash & Cash Equivalents
(1.91 + 397 + 303)
701.91
(d) Preliminary Expenses
(See Note below)
8.09
Total
3,301.00
Note: It is assumed that the Preliminary Expenses shall be written off in the short term against Profits. Alternatively, the
Company may resolve to write off Preliminary Expenses against Capital Reserve arising on Amalgamation.
Notes to the Balance Sheet
Note 1: Share Capital
Particulars
Authorised:
Issued, Subscribed & Paid up: 52.75 Lakhs Equity Shares of ` 10 each
4 Lakhs Preference Shares of ` 100 each
(Of the above, 51.75 Lakhs Equity Shares and 4 Lakhs Preference Shares are issued for Non
Cash Consideration pursuant to a scheme of amalgamation, Order No. .. dated //)
Total
Shares Reconciliation Statement:
Particulars
in ` Lakhs
Prev. Year
This Year
700.00
400.00
527.50
400.00
927.50
Equity
` Lakhs
Lakh Shares
` Lakhs
1
51.75
52.75
10
517.50
527.50
4
4
400
400
Opening Balance
Add: Issued on Amalgamation
Closing Balance
May 2015.6
Preference
Lakh Shares
Capital Reserve
740
740
Share Premium
1,328.50
1,328.50
Total
2,068.50
2,068.50
Company Status
Holding Company
=P
Subsidiary
=Q
SubSubsidiary
=R
1. Basic Information
Dates
Acquisition:
29.03.2014
Consolidation: 31.03.2015
May 2015.7
Holding Status
Q
(P) 75%
25%
R
(P) 30%
(Q) 50%
20%
Total Holdings
300 (75%)
80 (80%)
Minority Interest
100 (25%)
20 (20%)
On B/s date ` 20
DoA to DoC ` 7
31.3.14
`5
Less: Bonus issue
(2)
Pre Acquisition ` 3
Post Acquisition
Transfer (` 50 ` 10
20%)
Pre Acquisition
Post Acquisition
R (See Note)
On B/s date ` 30
DoA to DoC ` 25
31.3.14 ` 17.60
DoA to DoC ` 12.40
Less: Adjustment (0.20)
Add: Adjustment
0.20
Pre Acquisition
Post Acquisition
Pre Acquisition 17.40
Post Acquisition
12.60
Note: Since loss on damaged goods (`0.75 0.55 = `0.20) relates to last year, it is added to Current year Profit and
deducted from last year Profit i.e. Pre acquisition reserve.
3. Consolidation of Balances (` in Lakhs)
Particulars
Total Minority
PreAcqn.
Interest
R Ltd (Holding 80%, Minority 20%)
Equity Capital
100
20
80
8
Reserves
20
4
(10 80%)
13.92
P&L A/c
30
6
(17.40 80%)
Unrealized Profit on Sale of Asset
(4.875)
(0.975)
SubTotal
29.025
101.92
Q Ltd (Holding 75%, Minority 25%)
Equity Capital
400
100
300
2.25
Reserves
10
2.5
(375%)
P&L A/c
40
10 (1575%)=11.25
Stock Reserve [Upstream]
(2)
(0.5)
80%
50%
25%)
P&L A/c (6.18 Qs Share
0.966
80%
Sub Total
117.641
310.075
Total [Cr]
Cost of Investment [Dr.] [320 + 40 + 100]
(460)
Parents Balances in Reserves
May 2015.8
Post Acquisition
Reserves
P&L A/c
(10 80%)
10.08
(12.60 80%)
4.87580%=(3.9)
8
6.18
5.25
(775%)
(2575%)=18.75
(1.5)
(1.25)
(0.966)
16.284
40
52
60
(45)
37.464
Sale by Q Ltd to P Ltd: Q Ltd has sold goods at ` 30 Lakhs at Cost Plus 25%. Therefore, the unrealized profit on
25
Upstream Transaction is ` 6 Lakhs [` 30
]. Since only 1/3rd of such goods are in Stock, Proportionate unrealized
125
gain is ` 2 Lakhs [6 1/3]. The unrealized profits should be adjusted against Group Reserves and Minority Interest.
3
5
]
12
35
(0.125)
Unrealized Profit
4.875
The above Unrealized Profit is in the nature of Upstream Transaction, and hence should be adjusted against Group
Reserves and Minority Interest.
4. Consolidated Balance Sheet of P and its Subsidiaries Q and R as at 31.03.2015 (` in Lakhs)
Particulars as at 31st March
WN
This Year
Prev. Yr
I
(1)
600
Minority Interest
(3)
Current Liabilities
75
45
Total
II
ASSETS
(1)
NonCurrent Assets
956.13
89.464
146.666
48.005
475.125
Current Assets
(a) Inventories
= 50 + 30 + 40 2
118
130
2
Total
185
956.13
Note: Inter Company Owings have been eliminated in full. Detailed Notes under Schedule III Requirements have not been
provided for the above items.
Computational Notes for items in CBS: Note 1: Reserves and Surplus
Particulars
(a) Reserves
(b) Surplus (Balance in P & L A/c)
52.000
37.464
89.464
Total
Note 2: Cash and Cash Equivalents
Particulars
` Lakhs
= 40 + 30 15 50
= 80 + 90 + 10
` Lakhs
5
180
185
Total
May 2015.9
Same as Page No. 6.27, Q.No.5 of Padhukas Students Guide on Financial Reporting [N 12]
1. Basic Computations
Particulars
(a)
(b)
(c)
(d)
(e)
(f)
(g)
HP Price
Down Payment
Balance amount payable (a) (b)
Amount payable in each instalment (80 Lakhs 5 instalments)
Annuity Factor at 10.42% for 5 Years
PV of the instalments (d) (e)
Interest Component (c) (f)
` in Lakhs
100
20
80
16
3.7505
60
20
(a)
(b)
(c)
(d)
` in Lakhs
64.000
8.512
7.488
48.000
Note:
Particulars
` in Lakhs
64.000
8.512
48.000
7.488
May 2015.10
Period
May 2015.11
Cr.(`)
10,00,000
1,37,068
1,37,068
1,94,517
11,50,000
1,94,517
Less:
Less:
Add:
Add:
Add:
Particulars
Less:
A.
B.
C.
2014
24,80,000
(5,60,000)
(8,00,000)
8,00,000
8,00,000
8,00,000
35,20,000
May 2015.12
2015
32,80,000
(6,40,000)
(8,00,000)
8,00,000
8,00,000
8,00,000
42,40,000
As at 31.3.2015
88,00,000
64,00,000
17,60,000
16,00,000
(40,00,000)
1,45,60,000
1,18,40,000
2,64,00,000
1,32,00,000
Less:
Goodwill
Add:
2015
42,40,000
1,32,00,000 12%
= 16,50,000
25,90,000
4. Valuation of Goodwill
= Amount of Super Profits No. of. Years of Purchase of Super Profits agreed upon
= ` 20,78,333 5 = ` 1,03,91,667
5. Valuation of Business
Closing Capital Employed as at 31.3.2015
Goodwill as per WN 4 above
Value of Business
` 1,45,60,000
` 1,03,91,667
` 2,49,51,667
Garment Industry of which Agile is a constituent, is expected to grow by 9% annum during the next five years. The present
Market Size of the Industry is ` 7,500 Crores.
(ii) There are other brands both National and International in the market. The existence of Duplicate Brands is unavoidable. The
Share of such players is estimated to be 63% of the Total Industry Market. The Market Share of other National Brands will
increase @ 0.25% yearonyear basis in the next 5 years. The share of International Brands is expected to grow 1.5 times of
National Brands. But the existence of Duplicate Brands is to fall by 2.5% over the period of next 5 years, spread equally.
(iii) The expected Foreign Partner needs the production line of the company to be reengineered which will lead to an increase
in the yield of the Company by 3% after one year over the present yield of 10%, followed thereafter by further increase of
5% year on year.
Following the MarketOriented Approach, determine the Brand Value to be used for negotiation with the Foreign Company,
considering the Discount Factor for 1st five years as 0.909, 0.826, 0.751, 0.683 and 0.621 (Monetary value in Crores to be
rounded off to nearest 2 decimal places).
Solution:
Refer Page No. 4.8, Q.No.1 of Padhukas Students Guide on Financial Reporting
1. Market Share of Agile Ltd
(a) Current Market Share = 100% (National + International + Duplicate Brands) = 100% 63% = 37%
(b) Increase or Decrease in Market Share: National Brands 0.25% + International Brands 0.375% Fall in Duplicate
Brands 0.5% = 0.125% increase other products market share. Hence, Agiles Market Share is expected to fall by
0.125% every year, from current 37%. Therefore, next year it will be 36.875%, the year after 36.75%, etc.
2. Brand Valuation under Market Approach (` Crores)
Market Share Market Share
Discount
Year
Market Size (%)
Expected Profit
(%)
(Amt)
Factor at 15%
1
7,500.00 + 9% = 8,175.00
36.875%
3,014.53
@ 13% = 391.88
0.909
2
8,175.00 + 9% = 8,910.75
36.75%
3,274.70
@ 18% = 589.45
0.826
3
8,910.75 + 9% = 9,712.72
36.625%
3,557.28
@ 23% = 818.17
0.751
4
9,712.72 + 9% = 10,586.86
36.50%
3,864.20
@ 28% = 1081.98
0.683
5
10,586.86+ 9% = 11,539.67
36.375%
4,197.55
@ 33% = 1385.19
0.621
Brand Value
Brand Value of Agile Ltd under Market Oriented Approach is ` 3,056.74 Crores
May 2015.13
PV of Profit
356.22
486.88
614.45
738.99
860.20
3,056.74
Income:
2014
12,000
6,400
5,600
2,240
600
1,120
1,120
80
440
5,600
Summarized Profit and Loss Account for the year ended on 31st March 2015 (` in Thousands)
Particulars
Amount
Sales less Returns
13,600
Dividends and Interest
500
Miscellaneous Income
500
Expenditure:
Production and Operational Expenses:
Administrative Expenses:
Selling and Distribution Expenses:
Cost of Materials
Wages & Salaries
Other Manufacturing Expenses
Administration Salaries
Administration Expenses
Selling and Distribution Salaries
Selling Expenses
Debenture Interest
14,600
5,000
1,800
1,400
600
600
120
400
8,200
1,200
Finance Expenses:
Depreciation
Total Expenditure
Profit before Taxation
Less: Provision for Taxation
Profit after Taxation
From the above information, prepare Value Added Statement for the year 20142015 and determine the amount of
Payable to Employees, if any.
Solution:
520
80
1,520
11,520
3,080
770
2,310
Bonus
Refer Page No. 7.14, Q.No.5 of Padhukas Students Guide on Financial Reporting
May 2015.14
2013
1,968
4,800
41.00%
2014
2,240
5,600
40.00%
Add:
1.
2.
3.
4.
5.
Sales
Bought in Goods & Services:
Cost of Materials
Production Expenses
Administration Office Expenses
Sales Office Expenses
Value Added from Manufacturing and Trading Activities
Other Income (500 + 500)
Net Value Added
` 000s
` 000s
13,600
5,000
1,400
600
400
7,400
6,200
1,000
7,200
2,520
2,520
7,200
35%
Improvement for the Year eligible for Bonus = Target 40% Ratio as above 35%
Bonus Payable for the Year = Value Added ` 7,200 5% Employee Share 2/3rd
3. Statement of Application of Value Added
Particulars
1. To Employees:
2. To Government:
Taxes
5%
240
` 000s
2,760
38.33%
770
10.69%
80
1.11%
3,590
48.87%
1,520
2,070
Total
Note: It is assumed that Taxation Expense is not affected by the above Bonus/ Incentive Payment.
7,200 100.00%
Question 6 (b):IFRS vs AS
Give major differences between IFRS and AS (applicable in India) with respect to Property, Plant and Equipment.
Solution:
IFRS / IAS
Non
Current
Assets held
for sale or
disposal
Biological
Assets
8 Marks
Refer Page No. 9.79, Para 9B.3.16 of Padhukas Students Guide on Financial Reporting
Particulars
Historical
Cost,
Revaluation,
Fair Value,
etc.
` 000s
May 2015.15
Note: Borrowed Amount = Cost USD 1,25,000 () Down Payment USD 25,000 = 1,00,000 USD
Principal
25,000
25,000
25,000
25,000
INR to USD
61.60
61.80
61.90
62.10
Interest Exp `
2,46,400
1,85,400
1,23,800
62,100
Note: The above Interest Cost will be expensed in the Statement of P&L under the head Finance Charges.
The above asset is a Qualifying Asset for Capitalizing Interest Costs on the following grounds
(a) Qualifying Asset is an asset that takes substantial period of time to get ready for its intended use. [Substantial Period of
Time = 12 months unless shorter time is justified]
(b) It is given that the Asset was under construction for 6 months. So, it is assumed that the same is not a Qualifying Asset.
(c) Even if it is assumed to be a Qualifying Asset, for capitalising the FOREX Costs as Borrowing Cost, the information on
prevailing interest rates in India is not available. Hence, no part of Interest Cost is capitalised.
Hence, Asset will be capitalized initially at ` 61.50 USD 1,25,000 = ` 76,87,500
2.Computation of FOREX Loss on Settlement
As per AS 11, the Settlement Difference on account of FOREX Loan will be written off to the Statement of P&L.
Also, since the Forex Loan is a Monetary Item, the same has to be restated based on Closing Rate. The difference
thereon is taken to the Statement of P&L.
The above loan is recognized initially @ ` 61.50 per USD. On repayment the Forex Loss /Gain is recognised.
Loss on Settlement (`)
Repayment
Balance Loan O/s (USD)
Restatement Loss on o/s Bal.
6th Month
(61.6061.50) 25,000 =
2,500
75,000
No restatement
th
12 Month
(61.8061.50) 25,000 =
7,500
50,000
(61.8061.50) 50,000= 15,000
18th Month
(61.9061.80) 25,000 =
2,500
25,000
No restatement
24th Month
(62.1061.80) 25,000 =
7,500
0
No restatement
3.Summary of Debit to P&L A/c:
Year
Interest Cost
Settlement Loss
Restatement Loss
Year 1
2,46,400 + 1,85,400 = 4,31,800 2,500 + 7,500 = 10,000
15,000
Year 2
1,23,800 + 62,100 = 1,85,900
2,500 + 7,500 =10,000
Note: Option is available to Companies, to adjust the Exchange Differences relating to Foreign Currency Borrowings for
Depreciable Fixed Assets, in the Cost of such Asset, as per MCA Notification.
Refer Page No. 8.14, Part 3 Illustration of Padhukas Students Guide on Financial Reporting
1.
Local Market: As per the ICAIs Guidance Note on Accounting Treatment for Excise Duty, Provision for the Unpaid
Liability of Excise Duty should be made. Therefore, in the above case, Excise Duty on the goods meant for Local Sales
should be provided at the rate of 12.36% on the Selling Price, of ` 100 Lakhs for valuation of Stock.
2.
Export Goods: Assuming that all the conditions specified in the Central Excise Rules, regarding export of excisable
goods without payment of duty are fulfilled by the Company, Excise Duty may not be provided for the goods meant for
exports, even though the manufacture thereof is complete.
1.
Krishna has sold goods for ` 100 Crores to Madhav. Hence, the sale is complete in all respects. Madhavs decision to
sell the same in the domestic market at a discount does not affect the amount recognised as Sales Income by Krishna.
2.
Price Discount offered by Krishna at the request of Madhav is not in the nature of discount given during the ordinary
course of trade, since it would have been given at the time of sale itself.
3.
As there appears to be an uncertainty relating to realisability of the Discount portion, which has arisen subsequent to
the time of sale, Krishna should make a separate provision to reflect the uncertainty relating to collectibility, rather
than to adjust the amount of Revenue originally recorded.
4.
The Discount Allowed should be shown as an Expense in the Statement of P & L of Krishna separately, and not
shown as deduction from the Sales figure.
1.
Analysis:
(a) Changes: The Companys accounting policy requires that provision should be made in respect of nonmoving
stocks. The method of estimating the provision can be changed based on new developments, additional
information, etc. if a more prudent estimate of the amount can be made.
(b) Nature: The decision to make provision for nonmoving stock on the basis of technical evaluation is only a
change in accounting estimate, and does not amount to a change in accounting policy.
(c) Materiality: The change in the amount of required provision is ` 1,00,000 which is only 0.59 % of the Total Stock
Value, and is hence not material.
May 2015.17
Conclusion:
(a) Change in Provision from Number of issues to technical evaluation will not result in any change in accounting
policy, as there will only be a change in accounting estimate.
(b) The Company should be able to demonstrate reasonably that provision made on the basis of technical evaluation
provides more satisfactory results than the provision based on Number of Issues. In such case, the Company can
change the method of provision.
1.
Recognition: As per AS 29 a Provision should be recognized if the following conditions are satisfied
Condition (1)
Condition (2)
Condition (3)
Reliable estimate of the
Present obligation as a result of past
Outflow of Resources to settle the
event.
obligation is probable.
amount.
Liability for Income Tax existed on the
There will be an outflow of resources
Tax Liability is ascertained at
B/S date, as per the Demand Notice.
to settle the obligation, if the Company
an amount of ` 10 Lakhs, as
There is a present obligation.
does not win the case in appeal.
per the Demand Notice.
Note: Merely because an appeal has been made, the character of the obligation is not lost.
2.
(b) For the balance portion of ` 6 Lakhs, where there is a fair chance of winning the appeal, the Company should
disclose a Contingent Liability, in the Notes to Accounts.
(c) The amount paid as Deposit ` 6 Lakhs should be shown as Other NonCurrent Assets in the Financial Statements,
along with a clear description of the nature of item.
May 2015.18
May 2015.19
May 2015.20