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Financial Instruments

The document outlines a financial reporting examination paper focusing on financial instruments, consisting of three compulsory questions worth a total of 30 marks. Each question requires calculations and journal entries related to financial instruments, including preference shares and derivatives, in accordance with relevant accounting standards. The exam is designed to assess knowledge of financial reporting principles and the application of Ind AS guidelines.

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6 views2 pages

Financial Instruments

The document outlines a financial reporting examination paper focusing on financial instruments, consisting of three compulsory questions worth a total of 30 marks. Each question requires calculations and journal entries related to financial instruments, including preference shares and derivatives, in accordance with relevant accounting standards. The exam is designed to assess knowledge of financial reporting principles and the application of Ind AS guidelines.

Uploaded by

jsanjana.vkm
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Benchmarx Academy

PAPER 1: FINANCIAL REPORTING

FINANCIAL INSTRUMENTS

Total No. of Questions – 3 Questions

Maximum Marks – 30 Marks

Time Allowed – 1 Hour

 Wherever necessary, suitable assumptions may be made and disclosed by way of a note.
 Working notes should form part of the answer
 All questions are compulsory

Q.1 (10 Marks)

Perfect Ltd. issued 50,000 Compulsory Cumulative Convertible Preference Shares (CCCPS) as on 1 st
April, 2017 @₹. 180 each. The rate of dividend is 10% payable at the end of every year. The preference
shares are convertible into 12,500 equity shares (Face value₹. 10 each) of the company at the end of 5th year
from the date of allotment. When the CCCPS are issued, the prevailing market interest rate for similar debt
without conversion option is 15% per annum.
Transaction cost on the date of issuance is 2% of the value of the proceeds. Effective Interest Rate is
15.86%. (Round off the figures to the nearest multiple of Rupee)
Discounting Factor @ 15%

Year 1 2 3 4 5
Discount Factor 0.8696 0.7561 0.6575 0.5718 0.4971

You are required to compute Liability and Equity Component and Pass Journal Entries for entire term
of arrangement i.e. from the issue of Preference Shares till their conversion into Equity Shares.
Keeping in view the provisions of relevant Ind AS.

Q.2 (10 marks)

S Limited issued redeemable preference shares to its Holding Company -H Limited. The terms of the
instrument have been summarized below. Analyse the given situation, applying the guidance in Ind AS
109'Financial Instruments', and account for this in the books of H Limited.
Non-cumulative redeemable
Nature preference shares
Repayment Redeemable after 3 years
Date of Allotment 1st April 2015
Date of Repayment 31st March 2018
Total Period 3 Years
Value of Preference Shares issued 5,00,00,000
Dividend Rate 0 % Per Annum
Market rate of interest 12% Per Annum
Present value factor 0.7118

Q.3 (10 marks)

On 1st January 2017, Expo Limited agreed to purchase USD ($) 40,000 from E&I Bank in future on 31st
December 2017 for a rate equal to ₹. 65 per USD. Expo Limited did not pay any amount upon entering
intothe contract. Expo Limited is a listed company in
India and prepares its financial statements on a quarterly basis.
Using the definition of derivative included in Ind AS 109 and following the principles of recognition and
measurement as laid down in Ind AS 109, you are required to record the entries for each quarter ended till
the date of actual purchases of USD.
For the purpose of accounting, use the following information representing marked to market fair value
of forward contracts at each reporting date:

As at 31st March, 2017 ₹. (50,000)


As at 30th June, 2017 ₹. (30,000)
As at 30th September, 2017 ₹. 24,000
Spot rate of USD on 31st December, 2017 ₹. 62 per USD

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