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AS 1 - DISCLOSURE OF ACCOUNTING POLICIES

AP 1. In the books of M/s ABC Ltd., closing inventory as at 31.03.2022 amounts to ₹ 1,63,000
(on the basis of FIFO method). The company decides to change from FIFO method to
weighted average method for ascertaining the cost of inventory from the year 2021-22. On
the basis of weighted average method, closing inventory as on 31.03.2022 amounts to
₹ 1,47,000. Realisable value of the inventory as on 31.03.2022 amounts to ₹ 1,95,000.
Discuss disclosure requirement of change in accounting policy.

AP 2. Sangeetha Ltd. had made a rights issue of shares in 2022. In the offer document to its
members, it had projected a surplus of ₹ 40 crores during the accounting year to end on
31st March, 2022. The draft results for the year, prepared on the hitherto followed
accounting policies and presented for perusal of the board of directors showed a deficit of
₹ 10 crores. The board in consultation with the managing director, decided on the
following:
i) Value year-end inventory at works cost (₹ 50 crores) instead of the hitherto method of
valuation of inventory at prime cost (₹ 30 crores).
ii) Provide for permanent diminution in the value of investments, which had taken place
over the past five years, the amount of provision being ₹ 10 crores.
As chief accountant of the company, you are asked by the managing director to draft the
notes on accounts for inclusion in the annual report for 2021-2022.

AP 3. Qwerty Company is engaged in the business of financial services and is undergoing tight
liquidity position, since most of the assets of the company are blocked in various
claims/petitions in a Special Court. Qwerty has accepted Inter-Corporate Deposits (ICDs)
and it is making its best efforts to se le the dues. There were claims at varied rates of
interest, from lenders, from the due date of ICDs to the date of repayment. The company
has provided interest, as per the terms of the contract till the due date and a note for non-
provision of interest on the due date to date of repayment was affected in the financial
statements. On account of uncertainties existing regarding the determination of the
amount and in the absence of any specific legal obligation at present as per the terms of
contracts, the company considers that these claims are in the nature of "claims against the
company not acknowledged as debt”, and the same has been disclosed by way of a note in
the accounts instead of making a provision in the statement of profit and loss. State
whether the treatment done by the Company is correct or not.

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AP 4. State whether the following statements are 'True' or 'False'. Also give reason
i) Certain fundamental accounting assumptions underline the preparation and
presentation of financial statements. They are usually specifically stated because their
acceptance and use are not assumed.
ii) If fundamental accounting assumptions are not followed in presentation and
preparation of financial statements, a specific disclosure is not required.
iii)All significant accounting policies adopted in the preparation and presentation of
financial statements should form part of the financial statements.
iv) Any change in an accounting policy, which has a material effect should be disclosed.
Where the amount by which any item in the financial statements is affected by such
change is not ascertainable, wholly or in part, the fact need not to be indicated.

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AS 2 – VALUATION OF INVENTORIES

VI 1. The company deals in three products, A, B and C, which are neither similar nor
interchangeable. At the time of closing of its account for the year 2021-22, the Historical
Cost and Net Realisable Value of the items of closing stock are determined as follows:
Items Historical Cost (₹ in lakhs) Net Realisable Value (₹ in lakhs)
A 40 28
B 32 32
C 16 24
What will be the value of closing stock?

VI 2. You are required to value the inventory per kg of finished goods consisting of:
₹ per kg
Material cost 200
Direct labour 40
Direct variable overhead 20
Fixed production charges for the year on normal working capacity of 2 lakh kgs is ₹ 20
lakhs. 4,000 kgs of finished goods are in stock at the year end.

VI 3. Mr. Hari gives the following information relating to items forming part of inventory as on
31-3-2021. His factory produces Product X using Raw material A.
i) 600 units of Raw material A (purchased @ ₹ 120). Replacement cost of raw material A
as on 31-3-2021 is ₹ 90 per unit.
ii) 500 units of partly finished goods in the process of producing X and cost incurred till
date ₹ 260 per unit. These units can be finished next year by incurring additional cost
of ₹ 60 per unit.
iii)1500 units of finished Product X and total cost incurred ₹ 320 per unit.
Expected selling price of Product X is ₹ 300 per unit.
Determine how each item of inventory will be valued as on 31-3-2021. Also calculate the
value of total inventory as on 31-3-2021.

VI 4. On 31st March 2021, a business firm finds that cost of a partly finished unit on that date
is ₹ 530. The unit can be finished in 2021-22 by an additional expenditure of ₹ 310. The
finished unit can be sold for ₹ 750 subject to payment of 4% brokerage on selling price.
The firm seeks your advice regarding the amount at which the unfinished unit should be
valued as at 31st March, 2021 for preparation of final accounts. Assume that the partly
finished unit cannot be sold in semi-finished form and its NRV is zero without processing
it further.

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VI 5. In a manufacturing process of Mars Ltd, one by-product BP emerges besides two main
products MP1 and MP2 apart from scrap. Details of cost of production process are:

Item Unit Amount Output Closing Stock

31-03-2021
Raw Material 14,500 1,50,000 MP1 - 5,000 units 250
Wages - 90,000 MP2 - 4,000 units 100
Fixed Overhead - 65,000 BP- 2,000 units
Variable Overhead - 50,000

Average market price of MP1 and MP2 is ₹ 60 per unit and ₹ 50 per unit respectively,
byproduct is sold @ ₹ 20 per unit. There is a profit of ₹ 5,000 on sale of by-product after
incurring separate processing charges of ₹ 8,000 and packing charges of ₹ 2,000, ₹ 5,000
was realised from sale of scrap.

Calculate the value of closing stock of MP1 and MP2 as on 31.3.2021.

VI 6. Capital Cables Ltd., has a normal wastage of 4% in the production process. During the
year 2021-2022 the Company used 12,000 MT of raw material costing ₹ 150 per MT. At
the end of the year 630 MT of wastage was in stock. The accountant wants to know how
this wastage is to be treated in the books. Explain in the context of AS 2 (Revised) the
treatment of normal loss and abnormal loss and also find out the amount of abnormal loss.

VI 7. SM Enterprises is a leading distributor of petrol. A detailed inventory of petrol in hand is

taken when the books are closed at the end of each month. For the month ending on June
2021 following information is available:
i) Sales for the month of June 2021 was ₹ 30,40,000.
ii) General overheads cost ₹ 4,00,000.
iii)Inventory at beginning 10,000 litres @ ₹ 92 per litre.
iv) Purchases - June 1, 2021, 20,000 litres @ ₹ 90 per litre, June 30, 2021, 10,000 litres @
₹ 95 per litre.
v) Closing inventory 13,000 litres.

Compute the following by FIFO method as per AS 2:

i) Value of Inventory on 30th June, 2021.
ii) Amount of cost of goods sold for June,2021.
iii)Profit/Loss for the month of June,2021.
(May 2022)

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VI 8. Following information of Sarah Limited is given:

Sarah Limited uses Raw Material ‘A’ for production of production of Finished Goods ‘B’

Closing balance of Raw Material ‘A’ in units on 31st March,2022 750

Price Per Unit in ₹
Cost Price 150
Freight inward 10
Replacement Cost 152
Closing balance of Finished Good ‘B’ in units on 31st March,2022 1,600
Price Per Unit in ₹
Material Consumed 225
Direct Labour 75
Direct Labour overhead 60
Total Fixed Overheads amounts to ₹ 1,00,000 on normal capacity of 20,000 units.
Calculate the value of Closing Stock of Raw materials and Closing Stock of Finished Goods,
as on 31st March, 2022, when selling price of Finished Goods ‘B’ is ₹ 360 per unit.
(November 2022)

VI 9. In the following cases, find the value of closing stock as per AS 2:

i) Sonu is a retailer dealing in toys. During the year, he purchased items worth ₹ 1,47,000
and made a total sale ₹ 1,54,000. The average percentage of gross margin is 10% on
cost. Opening stock of toys at cost was ₹ 20,000.
ii) On 21st March, 2023, Mohan purchased 250 chairs at ₹ 300 each. The selling price of
the chair is ₹ 400 each. Owing to a manufacturing defect, net realisable value of the
whole lot of chairs was determined at 70% of their normal selling price. No chairs
were sold during the year.
(November 2023)

VI 10. Well Wear Limited is a Textile Manufacturing Company and engaged in the production
of Polyester(P) and Nylon(N). While manufacturing the main products, a by-product
Fiber(F) is also produced. Details of the cost of production are as under:
Purchase of Raw Material for manufacturing process of
30,000 units ₹ 3,50,000
Wages paid ₹ 1,60,000
Fixed overheads ₹ 1,20,000
Variable overheads ₹ 60,000
Output:
Polyester(P) 12,500 units
Nylon(N) 10,000 units
Fiber(F) 3,200 units

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Closing Inventory:
Polyester(P) 1,600 units
Nylon(N) 400 units

Average market price of Polyester and Nylon is ₹ 100 and ₹ 60 per unit respectively, by
product Fiber is sold @ ₹ 40 per unit. There is profit of ₹ 8,000 on sale of by-product after
incurring separate processing expenses of ₹ 10,000 and packing charges of ₹ 9,000. ₹ 5,000
was realized from sale of scrap.

On the basis of the above information, compute the value of closing inventory of Polyester
and Nylon.

(May 2024)

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AS 4 - CONTINGENCIES AND EVENTS OCCURRING AFTER THE
BALANCE SHEET DATE

CE 1. In Vinith Co. Ltd., theft of cash of ₹ 5 lakhs by the cashier in January, 2024 was detected
only in May, 2024. The accounts of the company were not yet approved by the Board of
Directors of the company.
Decide whether the theft of cash has to be adjusted in the accounts of the company for the
year ended 31.3.2024.

CE 2. An earthquake destroyed a major warehouse of Fire Ltd. on 20.5.2022. The accounting

year of the company ended on 31.3.2022. The accounts were approved on 30.6.2022. The
loss from earthquake is estimated at ₹ 30 lakhs. State with reasons, whether the loss due to
earthquake is an adjusting or non-adjusting event and how the fact of loss is to be disclosed
by the company.

CE 3. A company has filed a legal suit against the debtor from whom ₹ 15 lakh is recoverable as
on 31.3.2024. The chances of recovery by way of legal suit are not good as per legal opinion
given by the counsel in April, 2024. Can the company provide for full amount of ₹ 15 lakhs
as provision for doubtful debts? Discuss.

CE 4. In preparing the financial statements of Run Ltd. for the year ended 31st March, 2021,
you come across the following information. State with reasons, how you would deal with
this in the financial statements:
The company invested 100 lakhs in April, 2021 before approval of Financial Statements
by the Board of directors in the acquisition of another company doing similar business, the
negotiations for which had started during the year.

CE 5. Fruit Limited Company closed its accounting year on 30.6.2021 and the accounts for that
period were considered and approved by the board of directors on 20th August, 2021. The
company was engaged in laying pipeline for an oil company deep beneath the earth. While
doing the boring work on 1.9.2021 it had met a rocky surface for which it was estimated
that there would be an extra cost to the tune of ₹ 80 lakhs. You are required to state with
reasons, how the event would be dealt with in the financial statements for the year.

CE 6. While preparing its final accounts for the year ended 31st March, 2021 a company made
a provision for bad debts @ 5% of its total trade receivables. In the last week of February,
2021, a trade receivable for ₹ 2 lakhs had suffered heavy loss due to an earthquake; the loss
was not covered by any insurance policy. In April, 2021 the trade receivable became a
bankrupt. Can the company provide for the full loss arising out of insolvency of the trade
receivable in the final accounts for the year ended 31st March, 2021?

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CE 7. Yellow Ltd. has book debts and has a doubt over recoverability of some of the book debts.
The amount that cannot be recovered is not quantifiable. Thus, Yellow Ltd. is of the opinion
that provision for doubtful debts should not be created. Yellow Ltd. creates provision for
certain other expenses on estimated basis. Whether contention of Yellow Ltd. is correct?

CE 8. O Ltd. has sold its building for ₹ 50 lakhs to K Ltd. and has also given the possession to K
Ltd. The book value of the building is ₹ 30 lakhs. As on 31st March, 2021, the
documentation and legal formalities are pending. The company has not recorded the sale
and has shown the amount received as advance. Do you agree with this treatment?

CE 9. During the year 2021-2022, Taj Ltd. was sued by a competitor for ₹ 15 lakhs for
infringement of a trademark. Based on the advice of the company's legal counsel, Taj Ltd.
provided for a sum of ₹ 10 lakhs in its financial statements for the year ended 31st March,
2022. On 18th May, 2022, the Court decided in favour of the party alleging infringement
of the trademark and ordered Taj Ltd. to pay the aggrieved party a sum of ₹ 14 lakhs. The
financial statements were prepared by the company's management on 30th April, 2022,
and approved by the board on 30th May, 2022.

CE 10. As per the provision of AS 4, you are required to state with reason whether the following
transactions are adjusting event or non-adjusting event for the year ended 31.03.2021 in
the books of NEW Ltd. (accounts of the company were approved by board of directors on
10.07.2021):
i) Equity Dividend for the year 2020-21 was declared at the rate of 7% on 15.05.2021.
ii) On 05.03.2021, ₹ 53,000 cash was collected from a customer but not deposited by the
cashier. This fraud was detected on 22.06.2021.
iii)One building got damaged due to occurrence of fire on 23.05.221. Loss was estimated
to be ₹ 81,00,000.
(December 2021)

CE 11. MN Limited operates its business into various segments. Its financial year ended on 31st
March, 2022 and financial statements were approved by their approving authority on 15th
June, 2022. The following material events took place:
i) On 7th April, 2022, a fire completely destroyed a manufacturing plant of the entity. It
was expected that the loss of ₹ 15 crores would be fully covered by the insurance co.
ii) A claim for damage amounting to ₹ 12 crores for breach of patent had been received by
the entity prior to the year end. It is the director's opinion, backed by legal advice that
the claim will ultimately prove to be baseless. But it is still estimated that it would
involve a considerable expenditure on legal fees.
iii)A major property was sold (it was included in the balance sheet at ₹ 37,50,000) for
which contracts had been exchanged on 15th March, 2022. The sale was completed on
15th May, 2022 at a price of ₹ 39,75,000.
State with reasons, how each of the above items should be dealt with.
(November 2022)

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CE 12. Surya Limited follows the financial year from April to March. It has provided the following
information.
i) A suit against the Company's Advertisement was filed by a party on 5th April, 2023,
claiming damages of ₹ 5 lakhs.
ii) Company sends a proposal to sell an immovable property for ₹ 45 lakhs in March 2023.
The book value of the property is ₹ 30 lakhs as on year-end date. However, the Deed was
registered on 15th April, 2023.
Keeping in view the provisions of AS-4, state with reasons whether the above events are to
be treated as Contingencies, Adjusting Events or Non-Adjusting Events occurring after
Balance Sheet date.
(RTP May 2024)

CE 13. For five companies whose financial year ended on 31st March, 2023, the financial
statements were approved by their approving authority on 15th June, 2023.
During 2023-2024, the following material events took place:
i) A 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 March, 2023. The sale was completed
on 15th May, 2023 at a price of ₹ 2,50,000.
ii) On 30th April, 2023, a 100% subsidiary of B Ltd. declared a dividend of ₹ 3,00,000 in
respect of its own shares for the year ended on 31st March, 2023.
iii)On 31st May, 2023, the mail order activities of C Ltd. (a retail trading group) were
shut down with closure costs amounting to ₹ 2.5 million.
iv) On 1st July, 2023 the discovery of sand under D Ltd.'s major civil engineering contract
site causes the cost of the contract to increase by 25% for .which there would be no
corresponding recovery from the customer.
v) A fire, on 2nd April, 2023, completely destroyed a manufacturing plant of E Ltd. It was
expected that the loss of ₹ 10 million would be fully covered by the insurance company.

State with reasons, how each of the above items numbered (i) to (v) should be dealt with in
the financial statement of the various companies for the year ended 31st March, 2023.
(RTP September 2024)

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AS 5 - NET PROFT OR LOSS FOR THE PERIOD, PRIOR PERIOD
ITEMS & CHANGES IN ACCOUNTING POLICIES

NP 1 . Comment
i) During the year 2021-20X2, a medium size manufacturing company wrote down its
inventories to net realisable value by ₹ 5,00,000. Is a separate disclosure necessary?
ii) A company signed an agreement with the Employees Union on 1.9.2022 for revision of
wages with retrospective effect from 30.9.2021. This would cost the company an
additional liability of ₹ 5,00,000 per annum. Is a disclosure necessary for the amount
paid in 2022-23?

NP 2 . Explain whether the following will constitute a change in accounting policy or not
i) Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc
ex-gratia payments to employees on retirement.
ii) Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organisation. Such employees will get pension of ₹
20,000 per month. Earlier there was no such scheme of pension in the organisation.

NP 3 . In the current year, A Ltd. changed the depreciation method from the Straight-Line
Method to Wri en Down Value method. When A Ltd. recomputed depreciation
retrospectively as per the new method, deficiency arose in depreciation in respect of past
years. Therefore, it reduced the carrying amount of the asset by the amount of deficiency
and such change in carrying amount (deficiency amount) has been debited to the statement
of profit and loss as an extraordinary expense.
Whether the change in the carrying amount of assets due to the change in depreciation
method should be treated as an extraordinary item?

NP 4 . TQ Cycles Ltd. is in the manufacturing of bicycles, a labour-intensive manufacturing

sector. In April 2022, the Government enhanced the minimum wages payable to workers
with retrospective effect from the 1st January,2022. Due to this legislative change, the
additional wages for the period from January 2022 to March 2022 amounted to ₹ 30 lakhs.
The management asked the Finance manager to charge ₹ 30 lakhs as prior period item
while finalizing financial statements for the year 2022-23. Further, the Finance manager
is of the view that this amount being abnormal should be disclosed as extra-ordinary item
in the Profit and loss account for the financial year 2021-22.
Discuss with reference to applicable Accounting Standards.
(May 2022)

NP 5 . The Accountant of Shiva Limited had sought your opinion with relevant reasons, whether
the following transactions will be treated as change in Accounting Policies or change in
Accounting Estimates for the year ended 31st March, 2021. Please advise him in the
following situations in accordance with the provisions of AS 5:

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i) Provision for doubtful debts was created @3% till 31st March, 2020. From the Financial
year 2020-2021, the rate of provision has been changed to 4%.
ii) During the year ended 31st March,2021, the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
iii)Till 31st March, 2020 the furniture was depreciated on straight line basis over a period
of 5 years. From the Financial year 2020-2021, the useful life of furniture has been
changed to 3 years.
iv) Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organization. Such employees will get pension of ₹
20,000 per month. Earlier there was no such scheme of pension in the organization.
v) During the year ended 31st March 2021, there was change in cost formula in measuring
the cost of inventories.
(November 2022)

NP 6 . The accountant of Beryl Limited has asked you to identify the following items as – Change
in Accounting Policies / Change in Accounting Estimates / Extraordinary Items / Prior
period items / Ordinary Activity:
(i)Non-provision for salary already due in earlier year.
(ii)A achment of the property of the enterprise.
(iii)Introduction of new pension scheme for employees.
(iv)Change in Reserve for obsolete inventory.
(v)Se lement of litigation case.
(vi)Actual Bad debts exceeds the provision.
(vii)Legislative changes having long term retrospective application.
(viii)Capitalisation of working capital loan interest.
(ix) Change from Cost to Revaluation Model for measurement of carrying amount of PPE.
(x) Government sanctioned grant in current year for expenses incurred in previous
accounting year.
(November 2023)

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AS 7 - CONSTRUCTION CONTRACTS

CC 1. Sohan construction Ltd, a construction company undertakes the construction of an

industrial complex. It has separate proposals raised for each unit to be constructed in the
industrial complex. Since each unit is subject to separate negotiation, he is able to identify
the costs and revenues a ributable to each unit. Should Sohan Ltd, treat construction of
each unit as a separate construction contract according to AS 7?

CC 2. Arman contactors enter into a contract on 1st January 2021 with Sapna to construct a 5-
storied building. Under the contract, Arman is required to complete the construction in 3
years (i.e., by 31st December 2023). The following information is relevant:
Fixed price (agreed) ₹ 5 crore
Material cost escalation (to the extent of 20% of increase in material cost)
Labour cost escalation (up to 30% of increase in minimum wages)

In case Arman is able to complete the construction in less than 2 years and 10 months, it
will be entitled for an additional incentive of ₹ 50 lakh. However, in case the construction
is delayed beyond 3 years and 2 months, Sapna will charge a penalty of ₹ 20 lakh. At the
start of the contract, Arman has a reason to believe that construction will be completed in
2 years and 8 months. Assume that the construction was actually completed in 2 years 9
months.

Labour cost was originally estimated to be ₹ 1.20 crore (based on initial minimum wages).
However, the costs have increased by 25% during the construction period.

Material costs have increased by 40% due to short-supply. The total increase in material
cost due to the 40% escalation is ₹80 lakh.

You are required to suggest what should be the contract revenue in above case?

Assume that in year 2022, Sapna has requested Arman to increase the scope of the contract.
An additional floor is required to be constructed and there is an increase in contract fee by
₹ 1 crore.

Arman has incurred a cost of ₹ 20 lakh for ge ing the local authority approvals which it
will be entitled to claim from Sapna in addition to the increase in the fixed fee.
Also measure the total contract revenue in this case.

CC 3. Queen Ltd. commenced a construction contract on 01-04-2021. The fixed contract price
agreed was ₹ 2,00,000. The company incurred ₹ 81,000 in 2021-22 for 45% work and
received ₹ 79,000 as progress payment from the customer. The cost incurred in 2022-23
was ₹ 89,000 to complete the rest of work. Show the extract of the Profit and Loss Account
and Customer’s Account for the related years.

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CC 4. Prakash & Associates undertakes a construction contract the details of which are provided:
Total Contract Value ₹ 40 lakh
Costs incurred to date ₹ 3 lakh
Estimated future costs of completion ₹ 30 lakh
Work completed 10%
The work has started some time ago and there is an uncertainty with respect to the outcome
of the contract due to expected changes in regulations. Prakash is certain that it would be
able to recover the costs incurred to date.

CC 5. Shree Ltd. commenced a construction contract on 01/04/21. The contract price agreed was
reimbursable cost plus 10%. The company incurred ₹ 1,00,000 in 2021-22, of which cost
of ₹ 90,000 is reimbursable. The further non-reimbursable costs to be incurred to complete
the contract are estimated at ₹ 5,000. The other costs to complete the contract could not be
estimated reliably. Prepare the Profit & Loss A/c extract of Shree Ltd. for 2021-22.

CC 6. Show Profit & Loss A/c (Extract) in books of a contractor in respect of the following data
for Year 1.
Information for Year 1 ₹ 000
Contract price (Fixed) 600
Cost incurred to date 390
Estimated cost to complete 260
Assume that the contract period is 2 years. The contract is 100% completed by Year 2.
Actual costs incurred is the same as total estimated costs to complete (Cost incurred to
date plus estimated cost to complete).

CC 7. A firm of contractors obtained a contract for construction of bridges across the river. The
following details are available in the records kept for the year ended 31st March, 2021.
( ₹ in lakhs)
Total Contract Price 1,000
Work Certified for the cost incurred 500
Work yet not Certified for the cost incurred 105
Estimated further Cost to Completion 495
Progress Payment Received 400
Progress Payment Received 140
The firm seeks your advice and assistance in the presentation of accounts keeping in view
the requirements of AS 7.

CC 8. On 1st December, 2021, Karma Construction Co. Ltd. undertook a contract to construct
a building for ₹ 85 lakhs. On 31st March, 2022, the company found that it had already
spent ₹ 64,99,000 on the construction. Prudent estimate of additional cost for completion
was ₹ 32,01,000. What amount should be recognized in the statement of profit and loss for
the year ended 31st March, 2022 as per provisions of Accounting Standard 7 (Revised)?

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CC 9. On 1st December, 2021, Grape Construction Co. Ltd. undertook a contract to construct a
building for ₹ 45 lakhs. On 31st March, 2022, the company found that it had already spent
₹ 32.50 lakhs on the construction. Additional cost of completion is estimated at ₹ 15.10
lakhs. What amount should be charged to revenue in the final accounts for the year ended
31st March, 2022 as per provisions of AS-7?

CC 10. Akshar Ltd. Signed on 01/04/21, a construction contract for ₹ 1,50,00,000. Following
particulars are extracted in respect of contract, for the year ended 31/03/22.
- Materials used ₹ 71,00,000
- Labour charges paid ₹ 36,00,000
- Hire charges of plant ₹ 10,00,000
- Other contract cost incurred ₹ 15,00,000
- Labour charges of ₹ 2,00,000 are still outstanding on 31.3.22.
- It is estimated that by spending further ₹ 33,50,000 the work can be completed in all
respect.
You are required to compute profit/loss for the year to be taken to Profit & Loss Account
and any provision for foreseeable loss to be recognized as per AS 7.

CC 11. A construction contractor has a fixed price contract for ₹ 9,000 lakhs to build a bridge in
3 years’ time frame. A summary of some of the financial data is as under:
(Amount ₹ in lakhs)
Year 1 Year 2 Year 3
Initial Amount for revenue agreed in contract 9,000 9,000 9,000
Variation in Revenue (+) - 200 200
Contracts costs incurred up to the reporting date 2,093 6,168* 8,100**
Estimated profit for whole contract 950 1,000 1,000

*Includes ₹ 100 lakhs for standard materials stored at the site to be used in year 3 to
complete the work.
**Excludes ₹ 100 lakhs for standard material brought forward from year 2.
The variation in cost and revenue in year 2 has been approved by customer.
Compute year wise amount of revenue, expenses, contract cost to complete and profit or
loss to be recognized in the Statement of Profit and Loss as per AS-7 (revised).

CC 12. Rang Enterprises has entered into a fixed price contract for construction of a tower with
its customer. Initial tender price agreed is ₹ 220 crore. At the start of the contract, it is
estimated that total costs to be incurred will be ₹ 200 crore. At the end of year 1, this
estimate stands revised to ₹ 202 crore. Assume that the construction is expected to be
completed in 3 years.
During year 2, the customer has requested for a variation in the contract. As a result of
that, the total contract value will increase by ₹ 5 crore and the costs will increase by ₹ 3
crore.

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Rang has decided to measure the stage of completion on the basis of the proportion of
contract costs incurred to the total estimated contract costs. Contract costs incurred at the
end of each year is:

Year 1: ₹ 52.52 crore

Year 2: ₹ 154.20 crore (including unused material of 2.5 crore)
Year 3: ₹ 205 crore.

You are required to calculate:

(a) Stage of completion for each year.

(b) Profit to be recognised for each year.

CC 13. Grace Ltd., a firm of contractors provided the following information in respect of a contract
for the year ended on 31st March,2022:
Particulars (₹ in ‘000)
Fixed Price Contract with an escalation clause 35,000
Work Certified 17,500
Work not Certified (includes ₹ 26,25,000 for materials issued, out of 3,815
which material lying unused at the end of the period is ₹ 1,40,000)
Estimated further cost to completion 17,325
Progress Payment Received 14,000
Payment to be Received 4,900
Escalation in cost is by 8% and accordingly the contract price is increased
by 8%
From the above information, you are required to:
i) Compute the contract revenue to be recognized.
ii) Calculate Profit /Loss for the year ended 31st March,2022 and additional provision for
loss to be made, if any, for the year ended 31st March,2022.
(May 2022)

CC 14. Fisher Construction Co. obtained a contract for construction of a commercial complex. The
following details are available in records of a company for the year ended 31st March, 2023:
Particulars Amount in lakhs
Total contract price 24,000
Work certified 12,500
Work not certified 2,500
Estimated further cost to completion of work 17,500
Progress payment received 11,000
Progress payment to be received 3,000
Applying the provisions of AS 7, you are required to compute:
i) Profit / Loss for the year ended 31stMarch, 2023.
ii) Contract work in progress at the end of financial year 2022-2023.

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iii)Revenue to be recognized out of the total contract value.
iv) Amount due from/ to customers as at the year end.
(May 2023)

CC 15. Constructions Limited is engaged in the business of constructing Flyovers and Railway
over bridges. It obtained a contract from Railway Authorities to construct a railway over
bridge for ₹ 400 crores. The construction of the railway over bridge is expected to be
completed in 4 years.
At the outset of the contract, it was estimated that the total costs to be incurred will be
₹ 370 crores but by the end of year 1, this estimate stands revised to ₹ 375 crores.
During year 3, the Construction Limited has requested for a variation in the contract
which is approved by Railway Authorities and accordingly the total contract value will
increase by ₹ 10 crores and costs will increase by ₹ 7 crores.
The Constructions Limited decided to measure the stage of completion on the basis of the
proportion of contract costs incurred to the total estimated contract costs. Contract costs
incurred at the end of each year is:
Year 1: ₹ 98.8 crores
Year 2: ₹ 202.4 crores
Year 3: ₹ 310 crores (including unused material of 3 crores)
Year 4: ₹ 382 crores
You are required to:
i) Calculate stage of completion of contract for each year.
ii) Profit to be recognized for each year.
(May 2024)

CC 16. The following data is provided for M/s. Raj Construction Co.
i) Contract Price - ₹ 85 lakhs
ii) Materials issued - ₹ 21 Lakhs out of which Materials costing ₹ 4 Lakhs is still lying
unused at the end of the period.
iii) Labour Expenses for workers engaged at site - ₹ 16 Lakhs (out of which ₹ 1 Lakh is still
unpaid)
iv) Specific Contract Costs = ₹ 5 Lakhs
v) Sub-Contract Costs for work executed - ₹ 7 Lakhs, Advances paid to Sub-Contractors -
₹ 4 Lakhs
vi) Further Cost estimated to be incurred to complete the contract - ₹ 35 Lakhs
Compute the Percentage of Completion, the Contract Revenue and Cost to be recognized.
(RTP May 2024)

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CC 17. Mehta ltd. has undertaken bridge construction contract wherein, bridge will be
constructed in 3 years. The details of the contracts are as follows:
i) Initial contract revenue ₹ 900 crore
ii) Initial contract cost ₹ 800 crore
Years
Particulars I II III
₹ in crore ₹ in crore ₹ in crore
Estimated contract cost 805
Increase in contract revenue 20
Estimated additional increase cost 15
Contract cost incurred upto 161 584 820

At the end of year II, cost incurred includes ₹ 10 crore, for material stored at the sites to be
used in year III to complete the project.
State the amount of revenue, expenses and profit to be recognized in the Statement of Profit
and Loss in these three years.
(RTP September 2024)

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AS 9 - REVENUE RECOGNITION

RR 1. Potato runs a food-delivery business. As per the arrangement, Potato allows customers to
order food from local restaurants and is responsible the delivery of the food within
stipulated time. During a particular year, it collects the money on orders made online as:
Total price for the food item - ₹ 200 lakhs
Delivery charges - ₹ 60 lakhs
GST - ₹ 40 lakhs
Total - ₹ 300 lakhs

Potato has received ₹ 300 lakhs for the above orders from customers and the orders were
delivered to the customer in stipulated time.
How much revenue should be recognised by restaurants and how much revenue
should be recognised by Potato for the year?

RR 2. AB sells goods to CD on 1st March 2021. CD is having significant cash flows issues since
last few months. However, it is trying to raise funding through bank loan to be able to run
its operations in future. On 5th of May 2021, CD is able to seek the funding and is expected
to be able to pay for the goods in future. At the time of sale, it is difficult for AB to ascertain
whether it will be able to collect the amount from CD due to poor financial conditions.
Explain how the recognition of revenue be done by AB?

RR 3. Pan sells goods to Tan on 1st January 2021 for ₹ 2 lakhs. After the sale was made, Tan is
having significant cash flows issues. It is trying to raise funding through bank loan to be
able to run its operations in future. However, it is unable to do so and has gone under
liquidation on 15th of March 2021.
At the time of sale, there was no reason for Pan to believe that it will not be able to collect
the amount from Tan in future.
How the recognition of revenue be done by Pan for the year ended 31st March 2021?

RR 4. During the year ended 31st March 2024, Kite Enterprises has recognized ₹ 100 lakhs on
accrual basis income from dividend on units of mutual funds held by it. The dividends on
mutual funds were declared on 15th June, 2024. The dividend was proposed on 10th April,
2024. Whether the above treatment is as per the relevant Accounting Standard?

RR 5. On 1st January 2024, M/s KJ sells goods at invoice value of ₹ 5 lakhs to M/s TH. At the
time of sale, M/s KJ has agreed to repurchase these goods back from M/s TH on 31st March
at a price of ₹ 6 Lac. You are required to do the accounting for above transactions.

RR 6. A claim lodged with the Railways in March, 2021 for loss of goods of ₹ 2,00,000 had been
passed for payment in March, 2023 for ₹ 1,50,000. No entry was passed in the books of
Company, when the claim was lodged. Advise the Co. Ltd. about the treatment of the
following in the Final Statement of Accounts for the year ended 31st March, 2023.

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RR 7. Dry manufactures and sells televisions. The televisions are shipped to customer by sea. In
order to transfer risk related to the shipment of the televisions, Dry also gets an insurance
coverage for the goods while they are in transit from the factory to customer’s location.
The insurance policy will reimburse Dry for the value of the goods in the event of loss or
damage arising anytime up to these goods reaching customer’s location. The legal title
passes when the goods arrive at the customer’s premises one month later.
When should Entity Dry recognize revenue in its books?

RR 8. For the year ended 31st March 2021, Key Enterprises has entered into the following.
On 31 March 2021, Key supplied two machines to its customer Set. Both machines were
accepted by Set on 31 March 2021. Machine 1 was a machine that was routinely supplied
by Key to many customers and the installation process was very simple.

Machine 1 was installed on 2 April 2021 by Set’s employees.

Machine 2 being more specialised in nature requires an installation process which is more
complicated, requiring significant assistance from Key. Machine 2 was installed between
2 and 5 April 2021. Details of costs and sales prices are as follows:

Machine 1 Machine 2
Sale Price 3,20,000 3,00,000
Cost of production 1,60,000 1,50,000
Installation fee NIL 10,000
How should above transactions be recognized by Key Enterprises for the year ended 31st
March 2021?

RR 9. An entity negotiates with major airlines to purchase tickets at reduced rates compared
with the price of tickets sold directly by the airlines to the public. The entity agrees to buy
a specific number of tickets and will pay for those tickets even if it is not able to resell them.
The reduced rate paid by the entity for each ticket purchased is negotiated and agreed in
advance. The entity determines the prices at which the airline tickets will be sold to its
customers. The entity sells the tickets and collects the consideration from customers when
the tickets are sold.
Determine whether the entity is a principal or an agent.

RR 10. Given the following information of Rainbow Ltd.

i) On 15th November, goods worth ₹ 5,00,000 were sold on approval basis. The period of
approval was 4 months after which they were considered sold. Buyer sent approval for
75% goods sold upto 31st January and no approval or disapproval received for the
remaining goods till 31st March.
ii) On 31st March, goods worth ₹ 2,40,000 were sold to Bright Ltd. but due to refurnishing
of their show-room being underway, on their request, goods were delivered on 10th
April.

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iii)Rainbow Ltd. supplied goods worth ₹ 6,00,000 to Shyam Ltd. and concurrently agrees
to re-purchase the same goods on 14th April.
iv) Dew Ltd, used certain assets of Rainbow Ltd. Rainbow Ltd. received ₹ 7.5 lakhs and
₹ 12 as interest and royalties respectively from Dew Ltd. during the year 2020-21.
v) On 25th December, goods of ₹ 4,00,000 were sent on consignment basis of which 40%
of the goods unsold are lying with the consignee at the year-end on 31st March.

In each of the above cases, you are required to advise, with valid reasons, the amount to be
recognized as revenue under the provisions of AS-9.
(December 2021)

RR 11. Following information of BS Products Ltd. is given:

i) Goods of ₹ 2,00,000 sold to Den Ltd. on 20-03-2023 but at the request of the buyer these
were delivered on 10-04-2023.
ii) On 15-01-2023 goods of ₹ 3,00,000 were sent on consignment basis, of which 20% of
the goods unsold are lying with the consignee as on 31-03-2023.
iii)₹ 4,00,000 worth of goods were sold on approval basis on 01-12-2022. The period of
approval was 3 months after which they were considered as sold. Buyer sent approval
for 75% goods upto 31-01-2023 and no approval or disapproval received for the
remaining goods till 31-03-2023.
iv) Apart from the above, BS Products Ltd. sells goods to dealers also. One of the conditions
of sale is that interest is payable @ 2% p.m. for delayed payments by dealers. The
percentage of interest recovery is only 10% i.e. ₹ 50,000 on such overdue outstanding
due to various reasons. During the year 2022-23, the company wants to recognize the
entire interest receivable of ₹ 60,000.

Advise the accountant of BS Products Ltd., with valid reasons, the amount to be recognized
as revenue in above cases in the context of AS 9 and also determine the total revenue to be
recognized for the year ending 31-03-2023.
(RTP May 2024)

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AS 10 – PROPERTY, PLANT AND EQUIPMENT

PPE 1. Entity Z has an existing freehold factory property, which it intends to knock down and
redevelop. During the redevelopment period the company will move its production
facilities to another (temporary) site. The following incremental costs will be incurred:
i) Setup costs of ₹ 5,00,000 to install machinery in the new location.
ii) Rent of ₹ 15,00,000.
iii)Removal costs of ₹ 3,00,000 to transport the machinery from the old location to the
temporary location.
Can these costs be capitalised into the cost of the new building?

PPE 2. Omega Ltd. contracted with a supplier to purchase machinery which is to be installed in
its one department in three months' time. Special foundations were required for the
machinery which were to be prepared within this supply lead time. The cost of the site
preparation and laying foundations were ₹ 1,40,000. These activities were supervised by
a technician during the entire period, who is employed for this purpose of ₹ 45,000 per
month. The machine was purchased at ₹ 1,58,00,000 and ₹ 50,000 transportation charges
were incurred to bring the machine to the factory site. An Architect was appointed at a fee
of ₹ 30,000 to supervise machinery installation at the factory site. You are required to
ascertain the amount at which the Machinery should be capitalized.

PPE 3. Entity Bat exchanges land with a book value of ₹ 10,00,000 for cash of ₹ 20,00,000 and
plant and machinery valued at ₹ 25,00,000. What will be the measurement cost of the
assets received. (Consider that the transaction has commercial substance)?

PPE 4. Entity Cat exchanges car A with a book value of ₹ 13,00,000 and fair value of ₹ 13,25,000
for cash of ₹ 15,000 and car B which has a fair value of ₹ 13,10,000. The transaction lacks
commercial substance. What will be the measurement cost of the assets received.

PPE 5. PPE before revaluation is ₹ 1,000 and accumulated depreciation is ₹ 400. PPE is revalued
to ₹ 1,500. Show the accounting treatment of revaluations under both the techniques.

PPE 6. A property costing ₹ 10,00,000 is bought in 2021. Its estimated total physical life is 50
years. However, the company considers it likely that it will sell the property after 20 years.
The estimated residual value in 20 years' time, based on 2021 prices, is:
Case (a) ₹ 10,00,000
Case (b) ₹ 9,00,000.
Calculate the amount of depreciation.

PPE 7. With reference to AS-10 Revised, classify the items under the following heads:
HEADS
i) Purchase Price of Property, plant and Equipment (PPE)
ii) Directly a ributable cost of PPE or

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iii)Cost not included in determining the carrying amount of an item of PPE.
ITEMS
(1) Import duties and non-refundable purchase taxes.
(2) Initial delivery and handling costs.
(3) Initial operating losses, such as those incurred while demand for the output of an item
builds up.
(4) Costs incurred while an item capable of operating in the manner intended by
management has yet to be brought into use or is operated at less than full capacity.
(5) Trade discounts and rebates.
(6) Costs of relocating or reorganizing part or all of the operations of an enterprise.
(7) Installation and assembly costs.
(8) Administration and other general overhead costs.

PPE 8. Jim Ltd. is installing a new plant at its production facility. It has incurred these costs:
1. Cost of the plant (cost per supplier’s invoice plus taxes) ₹ 25,00,000
2. Initial delivery and handling costs ₹ 2,00,000
3. Cost of site preparation ₹ 6,00,000
4. Consultants used for advice on the acquisition of the plant ₹ 7,00,000
5. Interest charges paid to supplier of plant for deferred credit ₹ 2,00,000
6. Estimated dismantling costs to be incurred after 7 years ₹ 3,00,000
7. Operating losses before commercial production ₹ 4,00,000
Please advise ABC Ltd. on the costs that can be capitalised in accordance with AS 10.

PPE 9. Akshara Ltd. purchased machinery for ₹ 3,000 lakhs. Depreciation was charged at 10% on
SLM basis for a useful life of 10 years. At the end of Year 4, the machinery was revalued to
₹ 2,700 lakhs and the same was adopted. What will be the carrying amount of the asset at
the end of Year 5 and Year 6? Assume no change in the useful life.

PPE 10. Skanda Ltd. acquired a machinery for ₹ 2,50,00,000 five years ago. Depreciation was
charged at 10% p.a. on SLM basis, useful life being 10 years. At the beginning of Year 3,
the machinery was revalued to ₹ 3,00,00,000 with the surplus on revaluation being
credited to Revaluation Reserve. Depreciation was provided on the revalued amount over
the balance useful life of 8 years. The machinery was sold in the current year for
₹ 1,12,50,000. Give the accounting treatment for the above in the Company’s accounts.
What will be the treatment if the machinery fetched only ₹ 42,50,000 now?

PPE 11. Akansha 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

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 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.

PPE 12. Sharat 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%.

PPE 13. Gurpreet 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. Gurupreet 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. Gurpreet 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.

PPE 14. XYZ Limited provides the following information for the year ended 31st March,2022.
i) The carrying amount of a property at the end of the year amounted to ₹ 2,16,000
(cost/value ₹ 2,50,000 and accumulated depreciation ₹ 34,000). On this date the
property was revalued and was deemed to have a fair value of ₹ 1,90,000. The balance
in the revaluation surplus relating to a previous revaluation gain for this property was
₹ 20,000.
Calculate the revaluation loss as per AS 10 (Revised) and give its treatment in the books
of accounts.
ii) An asset that originally cost ₹ 76,000 and had accumulated depreciation of ₹ 62,000
was disposed of during the year for ₹ 4,000 cash.
Explain how the disposal should be accounted for in the financial statements.
(May 2022)

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PPE 15. 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 1stJune, 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 wri en down value method on Plant
and Machinery.
Compute:
i) Depreciation to be charged to Profit & Loss Account;
ii) Book value of Plant & Machinery as on 31stMarch, 2023; and
iii)Profit/Loss on exchange of Plant & Machinery.
(May 2023)

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AS 11 - THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

FE 1. Classify the following items as monetary or non-monetary item:

i) Inventories
ii) Trade Receivables
iii)Investment in Equity shares
iv) Property, Plant and Equipment.

FE 2. You are required to ascertain the loss/gain to be recognized for financial years ended 31st
March, 2021 and 31st March, 2022 as per AS 11.
Exchange Rate per $
Goods purchased on 1.1.2021 for US $ 15,000 ₹ 75
Exchange rate on 31.3.2021 ₹ 74
Date of actual payment 7.7.2021 ₹ 73

FE 3. Talim Ltd. borrowed US$ 4,50,000 on 01/01/2021, which will be repaid as on 31/07/2021.
Talim Ltd. prepares financial statement ending on 31/03/2021. Rate of exchange between
reporting currency (INR) and foreign currency (USD) on different dates are as under:

01/01/2021 1 US$ = ₹ 48.00

31/03/2021 1 US$ = ₹ 49.00
31/07/2021 1 US$ = ₹ 49.50

FE 4. Rau Ltd. purchased a plant for US$ 1,00,000 on 01st February 2021, payable after three
months. Company entered into a forward contract for three months @ ₹ 49.15 per dollar.
Exchange rate per dollar on 01st Feb. was ₹ 48.85. How will you recognise the profit or
loss on forward contract in the books of Rau Ltd.?

FE 5. Mr. Aniketh bought a forward contract for three months of US$ 1,00,000 on 1st December
at 1 US$ = ₹ 47.10 when exchange rate was US$ 1 = ₹ 47.02. On 31st December when he
closed his books exchange rate was US$ 1 = ₹ 47.15. On 31st January, he decided to sell
the contract at ₹ 47.18 per dollar. Show how the profits from contract will be recognised
in the books.

FE 6. Remote Ltd. purchased fixed assets costing ₹ 3,000 lakhs on 1.1.2021 and the same was
fully financed by foreign currency loan (U.S. Dollars) payable in three annual equal
instalments. Exchange rates were 1 Dollar = ₹ 40.00 and ₹ 42.50 as on 1.1.2021 and
31.12.2021 respectively. First instalment was paid on 31.12.2021. The entire difference in
foreign exchange has been capitalised.
You are required to state, how these transactions would be accounted for.

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FE 7. A business having the Head Office in Kolkata has a branch in UK. The following is the
trial balance of Branch as at 31.03.2024:
Account Name Amount in £
Dr. Cr.
Machinery (purchased on 01.04.2021) 5,000
Debtors 1,600
Opening Stock 400
Goods received from Head Office Account 6,100
(Recorded in HO books as ₹ 4,02,000)
Sales 20,000
Purchases 10,000
Wages 1,000
Salaries 1,200
Cash 3,200
Remi ances to Head Office (Recorded in HO books as ₹ 1,91,000) 2,900
Head Office Account (Recorded in HO books as ₹ 4,90,000) 7,400
Creditors 4,000

 Closing stock at branch is £ 700 on 31.03.2024.

 Depreciation @ 10% p.a. is to be charged on Machinery.
 Prepare the trial balance after been converted in Indian Rupees.
 Exchange rates of Pounds on different dates are as follow:
01.04.2021 – ₹ 61; 01.04.2023 – ₹ 63 & 31.03.2024 – ₹ 67

FE 8. DVD Ltd. has borrowed USD 10,000 in foreign currency on April 1, 2021 at 5% p.a.
annual interest and acquired a depreciable asset. The exchange rates are as under:
01/04/2021 1 US$ = ₹ 48.00
31/03/2022 1 US$ = ₹ 51.00
You are required to pass the journal entries in the following cases:
i) Option under Para 46A is not availed.
ii) Option under Para 46A is availed.
iii)The loan was taken to finance the operations of the entity (and not to procure a
depreciable asset).
In all cases, assume interest accrued on 31 March 2022 is paid on the same date.

FE 9. Explain the accounting treatment needed in the following cases as on 31.3. 2021.
Trade receivables include amount receivable from Ramesh ₹ 5,00,000 recorded at the
prevailing exchange rate on the date of sales, transaction recorded at US $ 1= ₹ 58.50.
Long term loan taken from a U.S. Company, amounting to ₹ 60,00,000. It was recorded
at US $ 1 = ₹ 55.60, taking exchange rate prevailing at the date of transaction. US $ 1 = ₹
61.20 was on 31.3. 2021.

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FE 10. Calculate the amount of exchange difference and also explain the accounting treatment
needed in the books of PP Ltd.
i) PP Ltd. an Indian Company acquired long term finance from WW (P) Ltd. a U.S.
company, amounting to ₹ 40,88,952. The transaction was recorded at US $1 = ₹ 72.00,
taking exchange rate prevailing at the date of transaction. The exchange rate on balance
sheet date (31.03.2021) is US $1 = ₹ 73.60.
ii) Trade receivables of PP Ltd. include amount receivable from Preksha Ltd., ₹ 20,00,150
recorded at the prevailing exchange rate on the date of sales, transaction recorded at US
$1 = ₹ 73.40. The exchange rate on balance sheet date (31.03.2021) is US $1 = ₹ 73.60.
Exchange rate on 1st April, 2020 is US $1 = ₹ 74.00.
(December 2021)

FE 11. Calculate the amount of exchange difference on 31st March, 2022 and 1st May, 2022
and also explain the accounting treatment needed in the above case as per AS 11 in the
books of Jared Limited.
i) Jared Limited purchased a Machine for US $ 20,000 on 31st December, 2021 payable
after four months. It entered into a forward contract for four months @ ₹ 78.85 per US
$. On 31st December,2021 the exchange rate was ₹ 77.50 per US $.
How will you recognize the Profit or Loss on Forward Contract for the year ended 31st
March,2022 in the books of Jared Limited?
ii) Trade Payables of Jared Limited includes amount due to Sterling Limited ₹ 9,75,000
recorded at the prevailing exchange rate on the date of purchase; transaction recorded
at US $ 1 = ₹ 75.00. The exchange rate on Balance Sheet date (31st March,2022) was
US $ 1 = ₹ 79.00 The payment was made on 1st May,2022 when the exchange rate was
US $ 1 = ₹ 78.30.
(November 2022)

FE 12. Trower Limited is an Indian importer. It imports goods from True View Limited situated
at London. Trower Limited has a payable of £50,000 to True View Limited as on 31st
March, 2023. True View Limited has given Trower Limited the following two options:
i) Pay immediately with a cash discount of 1% on the payable.
ii) Pay after 6 months with interest @ 5% p.a. on the payable.
The borrowing rate for Trower Limited in rupees is 15% p.a.
The following are the exchange rates:
Date ₹/£
31st March,2023 97
30th September, 2023 99
Give your opinion to Trower Limited on which of the above two options to be chosen.
(May 2023)

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FE 13. Karna Ltd., an Indian Company, has the following foreign currency transactions during
the financial year 2022-23:
i) On 1st July, 2022, imported goods from Try Ltd., a German based company,
amounting to ₹ 30,96,000.
ii) On 1st October, 2022, imported plant and machinery from Lucy Ltd., a German based
company, for € 18,500. The amount was paid on the date of import itself. (Ignore
depreciation).
iii)On 1st December, 2022, exported good on credit to Cream Ltd., a German based
company, amounting to ₹ 50,40,000.

All the above transactions were recorded in the books of account at the prevailing exchange
rate on the date of the transactions. Ignore taxes and duty on the above transactions.
Payment due from Cream Ltd. and payment due to Try Ltd. is outstanding as on 31st
March, 2023.
Rate of exchange between reporting currency (₹) and foreign currency (€) on different
dates are as under:
On 1st July, 2022 1 € = ₹ 86
On 1st October, 2022 1 € = ₹ 88
On 1st December, 2022 1 € = ₹ 84
On 31st March, 2023 1 € = ₹ 90
You are required, as per AS-11:
i) To show value at which above items will appear in Balance sheet as on 31st March,
2023;
ii) To calculate the amount of gain/loss on each of above transactions on account of
exchange differences, if any.
(November 2023)

FE 14. Alfa Ltd. purchased an item of property, plant and equipment for US $ 50 lakh on
01.04.2023 and the same was fully financed by the foreign currency loan [i.e. US $]
repayment in five equal instalments annually. (Exchange rate at the time of purchase was
1 US $ = ₹ 60]. As on 31.03.2024 the first instalment was paid when 1 US $ fetched
₹ 62.00. The entire loss on exchange was included in cost of goods sold. Alfa Ltd. normally
provides depreciation on an item of property, plant and equipment at 20% on WDV basis
and exercised the option to adjust the cost of asset for exchange difference arising out of
loan restatement and payment. Calculate the amount of exchange loss and its treatment
and depreciation.
(RTP September 2024)

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AS – 12 ACCOUNTING FOR GOVERNMENT GRANTS

GG 1. Mayur Ltd. purchased a fixed asset for ₹ 50 lakhs, which has the estimated useful life of 5
years with the salvage value of ₹ 5,00,000. On purchase of the asset government granted
it a grant for ₹ 10 lakhs. Pass the necessary journal entries in the books of the company for
first two years:
i) if the grant amount is deducted from the value of fixed asset.
ii) if the grant is treated as deferred income.

GG 2. XYZ Ltd. has received a grant of ₹ 8 crores from the Government for se ing up a factory
in a backward area. Out of this grant, the company distributed ₹ 2 crores as dividend.
Also, Santosh Ltd. received land free of cost from the State Government but it has not
recorded it at all in the books as no money has been spent. In the light of AS 12 examine,
whether the treatment of both the grants is correct.

GG 3. Co Tea runs a charitable hospital. It incurs salary of doctors, staff etc to the extent of ₹ 30
lakhs per annum. As a support, the local govt grants a lumpsum payment of ₹ 90 lakhs to
meet the salary expense for a period of next 5 years.
You are required to pass the necessary journal entries in the books of the company for first
year if the grant is:
i) Shown separately as Other Income; and
ii) Deducted against the Salary costs.

GG 4. How would you treat the following:

i) ₹ 35 Lakhs received from the Local Authority for providing medical facilities to the
employees.
ii) ₹ 100 Lakhs received as Subsidy from the Central Government for se ing up a unit in
notified backward area. This subsidy is in nature of nature of promoters’ contribution.

GG 5. Z Ltd. purchased a fixed asset for ₹ 50 lakhs, which has the estimated useful life of 5 years
with the salvage value of ₹ 5,00,000. On purchase of the asset government granted it a
grant for ₹ 10 lakhs (This amount was reduced from the cost of fixed asset). Grant was
considered as refundable in the end of 2nd year to the extent of ₹ 7,00,000. Pass the journal
entry for refund of the grant as per the first method.

GG 6. A fixed asset is purchased for ₹ 20 lakhs. Government grant received towards it is ₹ 8

lakhs. Residual Value is ₹ 4 lakhs and useful life is 4 years. Assume depreciation on the
basis of Straight-Line method. Asset is shown in the balance sheet net of grant. After 1
year, grant becomes refundable to the extent of ₹ 5 lakhs due to noncompliance with certain
conditions. Pass journal entries for first two years.

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GG 7. On 1.4.2021, YOU Ltd. received Government grant of ₹ 300 lakhs for acquisition of
machinery costing ₹ 1,500 lakhs. The grant was credited to the cost of the asset. The life of
the machinery is 5 years. The machinery is depreciated at 20% on WDV basis. The
Company had to refund the grant in May 2024 due to non-fulfilment of certain conditions.
How you would deal with the refund of grant in the books of YOU Ltd. assuming that the
company did not charge any depreciation for year 2024?

GG 8. Dhruv Ltd. purchased a machinery for ₹ 40 lakhs. (Useful life 4 years and residual value
₹ 8 lakhs) Government grant received is ₹ 16 lakhs.
Show the Journal Entry to be passed at the time of refund of grant in the third year
and the value of the fixed assets, if:
i) the grant is credited to Fixed Assets A/c.
ii) the grant is credited to Deferred Grant A/c.

GG 9. Co Prajwal runs a charitable hospital. It incurs salary of doctors, staff etc to the extent of
₹ 30 lakhs per annum. As a support, the local govt grants a lumpsum payment of ₹ 90
lakhs to meet the salary expense for a period of next 5 years.
At the start of Year 4, Co Prajwal is unable to meet the conditions a ached to the grant
and is required to refund the entire grant of 90 lakhs.
You are required to pass the necessary journal entries in the books of the company for
refund of the grant if the grant was shown separately as Other Income.

GG 10. Lemon Ltd. received a grant of ₹ 2,500 lakhs during the accounting year 2021- 2022 from
government for welfare activities to be carried on by the company for its employees. The
grant prescribed conditions for its utilisation. However, during the year 2022-2023, it was
found that the conditions of grants were not complied with and the grant had to be
refunded to the government in full. Elucidate the current accounting treatment.

GG 11. Suraj Limited provides you the following information:

i) Received a Government Grant @40% towards the acquisition of Machinery worth ₹ 25
Crores.
ii) Received a Capital Subsidy of ₹ 150 Lakhs from Government for se ing up a Plant
costing ₹ 300 Lakhs in a notified backward region.
iii)Received ₹ 50 Lakhs from Government for se ing up a project for supply of arsenic free
water in a notified area.
iv) Received ₹ 5 Lakhs from the Local Authority for providing Corona Vaccine free of charge
to its employees and their families.
v) Received a performance award of ₹ 500 Lakhs from Government with a condition of
major renovation in the Power Plant within 3 years. Suraj Limited incurred 90% of
amount towards Capital expenditure and balance for Revenue Expenditure.

State, how you will treat the above in the books of Suraj Limited.
(May 2022)

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GG 12. On 1stApril 2021, Eleanor Limited purchased a manufacturing Plant for ₹ 60 lakhs, which
has an estimated useful life of 10 years with a salvage value of ₹ 10 lakhs. On purchase of
the Plant, a grant of ₹ 20 lakhs was received from the government.
Calculate the amount of depreciation for the financial year 2022-23 in the following cases:
i) If the grant amount is deducted from the value of Plant.
ii) If the grant is treated as deferred income.
iii)If the grant amount is deducted from the value of Plant, but at the end of the year 2022-
2023 grant is refunded to the extent of ₹ 4 lakhs, due to non-compliance of certain
conditions.
iv) If the grant is treated as the promoter's contribution.
(Assume depreciation on the basis of Straight-Line Method.)
(May 2023)

GG 13. A Ltd. purchased a Machinery for ₹ 75 Lakhs. Government Grant received towards this
Machinery is ₹ 10, Lakhs. Residual Value of Machinery at the end of useful life of 6 Years
is ₹ 5 Lakhs.
Asset is shown in Balance Sheet at net of grant.
At the beginning of the 3rd year, an amount becomes refundable to the extent of ₹ 8 Lakhs
due to non-compliance of certain conditions of grant.
Give necessary Journal entries for the 1st year and the 3rd year in the books of A Ltd.
(November 2023)

GG 14. Energy Ltd. has acquired a generator on 1.4.2023 for ₹ 100 lakh. On 2.4.2023, it applied
to Indian Renewal Energy Development Authority (IREDA) for a subsidy. The subsidy
was granted in June, 2024 after the accounts for 2023-2024 were finalized. The company
has not accounted for the subsidy for the year ended 31.3.2024.
State
i) Is this a prior period item?
ii) How should the subsidy be accounted in the accounting year 2024-2025?
(RTP September 2024)

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AS 13 - ACCOUNTING FOR INVESTMENTS

AI 1. Aadhya Ltd. wants to re-classify its investments in accordance with AS 13 (Revised).

Decide and state on the amount of transfer, based on the following information:
1) A portion of current investments purchased for ₹ 20 lakhs, to be reclassified as long-
term investment, as the company has decided to retain them. The market value as on
the date of Balance Sheet was ₹ 25 lakhs.
2) Another portion of current investments purchased for ₹ 15 lakhs, to be reclassified as
long-term investments. The market value of these investments as on the date of balance
sheet was ₹ 6.5 lakhs.
3) Certain long-term investments no longer considered for holding purposes, to be
reclassified as current investments. The original cost of these was ₹ 18 lakhs but had
been wri en down to ₹ 12 lakhs to recognise other than temporary decline as per AS 13

AI 2. In 2021, M/s. Water Ltd. issued 12% fully paid debentures of ₹ 100 each, interest being
payable half yearly on 30th September and 31st March of every accounting year.
On 1st December, 2022, M/s. Full & Fear purchased 10,000 of these debentures at ₹ 101
ex-interest price, also paying brokerage @ 1% of ex-interest amount of the purchase. On
1st March, 2023 the firm sold all these debentures at ₹ 103 ex-interest price, again paying
brokerage @ 1 % of ex-interest amount. Prepare Investment Account in the books of M/s.
Full & Fear for the period 1st December, 2022 to 1st March, 2023.

AI 3. On 1.4.2021, Mr. Trishna Murty purchased 1,000 equity shares of ₹ 100 each in DELCO
Ltd. @ ₹ 120 each from a Broker, who charged 2% brokerage. He incurred 50 paise per ₹
100 as cost of shares transfer stamps. On 31.1.2022, Bonus was declared in the ratio of 1:
2. Before and after the record date of bonus shares, the shares were quoted at ₹ 175 per
share and ₹ 90 per share respectively. On 31.3.2022, Mr. Trishna Murty sold bonus shares
to a Broker, who charged 2% brokerage.
Show the Investment Account in the books of Mr. Trishna Murty, who held the shares as
Current assets and closing value of investments shall be made at Cost or Market value
whichever is lower.

AI 4. Mr. Abhishek purchased 500 equity shares of ₹ 100 each in Mega Co. Ltd. for ₹ 62,500
inclusive of brokerage and stamp duty. Some years later the company resolved to capitalise
its profits and to issue to the holders of equity shares, one equity bonus share for every
share held by them. Prior to capitalisation, the shares of Mega Co. Ltd. were quoted at ₹
175 per share. After the capitalisation, the shares were quoted at ₹ 92.50 per share. Mr.
Abhishek sold the bonus shares and received at ₹ 90 per share.
Prepare the Investment Account in Abhishek’s books on average cost basis.

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AI 5. On 1st April, 2021, Prajat has 50,000 equity shares of Parrot Ltd. at a book value of ₹ 15
per share (nominal value ₹ 10 each). He provides you the further information:
(1) On 20th June, 2021 he purchased another 10,000 shares of Parrot Ltd. at ₹ 16 per
share.
(2) On 1st August, 2021, Parrot Ltd. issued one equity bonus share for every six shares
held by the shareholders.
(3) On 31st October, 2021, the directors of Parrot Ltd. announced a right issue which
entitles the holders to subscribe three shares for every seven shares at ₹ 15 per share.
Shareholders can transfer their rights in full or in part.
Prajat sold 1/3rd of entitlement to Umang for a consideration of ₹ 2 per share and
subscribed the rest on 5th November, 2021.
You are required to prepare Investment A/c in the books of Prajat for the year ending.

AI 6. On 1.4.2021, Amitab had 25,000 equity shares of ‘June’ Ltd. at a book value of ₹ 15 per
share (Nominal value ₹ 10). On 20.6.2021, he purchased another 5,000 shares of the
company at ₹ 16 per share. The directors of ‘June’ Ltd. announced a bonus and rights
issue. No dividend was payable on these issues. The terms of the issue are as follows:
Bonus basis 1:6 (Date 16.8.2021).
Rights basis 3:7 (Date 31.8.2021) Price ₹ 15 per share.
Due date for payment 30.9.2021.
Shareholders were entitled to transfer their rights in full or in part. Accordingly, Amitab
sold 33.33% of his entitlement to Rekha for a consideration of ₹ 2 per share.
Dividends: Dividends for the year ended 31.3.2021 at the rate of 20% were declared by
June Ltd. and received by Amitab on 31.10.2021. Dividends for shares acquired by him on
20.6.2021 are to be adjusted against the cost of purchase.
On 15.11.2021, Amitab sold 25,000 equity shares at a premium of ₹ 5 per share.
You are required to prepare in the books of Amitab.
(1) Investment Account
(2) Profit & Loss Account.
Assume that the books are closed on 31.12.2021 and shares are valued at average cost.

AI 7. Mr. Sanketh acquires 200 shares of a company on cum-right basis for ₹ 70,000. He
subsequently receives an offer of right to acquire fresh shares in the company in the
proportion of 1:1 at ₹ 107 each. He does not subscribe but sells all the rights for ₹ 12,000.
The market value of the shares after their becoming ex-rights has also gone down to ₹
60,000. What should be the accounting treatment in this case?

AI 8. On 1st April, 2021, X Ltd. has 15,000 equity shares of A Ltd. at a book value of ₹ 15 per
share (nominal value ₹ 10 per share). On 1st June, 2021, X Ltd. acquired 5,000 equity
shares of A Ltd. for ₹ 1,00,000. A Ltd. announced a bonus and right issue.
1) Bonus was declared, at the rate of one equity share for every five shares held, on 1st July
2021.

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2) Right shares are to be issued to the existing shareholders on 1st September 2021. The
company will issue one right share for every 6 shares at 20% premium. No dividend
was payable on these shares.
3) Dividend for the year ended 31.3.2021 were declared by A Ltd. @ 20%, which was
received by X Ltd. on 31st October 2021.
X Ltd.
i) Took up half the right issue.
ii) Sold the remaining rights for ₹ 8 per share.
iii)Sold half of its shareholdings on 1st Jan 2022 at ₹ 16.50 per share. Brokerage being 1%.

You are required to prepare Investment account of X Ltd. for the year ended 31st March
2022 assuming the shares are being valued at average cost.

AI 9. The following information is presented by Mr. Moon (a stock broker), relating to his
holding in 9% Central Government Bonds.
Opening balance (nominal value) ₹ 1,20,000, Cost ₹ 1,18,000 (Nominal value of each unit
is ₹ 100).

1.3.2021 Purchased 200 units, ex-interest at ₹ 98.

1.7.2021 Sold 500 units, ex-interest out of original holding at ₹ 100.
1.10.2021 Purchased 150 units at ₹ 98, cum interest.
1.11.2021 Sold 300 units, ex-interest at ₹ 99 out of original holdings.

Interest dates are 30th September and 31st March. Mr. Moon closes his books every 31st
December. Show the investment account as it would appear in his books. Mr. Moon follows
FIFO method.

AI 10. Mr. Rohit furnishes the following details relating to his holding in 8% Debentures (₹ 100
each) of Sun Ltd., held as Current assets:
1.04.2021 Opening balance – Nominal value ₹ 1,20,000, Cost ₹ 1,18,000
1.07.2021 100 Debentures purchased ex-interest at ₹ 98
1.10.2021 Sold 200 Debentures ex-interest at ₹ 100
1.01.2022 Purchased 50 Debentures at ₹ 98 ex-interest
1.02.2022 Sold 200 Debentures ex-interest at ₹ 99

Interest dates are 30th September and 31st March.

Mr. Rohit closes his books on 31.3.2022. Brokerage at 1% is to be paid for each transaction
(at ex-interest price). Show Investment account as it would appear in his books. Assume
FIFO method. Market value of 8% Debentures of Sun Limited on 31.3.2022 is ₹ 99.

AI 11. On 1st April, 2021, Mr. Sujay had 30,000 Equity shares in Mars Ltd. at a book value of
₹ 4,50,000 (Face Value ₹ 10 per share). On 22nd June, 2021, he purchased another 5000
shares of the same company for ₹ 80,000.

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The Directors of Mars Ltd. announced a bonus of equity shares in the ratio of one share
for seven shares held on 10th August, 2021.

On 31st August, 2021 the Company made a right issue in the ratio of three shares for
every eight shares held, on payment of ₹ 15 per share. Due date for the payment was 30th
September, 2021, Mr. Sujay subscribed to 2/3rd of the right shares and sold the remaining
of his entitlement to Virus for a consideration of ₹ 2 per share.

On 31st October, 2021, Sujay received dividends from Mars Ltd. @ 20% for the year ended
31st March, 2021. Dividend for the shares acquired by him on 22nd June, 2021 to be
adjusted against the cost of purchase.

On 15th November, 2021 Sujay sold 20,000 Equity shares at a premium of ₹ 5 per share.

You are required to prepare Investment Account in the books of Mr. Sujay for the year
ended 31st March, 2022 assuming the shares are being valued at average cost.

AI 12. Yellow-chip Equity Investments Ltd., wants to re-classify its investments in accordance
with AS 13 (Revised). State the values, at which the investments have to be reclassified in
the following cases:
i) Long term investments in Company A, costing ₹ 8.5 lakhs are to be re-classified as
current. The company had reduced the value of these investments to ₹ 6.5 lakhs to
recognise ‘other than temporary’ decline in value. The fair value on date of transfer is
₹ 6.8 lakhs.
ii) Long term investments in Company B, costing ₹ 7 lakhs are to be re-classified as
current. The fair value on date of transfer is ₹ 8 lakhs and book value is ₹ 7 lakhs.
iii)Current investment in Company C, costing ₹ 10 lakhs are to be re-classified as long
term as the company wants to retain them. The market value on date of transfer is ₹ 12
lakhs.

AI 13. Mr. Mohan has invested some money in various Mutual funds. Following information in
this regard is given:
Mutual Date of Purchase Brokerage Stamp Market value as on
Funds purchase cost (₹) Cost (₹) duty (₹) 31.03.2021 (₹)
A 01.05.2017 50,000 200 20 48,225
B 05.08.2020 25,000 150 25 24,220
C 01.01.2021 75,000 300 75 78,190
D 07.05.2020 70,000 275 50 65,880

1. Classify his investment in accordance with AS-13 (revised).

2. Value of Investment in mutual fund as on 31.03.2021
(December 2021)

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AI 14. During the year ended 31st March, 2021, Purple Ltd. entered into the following
transactions:
i) 1st April, 2020 Purchased ₹ 4,00,000, 10% Govt. loan 1(interest payable on 30th April
and 31st October) at ₹ 70 cum interest.
ii) 1st April, 2020 Purchased 6,000 Equity shares of ₹ 5 each in XY Ltd. for ₹ 1,26,000.
iii)1st October, 2020 Sold ₹ 80,000, 10% Govt. loan at ₹ 75 ex-interest.
iv) 15th January, 2021 XY Ltd. made a bonus issued of four equity shares for every three
shares held. Purple Ltd. sold all of the bonus shares for ₹ 10 each.
v) 1st March, 2021 Received dividend @ 22% on shares in XY Ltd. for the year ended 31st
December, 2020.
Prepare Investment accounts in the books of Purple Ltd.
(December 2021)

AI 15. Prepare Investment account for Ms. Jayshree for the year ended 31st March 2022.
i) On 1st April 2021 Ms. Jayshree has 5,000 equity shares of Rama Limited (a listed
company) of face value of ₹ 10 each. Ms. Jayshree has purchased the above shares at ₹
15 per share and paid a brokerage of 2% and stamp duty of 1 %.
ii) On 15th May,2021 Ms. Jayshree purchased another 5,000 shares of Rama Limited at ₹
18 including brokerage and stamp duty.
iii)On 26th August,2021 Rama Limited issued one bonus equity share for every 1 equity
share held by the shareholders.
iv) On 23rd October,2021 Rama Limited announced a Right Issue which entitles the
holders to subscribe 1 equity share for every 2 equity shares held at ₹ 20 per share.
Shareholders can exercise their rights in full or in part. Ms. Jayshree sold 1/4th of
entitlement to Mr. Mike for a consideration of ₹ 10 per share and subscribed the rest on
1st November 2021.
v) Ms. Jayshree also sold 10,000 shares at ₹ 25 per share on 1st November,2021.
The shares of Rama Limited were quoted at ₹ 11 per share on 31st March,2022.
(May 2022)

AI 16. The following information is given for Mr. Atwood for the year ended 31.03.2023:
01.04.2022 Mr. Atwood has 3,000 equity shares in Sun Limited at a book value of ₹
3,30,000 (nominal value ₹ 100 each.)
01.07.2022 Purchased 1,500 equity shares in Sun Limited for ₹ 1,38,600.
01.08.2022 Purchased 5,000 9% Bonds at ₹ 97 cum-interest (face value ₹ 100). The due
dates of interest are 1st September and 1st March.
02.10.2022 Dividend declared on equity shares and paid by Sun Limited for the year 2021-
2022 @ 10%.
15.10.2022 Sun Limited made a bonus issue of two equity shares for every five shares held.
01.01.2023 1,000 equity shares in Sun Limited sold @ ₹ 115 per share.
31.03.2023 Sold 4,000,9% Bonds @ ₹ 99 ex-interest

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The market price of Equity Shares of Sun Limited is ₹ 125 each and Bonds ₹ 98 each on
31st March 2023.
Interest on bonds was received on due dates.
Prepare Investment Account in the books of Mr. Atwood for the year ended 31stMarch
2023, assuming that the investments are valued at the average cost or market value,
whichever is lower. (Round off to nearest Rupee)
(May 2023)

AI 17. ABC Ltd. holds 2,000, 15% Debentures of ₹ 100 each in XYZ Ltd. as on April 1, 2022 at
a cost of ₹ 2,50,000.
Interest is payable on June, 30 and December, 31 each year.
Following are the details of 15% Debentures purchased & sold during the year 2022-23.
i) On May 1 2022, 1,000 debentures are purchased cum-interest at ₹ 1,05,000.
ii) On November 1 2022, 1200 debentures are sold ex-interest at ₹ 1,28,200.
iii)On November 30 2022, 500 debentures are purchased ex-interest at ₹ 54,500.
iv) On December 31 2022, 900 debentures are sold cum-interest for ₹ 1,18,000.
Prepare the investment Account showing value of holdings on March 31, 2023 at cost,
using FIFO Method.
(RTP May 2024)

AI 18. A company is engaged in the business of refining, transportation and marketing of

petroleum products. During the financial year ended 31st March, 2024, the company
acquired controlling interest from Government of India in another public sector
undertaking @ ₹ 1,551 per share as against the book value of ₹ 192.58 per share and market
value of ₹ 876 per share as on 18th February, 2024.
Thus, the strategic premium of ₹ 675 per share has been paid considering various tangible
and intangible factors.

The above investment in the shares of the acquired company has been considered as long-
term strategic investment and, therefore, has been accounted for at cost, i.e. at ₹ 1,551 per
share in the financial statements. No provision for diminution in value has been made in
the books of account.

As per the requirement of Schedule III to the Companies Act, 2013, the aggregate market
value of the quoted shares has been properly reflected in the financial statements.

On 28th March, 2024, the acquired shares were quoted at ₹ 880 per share on BSE and the
current market price as on 18th July was around ₹ 300.

Considering the tangible and intangible benefits the Management is of the view that there
is no permanent diminution in the value of the strategic investment in the acquired
company, as the same has been considered as a long-term investment. Therefore, there is
no need for provision for diminution in the value of the shares of the acquired company.

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Required:

i) Whether the accounting treatment 'at cost' under the head ‘Long Term Investments’
without providing for any diminution in value is correct and in accordance with the
provisions of AS 13.
ii) If any provision for diminution in the value is to be made, whether such provision
should be charged to the profit and loss account or whether same can be considered as
deferred expenditure and amortised over a period of 5 years. Whether it is open for the
company to charge off such diminution in the value in the books of account instead of
creating provision.
iii)Whether the premium paid for strategic benefits for investment described in facts of the
case, can be accounted for separately in the books of account keeping in view that AS 13
specifies that long term investments should be recorded at cost and there is no specific
provision in the standard in respect of accounting for premium paid for strategic
benefits.
(RTP September 2024)

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AS 15 - Employee Benefits

EB 1. Entity When is required to pay salary of ₹ 2 crore for the year 2021-22. It actually paid a
salary of ₹ 1.90 crore up to 31st March 2022, and balance in April 2022. Determine the
actual costs to be recognized in the year 2021-22 and any amounts to be shown through
balance sheet.

EB 2. As on 1st April, 2021 the fair value of plan assets was ₹ 1,00,000 in respect of a pension
plan of Zealous Ltd. On 30th September, 2021 the plan paid out benefits of ₹ 19,000 and
received inward contributions of ₹ 49,000. On 31st March, 2022 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 2021-2022 were ₹ 600.

On 1st April, 2021, 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.

EB 3. Shine 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 se lement, 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.
Shine 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 Shine Star Ltd. on the basis of
given information:
a) Immediately before the curtailment, gross obligation is estimated at ₹ 6,000 based on
current actuarial assumption.
b) The fair value of plan assets on the date is estimated at ₹ 5,100.
c) The unamortized past service cost is ₹ 180.
d) Curtailment reduces the obligation by ₹ 600, which is 10% of the gross obligation.

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EB 4. An employee Kavana has joined a company Dinchak Ltd. in the year 2021. The annual
emoluments of Kavana 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 Kavana is expected to grow @ 10% per annum.
The company has inducted Kavana 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
increments.
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)

EB 5. The following data apply to ‘Air’ Ltd. defined benefit pension plan for the year ended
31.03.2022 calculate the actual return on plan assets:
- Benefits paid 2,00,000
- Employer contribution 2,80,000
- Fair market value of plan assets on 31.03.2022 11,40,000
- Fair market value of plan assets as on 31.03.2021 8,00,000

EB 6. The fair value of plan assets of Anu Ltd. was ₹ 2,00,000 in respect of employee benefit
pension plan as on 1st April, 2021. On 30th September, 2021 the plan paid out benefits of
₹ 25,000 and received inward contributions of ₹ 55,000. On 31st March, 2022 the fair
value of plan assets was ₹ 3,00,000. On 1st April, 2021 the company made the following
estimates, based on its market studies and prevailing prices.
%

Interest and dividend income (after tax) payable by fund 10.25

Realized gains on plan assets (after tax) 3.00

Fund administrative costs (3.00)

Expected rate of return 10.25

Calculate the expected and actual returns on plan assets as on 31st March, 2022.

EB 7. Mr. Ranjan is working for Info Ltd. Consider the following particulars:
Year 2020-2021 Year 2021-2022
Annual salary ₹ 30,00,000 ₹ 30,00,000
No. of working days during the year 300 days 300 days
Leave allowed 10 days 10 days
Leave taken 7 days 13 days
Leave unutilized carried forward to next year 3 days NIL

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Based on past experience, Info Ltd. assumes that Mr. Ranjan will avail the unutilized
leaves of 3 days of 2020-2021 in 2021-2022.
Info Ltd. contends that it will record ₹ 30,00,000 as employee benefits expense in each of
the years 2020-2021 and 2021-2022, stating that the leaves will, in any case, be utilized
by 2021-2022.
Comment on the accounting treatment proposed to be followed by Info Ltd. Also pass
journal entries for both the years.

EB 8. Acer Ltd. has 350 employees (same as a year ago). The average staff a rition rates observed
during past 10 years represents 6% per annum. Acer Ltd. provides the following benefits
to all its employees:
Paid vacation - 10 days per year regardless of date of hiring. Compensation for paid
vacation is 100% of employee's salary and unused vacation can be carried forward for 1
year. As of 31st March, 2021, unused vacation carried forward was 3 days per employee,
average salary was ₹ 15,000 per day and accrued expense for unused vacation in 2020-
2021 was ₹ 65,00,000. During 2021-2022, employees took 9 days of vacation in average.
Salary increases in 2021-2022 was 10%.
Analyse how would Acer Ltd. recognize liabilities and expenses for these benefits as of
31st March, 2022. Pass the journal entry to show the accounting treatment.

EB 9. Hello Limited belongs to the manufacturing industry. The company received an actuarial
valuation for the first time for its pension scheme which revealed a surplus of ₹ 12 lakhs.
It wants to spread the same over the next 2 years by reducing the annual contribution to
₹ 4 lakhs instead of ₹ 10 lakhs. The average remaining life of the employees is estimated to
be 6 years. Advise the company on the following items from the viewpoint of finalization
of accounts, taking note of the mandatory accounting standards.
(RTP May 2024)

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AS 16 - BORROWING COSTS

BC 1. Qwerty Ltd. began construction of a new building on 1st January, 2021. It obtained ₹ 1
lakh special loan to finance the construction of the building on 1st January, 2021 at an
interest rate of 10%. The company’s other outstanding two non-specific loans were:
Amount Rate of Interest
₹ 5,00,000 11%
₹ 9,00,000 13%

The expenditures that were made on the building project were as follows:
₹
January 2021 2,00,000
April 2021 2,50,000
July 2021 4,50,000
December 2021 1,20,000
Building was completed by 31st December 2021. Following the principles prescribed in
AS 16 ‘Borrowing Cost,’ calculate the amount of interest to be capitalised and pass one
Journal Entry for capitalising the cost and borrowing cost in respect of the building.

BC 2. The company has obtained Institutional Term Loan of ₹ 580 lakhs for modernisation and
renovation of its Plant & Machinery. Plant & Machinery acquired under the
modernisation scheme and installation completed on 31st March, 2022 amounted to ₹ 406
lakhs, ₹ 58 lakhs has been advanced to suppliers for additional assets and the balance loan
of ₹ 116 lakhs has been utilised for working capital purpose. The accountant is in a dilemma
as to how to account for the total interest of ₹ 52.20 lakhs incurred during 2021-2022 on
the entire Institutional Term Loan of ₹ 580 lakhs.

BC 3. On 1st April, 2021, Maze Construction Ltd. obtained a loan of ₹ 32 crores to be utilised
as under:
Construction of sea link across two cities: (work was held up totally for : ₹ 25 crores
a month during the year due to high water levels)
Purchase of equipment and machineries : ₹ 3 crores
Working capital : ₹ 2 crores
Purchase of vehicles : ₹ 50,00,000
Advance for tools/cranes etc. : ₹ 50,00,000
Purchase of technical know-how : ₹ 1 crores
Total interest charged by the bank for the year ending 31st March, : ₹ 80,00,000
2022
Show the treatment of interest by Maze Construction Ltd.

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BC 4. Rain Limited borrowed an amount of ₹ 150 crores on 1.4.2021 for construction of boiler
plant @ 11% p.a. The plant is expected to be completed in 4 years. Since the weighted
average cost of capital is 13% p.a., the accountant of Rain Ltd. capitalized ₹ 19.50 crores
for the accounting period ending on 31.3.2022. Due to surplus fund out of ₹ 150 crores,
income of ₹ 3.50 crores were earned and credited to profit and loss account. Comment on
the above treatment of accountant with reference to relevant accounting standard.

BC 5. Hari Construction Company is constructing a huge building project consisting of four

phases. It is expected that the full building will be constructed over several years 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 building during the
current year:
(₹ in lakhs)
Phase I Phase II Phase III Phase IV
₹ ₹ ₹ ₹
Cash expenditure 10 30 25 30
Building purchased 24 34 30 38
Total expenditure 34 64 55 68
Total expenditure of all phases 221
Loan taken @ 15% at the beginning 200
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.

BC 6. Lazy Limited issued 12% secured debentures of ₹ 100 lakhs on 01.06.2021. Money raised
from debentures to be utilized as under:
Intended Purpose Amount ₹ in lakhs
Construction of factory building 40
Working Capital 30
Purchase of Machinery 15
Purchase of Furniture 2
Purchase of truck 13
Additional Information:
i) Interest on debentures for the Financial Year 2021-2022 was paid by the Company.
ii) During the year, the company invested idle fund of ₹ 5 lakhs (out of the money raised
from debentures) in Bank's fixed deposit and earned interest of ₹ 50,000.
iii)In March, 2022 construction of factory building was not completed (it is expected that
it will take another 6 months).
iv) In March 2022, Machinery was installed and ready for its intended use.
v) Furniture was put to use at the end of March 2022.
vi) Truck is going to be received in April, 2022.
You are required to show the treatment of interest as per AS 16 in respect of borrowing
cost for the year ended 31st March, 2022 in the Books of Lazy Limited.

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BC 7. On 1stApril, 2022 Workhouse Ltd 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:
8% Debentures ₹ 15,00,000
15% Term Loan ₹ 30,00,000
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.
Calculate the borrowing cost for both qualifying and non-qualifying assets.
(May 2023)

BC 8. Glen Ltd. began construction of a new building on 1st January, 2022. On 1st April,
2022,following two loans were obtained to fund the construction cost:
i) Loan of ₹ 60,00,000 from Data Bank Ltd. was taken at interest rate of 8% per annum.
This loan was fully utilized for construction of the new building.
ii) Loan of ₹ 20,00,000 from Satya Bank Ltd. Out of this, loan amount of 6,00,000 was
utilized for working capital purpose. Total interest of ₹ 1,92,000 were paid to Satya
Bank Ltd. for the financial year 2022-23.
Construction of the new building was completed on 31st January, 2023 and was ready for
its intended use on the same date.
None of the loan was repaid during the year. The building is a qualifying asset for the
purpose of AS-16.
Out of loan from Data Bank Ltd., surplus funds were temporarily invested for the short
period of time. This temporary investment earned interest of ₹ 30,000.
Calculate the amount of interest (a) to be capitalized, (b) to be charged to profit and loss
account from the total interest incurred as borrowing cost during the year 2022-23 (as per
AS-16).
(November 2023)

BC 9. On 1st April 2023, Green Ltd. started the construction of an Office Building (qualified
asset). The land under the building is regarded as a separate asset and is not a part of
qualifying asset.
For the purpose of construction of building, the company raised a specific loan of ₹ 14 lakhs
from a bank at an interest rate of 12% per annum. An interest income of ₹ 15,000 was
earned on this loan while it was held in anticipation of payments.

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The company’s other outstanding loans on 1 April, 2023 were as follows:
st

Amount of loan Rate of interest per annum

₹ 20,00,000 15%
₹ 30,00,000 8%
The construction of building started on 1st April, 2023 and was completed on 31st
January, 2024 when it was ready for its intended use. Up to the date of completion of the
building, the following payments were made to the contractor:
Payment Date Amount in ₹
01-04-2023 4,00,000
01-08-2023 10,00,000
01-12-2023 25,00,000
31-01-2024 5,00,000
The life of the building is estimated to be 20 years and depreciation is charged on straight
line method.
i) Calculate the amount of borrowing cost to be capitalized.
ii) Pass initial journal entry to recognise the cost of the building.
iii)Depreciation on building for the year ending 31st March,2024.
iv) Carrying value of building on 31st March, 2024.
(May 2024)

BC 10. H Ltd. began the construction of a new building on 1st April 2022. It obtained a special
loan of ₹ 6,00,000 on 1st April 2022 at an interest of 12% to finance the construction of
the building.
The company's other outstanding two non-specific loans on 1st April, 2022 were:
Amount in ₹ Rate of Interest
30,00,000 14%
54,00,000 16%

The expenditure incurred on the building project was as per detail given below:
Amount in ₹
1st May, 2022 12,00,000
1st July, 2022 15,00,000
1st October, 2022 27,00,000
1st March, 2023 7,20,000

The building was completed by 31st March 2023.

Calculate the amount of interest to be capitalized and also give one Journal Entry for
capitalizing the cost and borrowing cost in respect of the building.
(RTP May 2024)

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BC 11. Loyal Ltd. has undertaken a project for expansion of capacity as per the following details:
Particulars Plan (₹) Amount (₹)
October, 2023 5,00,000 4,00,000
November, 2023 6,50,000 7,95,000
December, 2023 20,00,000 -
January, 2024 2,00,000 50,000
February, 2024 9,00,000 2,00,000
March, 2024 10,00,000 12,00,000

The company pays to its bank interest at a rate of 15% p.a., which is debited on a monthly
basis. During the half year, company had ₹ 20 lakh overdraft up to 31st December, surplus
cash in January and again overdraft of ₹ 14 lakh from 1.2.2024 and ₹ 30 lakh from
1.3.2024. The company had a strike during December and hence could not continue the
work during said period. However, the substantial administrative work related to the
project was continued. Onsite work was again commenced on 1st January and all the work
were completed on 31st March. Assume that expenditure was incurred on 1st day of each
month.
Calculate interest to be capitalized giving reason wherever necessary. Assume overdraft
will be less, if there is no capital expenditure.
(RTP September 2024)

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AS 17 – SEGMENT REPORTING

SR 1. The Chief Accountant of Aneesh 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.

SR 2. M/s BNM Ltd. has 3 segments namely B, N, M. The total Assets of the Company are
₹ 10.00 crores. Segment B, N and M has ₹ 2.00 crores, ₹ 3.00 crores and ₹ 5.00 crores
respectively. Deferred tax assets included in the assets of each segment are B - ₹ 0.50 crores,
N - ₹ 0.40 crores and M - ₹ 0.30 crores. The accountant contends that all the three
segments are reportable segments. Comment.

SR 3. Prepare a segmental report for publication in Abhi Ltd. from the following details of the
company’s three divisions and the head office:
₹ (‘000)
Forging Shop Division
Sales to Bright Bar Division 4,575
Other Domestic Sales 90
Export Sales 6,135
10,800
Bright Bar Division
Sales to Fi ing Division 45
Export Sales to Rwanda 300
345
Fi ing Division
Export Sales to Maldives 270

Particulars Head Forging Shop Bright Bar Fi ing

Office Division Division Division
₹ (‘000) ₹ (‘000) ₹ (‘000) ₹ (‘000)
Pre-tax operating result 240 30 (12)
Head office cost reallocated 72 36 36
Interest costs 6 8 2
Fixed assets 75 300 60 180
Net current assets 72 180 60 135
Long-term liabilities 57 30 15 180

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SR 4. Anusha Limited has three segments namely P, Q and R. The assets of the company are
₹ 15 crores. Segment P has 4 crores, Segment Q has 6 crores and Segment R has 5
crores. Deferred tax assets included in the assets of each segment are P - ₹ 1 crore, Q –
₹ 0.90 crores and R - ₹ 0.80 crores. The accountant contends all these three segments are
reportable segments. Comment. (Similar to SR 2)

SR 5. PK Ltd. has identified business segment as its primary reporting format. It has identified
India, USA and UK as three geographical segments. It sells its products in the Indian
market, which constitutes 70 percent of the Company’s sales. 25 per cent is sold in USA
and the balance is sold in UK. Is PK Ltd. as part of its geographical secondary segment
information, required to disclose segment revenue from export sales, where such sales are
not significant?

SR 6. PQR Ltd. has 5 business segments. Profit / Loss of each of the segments for the year ended
31st March, 2022 have been provided below. You are required to identify from the
following whether reportable segments or not reportable segments, on the basis of
"profitability test" as per AS-17.
Segment Profit (Loss) ₹ in lakhs
A 225
B 25
C (175)
D (20)
E (105)

SR 7. Light Goods Ltd. needs to determine how many reportable segments it has.
Light Goods Ltd. has 6 segments namely L-Q (below).
The total revenues (internal and external), profits or losses and assets are set out below:
(In ₹)
Segment Inter Segment Sales External Sales Profit / loss Total assets
L 4,200 12,300 3,000 37,500
M 3,500 7,750 1,500 23,250
N 1,000 3,500 (1,500) 15,750
O 0 5,250 (750) 10,500
P 500 5,500 900 10,500
Q 1,200 1,050 600 5,250
10,400 35,350 3,750 1,02,750

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SR 8. Calculate the segment results of a manufacturing organization from the following:
Segments A B C Total
Directly a ributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue 1,10,000
(allocated in 5 :4 : 2 basis)
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses 77,000
(allocated in 5 :4 : 2 basis)
Expenses on transactions with
other segments
Transaction from B 75,000 30,000
Transaction from C 6,000 40,000
Transaction from A 18,000 82,000

SR 9. Garnet Limited has 4 operating segments. The total revenue (internal and external) and
assets are set out as below:
Segment External Revenue (₹) Internal Revenue (₹) Total (₹)
A 30,00,000 NIL 30,00,000
B 6,50,000 NIL 6,50,000
C 8,50,000 1,00,000 9,50,000
D 5,00,000 49,00,000 54,00,000
Total 50,00,000 50,00,000 1,00,00,000
Additional information:
Segment C is a new business unit and management expect this segment to make a
significant contribution to external revenue in coming years.
Identify the reportable segments.

SR 10. Garnet Limited has 4 operating segments.

Segment Inter Segment Sales External Sales Total Assets
Fan 3,200 10,900 23,700
Light 200 1,400 13,200
Lamp 0 1,500 4,200
Printer 1,100 200 3,400
Total 4,500 14,000 44,500
How many reportable segments does Garnet Limited have as per the Revenue and Assets
criteria given in AS 17? State Reasons for your answer.
(November 2023)

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AS 18 – RELATED PARTY DISCLOSURES

RP 1. Identify the related parties in the following case as per AS 18:

A Ltd. holds 51% of B Ltd.
B Ltd holds 51% of O Ltd.
Z Ltd holds 49% of O Ltd.

RP 2. Consider a scenario wherein:

 A Ltd. has 60% voting right in B Ltd.
 A Ltd. also has 22% voting right in C Ltd.; and
 B Ltd. has 30% voting right in C Ltd.
Whether C Ltd. is to be treated under AS-18 as a party related to A Ltd.?

RP 3. Consider a scenario wherein:

 X Ltd. holds 28% voting right in Y Ltd.
 Y Ltd. holds 32% voting right in Z Ltd.
Whether Z Ltd. is to be treated under AS-18 as a party related to X Ltd.?

RP 4. Consider the following organization structure related to Prince Ltd.

Prince Ltd
80% shares
Queen Ltd
60% shares 80% shares
Rose Ltd Shine Ltd
65% shares 70% shares
X Ltd Y Ltd
Identify related party relationships, if Rose Ltd. is the reporting enterprise

RP 5. Consider the following organization structure related to UH Ltd. (the ultimate parent
company of a Group), wherein UH Ltd. has made the following investments:
 Investment in two of the wholly owned subsidiaries, viz. Sub 1 and Sub 2
 Investment in JC 1, in which UH Ltd. has a joint control
 20% investment in Associate 1 (and hence, Ass 1 is an associate of UH Ltd.)
Identify related party relationships for each of the above entities under AS-18

RP 6. Consider a scenario wherein:

Mr. Roshan holds 70% shares and voting rights in Parrot Ltd. Determine: Whether
Anusha (spouse of Mr. Roshan) is a related party to Parrot Ltd. under AS-18?

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RP 7. Consider a scenario wherein:
Mr. Krishna is a Managing Director of Dwaraka Ltd. Rukmini (spouse of Krishna)
received a remuneration of ₹ 5 lacs from Dwaraka Ltd. – for the services she rendered to
Dwaraka Ltd. for the period 1st April 2021 through 30th June 2021. Rukmini left the
services of Dwaraka Ltd. on 1st July 2021. Consider 31st March 2022 as the year-end date
for Dwaraka Ltd. Whether Rukmini is to be identified as related party at the year-end date
(31st March 2022) for the purposes of AS-18?

RP 8. Consider a scenario wherein: UK Bank holds 23% equity shares with voting rights in
Queen Ltd. The bank has provided a loan of ₹ 20 million to Queen Ltd. at market interest
rate. As per the terms and conditions of the loan agreement, the bank has appointed one
person as its nominee to the board of directors of Queen Ltd. and any major transaction to
be entered into by Queen Ltd. will require the consent of the Bank.

RP 9. Consider a scenario wherein:

 Prithvi Ltd. hold 22% shares and voting rights in Qwerty Ltd.
 On 1st April 2021, Prithvi Ltd. sold certain goods to Qwerty Ltd. amounting to Rs. 5
lacs.
 On 30th June 2021, Prithvi Ltd. sold its entire 22% stake in Qwerty Ltd. (and hence
the related party relationship ceased to exist after 30th June 2021)
 However, Prithvi Ltd. continued supply goods to Qwerty Ltd. subsequent to 30th June
2021 (just like any other customer) and sold goods worth Rs. 15 lacs during 9-month
period ended 31st March 2022
 Consider 31st March 2022 as the year-end date for Prithvi Ltd.
Determine whether the transaction for the entire year (ending on 31st March 2022) is
required to be disclosed under AS-18 as related party transaction.

RP 10. Narmada Ltd. sold goods for ₹ 90 lakhs to Ganga Ltd. during financial year ended 31-3-
2021. The Managing Director of Narmada Ltd. owns 100% shares of Ganga Ltd. The sales
were made to Ganga Ltd. at normal selling prices by Narmada Ltd. The Chief accountant
of Narmada Ltd contends that these sales need not require a different treatment from the
other sales made by the company and hence no disclosure is necessary as per the accounting
standard. Is the Chief Accountant, correct?

RP 11. Answer the following with respect to AS-18:

i) ABC Ltd. sold goods of ₹ 2,00,000 to its associate company for the 1st quarter ending
30.06.2022. After that the related party relationship ceased to exist. However, goods
were supplied to any other ordinary customer. Decide whether transactions of the entire
year have to be disclosed as related party transaction.
ii) If the majority of directors of Arjun Ltd. constitute the majority of the Board of another
Company Bheem Ltd. in their individual capacity as professionals (and not by virtue of
their being Directors in Arjun Ltd.). Are both the companies related?

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iii)Asha Ltd. sells all the manufactured furniture of ₹ 1,00,00,000 to Sasha Ltd, as per
agreement. Sasha Ltd. is the only customer to Asha Ltd. In the financial statements,
Asha Ltd. wants to present Sasha company as a related party. Comment on the
disclosure requirement.
(May 2023)

RP 12. Suggest how the transactions will be treated as at the closing date i.e. on 31st March, 2023
for the purposes of AS 18 ‘Related Party Disclosures’.
i) A Ltd. enters into an agreement with Mr. Bhola for running a business for a fixed
amount payable to the later every year. The contract states that the day-to-day
management of the business will be handled by Mr. Bhola, while all financial and
operating policy decisions are taken by the Board of Directors of the Company. Mr.
Bhola does not have any voting power in A Limited.
ii) Shri Manoj a relative of key management personnel received remuneration of ₹ 3,50,000
for his services in the company for the period from 1st April, 2022 to 30th June, 2022.
On 1st July, 2022, he left the service.
(RTP May 2024)

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AS 19 - LEASES

L 1. Annual lease rents = ₹ 50,000 at the end of each year.

Lease period = 5 years;
Guaranteed residual value = ₹ 25,000
Unguaranteed residual value (UGR) = ₹ 15,000
Fair Value at the inception (beginning) of lease = ₹ 2,00,000
Calculate the Interest rate implicit on lease

L 2. Annual lease rents = ₹ 50,000 at the end of each year.

Lease period = 5 years;
Guaranteed residual value = ₹ 25,000
Unguaranteed residual value (UGR) = ₹ 15,000
Fair Value at the inception (beginning) of lease = ₹ 2,00,000
Interest rate implicit on lease is =12.6%
Calculate the Present value of minimum lease payment from the POV of Lessee, pass the
accounting entry at the inception of the lease, allocation of finance charge over lease period
and accounting entries in year 1 to recognise the finance charge in books of lessee.

L 3. Annual lease rents = ₹ 50,000 at the end of each year.

Lease period = 5 years;
Guaranteed residual value = ₹ 25,000
Fair Value at the inception (beginning) of lease = ₹ 2,00,000
Lessee’s incremental borrowing rate is 10%.
Calculate the Present value of minimum lease payment from the POV of Lessee, pass the
accounting entry at the inception of the lease, allocation of finance charge over lease period
and accounting entries in year 1 to recognise the finance charge in books of lessee.

L 4. Strawberry Square Private Limited has taken machinery on finance lease from Berry Ltd.
The information is as under:
Lease term = 4 years
Fair value at inception of lease = ₹ 20,00,000
Lease rent = ₹ 6,25,000 p.a. at the end of year
Guaranteed residual value = ₹ 1,25,000
Expected residual value = ₹ 3,75,000
Implicit interest rate = 15%
Discounted rates for 1st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575
and 0.5718 respectively.
Calculate the value of the lease liability as per AS-19 and disclose impact of this on Balance
sheet and Profit & loss account at the end of year 1

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L 5. Prakash Limited leased a machine to Badal Limited on the following terms:
(₹ in lakhs)
(i) Fair value of the machine 28.3
(ii) Lease term 5 years
(iii) Lease rental per annum 8.00
(iv) Guaranteed residual value 1.60
(v) Expected residual value 3.00
(vi) Internal rate of return 15%
Discounted rates for 1st year to 5th year are 0.8696, 0.7561, 0.6575, 0.5718, and 0.4972
respectively. Ascertain Unearned Finance Income.

L 6. Outputs from a machine taken on a 3-year operating lease are estimated as 10,000 units
in year 1; 20,000 units in year 2 and 50,000 units in year 3. The agreed annual lease
payments are ₹ 25,000, ₹ 45,000 and ₹ 50,000 respectively. Pass the accounting entries
for Year 1 in the books of lessee.

L 7. Outputs from a machine of economic life of 6 years are estimated as 10,000 units in year
1, 20,000 units in year 2 and 30,000 units in year 3, 40,000 units in year 4, 20,000 units
in year 5 and 5,000 units in year 6. The machine was given on 3-year operating lease by a
dealer of the machine for equal annual lease rentals to yield 20% profit margin on cost ₹
5,00,000. Pass the accounting entries in the books of the lessor.

L 8. Anush Ltd. sold machinery having WDV of ₹ 40 lakhs to Bhavish Ltd. for ₹ 50 lakhs and
the same machinery was leased back by Bhavish Ltd. to Anush Ltd. The lease back is
operating lease. Comment if –
(a) Sale price of ₹ 50 lakhs is equal to fair value.
(b) Fair value is ₹ 60 lakhs.
(c) Fair value is ₹ 45 lakhs and sale price is ₹ 38 lakhs.
(d) Fair value is ₹ 40 lakhs and sale price is ₹ 50 lakhs.
(e) Fair value is ₹ 46 lakhs and sale price is ₹ 50 lakhs
(f) Fair value is ₹ 35 lakhs and sale price is ₹ 39 lakhs.

L 9. A machine was given on 3 years operating lease by a dealer of the machine for equal annual
lease rentals to yield 30% profit margin on cost ₹ 1,50,000. Economic life of the machine
is 5 years and output from the machine are estimated as 40,000 units, 50,000 units, 60,000
units, 80,000 units and 70,000 units consecutively for 5 years. Straight line depreciation
in proportion of output is considered appropriate. Compute the following:
i Annual Lease Rent
ii Lease Rent income to be recognized in each operating year and
iii Depreciation for 3 years of lease.
L 10. Lessee Ltd. took a machine on lease from Lessor Ltd., the fair value being ₹ 7,00,000.
The economic life of machine as well as the lease term is 3 years. At the end of each year
Lessee Ltd. pays ₹ 3,00,000. The Lessee has guaranteed a residual value of ₹ 22,000 on

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expiry of the lease to the Lessor. However, Lessor Ltd., estimates that the residual value of
the machinery will be only ₹ 15,000. The implicit rate of return is 15% p.a. and present
value factors at 15% are 0.869, 0.756 and 0.657 at the end of first, second and third years
respectively. Calculate the value of machinery to be considered by Lessee Ltd. and the
finance charges in each year.

L 11. Sugar Ltd. availed a lease from Salt Ltd. The conditions of the lease terms are as under:
Lease period is 3 years, in the beginning of the year 2009, for equipment costing ₹
10,00,000 and has an expected useful life of 5 years.
The Fair market value is also ₹ 10,00,000
The property reverts back to the lessor on termination of the lease.
The unguaranteed residual value is estimated at ₹ 1,00,000 at the end of the year 2011.
3 equal annual payments are made at the end of each year.
Consider IRR = 10%.
The present value off ₹ 1 due at the end of 3rd year at 10% rate of interest is ₹ 0.7513. The
present value of annuity of ₹ 1 due at the end of 3rd year at 10% IRR is ₹ 2.4868.
State whether the lease constitute finance lease and also calculate unearned finance income.

L 12. Word Ltd. sold machinery having WDV of ₹ 300 lakhs to Excel Ltd. for ₹ 400 lakhs and
the same machinery was leased back by Excel Ltd. to Word Ltd. The lease back arrangement
is operating lease.
Give your comments in the following situations:
Sale price of ₹ 400 lakhs is equal to fair value.
Fair value is ₹ 450 lakhs.
Fair value is ₹ 350 lakhs and the sale price is ₹ 250 lakhs.
Fair value is ₹ 300 lakhs and sale price is ₹ 400 lakhs.
Fair value is ₹ 250 lakhs and sale price is ₹ 290 lakhs.

L 13. A machine was given on 3 years’ operating lease by a dealer of the machine for equal annual
lease rentals to yield 30% profit margin on cost of ₹ 2,25,000. Economic life of the machine
is 5 years and output from the machine is estimated as 60,000 units, 75,000 units, 90,000
units, 1,20,000 units and 1,05,000 units consecutively for 5 years. Straight line
depreciation in proportion of output is considered appropriate. You are required to compute
the following as per AS-19.
i) Annual Lease Rent
ii) Lease Rent income to be recognized in each operating year and
iii)Depreciation for 3 years lease
(December 2021)

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L 14. Colour Limited leased a Machine to Red Limited on 1st April, 2021 on the following terms:
Cost of the machine ₹ 18,00,000
Lease term 3 years
Fair market value of the machine ₹ 18,00,000
Unguaranteed residual value as on 31-03-2024 ₹ 2,00,000
Internal rate of return 12%

Other information:
The expected useful life of the machine is 5 years. The machine will revert to Colour Limited
on termination of the lease. The lease payment is to be made at the end of each year in 3
equal parts.

The present value of ₹ 1 due at the end of 3rd year at 12% rate of interest is ₹ 0.7118. The
present value of annuity of ₹ 1 due at the end of 3rd at 12% IRR is ₹ 2.4018.

You are required to analyse whether lease constitutes finance lease. Also calculate
unearned finance income, if any.
(May 2024)

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AS 20 – EARNINGS PER SHARE

EPS 1. Calculate Weighted Number of Shares.

Date Particulars Balance
1st January Balance at beginning of year 1,800 - 1,800
31st May Issue of shares for cash 600 - 2,400
1st November Buy Back of shares - 300 2,100

EPS 2. Calculate Weighted Number of Shares.

Date Particulars No. of Face Paid up
shares Value value
1st January Balance at beginning of year 1,800 ₹ 10 ₹ 10
31st October Issue of shares for cash 600 ₹ 10 ₹5

EPS 3. Calculate Basic Earnings Per Share.

Net profit for the year 2021 ₹ 18,00,000
Net profit for the year 2022 ₹ 60,00,000
No. of equity shares outstanding until 30th September 2022 20,00,000
Bonus issue 1st October 2022 was 2 equity shares for each equity share outstanding at
30th September, 2022

EPS 4. Compute Basic Earnings Per Share.

Net profit for the year 2021 ₹ 11,00,000
Net profit for the year 2022 ₹ 15,00,000
No. of shares outstanding prior to rights issue 5,00,000 shares
Rights issue price ₹ 15
Last date to exercise rights 1st March 2022
Rights issue is one new share for each five outstanding
Fair value of one equity share immediately prior to exercise of rights on 1st March 2022
was ₹ 21.00.

EPS 5. Compute Basic and Diluted Earnings Per Share.

Net profit after tax for the year ₹ 1,00,00,000
No. of equity shares outstanding 50,00,000
No. of 12% convertible debentures of ₹ 100 1,00,000
Each debenture is convertible into 10 Equity Shares
Tax relating to interest expenses 30%

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EPS 6. Compute Basic and Diluted Earnings Per Share.
Net profit for the year 2021 ₹ 12,00,000
Weighted average number of equity shares outstanding during the 5,00,000 shares
year 2021
Average fair value of one equity share during the year 2021 ₹ 20.00
Weighted average number of shares under option during the year 1,00,000 shares
2021
Exercise price for shares under option during the year 2021 ₹ 15.00

EPS 7. Assume the following facts for a company

Income from continuing operations ₹ 30,00,000
Loss from discontinued operations (₹ 36,00,000)
Net loss (₹ 6,00,000)
Weighted average number of equity shares outstanding 10,00,000
Incremental common shares outstanding relating to stock options 2,00,000
a) Compute Basic and Diluted Earnings Per Share.
b) Assume, if in the above case, Loss from continued operations is ₹ 10,00,000 and income
from discontinued operations is ₹ 36,00,000, calculate diluted EPS.

EPS 8. Ant, a listed entity, as on 1st April, 2021 had the following capital structure:
Particulars ₹
10,00,000 Equity Shares having face value of ₹ 1 each 10,00,000
10,00,000 8% Preference Shares having face value of ₹ 10 each 1,00,00,000

During the year 2021-2022, the company had profit after tax of ₹ 90,00,000.

On 1st January, 2022, Ant made a bonus issue of one equity share for every 2 equity shares
outstanding as at 31st December, 2021.

On 1st January, 2022, Ant issued 2,00,000 equity shares of ₹ 1 each at their full market
price of ₹ 7.60 per share.

Ant's shares were trading at ₹ 8.05 per share on 31st March, 2022.

Further it has been provided that the basic earnings per share for the year ended 31st
March, 2021 was previously reported at ₹ 62.30.

Calculate the basic earnings per share to be reported in the financial statements of Ant for
the year ended 31st March, 2022 including the comparative figure, in accordance with
AS-20 Earnings Per Share.

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EPS 9. Zoo Ltd. supplied the following information. You are required to compute the basic
earnings per share.
(Accounting year 1.1.2021– 31.12.2021)
Net Profit Year 2021: ₹ 20,00,000
Year 2022: ₹ 30,00,000
No. of shares outstanding prior to Right Issue 10,00,000 shares
Right Issue 1 new share for each 4 outstanding
Right Issue price – ₹ 20
Last date of exercise rights –
31.3.2022.
Fair rate of one Equity share immediately prior to ₹ 25
exercise of rights on 31.3.2022

EPS 10. On 1st April, 2021 a company had 6,00,000 equity shares of ₹ 10 each (₹ 5 paid up by all
shareholders). On 1st September, 2021 the remaining ₹ 5 was called up and paid by all
shareholders except one shareholder having 60,000 equity shares. The net profit for the
year ended 31st March, 2022 was ₹ 21,96,000 after considering dividend on preference
shares of ₹ 3,40,000. Compute Basic EPS for the year ended 31st March, 2022.

EPS 11. Calculate the basic and diluted earnings per share for the year 2020-21 from the following:
i) Net profit after tax for the year ₹ 64,12,500
ii) No. of equity shares outstanding 15,00,000
iii) No. of 9% convertible debentures of ₹ 100 issued on 1st 75,000
July,2020
iv) Each debenture is convertible into 8 Equity Shares
v) Tax relating to interest expenses 35%
(December 2021)

EPS 12. The following information is available in respect of High-end Ltd. for the accounting year
2022-2023 and 2023-2024:
Net profit for the year ₹
2022-23 22,00,000
2023-24 30,00,000
Number of shares outstanding prior to right issue 10,00,000 shares.
Right issue: One new share for each five shares outstanding i.e. 2,00,000 shares.
Right issue price ₹ 25
Last date to exercise right 31st July, 2023.
Fair value of one equity share immediately prior to exercise of rights on 31.07.2023 is ₹ 32
Compute
i) Basic earnings per share for the year 2022-2023.
ii) Restated basic earnings per share for the year 2022-2023 for right issue.
iii)Basic earnings per share for the year 2023-2024.
(RTP September 2024)

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AS 22 - ACCOUNTING FOR TAXES ON INCOME

ATI 1. Lakshman Ltd., has provided the following information:

₹
Depreciation as per accounting records = 2,00,000
Depreciation as per income tax records = 5,00,000
Unamortised preliminary expenses as per tax record = 30,000
There is adequate evidence of future profit sufficiency. How much net deferred tax
asset/liability should be recognised as transition adjustment? Tax rate 50%.

ATI 2. From the following details of Pot Ltd. for the year ended 31-03-2024, calculate the deferred
tax asset/ liability as per AS 22 and amount of tax to be debited to the Profit and Loss
Account for the year.
Particulars ₹
Accounting Profit 6,00,000
Book Profit as per MAT 3,50,000
Profit as per Income Tax Act 60,000
Tax rate 20%
MAT rate 7.50%

ATI 3. Sangeetha Ltd.'s accounting year ends on 31st March. The company made a loss of
₹ 2,00,000 for the year ending 31.3.2021. For the years ending 31.3.2022 and 31.3.2023,
it made profits of ₹ 1,00,000 and ₹ 1,20,000 respectively. It is assumed that the loss of a
year can be carried forward for eight years and tax rate is 40%. By the end of 31.3.2021,
the company feels that there will be sufficient taxable income in the future years against
which carry forward loss can be set off. There is no difference between taxable income and
accounting income except that the carry forward loss is allowed in the years ending 2022
and 2023 for tax purposes. Prepare a statement of Profit and Loss for the years ending
2021, 2022 and 2023.

ATI 4. Megha Limited is working on different projects which are likely to be completed within 3
years period. It recognises revenue from these contracts on percentage of completion
method for financial statements during 2020-2021, 2021-2022 and 2022-2023 for
₹ 11,00,000, ₹ 16,00,000 and ₹ 21,00,000 respectively. However, for Income-tax purpose,
it has adopted the completed contract method under which it has recognised revenue of
₹ 7,00,000, ₹ 18,00,000 and ₹ 23,00,000 for the years 2020-2021, 2021-2022 and 2022-
2023 respectively. Income-tax rate is 35%. Compute the amount of deferred tax
asset/liability for the years 2020-2021, 2021-2022 and 2022-2023.

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ATI 5. Yash Ltd. is a full tax-free enterprise for the first ten years of its existence and is in the
second year of its operation. Depreciation timing difference is INR 200 lakhs and INR 400
lakhs respectively which will result in a tax liability in year 1 and 2. From the third year
it is expected that the timing difference would reverse each year by INR 10 lakhs.
Assuming tax rate of 40%, find out the deferred tax liability at the end of the second year
and any charge to the Profit and Loss account.

ATI 6. Saransh Ltd. closes its books as on 31st March 2022. They have accrued ₹ 5,00,000 towards
GST Liability for the month of March 2022 by debiting their Profit and loss statement
which is expected to be paid off by 21st April 2022 . As per the provisions of Section 43B
of the Income Tax Act, 1961 – Any expenditure of the nature mentioned in section 43B
(e.g. taxes, duty, cess, fees, etc.) accrued in the statement of profit and loss on mercantile
basis will be allowed for tax purposes in subsequent years on payment basis only.
Assuming a Tax rate of 30% determine the Deferred Tax Asset/Liability.

ATI 7. Angel Company limited had an investment in Venture Capital amounting ₹ 10 Crores.
Venture capital in turn had invested in the below portfolio companies (New Start- ups) on
behalf of Angel Limited:

Portfolio Companies Amount of investment

(₹ in Crores)
Oscar Limited 2
Zee Limited 3
Star Limited 4
Sony Limited 1
Total 10

During the FY 2019-2020, Venture Capital had sold their investment in Star Limited and
realised an amount of ₹ 8 Crores on sale of shares of star Limited and entire proceeds of
₹ 8 Crores have been transferred by Venture Capital to Angel Company Limited.
The accounts manager has received the following additional information from venture
capital on 31.03.2020:
i) 8 Crores has been deducted from the cost of investment and carrying amount of
investment as at year end is 2 Crores.
ii) Company had to pay a capital gain tax @ 20% on the net sale consideration of ₹ 4
Crores.
iii)Due to COVID-19, the remaining start- ups (i.e. Oscar Limited, Zee Limited, and Sony
Limited) are not performing well and will soon wind up their operations. Venture
capital is monitoring the situation and if required they will provide an impairment loss
in June 2020 Quarter.
You need to suggest the accounts manager what should be the correct accounting
treatment as per AS 22 “Accounting for Taxes on Income”.

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ATI 8. The following information is furnished in respect of Mohit Limited for the year ending
31st March,2022.
i) Depreciation as per accounting records ₹ 56,000
Depreciation for income tax records ₹ 38,000
The above depreciation does not include depreciation on new addition.
ii) A new machinery purchased on 1st April, 2021 costing ₹ 24,000 on which 100%
depreciation in allowed in the 1st Year for income tax purpose, whereas straight line
method of depreciation is considered appropriate for accounting purpose with a life
estimation of 4 years.
iii)The company has made a profit of ₹ 1,28,000 before depreciation and taxes.
iv) Donation to private trust during the year is ₹ 15,000 (not allowed under Income tax
laws.)
v) Corporate tax is 40%.
Prepare relevant extract of statement of Profit & Loss for the year ending 31st March,
2022. Also show the effect of the above items on Deferred Tax Liability/Assets.
(November 2022)

ATI 9. The following particulars are stated in the Balance Sheet of Siddhi Limited as on 31st
March,2022:
Particulars (₹ In lakhs)
Deferred Tax Liabilities (Cr.) 2.50
Deferred Tax Assets (Dr.) 1.35
The following transactions were reported during the year 2022-23:

(₹ In lakhs)
(i) Depreciation as per accounting records 15.00
(ii) Depreciation as per income tax records 20.00
(iii) Interest paid to NBFC accounted in books on accrual basis but paid 6.00
on 30.06.2023
(iv) Items disallowed for tax purposes in 2021-22 but allowed in 2022-23 1.05
(v) Donation to Private Trust 40.00
(vi) Tax rate 15%
(vii) There were no additions to fixed assets during the year.
Calculate the Deferred Tax Asset and Deferred Tax Liability as on 31-03-2023.
(November 2023)

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AS 24 - DISCONTINUING OPERATIONS

DO 1. Co Anish runs a famous chain of restaurants. It decides to sell its stake in one of the
restaurants. This restaurant contributes around 5% of total revenue to the entire business.
Co Anish does not intend to sell any other restaurant as part of its strategy. Comment.

DO 2. Group SAD operates in various industries including Hotels, Airlines and Software
through its subsidiaries. It has decided to sell its Airline business to be able to concentrate
on other verticals. As a result, it has started to sell its aircrafts and paying off the associated
liabilities. During the year, it has sold off 5 aircrafts out of the fleet of 50 aircrafts so far as
part of the sale. The Airline business constitutes 25% of total group revenue.

DO 3. Manasa Limited is in the business of manufacture of passenger cars and commercial

vehicles. The Company is working on a strategic plan to close the production of passenger
cars and to produce only commercial vehicles over the coming 5 years. However, no specific
plans have been drawn up for sale of neither the division nor its assets. As part of its
prospective plan it will reduce the production of passenger cars by 20% annually. It also
plans to establish another new factory for the manufacture of commercial vehicles and
transfer surplus employees in a phased manner.
You are required to comment:
i) If mere gradual phasing out in itself can be considered as a 'discontinuing operation'
within the meaning of AS-24.
ii) If the Company passes a resolution to sell some of the assets in the passenger car
division and also to transfer few other assets of the passenger car division to the new
factory, does this trigger the application of AS-24?
iii) Would your answer to (ii) above be different if the Company resolves to sell the assets
of the passenger car division in a phased but time bound manner?

DO 4. Arzoo Ltd. is in the business of manufacture of passenger cars and commercial vehicles.
The company is working on a strategic plan to shift from the passenger car segment to the
commercial vehicles segment over the coming 5 years. However, no specific plans have been
drawn up for sale of neither the division nor its assets. As part of its plan, it has planned
that it will reduce the production of passenger cars by 20% annually. It also plans to
commence another new factory for the manufacture of commercial vehicles plus transfer of
employees in a phased manner.
i) Comment if mere gradual phasing out in itself can be considered as a ‘Discontinuing
Operation'.
ii) If the company passes a resolution to sell some of the assets in the passenger car division
and also to transfer few other assets of the passenger car division to the new factory,
does this trigger the application of AS 24?
iii)Would your answer to the above be different if the company resolves to sell the assets of
the Passenger Car Division in a phased but time bound manner?
(RTP May/September 2024)

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AS 25 - INTERIM FINANCIAL REPORTING

IFR 1. Aayush Corporation is dealing in seasonal product. Sales pa ern of the product quarter-
wise is as follows:
1st quarter 30th June 10%
2nd quarter 30th September 10%
3rd quarter 31st December 60%
4th quarter 31st March 20%

Information regarding the 1st quarter ended on 30th June, 2021 is as follows:
Sales 80 crores
Salary and other expenses 60 crores
Advertisement expenses (routine) 4 crores
Administrative and selling expenses 8 crores

While preparing interim financial report for first quarter Aayush Corporation wants to
defer ₹ 10 crores expenditure to third quarter on the argument that third quarter is having
more sales, therefore, the third quarter should be debited by more expenditure. Considering
the seasonal nature of business and the expenditures are uniform throughout all quarters,
calculate the result of the first quarter as per AS 25. Comment on the company’s view.

IFR 2. The accounting year of Shreya Ltd. ends on 30th September, 2021 and it makes its reports
quarterly. However, for the purpose of tax, year ends on 31st March every year. For the
Accounting year from 1-10-2020 to 30-9-2021, the quarterly income is as under:
1st quarter ending on 31st December, 2020 ₹ 200 crores
2nd quarter ending on 31st March, 2021 ₹ 200 crores
3rd quarter ending on 30th June, 2021 ₹ 200 crores
4th quarter ending on 30th September, 2021 ₹ 200 crores
Total ₹ 800 crores
Average actual tax rate for the financial year ending on 31st March, 2021 is 20% and for
financial year ending 31st March, 2022 is 30%. Calculate tax expense for each quarter.

IFR 3. Accountants of Ishita Ltd. showed a net profit of ₹ 7,20,000 for the third quarter of 2021
after incorporating the following:
i) Bad debts of ₹ 40,000 incurred during the quarter. 50% of the bad debts have been
deferred to the next quarter.
ii) Extra ordinary loss of ₹ 35,000 incurred during the quarter has been fully recognized
in this quarter.
iii)Additional depreciation of ₹ 45,000 resulting from the change in the method of charge
of depreciation assuming that ₹ 45,000 is the charge for the 3rd quarter only.
Ascertain the correct quarterly income.

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IFR 4. Intelligent Corporation (I−Corp.) is dealing in seasonal products. The quarterly sales
pa ern of the product is given below:
Quarter I Quarter II Quarter III Quarter IV
Ending 30th June 30th September 31st December 31st March
15% 15% 50% 20%
For the First quarter ending 30th June, 2021, I−Corp. gives you the following information:
₹ crores
Sales 50
Salary and other expenses 30
Advertisement expenses (routine) 2
Administrative and selling expenses 8
While preparing interim financial report for the first quarter, ‘I−Corp.’ 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 and that the expenditures are uniform throughout all quarters.

Calculate the result of first quarter as per AS 25 and comment on the company’s view.

IFR 5. 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 is ₹ 75,000, ₹ 2,50,000, ₹ 3,75,000 and ₹ 3,00,000.
Calculate the tax expense to be recognized in each quarter.

IFR 6. Magic Limited reported a Profit Before Tax (PBT) of ₹ 4 lakhs for the third quarter ending
30-09-2021. On enquiry you observe the following. Give the treatment required
i) Dividend income of ₹ 4 lakhs received during the quarter has been recognized to the
extent of ₹ 1 lakh only.
ii) 80% of sales promotion expenses ₹ 15 lakhs incurred in the third quarter has been
deferred to the fourth quarter as the sales in the last quarter is high.
iii)In the third quarter, the company changed depreciation method from WDV to SLM,
which resulted in excess depreciation of ₹ 12 lakhs. The entire amount has been debited
in the third quarter, though the share of the third quarter is only ₹ 3 lakhs.
iv) ₹ 2 lakhs extra-ordinary gain received in third quarter was allocated equally to the third
and fourth quarter.
v) Cumulative loss resulting from change in method of inventory valuation was
recognized in the third quarter of ₹ 3 lakhs. Out of this loss ₹ 1 lakh relates to previous
quarters.
vi) Sale of investment in the first quarter resulted in a gain of ₹ 20 lakhs. The company had
apportioned this equally to the four quarters.
Prepare the adjusted profit before tax for the third quarter.

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IFR 7. The entity’s financial year ends 31 March. What are the “reporting periods” for which
st

financial statements(condensed or complete) in the interim financial report of the entity as

on 30th September, 2024 are required to be presented if:
i) Entity publishes interim financial reports quarterly
ii) Entity publishes interim financial reports half-yearly.

IFR 8. Vikram Ltd. provides you the following information and asks you to calculate the tax
expense for each quarter, assuming that there is no difference between the estimated taxable
income and estimated accounting income:
Estimated Gross Annual Income 33,00,000
(inclusive of Estimated Capital Gains of ₹ 8,00,000)

Estimated Income of Quarter I is ₹ 7,00,000, Quarter II is ₹ 8,00,000, Quarter III

(including Estimated Capital Gain of ₹ 8,00,000) is ₹ 12,00,000 and Quarter IV is
₹ 6,00,000.
Tax Rates: On Capital Gains 12%
On Other Income: First ₹ 5,00,000 30%
Balance Income 40%

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AS 26 – INTANGIBLE ASSETS

IA 1. Arham Ltd. developed know-how by incurring expenditure of ₹ 20 lakhs, The know-how

was used by the company from 1.4.2011. The useful life of the asset is 10 years from the
year of commencement of its use. The company has not amortised the asset till 31.3.2018.
Pass Journal entry to give effect to the value of know-how as per Accounting Standard-26
for the year ended 31.3.2018.

IA 2. Sweet Ltd. acquired a patent at a cost of ₹ 80,00,000 for a period of 5 years and the product
life-cycle is also 5 years. The company capitalized the cost and started amortizing the asset
at ₹ 10,00,000 per annum. The company had amortized the patent at 10,00,000 per annum
in first two years on the basis of economic benefits derived from the product manufactured
under the patent. After two years it was found that the product life-cycle may continue for
another 5 years from then. The patent was renewable and Sweet Ltd. got it renewed after
expiry of five years. The net cash flows from the product during these 5 years were expected
to be ₹ 36,00,000, ₹ 46,00,000, ₹ 44,00,000, ₹ 40,00,000 and ₹ 34,00,000. Find out the
amortization cost of the patent for each of the years.

IA 3. Lock Ltd. launched a project for producing product Key in October, 2021. The Company
incurred ₹ 20 lakhs towards Research. Due to prevailing market conditions, the
Management came to conclusion that the product cannot be manufactured and sold in the
market for the next 10 years. The Management hence wants to defer the expenditure write
off to future years.
Advise the Company as per the applicable Accounting Standard.

IA 4. During 2021-22, an enterprise incurred costs to develop and produce a routine low risk
computer software product, as follows:
Particular ₹
Completion of detailed program and design (Phase 1) 50,000
Coding and Testing (Phase 2) 40,000
Other coding costs (Phase 3 & 4) 63,000
Testing costs (Phase 3 & 4) 18,000
Product masters for training materials (Phase 5) 19,500
Packing the products (1,500 units) (Phase 6) 16,500

After completion of phase 2, it was established that the product is technically feasible for
the market. You are required to state how the above referred cost to be recognized in the
books of accounts.

IA 5. Company Goat Ltd. has provided training to its staff on various new topics like GST, AS
[Link] ensure the compliance as per the required law. Discuss whether the company can
recognize such cost of staff training as intangible asset.

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IA 6. Neptune India Private Ltd. acquired a software for its internal use costing ₹ 10,00,000.
The amount payable for the software was ₹ 6,00,000 immediately and ₹ 4,00,000 in one
year time. The other expenditure incurred were:
Purchase tax : ₹ 1,00,000
Entry Tax : 10% ( recoverable later from tax department)
Legal fees: ₹ 87,000
Consultancy fees for implementation : ₹ 1,20,000
Cost of capital of the company is 10%.
Calculate the cost of the software on initial recognition

IA 7. Sun Ltd. acquired a software from Earth Ltd. in exchange for a telecommunication license.
The telecommunication license is carried at ₹ 5,00,000 in the books of Sun Ltd. The
Software is carried at ₹ 10,000 in the books of the Earth Ltd. which is not the fair value.
Pass journal entries in the following situations in the books of Sun Ltd. and Earth Ltd.:
i) Fair value of software is ₹ 5,20,000 and fair value of telecommunication license is
₹ 5,00,000.
ii) Fair value of software is not measurable. However, similar telecommunication license
is transacted by another company at ₹ 4,90,000.
iii)Neither fair value of software nor telecommunication license could be reliably measured.

IA 8. Mars Ltd. is preparing its accounts for the year ended 31st March, 2022 and is unsure
how to treat the following items.
i) Company has completed a big marketing and advertising campaign costing ₹ 2,40,000.
The finance director had authorised this campaign on the basis that it would create
₹ 5,00,000 of additional profits over the next three years.
ii) A new product was developed during the year. The expenditure aggregated ₹ 1,50,000
of which ₹ 1,00,000 was incurred prior to 30th September, 2021, the date on which it
became clear that the product was technically viable. The new product will be launched
in the next four months and its recoverable amount is estimated at ₹ 70,000.
iii)Staff participated in a training programme which cost the company ₹ 3,00,000. The
training organization had made a presentation to the directors of Baxter outlining that
incremental profits to the business over the next twelve months would be ₹ 5,00,000.
What amounts should appear as assets in Venus Ltd.’s balance sheet as at 31st March,
2022?

IA 9. Surgical Ltd, is developing a new production process of surgical equipment. During the
financial year ended 31st March 2020 the total expenditure incurred on the process was
₹ 67 lakhs. The production process met the criteria for recognition as an intangible asset
on 1st January 2020. Expenditure incurred till this date was ₹ 35 lakhs.
Further expenditure incurred on the process for the financial year ending 31st March 2021
₹ 105 lakhs. As on 31st March 2021, the recoverable amount of technique embodied in the
process is estimated to be ₹ 89 lakhs. This includes estimates of future cash outflows and
inflows.

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Under the provisions of AS 26, you are required to ascertain:
i) The expenditure to be charged to Profit and Loss Account for the year ended 31st March
2020;
ii) Carrying amount of the intangible asset as on 31st March 2020;
iii)Expenditure to be charged to Profit and Loss Account for the year ended 31st March
2021;
iv) Carrying amount of the intangible asset as on 31st March 2021.
(December 2021)

IA 10. Panna Limited purchased software from Agate Limited for a period of 5 years and
capitalized the cost. It provided you the following information:
Cost of software ₹ 57,60,000.
Expected Life cycle of the software 5 years
The software was amortised at ₹ 6,40,000 per annum in first three years based on economic
benefits derived from the software. After three years, it was found that the software may be
used for another 5 years from then. So, Panna Limited got it renewed after expiry of five
years for 3 more years.
The net cash flows from the software during these 5 years were expected to be as follows:
Year 1 ₹ 23,04,000
Year 2 ₹ 29,44,000
Year 3 ₹ 28,16,000
Year 4 ₹ 25,60,000
Year 5 ₹ 21,76,000
You are required to calculate the amortization cost of the software for each of the years.
(November 2023)

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AS 28 - IMPAIRMENT OF ASSETS

IM 1. Agro Industries Ltd. gives the following estimates of cash flows relating to Property, Plant
and Equipment on 31-12-2021. The discount rate is 15%.
Year Cash Flow (₹ in lakhs)
2022 4,000
2023 6,000
2024 6,000
2025 8,000
2026 4,000
Residual value at the end of 2026 = ₹ 1000 lakhs
Property, Plant and Equipment purchased on 1-1-2019 = ₹ 40,000 lakhs
Useful life = 8 years
Net selling price on 31-12-2021 = ₹ 20,000 lakhs
Calculate on 31-12-2021:
(a) Carrying amount at the end of 2021
(b) Value in use on 31-12-2021
(c) Recoverable amount on 31-12-2021
(d) Impairment loss to be recognized for the year ended 31-12-2021
(e) Revised carrying amount
(f) Depreciation charge for 2022.

IM 2. Amith Ltd. is having a plant (asset) carrying amount of which is ₹ 100 lakhs on 31.3.2021.
Its balance useful life is 5 years and residual value at the end of 5 years is ₹ 5 lakhs.
Estimated future cash flow from using the plant in next 5 years are:

For the year ended on Estimated cash flow (₹ in lakhs)

31-03-2022 50
31-03-2023 30
31-03-2024 30
31-03-2025 20
31-03-2026 20
Calculate “value in use” for plant if the discount rate is 10% and also calculate the
recoverable amount if net selling price of plant on 31.3.2021 is ₹ 60 lakhs.

IM 3. Gana Ltd., acquired a machine on 1st April, 2020 for ₹ 7 crore that had an estimated useful
life of 7 years. The machine is depreciated on straight line basis and does not carry any
residual value. On 1st April, 2024, the carrying value of the machine was reassessed at
₹ 5.10 crore. For the year ended March, 2026, conditions indicating an impairment of the
machine existed and the amount recoverable ascertained to be only ₹ 79 lakhs.
Calculate the loss on impairment of the machine and show how this loss is to be treated in
the books of Gana Ltd. Gana Ltd., had followed the policy of writing down the revaluation
surplus by the increased charge of depreciation resulting from the revaluation.

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IM 4. Viyaan Ltd. purchased a Property, Plant and Equipment four years ago for ₹ 150 lakhs
and depreciates it at 10% p.a. on straight line method. At the end of the fourth year, it has
revalued the asset at ₹ 75 lakhs and has wri en off the loss on revaluation to the profit and
loss account. However, on the date of revaluation, the market price is ₹ 67.50 lakhs and
expected disposal costs are ₹ 3 lakhs. What will be the treatment in respect of impairment
loss on the basis that fair value for revaluation purpose is determined by market value and
the value in use is estimated at ₹ 60 lakhs?

IM 5. Jupiter Ltd. has a fixed asset, which is carried in the Balance Sheet on 31.3.2021 at ₹ 500
lakhs. As at that date the value in use is ₹ 400 lakhs and the net selling price is ₹ 375 lakhs.
From the above data:
i) Calculate impairment loss.
ii) Prepare journal entries for adjustment of impairment loss.
iii)Show, how impairment loss will be shown in the Balance Sheet.

IM 6. OK Drugs and Pharmaceuticals Ltd. acquired a sachet filling machine on 1st April, 2021
for ₹ 60 lakhs. The machine was expected to have a productive life of 6 years. At the end of
financial year 2021-2022 the carrying amount was ₹ 41 lakhs. A short circuit occurred in
this financial year but luckily the machine did not get badly damaged and was still in
working order at the close of the financial year. The machine was expected to fetch ₹ 36
lakhs, if sold in the market. The machine by itself is not capable of generating cash flows.
However, the smallest group of assets comprising of this machine also, is capable of
generating cash flows of ₹ 54 crore per annum and has a carrying amount of ₹ 3.46 crore.
All such machines put together could fetch a sum of ₹ 4.44 crore if disposed. Discuss the
applicability of Impairment loss.

IM 7. From the following details of an asset

i) Find out impairment loss
ii) Treatment of impairment loss
iii)Current year depreciation
Particulars of asset:

Cost of asset ₹ 56 lakhs

Useful life period 10 years
Salvage value NIL
Current carrying value ₹ 27.30 lakhs
Useful life remaining 3 years
Recoverable amount ₹ 12 lakhs
Upward revaluation done in last year ₹ 14 lakhs

IM 8. A plant was acquired 15 years ago at a cost of ₹ 5 crores. Its accumulated depreciation as
at 31st March, 2021 was ₹ 4.15 crores. Depreciation estimated for the financial year 2021-
2022 is ₹ 25 lakhs. Estimated Net Selling Price as on 31st March, 2021 was ₹ 30 lakhs,
which is expected to decline by 20 per cent by the end of the next financial year.

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Its value in use has been computed at ₹ 35 lakhs as on 1st April, 2021, which is expected
to decrease by 30 per cent by the end of the financial year.
i) Assuming that other conditions for applicability of the impairment Accounting are
satisfied, what should be the carrying amount of this plant as at 31st March, 2022?
ii) How much will be the amount of write off for the year ended 31st March, 2022?
iii)If the plant had been revalued ten years ago and the current revaluation reserves against
this plant were to be ₹ 12 lakhs, how would you answer to questions (i) and (ii) above?
iv) If the value in use was zero and the enterprise were required to incur a cost of ₹ 2 lakhs
to dispose of the plant, what would be your response to questions (i) and (ii) above?

IM 9. At the end of 2020, enterprise Mayur acquired 100% of enterprise Book for ₹ 3,000 lakhs.
Book has 3 cash-generating units A, B and C with net fair values of ₹ 1,200 lakhs, ₹ 800
lakhs and ₹ 400 lakhs respectively. Mayur recognises goodwill of ₹ 600 lakhs (₹ 3,000
lakhs less ₹ 2,400 lakhs) that relates to Book.
At the end of 2024, A makes significant losses. Its recoverable amount is estimated to be
₹ 1,350 lakhs. Book’s recoverable amount is estimated to be ₹ 3,400 lakhs. Carrying
amounts are detailed below (₹ In Lakh).

End of 2024 A B C Goodwill Total

Net carrying amount 1300 1200 800 120 3420
Scenario A - Goodwill Can be Allocated on a Reasonable and Consistent Basis
Scenario B - Goodwill Cannot be Allocated on a Reasonable and Consistent Basis

IM 10. On 1st April 2021, Venus Ltd acquired 100% of Saturn Ltd for ₹ 4,00,000. The fair value
of the net identifiable assets of Saturn Ltd was ₹ 3,20,000 and goodwill was ₹ 80,000.
Saturn Ltd is in coal mining business. On 31st March, 2023, the government cancelled
licenses given to it in few states.
As a result, Saturn’s Ltd revenue is estimated to get reduce by 30%. The adverse change
in market place and regulatory conditions is an indicator of impairment. As a result, Venus
Ltd has to estimate the recoverable amount of goodwill and net assets of Saturn Ltd on
31st March, 2023.
Venus Ltd uses straight line depreciation. The useful life of Saturn’s Ltd assets is estimated
to be 20 years with no residual value. No independent cash inflows can be identified to any
individual assets. So, the entire operation of Saturn Ltd is to be treated as a CGU. It is not
possible to determine the selling price of Saturn Ltd as a CGU. Its value in use is estimated
by the management at ₹ 2,12,000.
Suppose by 31st March, 2025 the government reinstates the licenses of Saturn Ltd. The
management expects a favourable change in net cashflows. This is an indicator that an
impairment loss may have reversed. The recoverable amount of Saturn’s Ltd net asset is
re-estimated. The value in use is expected to be ₹ 3,04,000 and fair value less cost to
disposal is expected to be ₹ 2,90,000.

Calculate the impairment loss. Advise the accounting treatment for reversal of impairment
loss and the subsequent depreciation.

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IM 11. XYZ Limited has a cash-generating unit ‘Plant A’ as on 1st April, 2021 having a carrying
amount of ₹ 1,000 crore. Plant A was acquired under a business combination and goodwill
of ₹ 200 crore was allocated to it. It is depreciated on straight line basis. Plant A has a
useful life of 10 years with no residual value. On 31st March, 2022, Plant A has a
recoverable amount of ₹ 600 crore. Calculate the impairment loss on Plant A. Also,
determine its allocation as per Ind AS 36.

IM 12. Aruna Ltd. has three cash-generating units: A, B and C, the carrying amounts of which
as on 31st March, 2021 are as follows:
(₹ in crore)
Cash-generating units Carrying amount Remaining useful life
A 500 10
B 750 20
C 1,100 20

ABC Ltd. also has two corporate assets having a remaining useful life of 20 years.
(₹ in crore)
Corporate asset Carrying amount Remarks
X 600 The carrying amount of X can be allocated
on a reasonable basis (i.e., pro rata basis) to
the individual cash-generating units.
Y 200 The carrying amount of Y cannot be
allocated on a reasonable basis to the
individual cash generating units.

Recoverable amount as on 31st March, 2021 is as follows:

Cash-generating units Recoverable amount ( in crore)
A 600
B 900
C 1,400
Aruna Ltd 3,200
Calculate the impairment loss, if any. Ignore decimals.

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AS 29 – PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS

PCC 1. At the end of the financial year ending on 31st December, 2021, a company finds that there
are twenty law suits outstanding which have not been se led till the date of approval of
accounts by the Board of Directors. The possible outcome as estimated by the Board is as
follows:
Probability Loss (₹)
In respect of five cases (Win) 100% -
Next ten cases
Win 50% -
Lose (Low damages) 40% 1,20,000
Lose (High damages) 10% 2,00,000
Remaining five cases
Win 50% -
Lose (Low damages) 30% 1,00,000
Lose (High damages) 20% 2,10,000
Outcome of each case is to be taken as a separate entity. Ascertain the amount of contingent
loss and the accounting treatment in respect thereof.

PCC 2. ECOX Ltd. is in the process of finalising its accounts for the year ended 31st March, 2022.
The company seeks your advice on the following:
i) The Company’s sales tax assessment for assessment year 2021-22 has been completed
on 14th February, 2024 with a demand of ₹ 2.76 crore. The company paid the entire
due under protest without prejudice to its right of appeal. The Company files its appeal
before the appellate authority wherein the grounds of appeal cover tax on additions made
in the assessment order for a sum of 2.10 crore.
ii) The Company has entered into a wage agreement in May, 2022 whereby the labour
union has accepted a revision in wage from June, 2021. The agreement provided that
the hike till May, 2022 will not be paid to the employees but will be se led to them at
the time of retirement. The company agrees to deposit the arrears in Government Bonds
by September, 2022.

PCC 3. Moon Ltd. has entered into a sale contract of ₹ 5 crores with Sun Ltd. during 2021-2022
financial year. The profit on this transaction is ₹ 1 crore. The delivery of goods to take place
during the first month of 2022-2023 financial year. In case of failure of Moon Ltd. to
deliver within the schedule, a compensation of ₹ 1.5 crores is to be paid to Sun Ltd. Moon
Ltd. planned to manufacture the goods during the last month of 2021-2022 financial year.
As on balance sheet date (31.3.2022), the goods were not manufactured, and it was
unlikely that Moon Ltd. will be able to meet the contractual obligation.
i) Should Moon Ltd. provide for contingency as per AS 29?
ii) Should provision be measured as the excess of compensation to be paid over the profit?

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PCC 4. An oil company has been contaminating land for several years. It does not clean up because
there is no legislation requiring cleaning up. At 31st March 2024, it is virtually certain
that a law requiring a clean-up of land already contaminated will be enacted shortly after
the year end. Is provisioning presently necessary?

PCC 5. Alloy Fabrication Limited is engaged in manufacturing of iron and steel rods. The
company is in the process of finalisation of the accounts for the year ended 31st March,2022
and needs your advice on the following issues in line with the provisions of AS-29:
i) On 1stApril,2019, the company installed a huge furnace in their plant. The furnace has
a lining that needs to be replaced every five years for technical reasons. At the Balance
Sheet date 31st March,2022, the company does not provide any provision for
replacement of lining of the furnace.
ii) A case has been filed against the company in the consumer court and a notice for levy
of a penalty of ₹ 50 Lakhs has been received. The company has appointed a lawyer to
defend the case for a fee of ₹ 5 Lakhs. 60% of the fees have been paid in advance and rest
40% will be paid after finalization of the case. There are 70% chances that the penalty
may not be levied.
(May 2022)

PCC 6. At the end of the financial year ending on 31stMarch, 2022, a company finds that there
are twenty law suits outstanding which have not been se led till the date of approval of
accounts by the Board of Directors. The possible outcome as estimated by the Board is:
Particulars Probability Loss (₹)
In respect of five cases (Win) 100% -
Next ten cases (Win) 50% -
Lose (Low damages) 40% 12,00,000
Lose (High damages) 10% 20,00,000
Remaining five cases Win 50% -
Lose (Low damages) 30% 10,00,000
Lose (High damages) 20% 21,00,000
Outcome of each case is to be taken as a separate entity. Ascertain the amount of contingent
loss and the accounting treatment in respect thereof as per AS - 29.
(November 2022)

PCC 7. A company incorporated under Section 8 of the Companies Act, 2013, have main objective
to promote the trade by organizing trade fairs / exhibitions. When company was
organizing the trade fair and exhibitions it decided to charge 5% contingency charges for
the participants/outside agencies on the income received from them by the company, while
in the case of fairs organized by outside agencies, 5% contingency charges are levied
separately in the invoice, the contingency charges in respect of fairs organized by the
company itself are inbuilt in the space rent charged from the participants. Both are credited
to Income and Expenditure Account of the company.

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The intention of levying these charges is to meet any unforeseen liability, which may arise
in future. The instances of such unforeseen liabilities could be on account of injury/loss of
life to visitors/ exhibitors, etc., due to fire, terrorist a ack, stampede, natural calamities
and other public and third-party liability. The chances of occurrence of these events are
high because of large crowds visiting the fair. The decision to levy 5% contingency charges
was based on assessment only as actual liability on this account cannot be estimated.
The following accounting treatment and disclosure was made by the company in its
financial statements:
1) 5% contingency charges are treated as income and matching provision for the same is
also being made in accounts.
2) A suitable disclosure to this effect is also made in the notes forming part of accounts.
Required:
i) Whether creation of provision for contingencies under the facts and circumstances of
the case is in conformity with AS 29.
ii) If the answer of (i) is "No" then what should be the treatment of the provision which is
already created in the balance sheet.
(RTP September 2024)

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