CA INTER

ADVANCED ACCOUNTING

MASTER QUESTIONS FOR EXAM

Total Questions of Part 2 - 41

FOR SEP’24 AND JAN’ 25 ATTEMPT

Compiled by CA. Jai Chawla

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 INDEX

Sr. No. Chapter Name Page No. Question of No.

1. AS 15 – EMPLOYEE BENEFITS 3 5
2. AS 16 6 7
3. AS 10 - PPE 11 6
4. CONSOLIDATION 16 10
5. AS 23 – INVESTMENT IN ASSOCIATES 32 8
6. AS – 27 JOINT VENTURES 37 5

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 1. AS – 15 EMPLOYEE BENEFITS

QUESTION 61
An employee Roshan has joined a company XYZ Ltd. in the year 20X1. The annual emoluments of Roshan as decided is
₹14,90,210. The company also has a policy of giving a lump sum payment of 25% of the last drawn annual salary of the
employee for each completed year of service if the employee retires after completing minimum 5 years of service. The
salary of the Roshan is expected to grow @ 10% per annum.
The company has inducted Roshan in the beginning of the year and it is expected that he will complete the minimum five
year term before retiring. Thus he will get 5 yearly increment.
What is the amount the company should charge in its Profit and Loss account every year as cost for the Defined Benefit
obligation? Also calculate the current service cost and the interest cost to be charged per year assuming a discount rate
of 8%.
(P.V factor for 8% - 0.735, 0.794, 0.857, 0.926, 1)
Solution
Calculation of Defined Benefit Obligation (DBO)
Expected last drawn salary ₹ 14,90,210 x 110% x 110% x 110% x 110% x 110% ₹24,00,000
Defined Benefit Obligation (DBO) ₹ 24,00,000 x 25% x 5 ₹30,00,000

Amount of ₹ 6,00,000 will be charged to Profit and Loss Account of the company every year as cost for Defined Benefit
Obligation.

Calculation of Current Service Cost

Year Equal apportioned amount of DBO [i.e. ₹ Discounting @ 8% PV Current service cost (Present
30,00,000/5 years] factor Value)
a B c d = b× c
1 6,00,000 0.735 (4 Years) 4,41,000
2 6,00,000 0.794 (3 Years) 4,76,400
3 6,00,000 0.857 (2 Years) 5,14,200
4 6,00,000 0.926 (1 Year) 5,55,600
5 6,00,000 1 (0 Year) 6,00,000

Calculation of Interest Cost to be charged per year

Opening balance Interest cost Current service cost Closing balance
a B C =b×8% d e=b+c+d
1 0 0 4,41,000 4,41,000
2 4,41,000 35,280 4,76,400 9,52,680,
3 9,52,680 76,214 5,14,200 15,43,094
4 15,43,094 1,23,447 5,55,600 22,22141
5 22,22,141 1,77,859* 6,00,000 30,00,000
*Due to approximations used in calculation, this figure is adjusted accordingly
Assume in Q. 101 at Beginning of 3rd year. There is a change in Actuarial Assumptions & due to such Change the
Revised Estimated DBO Liability at Beginning of 3rd year is Rs. 10,10,000/-
Solution:
Carrying Amt of DBO Payable at 2nd year. end/3rd Year Beginning 9,52,680
Revised Balance of DBO Payable 10,10,000
Increase in DBO Liability (Actuarial Loss) 57,320
Actuarial Loss (P&L) Dr 57,230
To DBO Payable A/c 57,230

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 Further Current Service Cost and Interest Cost from 3rd Year onwards will also be Revised based on New Revised
Liability.

QUESTION 62
As on 1st April, 20X1 the fair value of plan assets was ₹1,00,000 in respect of a pension plan of Zeleous Ltd. On 30th
September, 20X1 the plan paid out benefits of ₹19,000 and received inward contributions of ₹49,000. On 31st March,
20X2 the fair value of plan assets was ₹1,50,000 and present value of the defined benefit obligation was ₹1,47,920.
Actuarial losses on the obligations for the year 20X1- 20X2 were ₹600.
On 1st April, 20X1, the company made the following estimates, based on its market studies, understanding and prevailing
prices
%
Interest & dividend income, after tax payable by the fund 9.25
Realised and unrealised gains on plan assets (after tax) 2.00
Fund administrative costs (1.00)
Expected Rate of Return 10.25
You are required to find the expected and actual returns on plan assets.
Solution
Computation of Expected and Actual Returns on Plan Assets
₹
Return on ₹ 1,00,000 held for 12 months at 10.25% 10,250
Return on ₹ 30,000 (49,000-19,000) held for six months at 5% (equivalent to 10.25% annually, compounded every
six months) 1,500

Expected return on plan assets for 20X1-20X2 11,750

Fair value of plan assets as on 31 March, 20X2 1,50,000
Less: Fair value of plan assets as on 1 April,20X1 1,00,000
Contributions received 49,000 (1,49,000)
1,000
Add: Benefits paid 19,000
Actual return on plan assets 20,000

Alternatively, the above question may be solved without giving compound effect to rate of return.

QUESTION 63
Rock Star Ltd. discontinues a business segment. Under the agreement with employee’s union, the employees of the
discontinued segment will earn no further benefit. This is a curtailment without settlement, because employees will
continue to receive benefits for services rendered before discontinuance of the business segment. Curtailment reduces
the gross obligation for various reasons including change in actuarial assumptions made before curtailment. If the
benefits are determined based on the last pay drawn by employees, the gross obligation reduces after the curtailment
because the last pay earlier assumed is no longer valid.
Rock Star Ltd. estimates the share of unamortized service cost that relates to the part of the obligation at ₹ 18 (10% of
₹180). Calculate the gain from curtailment and liability after curtailment to be recognised in the balance sheet of Rock
Star Ltd. on the basis of given information:
• Immediately before the curtailment, gross obligation is estimated at ₹6,000 based on current actuarial
assumption.
• The fair value of plan assets on the date is estimated at ₹5,100.
• The unamortized past service cost is ₹180.
• Curtailment reduces the obligation by ₹600, which is 10% of the gross obligation.

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Solution
Gain from curtailment is estimated as under:
₹
Reduction in gross obligation 600
Less: Proportion of un-amortised past service cost (18)
Gain from curtailment 582

The liability to be recognised after curtailment in the balance sheet is estimated as under:
₹
Reduced gross obligation (90% of ₹ 6,000) 5,400
Less: Fair value of plan assets (5,100)
Less: Un-amortised past service cost (90% of ₹180) 300
Liability to be recognised in the balance sheet (162)
Liability to be recognised in the balance sheet 138

QUESTION 64
Balance of Present Value of Defined Benefit Obligations 15,00,000
Balance of Plan Assets 10,00,000
Actuary Report Specifies:
Current Service Costs 3,00,000
Interest Cost 20,000
Contributions to Plan Assets at the Mid of Year 1,50,000
Benefit Paid at the mid of year 2,40,000
Expected Return 12% p.a.

Closing Value of Present Value of Defined Benefit Obligations 17,00,000

Closing Value of Plan Assets at Fair Value 10,20,000
Journalise, Prepare ledgers and Extracts of Balance sheet and Profit and Loss account along with disclosures.
Solution:
DOB Payable a/c
To Bank (Benefits) 2,40,000 By Opening Balance 15,00,000
By Current Service Cost 30,00,000
By Interest Cost 20,000
By Closing Balance 17,00,000 By Actuarial Loss (b/f) 1,20,000
Plan Asset
To Opening Balance 10,00,000 By Bank A/c 2,40,000
To Bank 1,50,000 By Acturrial Loss B/F
To Expected Return 1,14,753
(a)1,20,000
(b)5,247 By Closing Balance 10,20,000

QUESTION 65
Mr. Rajan is working for Infotech Ltd. Consider the following particulars:
Annual salary of Mr. Rajan = ₹ 30,00,000
Total working days in 20X0-X1 = 300 days
Leaves allowed in 20X0-X1 as per company policy = 10 days
Leaves utilized by Mr. Rajan in 20X0-X1 = 8 days
The unutilized leaves are settled by way of payment and accordingly, carry forward of such leaves to the subsequent
period is not allowed.
Compute the total employee benefit expense for Infotech Ltd. in respect of 20X0-X1.

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SOLUTION
Mr Rajan is entitled to a salary of ₹ 30,00,000 for 300 total working days.
Thus, per day salary works out to ₹ 30,00,000 ÷ 300 days = Rs. 10,000 per day
In the year 20X0-20X1, Mr. Rajan availed 8 out of 10 leaves allowed by the company.
Accordingly, leaves unutilized = 10 – 8 = 2 days
In line with the company policy, Infotech Ltd. will pay Mr. Rajan for the unutilized leave.
Thus, total expense for 20X0-20X1 = ₹ 30,00,000 + (2 days unutilized leaves x ₹ 10,000 per day) = ₹ 30,20,000.

2. AS – 16

QUESTION 66
Entity Borrowed on 1/4/22 9%, 30 lakhs for Construction of two Qualifying assets. Construction Begins from 1/4/22. The
loan was availed on 1/4/22 & started utilizing in Qualifying Asset. Remaining funds were temporarily invested @7% p.a.
QA 1 QA 2
Expenditure on 1/4/22 5,00,000 10,00,000
Expenditure on 1/10/22 5,00,000 10,00,000
Calculate Total Borrowing Cost & Capitalised Borrowing Cost.
Solution:
Particulars QA 1 QA 2
Borrowing Cost 10,00,000 x 9% = 90,000 20,00,000 x 9% = 1,80,000
(-) Investment Income 5,00,000 x 7% x6/12 = (17,500) 10,00,000 x 7% x 6/12 = (35,000)
Net Borrowing Cost to be Capitalised 72,500 1,45,000
Total Cost of QA 10,72,500 21,45,000
(After Capitalisation)

QUESTION 67
On 1st April, 2011, Amazing Construction Ltd. obtained a loan of ₹32 crores to be utilized as under:
i. Construction of sealink across two cities : ₹25 crores
(Work was held up totally for a month during the year due to high water levels)
ii. Purchase of equipments and machineries : ₹3 crores
ii. Working capital : ₹2 crores
ii. Purchase of vehicles : ₹50,00,000
ii. Advance for tools/cranes etc. : ₹50,00,000
ii. Purchase of technical know-how : ₹1 crores
ii. Total interest charged by the bank for the year : ₹80,00,000
ending 31st March, 2012
Show the treatment of interest by Amazing Construction Ltd.
SOLUTION
According to para 3 of AS 16 ‘Borrowing costs’, qualifying asset is an asset that necessarily takes substantial period of
time to get ready for its intended use.
As per para 6 of the standard, borrowing costs that are directly attributable to the acquisition, construction or production
of a qualifying asset should be capitalised as part of the cost of that asset. Other borrowing costs should be recognised
as an expense in the period in which they are incurred.
Assumption: Additional Assets is used for same restoration, Hence QA.
The treatment of interest by Amazing Construction Ltd. can be shown as:

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 Qualifying Interest to be Interest to be charged to Profit &
Asset capitalized Loss A/c
Construction of sea-link Yes 62,50,000 [80,00,000*(25/32)]
Purchase of equipments and No 7,50,000 [80,00,000*(3/32)]
machineries
Working capital No 5,00,000 [80,00,000*(2/32)]
Purchase of vehicles No 1,25,000 [80,00,000*(.5/32)]
Advance for tools, cranes etc. No. 1,25,000 [80,00,000*(.5/32)]
Purchase of technical know-how No 2,50,000 [80,00,000*(1/32)]
Total 62,50,000 17,50,000

QUESTION 68
Paras Ltd. had the following borrowings during a year in respect of capital expansion.
Plant Cost of Asset Remarks
Plant P 100 Lakhs No Specific Borrowings
Plant Q 125 Lakhs Bank Loan of Rs. 65 lakhs at 10%
Plant R 175 Lakhs 9% Debentures of Rs. 125 lakhs were issued.
In addition to the specific borrowings stated above, the company has obtained term loan from two banks (1) Rs. 100
lakhs at 10% from Corporation bank and (2) Rs. 110 lakhs at 11.50% from SBI to meet its capital expansion requirements.
Determine the amount of borrowing costs to be capitalized in each of the above plants, as per AS 16.
SOLUTION
Calculation of Borrowing Cost to Qualified Asset
Q.A. Amount Source Calculation General B.C. Specific B.C. Total
capital capital
Plant P 100 lacs General 100 × 10.786% 10.786 /- - 10.786 /-
Specific 65 lacs 65 × 10% - 6.5 /-
Plant Q 125 lacs 12.972 /-
General 60 lacs 60 × 10.786% 6.472 /- -
Specific 125 lacs 125 × 9% - 11.25 /-
Plant R 175 lacs 16.643 /-
General 50 lacs 50 × 10.786% 5.393 /- -
Total 40.40 /-

Working Note: Weighted Average Borrowing Rate: -

Loans Amount of Loan B.C
10% Corporation Bank 100 lacs 10 lacs
11.5% SBI 110 lacs 12.65 lacs
210 lacs 22.65 lacs
Weighted Average borrowing Rate 22.65/210 × 100 = 10.786%

QUESTION 69
Harish Construction Company is constructing a huge building project consisting of four phases. It is expected that the
full building will be constructed over severalyears but Phase I and Phase II of the building will be started as soon as
they are completed.
Following is the detail of the work done on different phases of the buildingduring the current year:
(₹ In lakhs)
Phase I Phase II Phase III Phase IV
₹ ₹ ₹ ₹
Cash expenditure 10 30 25 30
Building Material Purchased 24 34 30 38
Total expenditure 34 64 55 68
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 Total expenditure of all phases 221
Loan taken @ 15% at the 200
beginning of the year
During mid of the current year, Phase I and Phase II have become operational. Find out the total amount to be
capitalized and to be expensed during the year.
Solution
Computation of amount to be capitalized
No. Particulars ₹
1. Interest expense on loan ₹ 2,00,00,000 at 15% 30,00,000
2. Total cost of Phases I and II (₹ 34,00,000 +64,00,000) 98,00,000
3. Total cost of Phases III and IV (₹ 55,00,000 + ₹ 68,00,000) 1,23,00,000
4. Total cost of all 4 phases 2,21,00,000
5. Total loan 2,00,00,000
6. Interest on loan used for Phases I & II, based on proportionate 3,30,317
Loan amount = 30,00,000/2,21,00,000 x 98,00,000 (approx.)
7. Interest on loan used for Phases III & IV, based on proportionate Loan 16,69,683
amount = 30,00,000/2,21,00,000 x 1,23,00,000 (approx.)

Accounting treatment For Phase I and Phase II

Since Phase I and Phase II have become operational at the mid of the year, half of the interest amount of ₹ 6,65,158.50
(i.e., ₹ 13,30,317/2) relating to Phase I and Phase II should be capitalized (in the ratio of asset costs 34:64) and added
to respective assets in Phase I and Phase II and remaining half of the interest amount of ₹ 6,65,158.50 (i.e., ₹
13,30,317/2) relating to Phase I and Phase II should be expensed during the year.

For Phase III and Phase IV

Interest of ₹ 16,69,683 relating to Phase III and Phase IV should be held in Capital Work-in-Progress till assets
construction work is completed, and thereafter capitalized in the ratio of cost of assets. No part of this interest amount
should be charged/expensed off during the year since the work on these phases has not been completed yet.

QUESTION 70
On 1stApril, 2022 Workhouse Limited took a loan from a Financial Institution for ` 25,00,000 for the construction of
Building. The rate of interest is 12%.
In addition to above loan, the company has taken multiple borrowings as follows:
(i) 8% Debentures ` 15,00,000
(ii) 15% Term Loan ` 30,00,000
(iii) 10% Other Loans ` 18,00,000
The company has utilised the above funds in construction / purchase of the following assets:
(i) Building ` 70,00,000
(ii) Furniture ` 22,00,000
(iii) Plant & Machinery ` 90,00,000
(iv) Factory Shed ` 43,00,000
The construction of Building, Plant & Machinery and Factory Shed was completed on 31st March 2023. Readymade
Furniture was purchased directly from the market. The factory was ready for production on 1stApril 2023.
You are required to calculate the borrowing cost for both qualifying and non-qualifying assets.
SOLUTION
Interest to be Capitalized (on qualifying asset)
Particulars Computation `
i. On specific Borrowings 25,00,000x12% 3,00,000
ii. On non-specific borrowings (W.N.1) 6,67,500
iii. Amount of interest to be Capitalised (i+ii) 9,67,500
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 Interest transferred to P&L (on non-qualifying asset)
Particulars Computation `
i. On non-specific Borrowings (W.N.1) 82,500

Working note:
1. Treatment of interest under AS 16 on non-specific borrowings
Particulars Qualifying # Computation Interest- Interest-
asset Capitalized charged to P&L
A/c
i. Building Yes 45,00,000/2,00,00,000 1,68,750 -
x 63,00,000
x 11.9048%
ii. Furniture No 22,00,000/2,00,00,000 - 82,500
x 63,00,000
x 11.9048%
iii. Plant & Machinery Yes 90,00,000/2,00,00,000 3,37,500 -
x 63,00,000
x 11.9048%
iv. Factory shed Yes 43,00,000/2,00,00,000 1,61,250 -
x 63,00,000
x 11.9048%
Total 6,67,500 82,500

NOTE: Alternative manner of presentation for Treatment of interest under AS 16 on non-specific borrowings:

Particulars Qualifying asset Expenses Share in Interest – Interest - charged

Incurred ` borrowings ` Capitalized ` to P&L A/c `
i. Building Yes 45,00,000 7,50,000 x 45/200 1,68,750 -
ii. Furniture No 22,00,000 7,50,000 x 22/200 - 82,500
iii. Plant & Yes 90,00,000 7,50,000 x 90 /200 3,37,500 -
Machinery
iv. Factory shed Yes 43,00,000 7,50,000 x 43 / 200 1,61,250 -
Total 2,00,00,000 6,67,500 82,500

2. Weighted Average interest rate for non-specific borrowings

Particulars Amount of loan (a) Rate of interest (b) Amount of interest
(c) = (a) x (b)
Debentures 15,00,000 8% 1,20,000
Term loan 30,00,000 15% 4,50,000
Other loans 18,00,000 10% 1,80,000
63,00,000 7,50,000
# Weighted Average Rate of Interest
= 7,50,000 / 63,00,000 x 100 = 11.9048%

QUESTION 71
(a) An enterprise has constructed a complex piece of equipment (qualifying asset) that is to be installed on the
production line of a manufacturing plant. The equipment has been constructed over a period of 15 months. However,
on installation, certain calibrations are required to achieve the desired level of production before it is finally
commissioned. This process is expected to take approximately 2 months during which test runs will be made. Should
the borrowing costs attributable to borrowings pertaining to the 2 months test run period be capitalized?

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(b) Should capitalization of borrowing costs be continued when the qualifying asset has been constructed but marketing
activities to sell the asset are still in progress?
SOLUTION
(a) As per AS 16 Borrowing Costs “Capitalization of borrowing costs should cease when substantially all the activities
necessary to prepare the qualifying asset for its intended use or sale are complete”. On installation of the
equipment, an evaluation has to be made to conclude whether substantially all the activities necessary to prepare
the asset are complete. After an equipment has been installed it is usually tested and adjusted for commercial
production before it is finally commissioned. The calibrations and adjustments required during this period are
performed in order to bring the equipment up to the stage at which it is ready to commence commercial production.
Until the asset reaches the stage when it is ready to support commercial levels of production, it is not appropriate
to conclude that substantially all the activities necessary to prepare the asset are complete. Thus, the borrowing
cost incurred during the normal period of test runs (after the installation) are required to be capitalized.

(b) As per provisions of AS 16, capitalization of borrowing costs should cease when substantially all the activities
necessary to prepare the qualifying asset for its intended use or sale are complete. Further, the standard also
explains that “An asset is normally ready for its intended use or sale when its physical construction or production
is complete even though routine administrative work might sill continue. If minor modifications, such as the
decoration of a property to the user’s specification, are all that are outstanding, this indicates that substantially all
the activities are complete”. The emphasis in the Standard is on “to prepare the qualifying asset for its intended use
or sale” and not the actual activity of sale. Therefore, where the physical construction of the asset is complete,
substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
Therefore, in the given case, the borrowing costs pertaining to the period during which the marketing activities to
sell the asset are still in progress should not be capitalized as part of the cost of the asset.

QUESTION 72
Zebra limited begam construction of a new plant on 1st April, 2021 and obtained a special loan of Rs. 20,00,000 to finance
the construction of the plant. The rate of interest on loan was 10%.
The expenditure that was incurred on the construction of plant was as follows:
Rs.
1st April, 2021 10,00,000
1st August, 2021 24,00,000
1st January, 2022 4,00,000
The company’s other outstanding non-specific loan was Rs. 46,00,000 at an interest rate of 12%
The construction of the plant completed on 31st March, 2022.
You are required to:
(a) Calculate the amount of interest to be capitalized as per the provision of AS 16 “Borrowing Cost”.
(b) Pass a journal entry for capitalizing the cost and the borrowing cost in respect of the plant
SOLUTION
Total expenses to be capitalized for borrowings as per AS 16 “Borrowing Costs”:
Rs.
Cost of Plant (10,00,000 + 24,00,000 + 4,00,000) 38,00,000
Add: Amount of interest to be capitalized (W.N.) 3,24,000
41,24,000

Journal Entry
Rs. Rs.
31st March, Plant A/c Dr. 41,24,000
2022 To Bank A/c 41,24,000
[Being amount of cost of plant and
borrowing cost thereon capitalized]
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Working Note:
Computation of interest to be capitalized:
Expenditure Rs.
1 April, 2021
st
10,00,000 On specific borrowing Rs. 10,00,000 x 10% 1,00,000
1st August, 2021 24,00,000 On specific borrowing Rs. 10,00,000 x 10% 1,00,000
1st August, 2021 On non-specific borrowings Rs. 14,00,000 x 8/12 x 12% 1,12,000
1st January, 2022 4,00,000 On non-specific borrowings Rs. 4,00,000 x 3/12 x 12% 12,000
3,24,000
Alternatively, interest cost to be capitalized can be derived by computing average accumulated expenses in the
following manner.

Computation of Average Accumulated Expenses:

1st April, 2021 10,00,000 x 12/12 10,00,000
1st August, 2021 10,00,000 x 12/12 10,00,000
14,00,000 x 8/12 9,33,333
1st January, 2022 4,00,000 x 3/12 1,00,000
30,33,333

Computation of interest to be capitalized:

Rs.
On specific borrowing Rs. 20,00,000 x 10% 2,00,000
On non-specific borrowing Rs. (30,33,333- 20,00,000) x 12% 1,24,000
3,24,000

NOTE:
Since specific borrowings are earmarked for construction of a particular qualifying asset, it cannot be used for
construction of any other qualifying asset except for temporary investment. Therefore, once the commencement of
capitalization of borrowing cost criteria are met, actual borrowing cost incurred on specific borrowing shall be capitalized
irrespective of the fact that amount had been utilized in parts.

3. AS – 10 PPE

QUESTION 73
Entity A exchanges car X with a book value of Rs 13,00,000 and a fair value of Rs 13,25,000 for cash of Rs 15,000 and
car Y which has a fair value of Rs 13,10,000. The transaction lacks commercial substance as the company’s cash flows
are not expected to change as a result of the exchange. It is in the same position as it was before the transaction. What
will be the measurement cost of the assets received?
Solution
The entity recognises the assets received at the book value of car X. Therefore, it recognises cash of Rs 15,000 and car
Y as PPE with a carrying value of Rs 12,85,000.

QUESTION 74
On 1st April 20X1, an item of property is offered for sale at Rs. 10 million, with payment terms being three equal
installments of Rs.33,33,333 over a two years period (payments are made on 1st April 20X1, 31st March 20X2 and 31st
March 20X3).

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The property developer is offering a discount of 5 percent (i.e., Rs. 0.5 million) if payment is made in full at the time of
completion of sale. Implicit interest rate of 5.36 percent p.a.
Show how the property will be recorded in accordance of AS 10.
SOLUTION:
AS 10 requires that the cost of an item of PPE is the cash price equivalent at the recognition date. Hence, the purchaser
that takes up the deferred payment terms will recognise the acquisition of the asset as follows

On 1st April, 20X1 (Rs) (Rs)

Property, Plant and Equipment Dr. 95,00,000
To Cash 33,33,333
To Accounts Payable 61,66,667
(Initial recognition of property)
On 31st March 20X2
Interest Expense Dr. 3,30,533
Accounts payable Dr. 30,02,800
To Cash 33,33,333
(Recognition of interest expense and payment of second installment)
On 31st March 20X3
Interest Expense Dr. 1,69,467
Accounts payable Dr. 31,63,867
To Cash 33,33,334
(Recognition of interest expense and payment of final installment)

QUESTION 75
Akshar Ltd. installed a new Plant (not a qualifying asset), at its production facility, and incurred the following costs:
▪ Cost of the Plant (as per supplier’s invoice): ₹ 30,00,000
▪ Initial delivery and handling costs: ₹ 1,00,000
▪ Cost of site preparation: ₹ 2,00,000
▪ Consultant fee for advice on acquisition of Plant: ₹ 50,000
▪ Interest charges paid to supplier against deferred credit: ₹ 1,00,000
▪ Estimate of Dismantling and Site Restoration costs: ₹ 50,000 after 10 years (Present Value is ₹ 30,000)
▪ Operating losses before commercial production: ₹ 40,000
The company identified motors installed in the Plant as a separate component and a cost of ₹ 5,00,000 (Purchase Price)
and other costs were allocated to them proportionately. The company estimates the useful life of the Plant and those of
the Motors as 10 years and 6 years respectively and SLM method of Depreciation is used.
At the end of Year 4, the company replaces the Motors installed in the Plant at a cost of ₹ 6,00,000 and estimated the
useful life of new motors to be 5 years. Also, the company revalued its entire class of Fixed Assets at the end of Year 4.
The revalued amount of Plant as a whole is ₹ 25,00,000. At the end of Year 8, the company decides to retire the Plant
from active use and also disposed the Plant as a whole for ₹ 6,00,000.
There is no change in the Dismantling and Site Restoration liability during the period of use. You are required to explain
how the above transaction would be accounted in accordance with AS 10.
Solution
1. Cost at Initial Recognition:
Particulars ₹
Cost of the Plant (as per Invoice) 30,00,000
Initial Delivery and Handling Costs 1,00,000
Cost of Site Preparation 2,00,000
Consultants’ Fees 50,000
Estimated Dismantling and Site Restoration Costs 30,000
Total Cost of Plant including Motors 33,80,000

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 Less: Cost of Motors identified as a separate component (1/6)* 5,63,333
Cost of the Plant (excluding Motors – balance 5/6) 28,16,667
* Purchase price of Motors = ₹ 5,00,000 out of ₹ 30,00,000 i.e., 1/6 of value of Plant

Note: Since the asset is not a qualifying asset, payment of interest to the supplier is not capitalized. Further, operating
losses of ` 40,000 incurred before commercial production is not a directly attributable cost, and hence excluded from
cost of asset. These costs are expensed to the P/L as and when they are incurred.

2. Recognition of Motors Replacement

Particulars ₹
Cost of Motors determined above 5,63,333
Less: Depreciation for 4 years (as per SLM) 3,75,555
5,63,333 ÷ 6 years x 4 years
Carrying Amount of Motors at the end of Year 4 1,87,778
Accounting: The company should derecognize the existing Carrying Amount of Motors replaced of ₹ 1,87,778. Further,
the acquisition cost of new motors of ₹ 6,00,000 would be capitalized as a separate component. This amount will be
depreciated over the next 5 years at ₹ 6,00,000 ÷ 5 years = ₹ 1,20,000 p.a.

3. Revaluation
Particulars ₹
Cost of the Plant at initial recognition [from (1) above] 28,16,667
Less: SLM Depreciation for 4 years: ₹ 28,16,667 ÷ 10 years x 4 years 11,26,667
Carrying Amount of Plant at the end of Year 4 16,90,000
Revalued Amount of Plant (Excluding Motors, since the same is treated as a 19,00,000
separate component: ₹ 25,00,000 – ₹ 6,00,000)
Therefore, Gain on Revaluation credited to Revaluation Reserve 2,10,000
Revised Depreciation Charge p.a.: 19,00,000 ÷ 6 years 3,16,667

4. Derecognition

Particulars Motors Plant (excluding

Motors)
Cost / Revalued Amount at end of Year 4 6,00,000 19,00,000
Less: Depreciation for Years 5-8 1,20,000 x 4 3,16,667 x 4
= 4,80,000 =12,66,668
Carrying Amount before Disposal / De- recognition 1,20,000 6,33,332
Less: Disposal Proceeds ₹ 6,00,000 allocated in ratio of carrying 95,575 5,04,425
amount
Loss to be written off to P/L 24,425 1,28,907

Notes:
(a) The Revaluation Surplus of ` 2,10,000 would be transferred directly to Retained Earnings.
(b) The allocation of disposal proceeds of ` 6,00,000 for the plant as whole is apportioned based on carrying amount
of motors and plant (excluding motors)
Alternatively, it may be apportioned as 1/6 towards motors and 5/6 plant (excluding motors) based on the reasoning that
the initially, motors amounted to 1/6 of the entire plant. This approach may not be preferable because there has been a
revaluation of the plant (excluding motors) and a disposal and subsequent acquisition of the Motor, which is not in the initial
proportion of 5/6 and 1/6 respectively.

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QUESTION 76
Bharat Infrastructure Ltd. acquired a heavy machinery at a cost of ₹ 1,000 lakhs, the breakdown of its components is not
provided. The estimated useful life of the machinery is 10 years. At the end of Year 6, the turbine, which is a major
component of the machinery, needed replacement, as further usage and maintenance was uneconomical. The
remainder of the machine is in good condition and is expected to last for the remaining 4 years. The cost of the new
turbine is ₹ 450 lakhs. Give the accounting treatment for the new turbine, assuming SLM Depreciation and a discount
rate of 8%.
Solution
As per AS 10, Property, Plant and Equipment, the derecognition of the carrying amount of components of an item of
Property, Plant and Equipment occurs regardless of whether the cost of the previous part / inspection was identified in
the transaction in which the item was acquired or constructed. If it is not practicable for an enterprise to determine the
carrying amount of the replaced part/ inspection, it may use the cost of the replacement or the estimated cost of a future
similar inspection as an indication of what the cost of the replaced part/ existing inspection component was when the
item was acquired or constructed.
In the given case, the new turbine will produce economic benefits to Bharat Infrastructure Ltd. and the cost is
measurable. Since the recognition criteria is fulfilled, the same should be recognised as a separate item of Property, Plant
and Equipment. However, since the initial breakup of the components is not available, the cost of the replacement of ₹
450 lakhs can be used as an indication based on the guidance given above, discounted at 8% for the 6-year period lapsed.
Thus, estimate of cost 6 years back = ₹ 450 lakhs ÷ 1.086 = ₹ 283.58 lakhs Current carrying amount of turbine (to be de-
recognised) = Estimated cost ₹ 283.58 lakhs (–) SLM depreciation at 10% (useful life 10 years) for 6 years ₹ 170.15
lakhs= ₹ 113.43 lakhs.
Hence revised carrying amount of the machinery will be as under:
Particulars ₹ in lakhs
Historical Cost [₹ 1,000 lakhs (–) SLM Depreciation at 10% (10 year life) for 400.00
6 years]
Add: Cost of new turbine 450.00
Less: Derecognition of current carrying amount of old turbine (113.43)
New Carrying Amount of Machinery 736.57

QUESTION 77
Preet Ltd. intends to set up a steel plant, for which it has acquired a dilapidated factor having an area of 5,000 acres at a
cost of ₹ 60,000 per acre. Preet Ltd. has incurred ₹ 1.10 crores on demolishing the old Factory Building thereon. A sum
of ₹ 63,00,000 (including 5% GST thereon) was realized from the sale of material salvaged from the site. Preet Ltd.
incurred Stamp Duty and Registration Charges of 7% of land value, paid legal and consultancy charges ₹ 8,00,000 for
land acquisition and incurred ₹ 1,25,000 on title guarantee insurance. Compute the value of the land acquired.
Solution
Particulars ₹
Purchase Price: 5,000 acres x ₹ 60,000 per acre 3,000.00
Stamp Duty and Registration Charges at 7% 210.00
Legal and Consultancy Fees 8.00
Title Guarantee Insurance 1.25
Demolition Expenses (Net of Salvage Income) 50.00
[₹ 110 lakhs (–)₹ 60 lakhs (₹ 63 lakhs x 100/105)]
Cost of Land 3,269.25

QUESTION 78
In the books of Topmaker Limited, carrying amount of Plant and Machinery as on 1stApril, 2022 is ` 56,30,000. On
scrutiny, it was found that a purchase of Machinery worth ` 21,12,000 was included in the purchase of goods on 1st June,

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2022. On 30thJune, 2022 the company disposed a Machine having book value of ` 9,60,000 (as on 1stApril, 2022) for `
8,25,000 in part exchange of a new machine costing ` 15,65,000.
The company charges depreciation @ 10% p.a. on written down value method on Plant and Machinery.
You are required to compute:
• Depreciation to be charged to Profit & Loss Account;
• Book value of Plant & Machinery as on 31stMarch, 2023; and
• Profit/Loss on exchange of Plant & Machinery.
Solution:
(i) Depreciation to be charged in the profit & Loss Account
Particulars Amount in ₹
Depreciation on old machinery 1,40,750
[10% on ₹ 56,30,000 for 3 months (01.04.2022 to (30.06.2022)]

Add: Depreciation on Machinery acquired on 01.06.2022

(₹21,12,000 × 10% × 10/12) 1,76,000

Add: Depreciation on machinery after adjustment of exchange

[10% of ₹ 56,30,000 – 9,60,000 +15,65,000) for 9 months] 4,67,625

Total Depreciation to be charged in Profit & Loss A/c 7,84,375

(ii) Book Value of Plant & Machinery as on 31.3.2023

Particulars Amount in ₹
Balance as books on 01.04.2022 56,30,000
Add: Included in purchases on 01.06.2022 21,12,000
Add: Purchase on 30.06.2022 15,65,000 36,77,000
93,07,000
Less: Book Value of Machine Sold on 30.06.2022 (9,60,000)
83,47,000
Less: Depreciation on Machinery in use ₹ (7,84,375-24,000) (7,60,375)
Book Value as on 31.03.2023 75,86,625

Note: The computation of depreciation and book value of plant and machinery can be presented in the following
alternative manner
Particulars Book value or Cost Period Deprecation Book value as on
or Acquisition 31.03.2023
Opening 46,70,000 01.04.2022 4,67,000 42,03,00
Value (56,30,000- To (46,70,000×10%)
9,60,000) 31.03.2023
Sold 9,60,000 01.04.2022 to 24,000 (9,60,000 x 10% x 19,36,000
30.06.2022 3/12)
Purchases 21,12,000 01.06.2022 1.17.375 14,47,625
To (15,65,000
31.03.2023 × 10%9/912
Total 7,84,375 75,86,625

(iii)Profit/Loss on Exchange of Machinery

Particulars Amount in ₹
Balance as per books on 01.04.2022 9,60,000
Less: Depreciation for 3 months (₹ 9,60,000 ×10/100× 3/12) (24,000)
W.D.V. as on 30.06.2022 9.36,000

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 Less: Exchange Value (8,25,000)
Loss on exchange on Machinery 1,11,000

4. CONSOLIDATION

QUESTION 79
On 31st March, 2015, P Ltd. acquired 1,05,000 shares of Q Ltd. for Rs. 12,00,000. The position of Q Ltd. on
that date was as under:
Rs.
Property, plant and equipment 10,50,000
Current Assets 6,45,000
1,50,000 equity shares of Rs. 10 each fully paid 15,00,000
Pre-incorporation profits 30,000
Profit and Loss Account 60,000
Trade payables 1,05,000

P Ltd. and Q Ltd. give the following information on 31st March, 2021:
P Ltd. Q Ltd.
Rs. Rs.
Equity shares of Rs. 10 each fully paid (before bonus issue) 45,00,000 15,00,000
Securities Premium 9,00,000 –
Pre-incorporation profits – 30,000
General Reserve 60,00,000 19,05,000
Profit and Loss Account 15,75,000 4,20,000
Trade payables 5,55,000 2,10,000
Property, plant and equipment 79,20,000 23,10,000
Investment: 1,05,000 Equity shares in Q Ltd. at cost 12,00,000 –
Current Assets 44,10,000 17,55,000
Directors of Q Ltd. made bonus issue on 31.3.2021 in the ratio of one equity share of Rs. 10 each fully paid for every
two equity shares held on that date. Bonus shares were issued out of post-acquisition profits by using General
Reserve.
Calculate as on 31st March, 2021
(i) Cost of Control/Capital Reserve;
(ii) Minority Interest;
(iii) Consolidated Profit and Loss Account in each of the following cases:
. Before issue of bonus shares.
Immediately after issue of bonus shares.
SOLUTION
Shareholding pattern
Particulars Number of % of
Shares holding
. P Ltd.
(i) Purchased on 31.03.2015 1,05,000
(ii) Bonus Issue (1,05,000/2) 52,500
Total 1,57,500 70%
a. Minority Interest 67,500 30%

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Calculations of (i) Cost of Control/Capital Reserve; (ii) Minority Interest; (iii) Consolidated Profit and Loss Account
as on 31st March, 2021:
. Before issue of bonus shares
(i) Cost of control/capital reserve Rs. Rs.
Investment in Q Ltd. 12,00,000
Less: Face value of investments 10,50,000
Capital profits (W.N.) 63,000 (11,13,000)
Cost of control 87,000
(ii) Minority Interest Rs.
Share Capital 4,50,000
Capital profits (W.N.) 27,000
Revenue profits (W.N.) 6,79,500
11,56,500
(iii) Consolidated profit and loss account – P Rs.
Ltd.
Balance 15,75,000
Add: Share in revenue profits of Q Ltd. (W.N.) 15,85,500
31,60,500

b. Immediately after issue of bonus shares

(i) Cost of control/capital reserve Rs. Rs.
Face value of investments (Rs. 10,50,000 + Rs. 5,25,000) 15,75,000
Capital Profits (W.N.) 63,000 16,38,000
Less: Investment in Q Ltd. (12,00,000)
Capital reserve 4,38,000
(ii) Minority Interest Rs.
Share Capital (Rs. 4,50,000 + Rs. 2,25,000) 6,75,000
Capital Profits (W.N.) 27,000
Revenue Profits (W.N.) 4,54,500
11,56,500
(iii) Consolidated Profit and Loss Account – P Ltd. Rs.
Balance 15,75,000
Add: Share in revenue profits of Q Ltd. (W.N.) 10,60,500
26,35,500

Working Note:
Analysis of Profits of Q Ltd.
Capital Profits Revenue Profits
(Before and after issue of Before Bonus After Bonus
bonus shares) Issue Issue
Rs. Rs. Rs.
Pre-incorporation profits 30,000
Profit and loss account on 31.3.2015 60,000
General reserve* 90,000 19,05,000 19,05,000
Less: Bonus shares (7,50,000)
11,55,000

Profit for period of 1st April, 2015 to 31st

March, 2021 (Rs. 4,20,000 – Rs. 60,000) 3,60,000 3,60,000
22,65,000 15,15,000

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 P Ltd.’s share (70%) 63,000 15,85,500 10,60,500
Minority’s share (30%) 27,000 6,79,500 4,54,500
*Share of P Ltd. in General reserve has been adjusted in Consolidated Profit and Loss Account.

QUESTION 80
A Ltd. acquired 70% of equity shares of B Ltd. on 1.4.2010 at cost of ₹10,00,000 when B Ltd. had an equity share capital
of ₹10,00,000 & reserves & surplus of ₹80,000. In the four consecutive years, B Ltd. fared badly& suffered losses of
₹2,50,000, ₹4,00,000, ₹ 5,00,000 & ₹1,20,000 respectively. Thereafter in 2014- 15, B Ltd. experienced turnaround
&registered an annual profit of ₹ 50,000. In the next two years i.e., 2015-16 & 2016-17, B Ltd. recorded annual profits of
₹1,00,000 & ₹1,50,000 respectively. Show the minority interests& cost of control at the end of each year for the purpose
of consolidation.
SOLUTION
The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the
subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except
to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary
subsequently reports profits, all such profits are allocated to the majority interest until the minority's share of losses
previously absorbed by the majority has been recovered. Accordingly, the minority interests will be computed as follows:
Year Profit/(Loss) Minority Additional Minority's Share of losses Cost of
Interest Consolidated P borne by A Ltd. Control
(30%) & L (Dr.) Cr.
₹ Balance
At the time of -
acquisition in 3,24,000
2010 (W.N.)
2010-11 (2,50,000) (75,000) 1,75,000 2,44,000
Balance 2,49,000 (W.N.)
2011-12 (4,00,000) (1,20,000) 2,80,000 2,44,000
Balance 1,29,00
2012-13 (5,00,000) (1,50,000) (3,50,000) 2,44,000
(21,000)
Loss of minority borne 21,0000 (21,000) 21,000 21,000
by Holding Co
Balance Nil (3,71,000)
2013-14 (1,20,000) (36,000) (84,000) 2,44,000
Loss of 36,000 (36,000) 36,000 57,000
minority borne by
Holding Co.
Balance Nil (1,20,000)
2014-15 50,000 15,000 35,000 2,44,000
Profit share of minority (15,000) 15,000 (15,000) 42,000
adjusted against
losses of minority
absorbed
by Holding Co.
Balance Nil 50,000
2015-16 1,00,000 30,000 70,000
Profit share of minority (30,000) 30,000 (30,000) 12,000 2,44,000
adjusted
against losses of
minority absorbed by
Holding Co.

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 Balance Nil 1,00,000
2016-17 1,50,000 45,000 1,05,000 (12,000) Nil 2,44,000
(12,000) (12,000)
33,000 1,17,000

Calculation of Minority interest and Cost of control on 1.4.2010

Working Note: Share of Holding Co. Minority interest

100% 70% 30%

(₹) ( ₹) (₹)
Share Capital 10,00,000 7,00,000 3,00,000
Reserve 80,000 56,000 24,000
7,56,000 3,24,000
Less: Cost of investment (10,00,000)
Goodwill 2,44,000

QUESTION 81
A Ltd. and B Ltd. provide the following information:
₹ ‘000s
A Ltd. B Ltd.
Equity Shares 6,000 5,000
6% Preference Shares NIL 1,000
General Reserve 1,200 800
Profit and Loss Account 1,020 1,790
Trade Payables 3,850 3,410
Dividend Payable 600 500
Goodwill 100 20
Property, Plant and Equipment 3,850 2,750
Investment 1,620 1,100
Inventory 1,900 4,150
Trade Receivables 4,600 4,080
Cash & Bank 600 400
A Ltd. purchased 3/4th interest in B Ltd. at the beginning of the year at the premium of 25%. Following other information
is available:
a. Profit & Loss Account of B Ltd. includes ₹ 1,000 thousands bought forward from the previous year.
b. The General Reserve balance is brought forward from the previous year.
c. The directors of both the companies have declared a dividend of 10% on equity share capital for the previous and
current year.
From the above information calculate Pre- and Post-acquisition Profits, Minority Interest and Cost of Control.
SOLUTION
(ICAI SUGGESTED ANSWER – THIS IS WRONG AS PER MY OPINION)
Calculation of Pre- and Post-Acquisition Profits:
Pre-Acquisition Post-Acquisition
Profits (₹) Profits (₹)
Profit & Loss Account 10,00,000 7,90,000
General Reserve 8,00,000 NIL
18,00,000 7,90,000
Less: Share of Minority Interest: (¼) (4,50,000) (1,97,500)
Attributable to Parent 13,50,000 5,92,500
(Cost of Control) (Post-acquisition
Profits)
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 Calculation of Minority Interest:
Particulars ₹
Paid-up Equity Share Capital (₹ 50,00,000 x ¼) 12,50,000
Paid-up Preference Share Capital 10,00,000
Share in Reserves:
Profit & Loss Account: ₹ 17,90,000 x ¼ 4,47,500
General Reserve: ₹ 8,00,000 x ¼ 2,00,000
Minority Interest 28,97,500

Calculation of Goodwill/Capital Reserve

₹ ₹
Cost of Investment in Subsidiary: 46,87,500
₹ 50,00,000 x 75% x 125% (cost + 25% premium)
Less: Pre-acquisition dividend (3,75,000) 43,12,500
Less: Net Worth of B Ltd. on Date of Acquisition
(attributable to A Ltd.):
Paid-up Capital 37,50,000
Pre-acquisition Reserves 13,50,000 (51,00,000)
Capital Reserve 7,87,500

QUESTION 82
King Ltd. acquires 70% of equity shares of Queen Ltd. as on 31st March, 20X1 at a cost of ₹ 140 lakhs. The following
information is available from the balance sheet of Queen Ltd. as on 31st March, 20X1:
₹ in lakhs
Property, plant and equipment 240
Investments 110
Current Assets 140
Loans & Advances 30
15% Debentures 180
Current Liabilities 100
The following revaluations have been agreed upon (not included in the above figures):
● Property, plant and equipment- up by 20% and Investments- down by 10%.
● King Ltd. purchased the shares of Queen Ltd. @ ₹20 per share (Face value - ₹10).
Calculate the amount of goodwill/capital reserve on acquisition of shares of Queen Ltd.
SOLUTION
Revalued net assets of Queen Ltd. as on 31st March, 20X1
₹ in lakhs ₹ in lakhs
PPE [240 X 120%] 288
Investments [110 X 90%] 99
Current Assets 140
Loans and Advances 30
Total Assets after revaluation 557
Less: 15% Debentures 180.0
Current Liabilities 100.0 (280)
Equity / Net Worth 277
King Ltd.’s share of net assets (70% of 277) 193.9
King Ltd.’s cost of acquisition of shares of Queen Ltd. (₹140 lakhs) (140)
Capital reserve 53.9

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QUESTION 83
Exe Ltd. acquires 70% of equity shares of Zed Ltd. as on 31st March, 2017 at a cost of ₹ 70 lakhs. The following
information is available from the balance sheet of Zed Ltd. as on 31st March, 2017:
₹ in lakhs
Property, plant & Equipment 120
Investments 55
Current Assets 70
Loans & Advances 15
15% Debentures 90
Current Liabilities 50

The following revaluations have been agreed upon (not included in the above figures):
Property, plant & Equipment Up by 20%
Investments Down by 10%
Zed Ltd. declared and paid dividend @ 20% on its equity shares as on 31st March, 2017. Exe Ltd. purchased the shares
of Zed Ltd. @ ₹20 per share.
Calculate the amount of goodwill/capital reserve on acquisition of shares of Zed Ltd.
SOLUTION
Revalued net assets of Zed Ltd. as on 31st March, 2017
₹ in lakhs ₹ in lakhs
Property, plant & Equipment [120 X 120%] 144.0
Investments [55 X 90%] 49.5
Current Assets 70.0
Loans and Advances 15.0
Total Assets after revaluation 278.5
Less: 15% Debentures 90.0
Current Liabilities 50.0 (140.0)
Equity / Net Worth 138.5
Exe Ltd.’s share of net assets (70% of 138.5) 96.95
Exe Ltd.’s cost of acquisition of shares of Zed Ltd. (₹70 lakhs – ₹7 63.00
lakhs*)
Capital reserve 33.95

* Total Cost of 70 % Equity of Zed Ltd ₹ 70 lakhs

Purchase Price of each share ₹ 20
Number of shares purchased [70 lakhs /₹ 20] 3.5 lakhs
Dividend @ 20 % i.e., ₹ 2 per share ₹ 7 lakhs

Since dividend received is for pre-acquisition period, it has been reduced from the cost of investment in the subsidiary
company.

QUESTION 84
On 31st March, 2022, H Ltd. and S Ltd. give the following information:
H Ltd. S Ltd.
(Rs. in 000’s) (Rs. in 000’s)
Equity Share Capital – Authorised 5,000 3,000
Issued and subscribed in Equity Shares of Rs. 10 4,000 2,400
each fully paid
General Reserve 928 690
Profit and Loss Account (Cr. Balance) 1,305 810

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 Trade payables 611 507
Provision for Taxation 220 180
Other Provisions 65 17
Plant and Machinery 2,541 2,450
Furniture and Fittings 615 298
Investment in the Equity Shares of S Ltd. 1,500 -
Inventory 983 786
Trade receivables 820 778
Cash and Bank Balances 410 102
Sundry Advances (Dr. balances) 260 190
Following Additional Information is available:
(a) H Ltd. purchased 90 thousand Equity Shares in S Ltd. on 1st April, 2021. On that date the following balances stood
in the books of S Ltd.:
General Reserve Rs. 1,500 thousand; Profit and Loss Account Rs. 633 thousand.
(b) On 14th July, 2021 S Ltd. declared a dividend of 20% out of pre-acquisition profits. H Ltd. credited the dividend
received to its Profit and Loss Account.
(c) On 1st November, 2021, S Ltd. issued 3 fully paid Equity Shares of Rs. 10 each, for every 5 shares held as
bonus shares out of pre-acquisition General Reserve.
(d) On 31st March, 2021, the Inventory of S Ltd. included goods purchased for Rs. 50 thousand from H Ltd., which had
made a profit of 25% on cost.
(e) Details of Trade payables and Trade receivables:
H Ltd. S Ltd.
(Rs. in 000’s) (Rs. in 000’s)
Trade payables
Bills Payable 124 80
Sundry creditors 487 427
611 507
Trade receivables
Debtors 700 683
Bills Receivables 120 95
820 778
Prepare a consolidated Balance Sheet as at 31st March, 2022.
SOLUTION
Consolidated Balance Sheet of H Ltd. with its subsidiary S Ltd. as at 31st March, 2022
Particulars Note No. (Rs. in 000’s)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 4,000
(b) Reserves and Surplus 2 3,063
(2) Minority Interest (W.N.6) 1,560
(3) Current Liabilities
Trade payables 3 1,118
Short term provisions 4 482
Total 10,223
II. Assets
(1) Non-current assets
PPE 5 5,904
(2) Current assets

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 (a) Inventories 6 1,759
(b) Trade receivables 7 1,598
(c) Cash and cash equivalents 8 512
(d) Short term loans and advances 9 450
Total 10,223

Notes to Accounts
(Rs. in (Rs. in 000’s)
000’s)
1. Share Capital
Authorised share capital
5 lakhs equity shares of Rs. 10 each 5,000
Issued, Subscribed and Paid up
4 lakhs equity shares of Rs. 10 each fully paid 4,000
2. Reserves and surplus
Capital Reserve (Note 5) 679.8
General Reserve 928
Profit and Loss Account:
H Ltd. Rs. 1,305
Add: Share in S Ltd Rs. 340.20
Rs. 1,645.20
Less: Dividend wrongly credited Rs. (180)
Rs. 1,465.20
Less: Unrealised profit (50 X 1/5) Rs. (10) 1,455.20 3,063
3. Trade payables
H Ltd. 611
S Ltd. 507 1,118
4. Short –term provisions
Provision for Taxation H Ltd. Rs. 220
S Ltd. Rs. 180 400
Other Provisions H Ltd Rs. 65
S Ltd. Rs. 17 82 482
5. PPE
Plant and Machinery
H Ltd. Rs. 2,541
S Ltd. Rs. 2,450 4,991
Furniture and fittings
H Ltd. Rs. 615
S Ltd. Rs. 298 913 5,904
6. Inventories
Inventory H Ltd. Rs. 983
S Ltd. Rs. 786 1,769
Less: Unrealised profit (Rs. 50 x 1/5) (10) 1,759
7. Trade receivables
H Ltd. 820
S Ltd. 778 1,598
8. Cash and cash equivalents
Cash and Bank Balances H Ltd 410
S Ltd. 102 512
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 9. Short term loans and advances
Sundry Advances H Ltd. 260
S Ltd. 190 450

Working Notes:
Share holding pattern
Particulars Number of % of holding
Shares
a. S Ltd.
(i) Purchased on 01.04.2021 90,000
(ii) Bonus Issue (90,000/5 x 3) 54,000
Total 1,44,000 60%
(1,44,000 /2,40,000*x 100)
b. Minority Interest 96,000 40%
*2,40,000 is after issue of bonus shares as per balance sheet as at 31.3.2022

1. S Ltd. General Reserve

(Rs. in 000) (Rs. in 000)
To Bonus to equity shareholders 900 By Balance b/d 1,500
(2,400/8 x 3)
To Balance c/d 690 By Profit and Loss A/c 90
(Balancing figure)
1,590 1,590
2. S Ltd.’s Profit and Loss Account
(Rs. in 000) (Rs. in 000)
To General Reserve 90 By Balance b/d 633
To Dividend paid on 14.7.2021 300 By Net Profit for the
(1,500/100 x 20) year (Bal. fig.) 567*
To Balance c/d 810
1,200 1,200
* Out of Rs. 5,67,000 profit for the year, Rs. 90,000 has been transferred to reserves by S Ltd.

3. Distribution of Revenue Profits

Rs. in ’000
Revenue Profit as above 567.00
Share of H Ltd. (60%) 340.20
Share of Minority shareholders (567– 340.20) 226.80
4. Computation of Capital Profits
Rs. in 000 Rs. in 000
General Reserve on the date of acquisition 1,500
Less: Bonus issue of shares (900)
600
Profit and Loss Account balance on the date of acquisition 633
Less: Dividends paid (300) 333
933
Share of H Ltd. (60%) 559.80
Share of Minority shareholders 373.20
5. Computation of Capital Reserve
Rs. in ’000
60% of share capital of S Ltd. 1,440

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 Add: Share of H Ltd. in the capital profits as in W.N. (4) 559.80
1,999.80
Less: Investments in S Ltd. 1,500
Less: Dividends received out of pre- acquisition profits Rs. 300/100 x 60 (180) (1,320)
679.80

6. Calculation of Minority Interest

Rs. in ’000
40% of share capital of S Ltd. 960.00
Add: Share of Revenue Profits (Note 3) 226.80
Share of Capital Profits (Note 4) 373.20
1,560.00

QUESTION 85
The Trial Balances of X Limited and Y Limited as on 31st March, 2021 were as under:
X Limited (Rs. In Y Limited (Rs. In 000)
000)
Dr. Cr. Dr. Cr.
Equity Share capital (Share of Rs. 100 each) 2,000 400
7% Preference share capital - 400
Reserves 600 200
6% Debentures 400 400
Trade Receivables/Trade Payables 160 180 100 120
Profit & Loss A/c balance 40 30
Purchases /Sales 1,000 1,800 1,200 1,900
Wages and Salaries 200 300
Debenture Interest 24 24
General Expenses 160 7 120
Preference share dividend up to 30.09.2020 14
Inventory (as on 31.03.2021) 200 100
Cash at Bank 27 12
Investment in Y Limited 1,056 -
Fixed Assets 2,200 1,580
Total 5,027 5,027 3,450 3,450
● Investment in Y Limited was acquired on 1 July, 2020 and consisted of 80% of Equity Share Capital and 50%
st

of Preference Share Capital.

● After acquiring control over Y Limited, X Limited supplied to Y Limited goods at cost plus 25%, the total invoice value
of such goods being Rs. 1,20,000, one fourth of such goods were still lying-in inventory at the end of the year.
● Depreciation to be charged @ 10% in X Limited and @ 15% in Y Limited on Fixed Assets.
You are required to prepare the Consolidated Statement of Profit and Loss for the year ended on 31st March, 2021.
SOLUTION
Consolidated Statement of Profit & Loss Account of X Ltd. and Y Ltd.
for the year ended 31st March, 2021
Particulars Note No. Rs.
I. Revenue from operations 1 35,80,000
II. Total revenue 35,80,000
III. Expenses
Cost of Material purchased/Consumed 2 20,80,000
Changes of Inventories of finished goods -

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 Employee benefit expense 3 5,00,000
Finance cost 4 48,000
Depreciation and amortization expense 5 4,57,000
Other expenses 6 2,80,000
Total expenses 33,65,000
IV. Profit before Tax (II-III) 2,15,000
Profit transferred to Consolidated Balance Sheet
Profit After Tax 2,15,000
Preference dividend 7,000
Preference dividend payable 7,000 (14,000)
2,01,000
Share in pre-acquisition loss (WN 3) 1,800
Share of Minority interest in losses (WN 1) 1,800
Less: Investment Account- dividend for 3 months (prior to acquisition) (3,500)
Inventory reserve (WN 2) (6,000)
Profit to be transferred to consolidated balance sheet 1,95,100

Notes to Accounts
Rs. Rs.
1 Revenue from Operations
X Ltd. 18,00,000
Y Ltd. 19,00,000
Total 37,00,000
Less: Intra-group sales (X sold to Y) (1,20,000) 35,80,000
2 Cost of Materials
Purchased/Consumed
X Ltd. 10,00,000
Y Ltd. 12,00,000
Total 22,00,000
Less: Intra-group sales (X sold to Y) (1,20,000) 20,80,000
3 Employee benefit and expenses
Wages and salaries
H Ltd. 2,00,000
S Ltd. 3,00,000 5,00,000
4 Finance cost
Interest
H Ltd. 24,000
S Ltd. 24,000 48,000
5 Depreciation
H Ltd. 2,20,000
S Ltd. 2,37,000 4,57,000
6 Other expenses
H Ltd. 1,60,000
S Ltd. 1,20,000 2,80,000

Working Notes:
1. Profit of Subsidiary Rs.
Revenue from Operations 19,00,000
Less: Expenses
Cost of Material purchased/Consumed 12,00,000

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 Changes of Inventories of finished -
goods
Employee benefit expense 3,00,000
Finance cost 24,000
Depreciation and amortization expense 2,37,000
Other expenses 1,20,000
Total expenses (18,81,000)
Profit Before Tax 19,000
Less: Preference Dividend 14,000
Less: Preference Dividend Payable 14,000 (28,000)
Profit available for shareholders (9,000)
Minority Share (20% of loss Rs. 9,000) (1,800)

0. Inventory reserve = 120,0004 x 25125=Rs. 6,000

1. Pre-acquisition loss = 80% of 3 month’s profit up to 30th June,2020 i.e. 80 % of ¼ of loss Rs. 9,000. Hence, pre-
acquisition loss = Rs. 1,800
2. Investment account includes Preference dividend for 3 months prior to acquisition i.e. Rs. 4,00,000 x 50% x 7%
x 1/4 = Rs. 3,500

QUESTION 86
Subsidiary B Ltd. provides the following balance sheet
Particulars Note No. 20X0 (₹) 20X1 (₹)
Equity and Liabilities
(I) Shareholder’s Funds
(a) Share Capital 1 5,00,000 5,00,000
(b) Reserves and Surplus 2 2,86,000 7,14,000
(2) Current Liabilities
(a) Short term borrowings 3 -- 1,70,000
(b) Trade Payables 4,90,000 4,94,000
(c) Short-term provisions 4 3,10,000 4,30,000
Total 15,86,000 23,08,000
II. Assets
(1) Non-current assets
(a) Property, Plant and Equipment 5 2,72,000 2,24,000
(b) Non-current Investment 4,00,000
(2) Current assets
(a) Inventories 5,97,000 7,42,000
(b) Trade Receivables 5,94,000 8,91,000
(c) Cash & Cash Equivalents 51,000 3,000
(d) Other current assets 6 72,000 48,000
Total 15,86,000 23,08,000
Notes to Accounts
20X0 20X1
(₹) (₹)
1. Share capital
5,000 equity shares of ₹10 each, fully paid up 5,00,000 5,00,000
2. Reserves and Surplus
General Reserves 2,86,000 7,14,000
3. Short term borrowings
Bank overdraft -- 1,70,000
4. Short term provisions

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 Provision for taxation 3,10,000 4,30,000
5. Property, plant and equipment
Cost 3,20,000 3,20,000
Less: Depreciation Total (48,000) (96,000)
6. Other current Assets 2,72,000 2,24,000
Prepaid expenses 72,000 48,000
Also consider the following information:
(a) B Ltd. is a subsidiary of A Ltd. Both the companies follow calendar year as the accounting year.
(b) A Ltd. values inventory on weighted average basis while B Ltd. used FIFO basis. To bring B Ltd.’s values in line with
those of A Ltd, its value of inventory is required to be reduced by ₹12,000 at the end of 20X0 and ₹ 34,000 at the
end of 20X1.
(c) B Ltd. deducts 1% from Trade Receivables as a general provision against doubtful debts.
(d) Prepaid expenses in B Ltd. include advertising expenditure carried forward of ₹ 60,000 in 20X0 and₹ 30,000 in
20X1, being part of initial advertising expenditure of ₹ 90,000 in 20X0 which is being written off over three years.
Similar amount of advertising expenditure of A Ltd. has been fully written off in 20X0.
Restate the balance sheet of B Ltd. as at 31st December, 20X1 after considering the above information, for the purpose
of consolidation. Would restatement be necessary to make the accounting policies adopted by A Ltd. and B Ltd. uniform.
SOLUTION
As per para 20 and 21 of AS 21, Consolidated financial statements:
Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other
events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated
financial statements, that fact should be disclosed together with the proportions of the items in the consolidated
financial statements to which the different accounting policies have been applied.
If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for
like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements
when they are used in preparing the consolidated financial statements.
Accordingly in the given case, restatement would be required to make the accounting policies of A Ltd and B Ltd uniform.
Adjusted reserves of B Ltd.:
₹ ₹
Reserves as given 7,14,000
Add: Provision for doubtful debts {[8,91,000 / 99 X 100]-8,91,000} 9,000
7,23,000
Less: Reduction in value of Inventory 34,000
Advertising expenditure to be written off 30,000 64,000
6,59,000
Note: No adjustment would be required in respect of opening inventory of B Ltd as that will not have any impact on P&L.

Restated Balance Sheet of B Ltd. as at 31st December, 2016

Particulars Note No. (₹)
I. Equity and Liabilities
(1) Shareholder's Funds
(a) Share Capital 1 5,00,000
(b) Reserves and Surplus 2 6,59,000
(2) Current Liabilities
(a) Short term borrowings 3 1,70,000
(b) Trade Payables 4,94,000
(c) Short-term provision 4 4,30,000
Total 22,53,000
II. Assets
(1) Non-current assets

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 (a) Property, Plant and Equipment
Tangible assets 5 2,24,000
(b) Non-current Investment 4,00,000
(2) Current assets
(a) Inventories 6 7,08,000
(b) Trade Receivables 7 9,00,000
(c) Cash & Cash Equivalents 3,000
(d) Other current assets 8 18,000
Total 22,53,000

Notes to Accounts
₹
1. Share Capital
5,000 equity shares of ₹ 10 each, Fully Paid 5,00,000
2. Reserves and Surplus
Reserves (refer to W.N.) 6,59,000
3. Short term borrowings
Bank overdraft 1,70,000
4. Short-term provision
Provision for taxation 4,30,000
5. Tangible Assets
Cost 3,20,000
Less: Depreciation to date (96,000) 2,24,000
6. Inventory
Cost 7,42,000
Less: Adjustment because of change in method of valuation (34,000) 7,08,000
7. Trade receivables
Cost 8,91,000
Add: Provision adjustment 9,000 9,00,000
8. Other current assets
Prepaid expenses (48,000 – 30,000) 18,000

QUESTION 87
Variety Ltd. holds 46% of the paid-up share capital of VR Ltd. The shares were acquired at a market price
of ₹ 17 per share. The balance of shares of VR Ltd. are held by a foreign collaborating company. A
memorandum of understanding has been entered into with the foreign company providing for the
following:
(a) The shares held by the foreign company will be sold to Variety Ltd. The price per share will be calculated by
capitalising the yield at 15%. Yield, for this purpose, would mean 40% of the average of pre-tax profits for the last
3 years, which were ₹ 30 lakhs, ₹ 40 lakhs and ₹ 65 lakhs.
(b) The actual cost of the shares to the foreign company was ₹ 5,40,000 only. The profit that would accrue to them
would be taxable at an average rate of 30%. The tax payable will be deducted from the proceeds and Variety Ltd.
will pay it to the Government.
(c) Out of the net consideration, 50% would be remitted to the foreign company immediately and the balance will be
an unsecured loan repayable after two years.
The above agreement was approved by all concerned for being given effect to on 1.4.20X1. The total assets of VR Ltd.
as on 31st March, 20X1 was ₹ 1,00,00,000. It was decided to write down Property, Plant and Equipment by ₹ 1,75,000.
Current liabilities of VR Ltd. as on the same date were ₹ 20,00,000. The paid-up share capital of VR Ltd. was ₹ 20,00,000
divided into 2,00,000 equity shares of ₹ 10 each.
Find out goodwill/capital reserve to Variety Ltd. on acquiring wholly the shares of VR Ltd.

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SOLUTION
1. Computation of Purchase Consideration
(a) Yield of VR Ltd. {(40/100 x [(30+40+65)/3)]} ₹ 18 lakhs
(b) Price per share of VR Ltd.
Capitalized Yield: (18 lakhs/0.15) ₹ 120 lakhs
No. of Shares 2 lakhs
Therefore, Price per share ₹ 60
(C) Purchase Consideration for 54% shares in VR Ltd. 2 lakh ₹ 64.80 lakhs
shares x 54% x ₹ 60 per shares
(d) Discharge of Purchase Consideration:
Tax at source (₹ 64.80 lakhs - ₹ 5.40 lakhs) x 30/100 ₹ 17.82 lakhs
50% of Purchase Consideration (net of tax) in cash (₹ ₹ 23.49 lakhs
(64.80-17.82) x 50%)
Balance – Unsecured Loan ₹ 23.49 lakhs

2. Goodwill / Capital Reserve to Variety Ltd.

₹ in lakhs
Total Assets 100.00
Less: Reduction in Value of Property, Plant and Equipment (1.75)
98.25
Less: Current Liabilities (20.00)
Net Assets of VR Ltd. on Date of Acquisition 78.25
Purchase Consideration: 54% purchased from Foreign Co. 64.80
Investment: 46% existing stake 15.64 (80.44)
Goodwill on Date of Acquisition 2.19

QUESTION 88
As on 1/4/23 Reserves & Surplus is 5,20,000
On 1/6 Abnormal Gain is 9,000
On 1/8 (DOA) Market Value of Fixed Asset – 25,00,000;
Depreciation rate = 12%
On 1/10 Upstream Transaction at 25% on Cost;
Unsold Goods = 1,25,000
On 1/3 Bonus @ 1:4
31/3/24 Reserves & Surplus is 9,30,000; Dividend declared is 12%

Standalone Balance Sheet as on 31/3/24

Particular H Ltd. S Ltd.
Equity Share Capital 12,00,000 10,00,000
Reserves & Surplus 10,00,000 9,30,000
Liabilities 19,00,000 11,70,000
41,00,000 31,00,000
Fixed Asset 12,00,000 18,00,000
Investment @75% 15,00,000 -
Current Asset 14,00,000 13,00,000
41,00,000 31,00,000
Note: Bonus entry is already Passed
SOLUTION:
Working Note 1: Revaluation & its Depreciation
(a) Book Value as on 31/3/23 18,00,000
(b) Book value as on 1/4/23 18,00,000/88% 20,45,454

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 (c) Book value as on 1/8/23 19,63,636
(d) Market value as on 1/8/23 25,00,000
(e) FV Gain (d-c) 5,36,364
(f) Depreciation for Post Acquisition Period actually Charged by S (c-a) 1,63,636
(g) Depreciation that should be Charged on Market Value 2,00,000
(h) Additional Depreciation (g-f) 36,364

Working Note 2: Calculation of Unrealised Profit on Unsold Goods with H

Unsold goods with H (i.e., Sale by S) = 1,25,000
Subsidiary Margin (25% on Cost) = 1/5 on Sales
Profit = 1,25,000/5 = 25,000

Working Note 3: Analysis of Profit of S:

CP RP Balance Sheet
Balance of Reserves & Surplus 5,20,000 4,10,000 9,30,000
(-) Abnormal Gain - (9,000)
(+/-) Bonus (2,00,000) 2,00,000
Balance 3,20,000 6,01,000
(+/-) Time adjustment for 4M 2,00,333 (6,01,000 x 4/12)
5,20,333 4,00,667
(+) Abnormal Gain 9,000 -
(-) Dividend (4M Pre & 8M Post) (40,000) (80,000)
(+/-) Revaluation effect 5,36,364 (36,364)
(-) Unrealised Profit (WN.2) - (25,000)
10,25,697 2,59,303
H 75% 7,69,273 1,94,477
MI 25% 2,56,424 64,826
* Dividend shall be calculated on ESC including Bonus is already declared before CY Dividend. 10,00,000 x 12% =
1,20,000
*Dividend entry not yet passed

Working Note 4: Cost of Control

Investment 15,00,000
(-) Pre-Acquisition Dividend 30,000
(-) 75% ESC (7,50,000)
(-) Capital Profit Share (7,69,273)
Capital Reserve 49,273

Working Note 5: Minority Interest

Equity Share Capital 2,50,000
Share in Capital Profit 2,56,424
Share in Revenue Profit 64,826
5,71,250

Working Note 6: Consolidated Reserves & Surplus

(a) Consolidated Free Reserves 12,54,477
Balance with H 10,00,000
(+) Revenue Profit Share of H 1,94,477
(+) Post Acquisition Share of Dividend 60,000
(+) (b) Capital Reserve 49,273
Consolidated Reserves & Surplus 13,03,750
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 Consolidated Balance Sheet
Equity Share Capital 12,00,000
Consolidated Reserves & Surplus 13,03,750
Minority Interest 5,71,250
Liability 31,00,000
H 19,00,000
S 11,70,000
+ Dividend Payable to MI 30,000
61,75,000
Fixed Asset 35,00,000
H 12,00,000
S 18,00,000
+ FV 5,36,364
(-) Depreciation (36,364)
Current Assets 26,75,000
H 14,00,000
S 13,00,000
(-) Unrealised Profit (25,000)
61,75,000

5. AS – 23 INVESTMENT IN ASSOCIATES

QUESTION 89:
A Ltd. acquired 10% stake of B Ltd. on April 01 and further 15% on October 01 during the same year. Other information
is as follow:
Cost of Investment for 10% ₹ 1,00,000 and for 15% ₹ 1,45,000
Net asset on April 01 ₹ 8,50,000 and on October 01 ₹ 10,00,000.
Calculations for April 01:
Cost of investment ₹ 1,00,000
10% share in net asset ₹ 85,000
Goodwill ₹ 15,000

Calculations for October 01:

15% share in net asset ₹ 1,50,000
Cost of investment ₹ 1,45,000
Capital Reserve ₹ 5,000
Total goodwill (15,000 – 5,000) ₹ 10,000

QUESTION 90:
A Ltd. acquired 10% stake of B Ltd. on April 01 and further 15% on 1st October of the same year. Other information is as
follow:

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Cost of Investment for 10% ₹ 1,00,000 and for 15% ₹ 1,55,000
Net asset on 1st April ₹ 8,50,000 and on 1st October ₹ 10,00,000.
Calculations for April 01:
Cost of investment ₹ 1,00,000
10% share in net asset ₹ 85,000
Goodwill ₹ 15,000

Calculations for October 01:

Cost of investment ₹ 1,55,000
15% share in net asset ₹ 1,50,000
Goodwill ₹ 5,000
Total goodwill (15,000 + 5,000) ₹ 20,000

Case 2: Further acquisition in an associate in the same year:

QUESTION 91:
A Ltd. acquired 25% stake of B Ltd. on 1st April and further 5% on 1st October of the same year. Other information is as
follow:
Cost of Investment for 25% ₹ 1,50,000 and for 5% ₹ 20,000
Net asset on 1st April ₹ 5,00,000.
Profit for the year ₹ 90,000 earned in the ratio 2:1 respectively.
Calculations for April 01:
Cost of investment ₹ 1,50,000
25% share in net asset ₹ 1,25,000
Goodwill ₹ 25,000

Calculations for October 01:

Profits for the first half (90,000/3) x 2 ₹ 60,000
Additional share of A Ltd. 5%
Pre-acquisition profits i.e. capital reserve (60,000 x 5%) ₹ 3,000
5% share in net asset ₹ 25,000
Cost of investment ₹ 20,000
Capital Reserve ₹ 5,000
Cost of Investment on April 01 ₹ 1,50,000
Less: Goodwill ₹ 25,000
Carrying Amount on April 01 ₹ 1,25,000
Add: Additional Share in Net Asset on October 01 ₹ 25,000
Add: Capital share of Profits for first half ₹ 3,000
Add: Revenue shares of Profits for first half (60,000 x 25%) ₹ 15,000
Add: Revenue shares of Profits for second half (30,000 x 30%) ₹ 9,000
Total Carrying Amount on March 31 ₹ 1,77,000

QUESTION 92
On 01/04/23 Investments (25%) in Associate purchased at a Cost of 4,00,000. ESC & R&S as on 01/04/23 are
10,00,000 and 5,00,000. On 1st June, Dividend paid by Associate 50,000 & also received by Investor. Closing Balance
Of R&S of Associate is 8,00,000 as on 31/03/24. show Equity method Accounting on DOA & on 31/03/24.
Solution:-
1) Equity method on DOA
Investment Cost 4,00,000

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 (-) Proportionate share in Net Assets of
Associate Co. @25%:
● ESC (10,00,000 ×25%) (2,50,000)
● CP (4,50,000×25%) (1,12,500)
Goodwill 37,500

2) Analysis of Profit of Associate:-

Particular Pre-Acquisition Post Acquisition Balance on
Period Profit Period Profit Balance Sheet
R&S 5,00,000 3,00,000 8,00,000
(+) Dividend - 50,000
Balance 5,00,000 3,50,000
(+/-) Time adjustment - -
(-) Dividend (50,000) -
4,50,000 3,50,000
Share of Investor in Profits @ 1,12,500 87,500
25%

3) Equity method as B/S date :-

Investment as on DOA 4,00,000
(Including Goodwill – 37,500)
(+) Share in Post-Acquisition Profit (3,50,000 × 25%) 87,500
Investment Closing Balance 31/03/24 4,87,500

QUESTION 93
In Continuation of above Q1, During FY 24-25, suppose Associate co. earned Net profit after Tax of 3,00,000 &
Distributed Dividend of 60,000
Solution:
Important Analysis:
Equity Method on 01/4/23 Equity Method on 31/03/24 Equity Method on 31/3/25
Net Assets - 14,50,000 Net Assets - 18,00,000 Net Assets - 20,40,000
Proportionate Share @25% is Proportionate Share @ 25% is Proportionate Share @ 25% is
3,62,500 + 37,500 Goodwill 4,50,000 + 37,500 Goodwill 5,10,000 + 37,500 Goodwill

Equity Method as on 31/03/25:-

Opening Balance (Carrying Amount) of Investment as on 01/04/24 4,87,500
(including Goodwill 37,500)
(+) Share in Post Acquisition profit 75,000
3,00,000 × 25%
(-) Dividend Received by Investor (15,000)
60000 × 25%
Carrying Amount of Investments as on 31/03/25 5,47,500
(including Goodwill 37,500)

QUESTION 94
Date of Acquisition of Investments 01/04/23
Investment Cost @ 30% 2,70,000
ESC of Associate co. as on (01/04/23) 5,00,000
R&S as on (01/04/23) 3,00,000
On 01/04/23, One PPE whose BV was 7,00,000 having FV was 9,00,000 Depreciation rate = 10% Net profit of Associate
for 23-24 is 2,00,000.

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Apply Equity method:
a) On DOA; and
b) On B/S date
Solution:-
Alternate 1 Alternate 2
1. Equity Method as on DOA AOP of Associate
Investment cost 2,70,000 Particulars Pre-Profits Post- On B/S
(-) Prop. Net Assets at FV Profits Date
ESC (BV) 1,50,000 Reserves & Surplus 3,00,000 2,00,000 5,00,000
R&S (BV) 90,000 (+) FV of PPE 2,00,000 -
FV Gain (9-7 × 30%) 60,000 (-) Additional - (20,000)
Capital Reserve 30,000 Depreciation
Investment A/c Dr. 30,000 Final Balance 5,00,000 1,80,000
To Capital Reserve A/c 30,000 Share of Investor @ 1,50,000 54,000
Revised Investment as on DOA (as 3,00,000 30%
per Equity method)
Equity Method as on DOA & B/S
2. Equity method as B/S date Investment cost 2,70,000
Carrying Amt. of Investment cost 3,00,000 (-) Prop. Net Assets at FV
(+) Share in Post-Acquisition profit 60,000 ESC (BV) 1,50,000
(-) Share in additional dep due to PPE 6,000 Pre-Acquisition Profit 1,50,000
FV (20,000 x 30%) Capital Reserve 30,000
Revised Investment as on B/s Date 3,54,000 Revised Investment as on DOA (as per 3,00,000
(as per Equity method) Equity method)
(+) Share in Post-Acquisition Profit 54,000
Carrying Amount of Investment as on 3,54,000
BS date

QUESTION 95
Bright Ltd. acquired 30% of East India Ltd. shares for ₹ 2,00,000 on 01-06-20X1. By such an acquisition Bright can
exercise significant influence over East India Ltd. During the financial year ending on 31-03-20X1 East India earned
profits ₹ 80,000 and declared a dividend of ₹ 50,000 on 12-08-20X1. East India reported earnings of ₹ 3,00,000 for the
financial year ending on 31-03-20X2 (assume profits to accrue evenly) and declareddividends of ₹ 60,000 on 12-06-
20X2.
Calculate the carrying amount of investment in:
(i) Separate financial statements of Bright Ltd. as on 31-03-20X2;
(ii) Consolidated financial statements of Bright Ltd.; as on 31-03-20X2;
(iii) What will be the carrying amount as on 30-06-20X2 in consolidated financial statements?
SOLUTION
(i) Carrying amount of investment in Separate Financial Statement ofBright Ltd. as on 31.03.20X2
₹
Amount paid for investment in Associate (on 1.06.20X1) 2,00,000
Less: Pre-acquisition dividend (₹ 50,000 x 30%) (15,000)
Carrying amount as on 31.3.20X2 as per AS 13 1,85,000

(ii) Carrying amount of investment in Consolidated Financial Statements of Bright Ltd. as on 31.3.20X2 as per
AS 23
₹
Carrying amount as per separate financial statements 1,85,000
Add: Proportionate share of 10-month profit of investee as per equity method (30% 75,000

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 of ₹ 3,00,000 x 10/12)
Carrying amount as on 31.3.20X2 2,60,000

(iii) Carrying amount of investment in Consolidated Financial Statement of Bright Ltd. as on 30.6.20X2 as per AS 23
₹
Carrying amount as on 31.3.20X2 2,60,000
Less: Dividend received (₹ 60,000 x 30%) (18,000)
Carrying amount as on 30.6.20X2 2,42,000

QUESTION 96
A Ltd. acquired 25% of shares in B Ltd. as on 31.3.20X1 for ₹ 3 lakhs. TheBalance Sheet of B Ltd. as on 31.3.20X1
is given below:
₹
Share Capital 5,00,000
Reserves and Surplus 5,00,000
10,00,000
Fixed Assets 5,00,000
Investments 2,00,000
II. Current Assets 3,00,000
10,00,000
During the year ended 31.3.20X2 the following are the additional informationavailable:
1) A Ltd. received dividend from B Ltd., for the year ended 31.3.20X1 at40% from the Reserves.
2) B Ltd., made a profit after tax of ₹ 7 lakhs for the year ended 31.3.20X2.
3) B Ltd., declared a dividend @ 50% for the year ended 31.3.20X2 on30.4.20X2.
A Ltd. is preparing Consolidated Financial Statements in accordance with AS 21 for its various subsidiaries.
Calculate:
(i) Goodwill if any on acquisition of B Ltd.’s shares.
(ii) How A Ltd., will reflect the value of investment in B Ltd., in theConsolidated Financial Statements?
(iii) How the dividend received from B Ltd. will be shown in the ConsolidatedFinancial Statements?
SOLUTION
In terms of AS 23, B Ltd. will be considered as an associate company ofA Ltd. as shares
acquired represent to more than 20%.
(i) Calculation of Goodwill (₹ in lakhs)
Amount paid towards acquisition of stake in B Ltd. 3.00
Less: Pre-acquisition dividend (₹ 5,00,000 x 40% x 25%) 0.50
Cost of Investment in B Ltd. 2.50
Less: Share in the value of Equity of B Ltd.as at the date of investment
[25% of ₹10 lakhs (₹5 lakhs + ₹5 lakhs)] (2.50)
Goodwill NIL

(ii) A Ltd.
Consolidated Profit and Loss Account for the year ended 31st March, 20X2
(An extract)
₹ in lakhs
Other income:
Share of profits in B Ltd. 1.75
Pre-acquisition Dividend received from B Ltd. 0.50
Transfer to investment A/c (0.50) Nil

Consolidated Balance Sheet as on 31.3.20X2 (An extract)

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 ₹ in lakhs
Non-current investments
Investment in B Ltd.
Cost of Investment in B Ltd. 2.50
Share of profit for year 20X1 – 20X2 1.75
4.25
Add: Goodwill NIL 4.25
Working Notes:
1. Pre-acquisition dividend received from B Ltd. amounting to ₹ 0.50 lakhs will be reduced from investment
value in the booksof A Ltd.
2. B Ltd. made a profit of ₹ 7 lakhs for the year ended 31st March, 20X2. A Ltd.’s share in the profits of ₹ 7
lakhs is ₹ 1.75 lakhs.
3. Investment in B Ltd. will be increased by ₹ 1.75 lakhs and consolidated profit and loss account of A Ltd. will be
creditedwith ₹ 1.75 lakhs in the consolidated financial statement of A Ltd.
4. Dividend declared on 30th April, 20X2 will not be recognized in the consolidated financial statement of A Ltd.

6. AS – 27 JOINT VENTURES

QUESTION 97
Balance Sheet of J Ltd. (31/3/24)
Equity Share Capital 10,00,000
Reserves and Surplus 6,00,000
Liabilities 14,00,000
30,00,000
Non-Current Assets 18,00,000
Current Assets 12,00,000
30,00,000
● J Ltd. is a J.V. Of A Ltd. & B Ltd. with 50% Investment by each.
● A Ltd. Invested in J Ltd. on 1/4/23, When R&S Balance of J Ltd. was 2,00,000/-
● Investment made by A Ltd. Was 6,50,000
● How A Ltd Shall accounts for this Investment in J Ltd. in its Consolidated Financial Statement.
Solution:-
A Ltd. (Venturer) Shall apply Proportionate Consolidation Method as under :-
Working Note 1 - Cost of Control as on DOA
Investment Cost 6,50,000
(-) 50% of Net Assets
ESC 10 Lacs × 50% (5,00,000)
Pre-Acquisition Profit 2 Lacs × 50% (1,00,000)
Goodwill 50,000

Working Note 2 - Share in Post Acquisition Profit of JCE :-

4,00,000 × 50% = 2,00,000
(Note: Minority Interest will never be Calculated)

A Ltd.
Consolidation B/s (Extract)

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 Equity Share Capital XXX
Consolidated R&S :-
A’s Balance XXX
+ Post Acquisition Profit Share 2,00,000
Liability A Ltd. XXX
Share in JV 7,00,000
Non-Current Assets
A Ltd. XXX
JV 9,00,000
Goodwill 50,000
Current Assets
A Ltd. XXX
JV 6,00,000

QUESTION 98
A Ltd. is a Venturer has invested in a JV AB Ltd. with 50% Share. Another Venturer is B Ltd. A Ltd. sold one Asset to JV (AB
Ltd.) whose cost is Rs. 1,00,000 and Sold at 1,25,000. How to treat this transaction in the books of A Ltd. and B Ltd.
Describe with the help of Journal Entry.
Answer
A Ltd. has total Gain of 25,000 out of which 12,500 (50% share) earned from B Ltd. (i.e. Outside party) and rest 12,500
earned from itself. A Ltd. shall not record its own share of Gain earned from itself.
Books of JV (AB Ltd. – Purchaser) Books of B Ltd. (Venturer) Books of A Ltd. (Seller and Venturer)
Asset A/c Dr. 1,25,000 Share in JV’s Asset Dr. 62,500 B Ltd. A/c Dr. 62,500
To A Ltd. 1,25,000 To Share in JV’s Liability (A Ltd.) A/c Share in JV’s Asset Dr. 50,000
62,500 To Assets A/c 1,00,000
To Gain on Sale A/c 12,500

QUESTION 99
AB Ltd. (JV of A Ltd. and B Ltd.) sold one Asset costing Rs. 1,00,000 to A Ltd. at 1,30,000. Pass necessary journal entries.
Answer
JV Ltd. has total Gain of 30,000 out of which 15,000 (50% share) of B Ltd. (i.e. Outside party) and 15,000 of A Ltd. A Ltd.
shall not record its own share of Gain earned from itself.
Books of JV (AB Ltd. – Seller) Books of B Ltd. (Venturer) Books of A Ltd. (Purchaser and
Venturer)
A Ltd. A/c Dr. 1,30,000 A Ltd. A/c Dr. 65,000 Asset A/c Dr. 1,15,000
To Asset A/c 1,00,000 To Share in Asset A/c 50,000 To B Ltd. A/c 65,000
To Gain A/c 30,000 To Gain A/c 15,000 To Share in Asset A/c 50,000

QUESTION 100
A Ltd. a UK based company entered into a joint venture with B Ltd. in India, wherein B Ltd. will import the goods
manufactured by A Ltd. on account of joint venture and sell them in India. A Ltd. and B Ltd. agreed to share the expenses
& revenues in the ratio of 5:4 respectively whereas profits are distributed equally. A Ltd. invested 49% of total capital but
has equal share in all the assets and is equally liable for all the liabilities of the joint venture.
Following is the trial balance of the joint venture at the end of the first year:

Particulars Dr. (₹ ) Cr. (₹ )

Purchases 9,00,000
Other Expenses 3,06,000
Sales 13,05,000

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 Property, Plant and Equipment 6,00,000
Current Assets 2,00,000
Unsecured Loans 2,00,000
Current Liabilities 1,00,000
Capital 4,01,000
Closing inventory was valued at ₹ 1,00,000.
You are required to prepare the Consolidated Financial Statement.
Solution
Consolidated Profit & Loss Account
Particulars Note No. (₹ )
Revenue from operations 1 13,05,000
Total Revenue (A) 13,05,000
Less: Expenses
Purchases 2 9,00,000
Other expenses 3 3,06,000
Changes in inventories of finished goods 4 (1,00,000)
Total Expenses (B) 11,06,000
Profit Before Tax (A-B) 1,99,000

Consolidated Balance Sheet

Note No. (₹)
I Equity and liabilities
1. Shareholders’ funds:
Share Capital 5 4,01,000
Reserves and Surplus 6 1,99,000
2. Non-current liabilities
Long term borrowings 7 2,00,000
3. Current Liabilities 8 1,00,000
9,00,000
II Assets
Non-current Assets
Property, Plant and Equipment 9 6,00,000
Current Assets
Inventories 10 1,00,000
Other current assets 11 2,00,000
9,00,000

Notes to Accounts
Particulars (₹)
1. Revenue from operations
Sales:
A Ltd. 7,25,000
B Ltd. 5,80,000 13,05,000
2. Purchases
A Ltd. 5,00,000
B Ltd. 4,00,000 9,00,000
3. Other expenses
A Ltd. 1,70,000
B Ltd. 1,36,000 3,06,000
4. Closing Inventory
A Ltd. 50,000

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 B Ltd. 50,000 1,00,000
5. Share Capital
A Ltd. 1,96,490
B Ltd. 2,04,510 4,01,000
6. Reserves and Surplus
Profit & Loss Account:
A Ltd. 99,500
B Ltd. 99,500 1,99,000
7. Long Term Borrowings
Unsecured Loans:
A Ltd. 1,00,000
B Ltd. 1,00,000 2,00,000
8. Current Liabilities
A Ltd. 50,000
B Ltd. 50,000 1,00,000
9. Property, Plant and Equipment
A Ltd. 3,00,000
B Ltd. 3,00,000 6,00,000
10. Inventories
A Ltd. 50,000
B Ltd. 50,000 1,00,000
11. Other Current Assets
A Ltd. 1,00,000
B Ltd. 1,00,000 2,00,000

QUESTION 101
Standalone Balance sheets on 31/03/24
Particular H S JV ASS
ESC 10/- face Value 10,00,000 8,00,000 6,00,000 50,000
R&S 9,00,000 75,000 4,50,000 3,00,000
Liability 11,00,000 6,50,000 5,50,000 4,00,000
30 Laksh 22 Laksh 16 Laksh 12 Laksh
Investments:
In S 80% 11,00,000 - - -
In JV 50% 5,00,000 - - -
In Ass. 30% 1,60,000 - - -
Other Assets 12,40,000 22,00,000 16,00,000 12,00,000

1) Date of Acquisition of all Investments is 01/07/23.

2) Opening Balance of R&S on 01/04/23
S Ltd. 4,80,000
JV Ltd. 1,50,000
Associate Ltd. 1,20,000
Prepare Consolidated Balance Sheet for H Ltd.
Solution:-
1) Subsidiary Consolidation
Analysis of Profit (AOP)
Particulars Pre Post B/S
R&S 4,80,000 2,70,000 7,50,000
(+/-) Time Adjustement 67,500 (2,70,000 × 3/12)
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 5,47,500 2,02,500
Share of H Ltd. 4,38,000 1,62,000
Share of M/I 1,09,500 40,500

Minority Interest
ESC 20% 1,60,000
(+) Pre-Acquisition 20% 1,09,500
(+) Post Acquisition 20% 40,500
3,10,000
Cost of Control (COC)
Investments in S Ltd. 11,00,000
(-) 80% Net Assets
ESC 80% (6,40,000)
Share of Pre-Acquisition Profit (4,38,000)
Goodwill 22,000

2) JV (Proportionate Consolidation Method)

Analysis of Profit (AOP)
Particulars Pre Post B/S
R&S 1,50,000 3,00,000 4,50,000
(+/-) Time Adjustment 75,000 (3,00,000 × 3/12)
2,25,000 2,25,000
H 50% 1,12,500 1,12,500

Cost of Control
Investment 5,00,000
(-) 50% of Net Assets
ESC 50% 3,00,000
Share of Pre Acquisition 1,12,500
Goodwill 87,500

3) Associate Consolidation (Equity Method):

Analysis of Profit
Pre Post B/S
R&S 1,20,000 1,80,000 3,00,000
(+/-) Time Adjustment 45,000 (1,80,000×3/12)
1,65,000 1,35,000

Equity Method
Investment Cost 1,60,000
(-) 30% N. Assets as on DOA 1,99,500
Equity Share Capital 5,00,000
Share of Pre-Acquisition 1,65,000
6,65,000 × 30%
Capital Reserve on DOA 39,500
(Investment to be Increased by 39,500)
Revised Carrying Amount of Investment 1,99,500
(+) Share in Post-Acquisition Period Profit 40,500
1,35,000× 30%
Closing Investment as on Balance Sheet 2,40,000

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Consolidated P&L A/c of H Ltd.
Balance of R&S of H Ltd. as per SFS 9,00,000
(+) Share in Post Acquisition profit
From S Ltd. 1,62,000
From JV Ltd. 1,12,500
From Associate Ltd. 40,500
Consolidation P&L 1,21,500
Capital Reserve from COC 39,500
Consolidation R&S 12,54,500

Consolidated Balance Sheet

Particulars Amount
Equity Share Capital 10,00,000
Consolidation Reserves and Surplus 12,54,500
Minority Interest 3,10,000
Liability H 11,00,000 20,25,000
S 6,50,000
JV 2,75,000
45,89,500
Investment in Associate as per Equity Method 2,40,000
Other Assets H 12,40,000
I 22,00,000
JV 8,00,000
Goodwill S 22,000 1,09,500
JV 87,500
45,89,500

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