Rapid revision for Accounting Standards - CA Final

Important concepts you should know:

PART I BASIC AS Introduction to Indian GAAPs: Meaning of AS, NACAS, Companies A/C Std rules, SMCs and Non SMCs, Level I/II/III companies, Applicability of AS to Corporate and Non Corporate AS-1: Disclosure of AP: Meaning of AP, Fundamental assumptions, Factors determining APs, Can AP be changed once adopted AS-2: Inventories Composition of inventories, Basic valn principle, Cost of RM, Normal / Abnormal goods, joint product by product, Conversion costs, Absorption of fixed and variable costs, Exclusion from costs of FG, CENVAT Cr (GN), Excise duty, Cost Formulae FIFO, SIM, RIM, WAC, SC, NRV Valn of WIP and FG and Replacement cost valn of RM. AS-3: CFS Direct / indirect method, Cash from operating activities, cash from investing activities, cash from financing activities, Forex cash flows. AS-4: Events occurring Adjusting events, Non adjusting events, exceptions. AS-29: Provisions, Contingent liabilities, Contingent assets. Meaning of Provision, Why provision is a liability, How to make provision, Rules for Contingent liabilities, Rules for Contingent assets. AS-5: Composition of NP i.e. ordinary / extra ordinary . Meaning of Ordinary activities, extraordinary activities, exceptional items, PPI, changes in A/C estimates, changes in APs. AS-6: Depreciation Provision of companies act on Depn Method, rates, change in Depn, asset costing Rs 5000 or less, Compulsory charging of Depn.

AS-10: Fixed assets

Purpose of FA, A/C for machinery spare parts / moulds / stand by equipment etc, Cost of FA including MODVAT Cr (GN), Change in Cost after recognition, Cut off date, Cost under special situations and other than purchase construction of asset / joint cost / HP basis etc, Subsequent expenditure Capital Vs Revenue, Valuation of FA + Revaluation. AS-26: Intangible assets Meaning of assets and then IA, Recognition principles of IA Those IA which are purchased and those IA which are generated, R & D costs, Amortisation of IA. AS-7: Construction contracts Meaning of CC, Applicability, Combining and segmenting contracts, Total Revenue, Total Costs, Stage of Completion, Revenue recognition, Expected loss on contracts para 35, Disclosures as per para 41. AS-9: Revenue recognition Meaning of revenue, Role of uncertainty in revenue, Sale of goods criteria, Rendering of services criteria, Use by others enterprises resources criteria. AS-12: Government grants What are GG, Exclusions, Grants on Depreciable assets, Non Depreciable assets, Revenue grants, Promoters contributions. AS-13: Investments a/c. Government grants Meaning of investments, Long term, Short term, Dimunition, Valuation aspect, Sale of investments, investment properties. Note: AS-30/31 has an overriding effect on AS-13) AS-14: Amalgamation / Absorption Types of amalgamation, PC calculations, Disclosures.

PART II ADVANCED / MODERN / COMPLEX AS AS-11: Accounting for Forex changes Forex transactions Initial recognition, Valuation on B/S date (monetary or non monetary), Forex operation Integral / Non Integral, Forward Contracts (are now covered by AS-30), Confliction between AS-11 and Companies AS rules (Amendment Act) 2011. AS-15: Employees Benefits Short term benefits a/c / measurement / special reference to bonus / profit sharing / paid leaves, long term benefits, retirement benefits Defined contribution plan / Defined benefit plan PV of obligation / Fair value of plan assets / Past service costs, termination benefits. AS-16: Borrowing costs Elements of BC para 4, Eligible borrowings, Eligible / Qualifying asset, Types of borrowings, Measurement of BC, Commencement of BC, Cessation of BC, Suspension of BC. AS-17: Segment Reporting

Business segment, Geographical segment, Meaning of segment revenue, segment expenses, segment assets, segment liabilities, Criterias for reportable segments. AS-18: Related party Adverse effect of RP transactions on business, Meaning of related party / Significance influence / substantial interest / control. Analysis of RP para 3, Exceptions to RP, Exemptions to RP, Disclosures. AS-19: Leases Meaning of leases, FL / OL / MLP / GRV / UGRV / Gross Inv / Net Inv / UFI, Conditions for FL, Accounting in the books of FL (books of lessor and lessee), Accounting in the books of OL (books of lessor and lessee), Sale and lease back, Manufacturing lease. AS-20: EPS Basic EPS Opening lot shares / Fresh issue/ right issue / buy back / partly paid shares, Diluted EPS, Potential equity shares. AS-22: Deferred tax Accounting income, taxable income, current tax, deferred tax, DTA / DTL, How to measure DTA / DTL / Current tax in the following cases loss making companies, LTCG, Presumptive base taxation, tax holidays, Amalgamation, MAT. AS-24: Discontinuing operations What is operation, Method of discontinuing the operation, Para 9 Combination of circumstances leading to discontinuance, initial disclosure events, Brief disclosures regarding DO. AS-25: Interim FS Problems in preparing IFR, Views on a/c for IFR Integral Vs Discrete, Accounting provisions for cyclical revenue / unplanned expenses / seasonal revenues / inventories / impairment / Depreciation / liabilities / Forex / Tax / retirement benefits. AS-28: Impairment of FA Scope, Symptoms if impairment, Measurement of impairment loss VIU and NSP, Meaning of CGU, Impairment of CGU, Impairment of Goodwill, Bottom up and top down approach, Impairment of Corporate assets. Reversal of impairment loss. AS-21+23+27: Group Consolidation Holding + Subsidiary Basic consolidation, Dividend adjustment, Chain holding, Preference shares, mutual owing, revaluation of assets, unrealized profit , consolidation of profit / loss a/c, sale of shares, cross holding. Holding + Subsidiary+ Associate Equity accounting, revaluation of assets in associates, subsequent profits earned by associates, loss making associates, Conversion of subsidiary into associates, Dividend adjustments. Holding + Subsidiary + JV Types of JVs JCO / JCA / JCE, Proportionate consolidation of JCE. AS-30+31+32 Financial Instruments Meaning of Fin Ins, Financial Assets, Financial liabilities, Derivative instruments, Equity instruments / Treasury stock, Settlement in own equity shares, Non Financial contracts,

Classification of FA / FL, Initial recognition of FA / FL, Valuation of FA / FL, Derecognition of FA / FL, Impairment, Compound Financial Instruments, Embedded Derivatives, Debt securitization, Hedge accounting.

Some extra problems:

AS-2 # Anil Pharma Ltd. Ordered 16,000 kg of certain material at ` 160 per unit. The purchase price includes excise duty Rs10 per kg in respect of which full CENVAT credit is admissible. Freight incurred amounted to Rs1,40,160. Normal transit loss is 2%. The company actually received 15,500 kg. and consumed 13,600 kg of material. Compute cost of inventory under AS 2 and amount of abnormal loss. (C.A.Final May 2011) # Raw material was purchased at Rs100 per kilo. Price of raw material is on the decline. FG is sold at a loss. Replacement cost of RM is Rs 95 per kg. Value the RM. # In the following cases assume Cost of inventories = Rs50/and Future estimated costs = Rs 2 Closing Stock Contract Stock Contract Price General Selling price 1) 10000 units 8000 units 55/56/2) 10000 units 8000 units 51/53/-

AS-3 # Explain the impact of the items given below on Cash flow: (i) Sales made to a foreign party worth $10,000 when exchange rate was 1$ = 40. Out of this $8,000 were collected when exchange rate was 1$ = ` 42. The year end exchange rate is ` 43/$. (ii) $1,00,000 is kept in foreign bank a/c rate as on 1/4/2011 exchange rate was 1$ = ` 40. The year end exchange rate is ` 43/$. Assume there is no change in the bank balance throughout the year.

AS-4 # Following companies whose FY ended on 31st Dec. 2011, the financial statements were approved by their respective directors on 15th March 2012. During 2012, the following material events took place: a. Alpha Ltd. sold a major property which was included in the balance sheet at ` 1,00,000 and for which contracts had been exchanged on 15th Dec. 2011. The sale was completed on 15th Feb. 2012 at a price of ` 2,50,000. b. On 28th Feb. 2012, the mail order activities of Gamma Ltd. (a retail trading group) were shut down with closure costs amounting to ` 2.5 million. c. A fire on 2nd Jan. 2012 completely destroyed a manufacturing plant of Epsilon Ltd. It was expected that the loss of `10 million would be fully covered by insurance. d. The movement in foreign exchange rate of 8% between 1st Jan. 2012 and 1st March 2012 has resulted in Kappa Ltd.'s foreign assets being reduced by `1.3 million.

e.

An actuarial valuation of Lamda Ltd.'s pension fund on 1st Feb. 2012 revealed that it was below the required limit by ` 8,00,000. The Company paid this amount over to the pension fund trustees on 31st March 2012. You are required to state, with reasons, how each of the above items numbered (a) to (h) should be dealt with in the financial statement of the various companies for the year ended 31st Dec. 2011. AS-5 # How would you deal with the following in the annual accounts for the year ending 31/03/2005 of ABC Ltd.: i) The company has to pay delayed cotton clearing charges, over and above the negotiated price, for taking late delivery of cotton from the suppliers godown. Upto the last year the company use to add such charges in closing stock valuation. But for the current year the company wants write off the charges against revenue as the charges are in the nature of interest. (C.A. Final May 1996)(3 Marks) & (C.A. Final May 2002) (4 Marks) ii) Fuel surcharge is billed by State Electricity Board at provisional rates. The Final bill for fuel surcharge for `5,30,000 for the period October 2000 September 2004, has been received and paid in February 2005. (C.A. Final May 1996) (3 Marks) iii) An audit verification during the year revealed that opening stock of the year was understated by `3,00,000 due to wrong counting. (C.A Final. Nov. 1996) (3 Marks) iv) There was a major theft of stores valued at ` 10,00,000 last year which was identified in the current year. (C.A. Final May 1998) (5 Marks) v) During the year 2005 2006 stock was written down to its NRV. (C.A. Final May 2002) (4 Marks) vi) ABC Ltd. was making provision for non-moving stocks based on no issues for the last 12 months upto 31.3.2005. The company wants to provide during the year ending 31.3.2006 based on technical evaluation: Total value of stock ` 100 lakhs Provision required based on 12 months issue ` 3.5 lakhs Provision required based on technical evaluation ` 2.5 lakhs AS-6 #

A plant was depreciated under two different methods as under Straight line method Diminishing Balance 1st Year 2nd Year 3rd Year 4th Year 3.90 3.90 3.90 3.90 15.60 10.69 7.90 5.84 4.32 28.75

5th Year 3.90 3.19 Required (a) If the company followed diminishing balance for first four years and decides to switch over to SLM, what would be the amount of resultant surplus/deficiency? AS-7 # Following is the information relating to a contract for 3 years: Particulars 31.03.2004

31.03.2005

31.03.2006

Costs incurred to date (cumulative) 15,00,000 Estimated future Costs yet to be incurred 28,00,000 Total Contract Price 51,00,000 Progress Billings 12,50,000 Cash Collections 9,50,000 You are required to determine the profit to be recognised for the requirements of AS-7 (Revised). Also show the disclosures.

32,00,000 45,00,000 11,00,000 52,00,000 52,50,000 30,00,000 42,00,000 28,00,000 38,00,000 three years as per the

# On 01.12.2005 Vishwakarma Construction Co. Ltd. undertook a contract to construct a building for ` 85,00,000. On 31.03.2006 the company found that it had already spent ` 64,99,000 on the construction. Prudent estimates of additional cost for completion was for ` 32,01,000. What is the additional provision for foreseeble loss, which must be made in the final accounts for the year ended 31.03.2006 as AS-7 (Revised)? Also draw extract of P/L? (C. A. Final Nov. 2003, May 2010) (Advanced Accounts Marks 5) AS-9 # M Ltd. deals in manufacture parts for Steel Plants. It quotes prices in various tenders issued by Steel plant companies. As per terms of contract, full price of machinery is not released by the steel plants companies, but 10% is retained. The company accounts for 90% of the invoice value as revenue and balance 10% on receipt basis. Advise. (Final C.A. May 2002) (5 Marks) # Advise to Pentagon Ltd. about the treatment of the following in the final statement of account for the year ended on 31st March, 2003. A claim lodged with the Railways in March 2000 for loss of goods of ` 2,00,000 had been passed for payment in March 2003 for `1,50,000. No entry was passed in the books of the company, when the claim was lodged. (Final C.A. Nov. 1993) (2 Marks) # The BOD decided on 31/03/2006, to increase the SP of certain items retrospectively from Jan 1 2006. In view of this price revision, with effect from 1/1/2006, the company has to receive `15,00,000 from its customers, in respect of the sales made between the 3 months. Give the treatment in the final accounts for the year March 2006. (Final C.A. May 1996) (3 Marks) #X Ltd. entered into a contract with Y Ltd. to des patch goods valuing ` One lakh every month for six months upon receipt of entire payment. Y Ltd. accordingly made the payment. In 3 rd month due to a natural calamity, Y Ltd. requested X Ltd. not to despatch until further notice. X Ltd. accounted ` two lakhs as sales and transferred the balance to Advance Receipt against sales. (Final C.A. Nov. 2001) (5 Marks) # X Limited has recognized `10 lakhs on accrual basis income from dividend on units of mutual funds of the face value of ` 50 lakhs held by it as at the end of the finance year 31st March, 2003. The dividends on mutual funds were declared at the rate of 20% on 15th June, 2003. The dividend was proposed on 10th April, 2003 by the declaring company. Whether the treatment is as per the relevant Accounting Standard? You are asked with reference to provisions of Accounting Standard. (PE II Nov. 2003) (4 Marks) #Faaltoo Limited entered into an agreement with Paltoo Limited for sale of goods costing ` 4,00,000 at (Cost + 20%). The sale transaction took place on 15th February, 2005. On the same day Faaltoo Limited entered into another agreement with Paaltoo Limited for repurchasing the

same goods at ` 5,40,000 on 15th August 2005. Pass entries in the books of both the companies for the year 31st March 2005. (CA Final New Syll)

AS-10 #The company has written up its fixed asset by ` 50 lacs. The total depreciation of ` 10lacs stands transferred to P/L accounts The BOD seeks your advice in the finalisation of accounts for the year ended June 2005. (C.A. Final Audit Nov. 1999) (3 Marks) # J Ltd. purchased machinery from Ltd. on 30.09.2007. The price was `370.44 lakhs after charging 8% Sales-tax and giving a trade discount of 2% on the quoted price. Transport charges were 0.25% on the quoted price and installation charges come to 1% on the quoted price. A loan of ` 300 lakhs was taken from the bank on which interest at 15% per annum was to be paid. Expenditure incurred on the trial run was Materials ` 35,000, Wages ` 25,000 and Overheads ` 15,000. Machinery was ready for use on 1.12.2007. However, it was actually put to use only on 1.5.2008. Find out the cost of the machine and suggest the accounting treatment for the expenses incurred in the interval between the dates 1.12.2007 to 1.5.2008. The entire loan amount remained unpaid on 1.5.2008. (C.A. Final Nov. 2003, Nov 2010 NS) (7/5 Marks) # Your client is in the process of setting up a production line for manufacturing a new product. Based on trial runs conducted by your client, it was noticed that the production lines output was not of the desired quality. However, your client has taken a decision to manufacture and sell the sub-standard product over the next one-year due to huge investment involved. Advise your client on the cut-off date for the purpose of capitalization. (CA Final May 2007) (Marks 4) # Welcome Ships Limited incurred dry-docking of its ship (major repairs and overhaul expenses) of ` 2 crores for the year 2006-07. Advise WS Ltd. on the treatment of the dry docking expenses? AS-11 # A company had imported raw materials worth US Dollars 6,00,000 on 5th January, 2005, when the exchange rate was ` 43 per US Dollar. The company had recorded the transaction in the books at the above mentioned rate. The payment for the import transaction was made on 5th April, 2005, when the exchange rate was ` 47 per US Dollar. However on 31st March. 2005, the rate of exchange was ` 48 per US dollar. The company passed an entry on 31st March, 2005 adjusting the cost of raw materials consumed for the difference between ` 47 and ` 43 per US Dollar. In the background of the relevant accounting standard, is the company's accounting treatment correct ? Discuss. (C. A. Final Nov. 2006) (4 Marks) # ZEN Limited has a branch in US. The company has so far recorded goods sent to the branch and amount received there from. At the end of the year the branch has sent a detailed statement which should be incorporated in the accounts of the company. TRIAL BALANCE OF ZEN LIMITED AS ON 31.3.2006 HEA D OFFICE BRA N CH Dr. ` Cr. ` Dr. $ Cr. $

Share Capital (` 10) General Reserves Profit and Loss A/C. Foreign Currency Loan ($10,000) Sales Transfers to Branch Branch Account Purchases Opening Stock Tangible Fixed Assets Accumulated Depreciation Debtors Cash / Bank Balances Expenses HO Current Account Total : Closing Stock at Cost = Closing Stock at NRV = ` 25,000 19,25,000 $ 1,000 $ 1,020 3,00,000 22,750 82,250 10,00,000 20,000 5,00,000

1,00,000 5,00,000 10,000 4,70,000 6,00,000 2,00,000 4,260 7,000

2,000 45,000 500 3,000 2,260 19,25,000 9,760 9,760 500

Other information : 1) Exchange rate for Foreign Currency loan is 1US $ = 47. 2) Exchange rate for F. A. is 1US $ = 45. 3) Exchange rate when closing stock was acquired is 1US $ = 47.47. 4) Closing Exchange rate is 1US $ = 47.50. 5) Details of Sales and Expenses : (at actual rates on the date of transaction) Sales 1 2 3 4 5 US $ 2,000 1,000 1,000 2,000 1,000 7,000 US $ 500 900 600 500 500 3,000 Exchange rate 47.50 47.40 47.20 47.10 47.05 Sales in ` 95,000 47,400 47,200 94,200 47,050 3,30,850 Sales in ` 23,700 42,570 28,350 23,590 23,550 1,41,760

Expenses 1 2 3 4 5

Exchange rate 47.40 47.30 47.25 47.18 47.10

Prepare Consolidated Trail Balance of ZEN Limited for the year both as per : i) Integral Operation

ii) Non Integral Operation. # A Ltd purchased Fixed Assets costing ` 2,544 Lakhs on 1st April 2009 and the same was fully financed by foreign currency loan in U.S. Dollars, repayable in four equal annual instalments. Exchange Rate at the time of purchase was 1 US Dollar = ` 42.40. The first instalment was paid on 31st March 2010 when 1 US Dollar fetched ` 45.40. The entire loss on exchange was included in cost of goods sold of normal business operation. A Ltd provides depreciation on their Fixed Assets at 20% on WDV basis. Show the correct accounting treatment with reference to relevant accounting standards. Also state your answer as per Companies Act. If A Ltd was a co-operative society what would be your answer? (CA Final Nov 2010 OS) AS-12 # A Company receives a grant from the State Government as compensation for loss of stocks due to unseasonal floods. The entire grant received is credited to "Capital Reserve". Comment on the accounting treatment. (CA FINAL AUDIT) # Asset purchased on 1/4/2010 Rs 40 lacs. Life of asset 10 years. Grant recd in September 2010 Rs 5 lacs. Grant refunded in 2012-13. Compute Depreciation in the year 2012-13. Assume company has followed SLM method od Depn and Capital approach for recognizing grants. AS-13 # The company had subscribed to shares of associate company amounting to ` 5 crores. These associate companies have incurred substantial losses and have been referred to BIFR for being declared as sick companies. The company does not want to provide for the loss. (C.A. Final May 2001) (Marks 5)

AS-15 # Salary / wages per day = ` 200. Leaves utilized during the year say 150days. Leaves unutilized at Balance sheet date are non-accumulating 100days and accumulating are 250days out of which 40% are vesting. 60% of the non vesting leaves are expected to be utilized in future years. Calculate relevant figures. # Following information is given about a funded benefit plan. The PV of obligation and the FV of assets planned were both ` 1,000 as on April 2009. 2009-10 2010-2011 2011-12 Discount rate 10% 9% 8% Expected return on plan assets at the 12% 11.10% 10.30% start of the year Current service cost 130 140 150 Benefits paid 150 180 190 Contributions paid 90 100 110 PV of obligations on 31/3 1,141 1,197 1,295 FV of plan assets on 31/3 1,092 1,109 1,093 A vg remaining life of employees 10 10 10 In year 2, the plan was amended to provide additional benefits effective from year 1. The PV at the end of year 1 for additional benefits is ` 50 vested and ` 30 non - vested benefits. On 1/4/2010 the enterprise estimated that the avg period until non -vested benefits would become vested was 3 years; the past service cost arising from non vesting benefit should be w-off on SLM basis over 3

years. The past service cost arising from vesting benefit should be immediately w-off. You are required to: Complete the following table, Compute Actuarial loss 1 gain, Ledger account of Pension Fund Account, Amt charged to P /L account. 2009-10 2010-11 2011-12 Opening PV of obligation Interest cost Current service cost Past service cost (non vested benefits) Past service cost (vested benefits) Benefits paid SUBTOTAL Closing PV of obligation (actuarial valuation) Actuarial gain / loss (a) FV of plan assets as on 1/4 Expected return on plan assets Contributions paid Benefit paid SUB TOTAL FMV of plan assets Actuarial gain /(loss).. (b) Net Actuarial gain / (loss) a+b # At 01.04.2009 the FV of plan assets was ` 10,000. On 30.09.2009, the plan paid benefits of ` 1,900 and received contributions of ` 4,900. At 31.03.2010, the FV of the plan assets was ` 15,000 and the PV of the defined benefit obligation was ` 14,792. Actuarial losses on the obligation for 2009-2010 were ` 60. At 01.04.2009, the reporting enterprise made the following estimates, based on the market prices at that date: Interest and dividends (after tax by the fund) 9.25% Realized and unrealized gains on plan assets (after tax) 2.00% Administration costs (1.00)% Expected rate of return 10.25% For 2009-10, Find out: Expected and actual return on plan assets Actuarial gain /(loss) to be recognized in 2009-10. (CA Final Nov 2009 / May 2011) (Marks 4) AS-16 # Palms Trees Ltd. has taken a loan of $ 10,000 on April 1, 2005, for a specific project at an interest rate of 6% p.a.. Installment is payable annually into 5 equal installments. On April 1, 2005, the exchange rate between the currencies was ` 45 per $. The exchange rate, as at March 31, 2006, is ` 48 per $. The corresponding amount could have been borrowed by Palms Trees Ltd. in local currency at an interest rate of 11 % p.a. as on April 1, 2005. You are required to ascertain the amount of borrowing cost incurred and to be included under: a. Para 4(a) of AS 16

b. Para 4(e) of AS 16 # On April 1, 2005, MGH constructions undertook construction of a factory building for expansion purpose. Total cost of project was ` 3,00,00,000. The building was completed by end of March 2006 and during the period following payments were made : Payment made Amount st 1 April 2005 20,00,000 th 60,00,000 30 June 2005 st 31 December 2005 1,80,00,000 st 31 March 2006 40,00,000 Total 3,00,00,000 MGH constructions borrowings as at March 31, 2006 were as follows : 9% term loan amounting to ` 80,00,000 taken on December 31, 2004. Simple interest is payable annually. Amount outstanding as at March 31, 2005 and during 05-06 is ` 80,00,000. The loan was taken specifically for the project. a) 11% debentures issued on March 31, 2004 with simple interest payable annually. Amount outstanding for the year 05-06 is ` 1,50,00,000. b) 10% bonds issued on December 31, 2003 amounting to ` 1,70,00,000. Simple interest payable at annual rest. Amount outstanding for the year 05-06 is `1,60,00,000. How much borrowing cost should be capitalized for construction of the building as per AS-16 Borrowing Cost? AS-17 # The Chief Accountant of Sports Ltd. gives the following Data regarding its six segments: ` in Lakhs Particulars M N O P Q R Total Segment Assets 40 80 30 20 20 10 200 Segment results 50 -190 10 10 -10 30 -100 Segment Revenue 300 620 80 60 80 60 1,200 The Chief accountant is of the opinion that segments "M" and "N" alone should be reported. Is he justified in his view? Discuss. (Final C.A. May 2006) (4 Marks) # P.11. The management of Airways Ltd provides you the information related to one of its segment. You are required to calculate Segment assets from the given information Plant, property, equipments = ` 24,00,000, Inventories = ` 7,00,000, Loans to employees = ` 4,00,000, Accounts receivable = ` 5,00,000, DTA = ` 45,000 (C.A. Final NS) (5 marks) AS-18 #

Narmada Limited sold goods for ` 90 lakhs to Ganga Limited during 31.3.2006. The # Managing Director of Narmada Limited owns 100% of Ganga Limited. Sales are made to Ganga Limited at Normal Selling Price. The Chief Accountant of Narmada Limited contends that no disclosure is required transactions are at arm length price. nsactions (C A Final May 2006) AS-19 # R. Ltd. is a lessee, acquired a machinery from S Ltd. on 01.01.2005. The following information is available to you: n Lease term Useful life Fair value at the inception of lease (01.01.2005) Fixed Lease Rent paid at the end of every year 3 years 3 years ` 3,50,000 ` 1,50,000

GRV (by lessee) to be paid on 31.12.2007 Estimated residual value Lessors IRR

` 11,400 ` 10,000 15%p.a.

You are required to work out the following: i) Value of Machinery to be recognised by lessee. ii) Yearly Finance Charges. (PVF for 3 years = 2.283).(Final C.A. Nov. 2001) (8 Marks) AS-20 # From the Books of Bharati Ltd., following information is available as on 1.4.2001 and 1.4.2002 : nos (1) Equity shares of `10 each (2) Partly paid Equity Shares of ` 10 each `5 paid (3) Options outstanding at an exercise price of ` 60 for one equity share of `10 each. Average Fair Value of equity share during both years ` 75 (4) 10% convertible preference shares of `100 each. Conversion ratio 2 equity shares for each preference share (5) 12% convertible debentures of ` 100. Conversion ratio 4 equity shares for each debenture (6) 10% dividend tax is payable for the years ending 31.3.2003 & 31.3.2002. (7) On 1.10.2002 the partly paid shares were fully paid up (8) On 1.1.2003 the company issued 1 bonus share for 8 shares held on that date. Net profit attributable to the equity shareholders for the years ending 31.3.2003 and 31.3.2002 were ` 10,00,000. Tax = 30% Calculate : i. Earnings per share for years ending 31.3.2003 and 31.3.2002. ii. Diluted earnings per share for years ending 31.3.2003 and 31.3.2002. iii. Adjusted earnings per share and diluted EPS for the year ending 31.3.2002, assuming the same information for previous year, also assume that partly paid shares are eligible for proportionate dividend only. (C.A. Final May 2003) (14 Marks) # As on 01.01.2006 Pistons Limited had 5,00,000 shares. It issued 1 right share for every 5 shares held at ` 15/- on 01.03.2006. Market price per share just before the right issue is ` 21. Net profit for 2005 was `11,00,000 and for 2006 `15,00,000. Calculate EPS for 2006 and restated EPS for 2005. AS-22 # Following is the P/L Statement for two years of BAPTISTA Limited. 2004 2005 Net Profit before taxes 50,000 each year. 3,35,000 2005 2006 3,55,000 1,00,000 1,00,000 10,000 80,000 10,000

1) Depreciation as per I. Tax is 75000 & 25000 for two years. Depreciation as per Co. Act is

2) 3) 4) 5)

Sales Tax provided in 2004-2005 but deduction received in 2005-06 ` 35,000. Penalties not allowed under I. Tax ` 10,000 For the year 2005-2006 Company received Income from Bonds ` 10,000 in the year 2004-2005 (exempt). Tax rate 40%.

You are required to: (1) Compute Timing Differences, (2) Deferred Taxes, (3) Tax expenses, (4) Pass necessary journals.

Following is the P/L Statement for two years of PQR Limited. 31.03.2001 Net Profit before taxes (200000) 31.03.2002 100000 31.03.2003 120000

1) Losses can be c/f. in the next 8 years as per I. Tax. 2) By the end of 31.03.2001 company feels that in future sufficient taxable income is 3)
available. Tax rate 40%.

You are required to: (1) Compute Timing Differences, (2) Deferred Taxes, (3) Tax expenses, (4) Pass necessary journals. (C. A. Final Nov. 2003) (Marks 4) # The following particulars are stated in the Balance Sheet of M/s. Excel Limited as on 31.03.2005: 1) Deferred Tax Liability b/d. ` 20,00,000 (Cr.) 2) Deferred Tax Asset b/d. ` 10,00,000 (Dr.) Current year transactions are as follows: 1) Depreciation as per Books 50,00,000 and as per I. Tax 30,00,000. 2) Items disallowed last year now allowed ` 10,00,000. 3) Interest to Financial ins. provided in books but payments made on 30.09.2005 ` 20,00,000 4) Donations to private trusts ` 10,00,000 5) Share issue expenses allowed u/s. 35D of the I. Tax Act for the year 2004-2005 (1/10th of ` 50,00,000 incurred in 1999-2000) ` 5,00,000. 6) Repairs incurred during the year amounted to ` 10000000 and to be amortised in two years. But I. Tax allowes 100% deduction in the current year. 7) Tax rate 50%. You are required to show the impact of the above transactions on Deferred Taxes. (C. A. Final Nov. 2004- Advanced Accounts) (4 Marks) # Rama Ltd. Has provided the following information : Depreciation as per accounting records = ` 2,00,000 Depreciation as per income tax records = ` 5,00,000 Unamortized preliminary expenses as per tax record = ` 30,000 There is adequate evidence of future profit sufficiency. How much deferred tax asset / liability should be recognized as transition adjustment? Tax rate 50%. (C.A.Final May 2011)(5 Marks)

AS-24 # Kapada Emporium Ltd. has a large network of retail shops which sell various types of clothes. It is trading in clothes and carries on activities through retail outlets all over the country. It wishes to discontinue Kanjeevaram silk sarees. There would be no retrenchment of employees. Does it have to report Kanjeevaram silk sarees as discontinuing operations? # A cosmetic producing Company provides the following information Particulars Cold Cream Vanishing Cream January 2006 September 2006 p.m. 2,00,000 2,00,000 October 2006 December 2006 p.m. 1,00,000 3,00,000 January 2007 March 2007 p.m. 0 4,00,000 The Company has enforced a gradual change in product-line on the basis of an overall plan. The Board of Directors of the Company has passed a resolution in March 2006 to this effect. The Company follows calendar year as its accounting year. Should this be treated as a discontinuing operation? Give reasons in support of your answer. (CA Final May 2008) AS-25 # Your client is a listed company is in the process of preparing first quarter accounts as required by its stock exchange. Advise your client on its following position. (a) Training expenses incurred in the first quarter will be allocated equally over the four quarters because the benefit is spread over the entire year (b) Training expenses expected to be incurred in the last quarter will be estimated and equally allocated to all the four quarters (c) A donation of ` 5 million is expected to be made in the second quarter, provision will be made in the first quarter. (d) Incentives are provided to customers if they purchase 1 million kg of urea on an annual basis, it is expected that atleast 30 customers would be able to achieve this target before the end of the third quarter. No provision is made for the incentive in the first quarter, since the client believes that the provision has not yet fructified (e) 70% of the clients revenue comes in the second quarter. The client wants to spread this revenue to all the four quarters, else the quarterly accounts will fluctuate significantly (f) A major repair is planned of the plant in the fourth quarter, which is absolutely certain. The estimated repair expenditure will be accounted for in the first quarter itself (g) Over the years the client has been unfailingly giving bonuses to staff in the third quarter. This has become its constructive obligation. The client does not wish to charge a proportionate amount of bonus in the current quarter. # For the First quarter ending 31st March, 2005, ICorp. gives you the following information: ` crores Sales 50 Salary and other expenses 30 Advertisement expenses (routine) 02 Administrative and selling expenses 08

While preparing interim financial report for the first quarter 'ICorp.' wants to defer ` 21 crores expenditure to third quarter on the argument that third quarter is having more sales, therefore third quarter should be debited by higher expenditure, considering the seasonal nature of business. The expenditures are uniform throughout all quarters.

Calculate the result of first quarter as per AS 25 and comment on the company's view. (C.A. Final May 2005) (4 Marks) # A Company which has presented its quarterly results for a Limited Review Report, has represented that expenditure incurred on heavy repairs carried in that quarter are being spread over the entire year, since it would otherwise, distort the quarterly results Comment. (CA Final June 09) #. An enterprise reports quarterly, estimates an annual income of ` 10 lakhs. Assume tax rates on 1st ` 5,00,000 at 30% and on the balance income at 40%. The estimated quarterly income are ` 75,000, ` 2,50,000, ` 3,75,000 and ` 3,00,000. Calculate the tax expense to be recognized in each quarter. (C.A.Final May 2011) (4 Marks)

AS-26 An enterprise has a portfolio of customers and a market share and expects that, due to its # efforts in building customer relationships and loyalty, the customers will continue to trade with the enterprise. Can it recognise portfolio customers, market shares, customer relation-ships, customer loyalty as intangible assets ? Logifirms Pvt. Limited is developing a new production process. During the year 2006, # expenditure incurred was ` 10 lakhs, of which ` 9 lakhs was incurred before 1st December, 2006 and 1 lakh was incurred between 1st December, 2006 and 31st December, 2006. The enterprise is able to demonstrate that, at 1st December, 2006, the production process met the criteria for recognition as an intangible asset. Comment ? (C.A. Final May 2008) AS-28 # Picalo Groups products had a sudden fall in the market. The assets were immediately implemented for deprecation. The position on 31/3/2010 is as follows: Asset which is carried in the B/S on 31-03-2010 Rs 400lakhs, Revaluation reserve Rs 100lakhs, Value in use is ` 250 lakhs. Calculate amount charged to profit /loss account due to impairment. # P.12. NARANG PVT. LTD. has 3 UNITS (CGUs) A, B, C. Goodwill appearing in the books of Narang Ltd is ` 40 crores which is allocated. Compute Impairment Loss for CGU: Assets Carrying amount Recoverable amount Goodwill A 150 115 B 100 105 C 150 175 Narang Ltd 400 395 40

Picalo Groups products had a sudden fall in the market. The assets were immediately implemented for deprecation. The position on 31/3/2010 is as follows: Asset which is carried in the B/S on 31-03-2010 Rs 400lakhs Revaluation reserve Rs 100lakhs Value in use is ` 250 lakhs. Calculate amount charged to profit /loss account due to impairment. AS-29

# An airline is required by law to overhaul its aircraft once every three years. This is the third year of use. Is a provision required to be recognised? (CA Final Nov 2010 OS) # After a wedding in 2008-09, ten people died, possibly as a result of food poisoning from products sold by the enterprise. Legal proceedings are started seeking damages from the enterprise but it disputes liability. Up to the date of approval of the financial statements for the year 31 March, 2009 the enterprise's lawyers advise that it is probable that the enterprise will not be found liable. However, when the enterprise prepares the financial statements for the year 31 March, 2010 its lawyers advise that, owing to developments in the case, it is probable that the enterprise will be found liable. How this should be dealt with in financial statement? # Samsung Limited has ` 4.50 crores in sales tax demand relating to previous year against which the company has gone into appeal for the year 2008-09. The ground of appeal dealt with points covering ` 3.50 crores of demand. Show how the matter will have to be dealt with the final accounts for the year 2008-09. (C.A. Final Nov. 2009 OS) # K Ltd has at its financial year ended 31st March, 2004 fifteen law suits outstanding, none of which has been settled by the time the accounts are approved by the directors. The directors have estimated that the possible outcomes as below:

Result Probability Amount of loss For first ten cases: ` Win 0.6 Lose-low damages 0.3 90,000 Lose-high damages 0.1 1,60,000 For remaining five cases: Win 0.5 Lose-low damages 0.3 60,000 Lose-high damages 0.2 95,000 The directors believe that the outcome of each case is independent of the outcome of all the others. Estimate the amount of contingent loss and state the accounting treatment of such contingent loss. (C.A. Final May 2004)
# Mini Ltd. took a factory premises on lease on 01.04.07 for ` 2,00,000 per month. The lease is operating lease. During March 2008, Mini Ltd. relocates its operation to a new factory building. The lease on the old factory premises continues to be live upto 31.12.2010. The Lease cannot be cancelled and cannot be sub-let to another user. The auditor insists that lease rent of balance 33 months upto 31.12.2010 should be provided in the accounts for the year ending 31.3.2008. Mini Ltd seeks your advice. (CA Final May 2008)

AS-30/31/32 # A party enters into forward contract for trading or speculation. Contract is to sell $ 100000 due on 30.06 @ ` 47.50. Today (1st January) spot @ is ` 47. On 31st March (yearend) the forward contract for 3 months (i.e. remaining maturity period upto 30.06) to sell $ is available @ ` 47.55. Rate on 30.06 is ` 47.60. Journalise the entries as per AS- 11 [R].

# On 1st February 2009, Future Ltd entered into a contract with Son Ltd, to receive the Fair Value of 1000 Future Ltds Own Equity Shares Outstanding as on 31-01-2010 in exchange for payment of Rs.1,04,000 in cash, i.e. Rs.104 per Share. The contract will be settled in net cash on 31-012010. The Fair Values of this forward contract on the different dates were: Fair Value of forward on 01-02-2009 Nil Fair Value of forward on 31-12-2009 ` 6,300, Fair Value of forward on 31-01-2010 ` 2,000 Presuming that Future Ltd, closes its books on 31st December each year, pass entries If net settled in cash. If net is settled by Son Ltd, by delivering Shares of Future Ltd. # A Lld. purchases equity shares of B Ltd. The fair value of the asset was Rs.20 Lacs on initial recognition. A Ltd classifies them as available for sale financial asset. On end of year the fair value of shares was Rs.18 lacs. On end of year 2, the fair market value is 12 lacs. However, by applying valuation model it assesses that fair value of shares should be Rs.14 lacs. The market has over reacted to the bad news. As per market report, B Ltd. may recover from there as well. Accordingly A Ltd. has decided to charge Rs.4 lacs as impairment loss. At end of year 3 the fair market value was Rs.8 lacs because of management fraud and heavy loss incurred by B Ltd is highly likely that B Ltd will dissolved and shareholders will get only residual value. A Ltd has estimated that based on residual value the financial asset should be valued at Rs.9 lacs. Journalize the above transitions in the books of A Ltd. # ABC Ltd grants loan ` 10,00,000 to its employees on January 1, 2008 at a concessional interest rate of 4% p.a. loan will be repaid in 5 equal annual installments along with interest. Market rate of interest for such loan is 10% p.a. Pass journals for first 2 years. # On 1st April 2008 Delta Ltd issued ` 30,00,000 6% Convertible debentures of Rs 100 per debenture @par. The debentures will be redeemed on 31/3/2012 10% premium or given an option to the holder to convert it into equity shares. The interest rate without conversion option will be 10% for similar debentures. Split the compound financial instruments into equity and debenture. Solution: PV of Redemption amount 2244000 (3300000 x 0.68) PV of interest payments 570600 (180000*3.17) PV of liability 2814600 Less: Cash received 3000000 Equity Component 185400 Cash Dr 3000000 To Debt 2814600 To Equity 185400 # Certain callable convertible debentures are issued at ` 60. The value of similar debentures without call or equity conversion option is ` 57. The value of call as determined using Black and Scholes model for option pricing is ` 2. Determine values of liability and equity component.

# (CA Final May 2010 OS) Aakshaya Ltd. has given a 12.50% fixed rate loan to its subsidiary Shaya Ltd. Aakshaya Ltd. measures this loan at an amortised cost of ` 2,50,000. Aakshaya Ltd.

has plants to hive off the receivable at a later stage and as a measure to safeguard against fall in value of its due enters into a pay-fixed, received floating interest rate swap to convert the fixed interest receipts into floating rate receipts, Aakshaya Ltd. designates the swap as a hedging instrument in a fair value hedge of the loan asset. Over the following months, market interest rates increase and Aakshaya Ltd. earn interest income of ` 25,000 on the loan and ` 1,000 as net interest payments on the swap. The fair value of the Loan Asset decreases by ` 5,000 while that of the interest rate swap increases by ` 5,000. You are informed that all conditions required for the Hedge Accounting are satisfied. You are required to pass journal entries, with suitable narrations, in the books of Aakshaya Ltd. to record the above transactions. # Policy Limited wants to enter into a firm commitment sales in the month of January for the sale to take place in December for 10,000 units x $10/-. Policy ltd enters into hedging contract to sell 1$ = Rs 50. Exchange rate on 31/3 was 1$ = Rs 51 (rupee weakend against dollar) i.e. Forward contract lost and spot contract gained. Again on settlement date (December) actual sales takes place at 10,000 units x $10/-. X 51.5. Account for the Cash flow hedge. AS-21+23+27 # Comprehensive Problem on AS-21+AS-23+AS-27 Balance Sheet of H Limited, S Limited, A Limited and JV Limited as on 31/3/2010 before consolidation is given below: (` in lacs) Liabilities ` Assets ` Share Capital (` 10) 1000 Fixed Assets 1000 Profit/ Loss A/C. 700 Investments in S Ltd. (60%) 500 Other Reserves 300 Investments in A Ltd. (20%) 150 Long term 200 Investments in JV Ltd. (40%) 300 Current Liabilities 300 Current Assets 550 2500 2500 Liabilities Share Capital (`10) Profit /Loss A/C. Sundry Liabilities S 500 150 100 750 A 400 100 100 600 JV 600 200 100 900 Assets Fixed Assets Current Assets S 600 150 750 A 400 200 600 JV 700 200 900

H Limited acquired all the investments as on 31/3/2009. Following is the nature of investments: Investments in S Ltd Long term investments: Subsidiary Co. Investments in A Ltd Long term investments: Associate Co. Investments in JV Ltd Long term investments: Joint Venture (JCE). The balance of Profit/loss account as on that date (31/3/2009) was: S Ltd ` 100 lacs A Ltd ` 70 lacs JV Ltd ` 140 lacs Following are the mutual owings between inter companies: Debtors of H Ltd. includes ` 5 lacs receivable from S Ltd. Debtors of H Ltd. includes ` 7 lacs receivable from A Ltd. Debtors of H Ltd. includes ` 6 lacs receivable from JV Ltd.

Following is the stock unsold out of the transactions between inters companies: Stock of H Ltd. includes ` 3 lacs supplied by S Ltd. at Cost + 20%. Stock of H Ltd. includes ` 2 lacssupplied by A Ltd. at Cost + 25%. Stock of H Ltd. includes ` 3 lacs supplied by JV Ltd. at Cost + 20%. Stock of S Ltd. includes ` 2 lacs supplied by H Ltd. at Cost + 25%. Stock of A Ltd. includes ` 1 lacs supplied by H Ltd. at Cost + 25%. Stock of JV Ltd. includes ` 5 lacs supplied by H Ltd. at Cost + 25%. Show Consolidated Balance Sheet of the group.