Presentation of Financial Statements Short Answer Type Questions

Presentation of Financial Statements Short Answer Type Questions

Question 1.
Write a short note on the Statement of Changes in Equity (SOCE).
Answer:
Statement of Changes in Equity, often referred to as Statement of Retained Earnings in U.S. GAAP, details the change in owners’ equity over an accounting period by presenting the movement in reserves comprising the shareholders’ equity.

Movement in shareholders’ equity over an accounting period comprises the following elements:

  • Net profit or loss during the accounting period attributable to shareholders.
  • Increase or decrease in share capital reserves.
  • Dividend payments to shareholders.
  • Gains and losses are recognized directly in equity.
  • Effect of changes in accounting policies.
  • Effect of correction of prior period error.

Question 2.
Explain the various types of Equity.
Answer:
The presentation outlines the accounting requirements for the presentation of financial instruments, particularly the classification of such instruments into financial assets, financial liabilities, and equity instruments. The standard also provides guidance on the classification of related interest, dividends, gains/ losses, and when financial assets and financial liabilities or equity can be offset.

Financial liability or Equity: any liability that is:
1. A contractual obligation:

  • To deliver cash or another financial asset to another entity.
  • To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity.

2. A contract that will or may be settled in the entity’s own equity instruments and is
(i) A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments.

(ii) A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose, the entity’s own equity instruments do not include: instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments; puttable instruments classified as equity or certain liabilities arising on liquidation classified by IAS 32 as equity instruments

Equity instrument: Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Question 3.
Explain the concept of Administrative Expenses.
Answer:
Administrative expenses are part of the operating expenses along with selling expenses. Administrative expenses include expenses associated with the general administration of the business. Administrative expenses are the expenses that an organization incurs not directly tied to a specific function such as manufacturing, production or sales. These expenses are related to the organization as a whole as opposed to an individual department.

Examples include the salaries and fringe benefits of the company president, human resource personnel, accounting, information technology, the depreciation expense for equipment and space used in administration, as well as supplies, utilities, etc.

Question 4.
Explain the revenue as per IAS 18.
Answer:
Revenue is generally recognized as earned at the profit of sale because at that point four criteria will generally have been met:

  • The product or service has been provided to the buyer.
  • The buyer has recognized his liability to pay for the goods or services provided. The converse of this is that the seller has recognized that ownership of goods has passed from himself to the buyer.
  • The buyer has indicated his willingness to hand over cash or other assets in the statement of his liability.
  • The monetary value of the goods or services has been established.

Revenue does not include sales taxes, value-added taxes, or goods and service taxes which are only collected for third parties, because these do not represent an economic benefit flowing to the entity. The same is true for revenues collected by an agent on behalf of the principal. Revenue for the agent is only the commission received for acting as the agent.

Question 5.
Explain the Changes in Controlling Interest.
Answer:
Changes in a parent’s controlling interest in its subsidiary that do not result in a change of control are accounted for as equity transactions or transactions between shareholders. Previously, decreases in ownership interest were treated as either equity transactions or accounted for with gain/loss recognition on the income statement.

Acquisitions of additional non-controlling interests in a step acquisition, for example are no longer required to be accounted for using the purchase method. Previously, such acquisitions were accounted for under the purchase method. Eliminating the requirement to apply purchase accounting to these transactions reduces the parent’s costs by eliminating the need to value the assets and liabilities of the subsidiary on the dates that additional equity interests are acquired.

Question 6.
Explain the various components of Statement of Changes in Equity.
Answer:
Following are the main elements of statement of changes in equity:
1.Opening Balance:
This represents the balance of shareholders’ equity reserves at the start of the comparative reporting period as reflected in the prior period’s statement of financial position. The opening balance is unadjusted in respect to the correction of prior period errors rectified in the current period and the effect of changes in accounting policy implemented during the year. These are presented separately in the statement of changes in equity (see below).

2. Effect of Changes in Accounting Policies:
Since changes in accounting policies are applied retrospectively, an adjustment is required in stockholders’ reserves at the start of the comparative reporting period to restate the opening equity to the amount that would be arrived if the new accounting policy had always been applied.

3. Effect of Correction of Prior Period Error:
The effect of correction of prior period errors must be presented separately in the statement of changes in equity as an adjustment to opening reserves. The effect of the corrections may not be netted off against the opening balance of the equity reserves so that the amounts presented in current period statement might be easily reconciled and traced from prior period financial statements.

4. Restated Balance:
This represents the equity attributable to stockholders at the start of the comparative period after the adjustments in respect of changes in accounting policies and correction of prior period errors as explained above.

5. Changes in Share Capital:
Issue of further share capital during the period must be added in the statement of changes in equity whereas redemption of shares must be deducted therefrom. The effects of issue and redemption of shares must be presented separately for share capital reserve and share premium reserve.

6. Dividends:
Dividend payments issued or announced during the period must be deducted from shareholder equity as they represent distribution of wealth attributable to stockholders.

7. Income / Loss for the period:
This represents the profit or loss attributable to shareholders during the period as reported in the income statement.

8. Changes in Revaluation Reserve:
Revaluation gains and losses recognized during the period must be presented in the statement of changes in equity to the extent that they are recognized outside the income statement. Revaluation gains recognized in income statement due to reversal of previous impairment losses however shall not be presented separately in the statement of changes in equity as they would already be incorporated in the profit or loss for the period.

9. Other Gains & Losses:
Any other gains and losses not recognized in the income statement may be presented in the statement of changes in equity such as actuarial gains and losses arising from the application of IAS 19 Employee Benefit.

10. Closing Balance:
This represents the balance of shareholders’ equity reserves at the end of the reporting period as reflected in the statement of financial position.

Practical Problems

Question 1.
Give the presentation of financial statement of companies in accordance with the requirement of Company Act. 2013.

Question 2.
From the following details prepare others Comprehensive income for the year ended 31st March, 2018 of ABC Ltd.

Particulars Amount ( )
Gains on property revaluation 12,000
Losses on investment in Equity Instruments 22,000
Remeasurement losses on defined pension plans 600
Share of gain on property revaluation 1,000
Income tax related to items that will not be reclassified 5,000
Items that may be reclassified subsequently to profit or loss: 3,000
Exchange difference in translating foreign operations 600
Cash flow ledger 2,000
Income tax relating to items that may be reclassified 50,000
Profit for the year 39,000
Controlling interest (Owner) Amount ( )

Question 3.
From the following prepare, a statement of profit or loss for the year ended 31.3.2019 as per the Companies Act, 2013.
Revenue from operation – 12,00,000
Salaries and allowances – 1,40,000
Stationery – 30,000
Interest on long term loans – 50,000
Publicity – 80,000
Raw material consumed – 2,20,000
Discount allowed – 20,000
Depreciation – 20,000
Rent received – 80,000

Question 4.
From the following balances of Kumar Co. Ltd. as of 31.3.2016. Prepare a statement of P/L.
Interest on debentures – 32,400
Travelling expenses – 15,000
Delivery van expenses – 5,000
Bad debts – 6,000
Discount – 7,000
Purchases – 3,15,000
Opening stock – 75,000
Freight charges – 8,000
Depreciation – 25,000
Insurance – 5,000
Commission received – 7,500
Sales – 6,50,000
Share transfer fees – 5,000

Question 5.
From the following particulars XYZ Co., prepare a statement of P/L for the year ended 31st March 2018 as per Schedule III of Companies Act, 2013.
Particulars – Amount ()
Revenue from Operations – 39,000
Cost of material consumed – 24,500
Other income – 6,000
Changes in inventory – 2,500
Changes in WIP – 1,500
Finance Cost – 1,000
Employees Benefit – 2,000
Depreciation and amortisation – 3,000
Other Expenses – 500
Income Tax expenses – 1,200
Non-Controlling interest – 4,000

Question 6.
Prepare a statement of profit or loss under the Companies Act. 2013 from the following details of Kavya Ltd. for the year ended 31.3.2019.
Sales – 16,00,000
Purchase of raw materials – 7,00,000
Commission received – 3,00,000
Carriage inwards – 1,00,000
Returns outwards – 40,000
Opening stock of raw materials – 1,80,000
Closing stock of raw materials – 1,00,000
Rent received – 40,000
Salaries to employees – 2,00, 000
PF contribution to employees – 50,000
Interest on bank loan – 30,000
Interest on Debentures – 30,000
Sundry expenses – 10,000
Depreciation – 40,000
Income tax paid – 75,000
Excise duty – 50,000
Consumables – 80,000
Factory expenses – 60,000

Question 7.
You are given the following extracts of Ledger Balances taken from Shankar Ltd. for the year ending 31.3.2016 to prepare a statement of P/L.
Revenue from operations – 98,000
Other income – 2,000
Advertising – 5,250
Salaries – 27,000
Depreciation – 2,800
Insurance – 1,000
Interest on debentures – 1,000
Preliminary exp. written off – 1,000
Bad debts – 500
Discount – 500
Printing and stationery – 1,000
Cost of materials consumed – 25,000

Question 8.
Calculate revenue from sales of Vinay Electronics Limited.
Gross Sales – 49, 22,040
Sales return and allowances – 43,800
Solution:

Particulars Amount
Revenue from sales:
Gross Sales (Cash sales + Credit sales) 49, 22,040
Less: Sales returns and allowances 43,800
Net Sales 48,78,240

Question 9.
Give the proforma of the balance sheet in the format prescribed under the Company Act. 2013

Question 10.
From the following Trial Balance of MN Co. Ltd., as of 31.3.2018, prepare SOFP as per Ind. AS-1. (Schedule III Companies Act of 2013).

Question 11.
Prepare the Balance Sheet of Thimmegowda Company as at 31st March 2016, from the following information:
Particulars – Amount
Share Capital – 40,000
Reserves and Surplus – 37,110
Long-term borrowings – 10,000
Trade payables – 19,630
Short-term provisions – 26,000
Tangible assets – 30,000
Investments – 2,000
Inventories – 89,000
Trade receivables – 7,400
Cash and bank balances – 3,140
Short-term loans and advances – 1,200

Question 12.
Prepare Balance Sheet of ABC limited, from the following ledger balances as on 31/03/2016.
Particulars – Amount
Equity share capital – 5,00,000
Plant and machinery – 6,00,000
Preference share capital – 4,00,000
Freehold property – 3,00,000
Goodwill – 1,00,000
Debentures – 4,00,000
Sundry debtors – 1,40,000
Closing stock – 2,00,000
Bank overdraft – 60,000
Sundry creditors – 60,000
Cost of issue of shares – 40,000
Unclaimed dividend – 50,000
Advertisement suspense – 90,000

Presentation of Financial Statements Very Short Answer Type Questions

Presentation of Financial Statements Very Short Answer Type Questions

Question 1.
What is Balance sheet?
Answer:
Its shows the entity’s assets, liabilities and stockholders’ equity as of the report date. It does not show information that covers a span of time.

Question 2.
What do you mean by Income statement?
Answer:
It shows the results of the entity’s operations and financial activities for the reporting period. It includes revenues, expenses, gains, and losses.

Question 3.
Define Asset.
Answer:
It is a resource controlled by an entity as a result of past events and from which future economic benefits are expected to flow to the entity.

Question 4.
Define Liability.
Answer:
It is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

Question 5.
What is Expenses?
Answer:
They are the decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.

Question 6.
Expand SOCE.
Answer:
SOCE – Statement of Changes in Equity

Question 7.
Define Statement of Changes in Equity.
Answer:
Statement of Changes in Equity, often referred to as Statement of Retained Earnings in U.S. GAAP, details the change in owners’ equity over an accounting period by presenting the movement in reserves comprising the shareholders’ equity.

Question 8.
What is Restated Balance?
Answer:
This represents the equity attributable to stockholders at the start of the comparative period after the adjustments in respect of changes in accounting policies and correction of prior period errors as explained above.

Question 9.
What are Dividends?
Answer:
Dividend payments issued or announced during the period must be deducted from shareholder equity as they represent distribution of wealth attributable to stockholders.

Question 10.
What do you mean by Closing Balance?
Answer:
This represents the balance of shareholders’ equity reserves at the end of the reporting period as reflected in the statement of financial position.

Question 11.
Give the meaning of Non-current Assets.
Answer:
A non current asset is an asset that is not likely to turn to unrestricted cash within one year of the balance sheet date. A noncurrent asset is also referred to as a long-term asset.

Question 12.
What do you mean by controlling interest?
Answer:
Controlling interest is when one shareholder or a group acting in kind holds a high enough percentage of ownership in a company to enact changes at the highest level. By definition, this figure is 50% of the outstanding shares or voting shares, plus one.

Question 13.
Mention any two items of other income.
Answer:
a. Income from Interest, Dividend Received, commission received, rent received etc.

Question 14.
Discuss the standard contents of a set of financial statements.
Answer:
1. Balance sheet: Shows the entity’s assets, liabilities, and stockholders’ equity as of the report date. It does not show information that covers a span of time.

2. Income statement: Shows the results of the entity’s operations and financial activities for the reporting period. It includes revenues, expenses, gains, and losses.

3. Statement of cash flows: Shows changes in the entity’s cash flows during the reporting period.

Question 15.
What are the Objectives of financial Statements?
Answer:

  • To determine the ability of a business to generate cash and the sources and uses of that cash.
  • To determine whether a business has the capability to pay back its debts.
  • To track financial results on a trend line to spot any looming profitability issues.
  • To derive financial ratios from the statements that can indicate the condition of the business.
  • To investigate the details of certain business transactions, as outlined in the disclosures that accompany the statements.

Accounting for Assets and Liabilities Long Answer Type Questions

Accounting for Assets and Liabilities Long Answer Type Questions

Question 1.
Explain the events occurring after the reporting period (Ind AS-10).
Answer:
1. Adjusting Events:
An event after the reporting date that provides further evidence of conditions that existed at the reporting date.

Examples:

  • Events that indicate that the going concern assumption in relation to the whole or part of the entity is not appropriate.
  • Settlement after reporting date of court cases that confirm the entity had a present obligation at reporting date.
  • Bankruptcy of a customer that occurs after reporting date that confirms a loss existed at reporting date on trade receivables.
  • Sales of inventories after reporting date that give evidence about their net realisable value at reporting date.
  • Determination after reporting date of cost of assets purchased or proceeds from assets sold, before reporting date.

2. Non- Adjusting Events
An event after the reporting date that is indicative of a condition that arose after the reporting date.

Examples:

  • Major business combinations or disposal of a subsidiary.
  • Major purchase or disposal of assets, classification of assets as held for sale or expropriation of major assets by government.
  • Destruction of a major production plant by fire after reporting date.
  • Announcing a plan to discontinue operations.
  • Announcing a major restructuring after reporting date.
  • Major ordinary share transactions.
  • Changes in tax rates or tax law.

Question 2.
Explain the recognition and measurement for property plant and equipment.
Answer:
Recognition:
The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
(a) It is probable that future economic benefits associated with the item will flow to the entity.

(b) The cost of the item can be measured reliably.
Spare parts and servicing equipment are usually carried as inventory and recognised in profit or loss as consumed. However, major spare parts, standby equipment and servicing equipment qualify as property, plant and equipment when an entity expects to use them during more than one period.

Measurement:
Measurement at recognition – An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.

Elements of cost:
The cost of an item of property, plant and equipment comprises:
(a) Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.

(b) Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(c) The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

Measurement after recognition:
An entity shall choose either the cost model or the revaluation model as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.
(a) Cost model – After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

(b) Revaluation model – After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

Question 3.
Briefly explain the scope and disclosure requirements of Intangible assets as per Ind AS-38.
Answer:
The scope:
This Standard should be applied by all enterprises in accounting for intangible assets, except:
(a) Intangible assets that are covered by another Accounting Standard.

(b) Financial assets: A financial asset is any asset that is :

  • cash
  • a contractual right to receive cash or another financial asset from another enterprise
  • a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable.

(c) Mineral rights and expenditure on the exploration for or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources; and

(d) Intangible assets arising in insurance enterprises from contracts with policyholders.

Disclosure requirements:

  • Whether the useful lives are indefinite or finite and if finite, the useful lives or the amortisation rates used.
  • The amortisation methods used for intangible assets with finite useful lives.
  • The gross carrying amount and any accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period.
  • The live item(s) of the statement of profit and loss in which any amortisation of intangible assets is included.

Question 4.
Discuss the techniques for the measurement of cost.
Answer:
Two techniques are mentioned by the standard, both of which produce results which approximate to cost, and so both of which may be used for convenience.
(a) Standard costs are set up to take account of normal production values: account of raw materials used, labor time etc. They are reviewed and revised on a regular basis.

(b) Retail method: this is often used in the retail industry where there is a large turnover of inventory items, whish nevertheless have similar profit margins. The only practical method of inventory valuation may be to take the total selling price of inventories and deduct an overall average profit margin, thus reducing the value to an approximation of cost. The percentage will take account of reduce price lines. Sometimes different percentages are applied on a department basis.

Question 5.
Write short on Inventories as per IAS 2.
Answer:
The major area of contention is the cost value of inventory to be recorded. This is recognized as an asset of the entity until the related revenues are recognized i.e. the item is sold at which point the inventory is recognized as an expense i.e. cost of sales. Part or all of the cost of inventories may also be expensed if a write-down to net realizable value is necessary. The IAS also provides guidance on the cost formulas that are used to assign costs to inventories.

Inventories can include any of the following:

  • Good purchased and held for resale, e.g. goods held for sale by a retailer, or land and buildings held for resale.
  • Finished goods produced.
  • Work in progress being produced.
  • Materials and supplies awaiting use in the production process.

Question 6.
Explain the various Cost of Inventories.
Answer:
The cost of inventories will consist of all cost of:
1. Cost of Purchase:
The standard lists the following as comprising the cost of purchase of inventories.

  • Purchase price ADD
  • Import duties and other taxes ADD
  • Transport, handling and any other cost directly attributable to the acquisition of finished goods, services and materials LESS.
  • Trade discounts, rebates and other similar amounts

2. Costs of Conversion:
Costs of conversion of inventories consist of two main parts.

  • Costs directly related to the units of production, example direct materials, direct labor.
  • Fixed and variable production overheads that are incurred in converting materials into finished goods, allocated on a systematic basis.

The standard emphasizes that fixed production overheads must be allocated to items of inventory on the basis of the normal capacity of the production facilities. This is an important point.

  • Normal capacity is the expected achievable production based on the average over several periods/seasons, under normal circumstances.
  • The above figure should take account of the capacity lost through planned maintenance.
  • If it approximates to the normal level of activity then the actual level of production can be used.
  • Low production or ideal plant will not result in the higher fixed overhead allocation to each unit.
  • Unallocated overheads must be recognized as an expense in the period in which they were incurred.
  • When production is abnormally high, the fixed production overhead allocated to each unit will be reduced, so avoiding inventories being stated at more than cost.
  • The allocation of variable production overheads to each unit is based on the actual se of production facilities.

3. Other Costs:

  • Abnormal amounts of wasted materials, labour or other production costs.
  • Storage costs (except costs which are necessary in the production process before a further production stage).
  • Administrative overheads not incurred to bring inventories to their present location and conditions.

Question 7.
Explain the various types of operating leases.
Answer:
1. Accounting for operating leases:
Operating lease do not really pose an accounting problem. The lessee pays amounts periodically to the lessor and these are charged to the statement of profit or loss. Where the lessee is offered an incentive such as a rent-free period or cash back incentive, this is effectively a discount, which will be spread over the period of the operating lease in accordance with the accruals principle.

For instance, if a company entered into a four-year operating lease but was not required to make any payments until year 2, the total payments to made over years 2-4 should be charged evenly over years 1-4. Where a cash back incentive is received, the total amount payable over the lease tern, less the cash back, should be charged evenly over the term of the lease.

2. Accounting for finance leases:
For asset held under finance lease or hire purchase this accounting treatment would not disclose the really of the situation. If lessor lease out an asset on a finance lease, the asset will probably never be seen on his premises or used in his business again. It would be inappropriate for a lessor to record such an asset as a non-current asset. In reality, what he owns is a stream of cash flows receivable from the lessee.

The asset is an amount receivable rather than a non-current asset. The substance of the transaction is that he has acquired a non-current asset, and this is reflected in the accounting treatment prescribed by IAS 17, even though in law the lessee never becomes the owner of the asset.

Question 8.
Write short note on Impairment of Assets as per IAS 36.
Answer:
Impairment of Assets seeks to ensure that an entity’s assets are not carried at more than their recoverable amount i.e. the higher of fair value less costs of disposal and value in use. With the exception of goodwill and certain intangible assets for which an annual impairment test is required, entities are required to conduct impairment tests where there is an indication of impairment of an asset, and the test may be conducted for a ‘cash-generating unit’ where an asset does not generate cash inflows that are largely independent of those from other asset.

Question 9.
Discuss the Recognition and Measurement of an Impairment Loss (Ind AS-36).
Answer:
Recognition and Measurement of an Impairment Loss
The rule for assets at historical cost is:
If the recoverable amount of an asset is lower than the carrying amount, the carrying amount should be reduced by the difference (i.e. the impairment loss) which should be charged as an expense in profit or loss. The rule for assets held at a revalue amount (such as property revalue under IAS 16) is: The impairment loss is to be treated as a revaluation decrease under the relevant IAS. Any excess should be charged to profit or loss.

Accounting treatment of an Impairment Loss:
The recoverable amount of an asset is less than its carrying amount in the statement of financial position, an impairment loss has occurred. This loss should be recognized immediately.
(a) The asset’s carrying amount should be reduced to its recoverable amount in the statement of financial position.

(b) The impairment loss should be recognized immediately in profit or loss (unless the asset has been revalued in which case the loss is treated as a revaluation decrease).
After reducing an asset to its recoverable amount, the depreciation charge on the asset should then be based on its new carrying amount, its estimated residual value (if any) and its estimated remaining useful life.

Practical Problems

Question 1.
T Ltd. has purchased an equipment for its manufacturing unit. The price paid for the equipment is 2,20,000 inclusive of GST of 39,600. The company gets a credit of GST while calculating tax payable on finished goods sold.
The additional cost incurred are:
Freight – 4,500
Customs duty – 4,000
Installation expenses – 3,000
Estimated cost of dismantling and removing the item would be 1,500. After the equipment was put into use 11,000 was spent for cleaning the spare parts.
Calculate the cost of PPE as per Ind AS-16.

Question 2.
Veena Traders purchased a plant from Sujay Ltd. 30-9-2015 with a quoted price of 200 lakhs.
Sujay Ltd. offer 3 months credit with a condition that discount of 1.5% will be allowed if the payment were made with in one month. VAT is 14% on the quoted price. Company incurred 2% on transportation cost and 3% on erection cost of the quoted price. Pre-operative cost amounted to 2 lakhs. Estimated life of the plant is 8 years. Residual value of the plant 20 lakhs.
a) Calculate the original cost of the plant
b) Carrying amount of the plant on 31.3.2016.

Question 3.
X Ltd. obtained a loan of 60,00,000 on 1st April, 2016 from Vijaya Bank, to be capitalized as under:
Construction of company building – 1 20,00,000
Purchase of Plant and Machinery – 15,00,000
Working capital required – 10,00,000
Purchase of vehicle – 15,00,000
In March 2017, construction of company building was completed and Plant and Machinery was ready for its intended use.
Total interest charged by Vijaya Bank for the financial year ending 31st march, 2017 was 7,20,000.
How do you treat the total interest charged on loan?

Question 4.
Ganesh Ltd. ordered a laptop in flip kart. The price of laptop is 40,000, allowed 10% discount at time of purchase and charged 18% GST which is not refundable. Shipping charges 500, software installation charges 3,000 and annual service charges 3,000. Calculate the initial cost of laptop and give reasons as per Ind. AS-16.

Question 5.
Hariprasada SakshiDhoni ltd; purchased a plant from Shreeshaks ltd; on 30/09/2015 with an estimated price of 1, 98,000. Suresh Raina suppliers offers 3 months credit with a condition that discount of 1.25% will be given if the payments were made within one month. VAT is charged on the estimated price.VAT should include the Swach Bharath cess and the Krishi kalyan cess.

The company incurred 2% on transportation costs and 3% on the establishment costs of the estimated price. Pre-operative costs amounts to 1, 65,000. To finance the machinery’s purchase, the company took a bank toan of 1, 37,500 at an interest rate of 14.50% p.a. The machine was ready for use on 01/04/2016. Ascertain the original cost?

Question 6.
Archita Co. receives a government grant representing 50% of the cost of a depreciating asset which cost 4,00,000. How will the grant be recognized if Archita Co. depreciates the assets:
1. Over four years straight line.
2. At 40% reducing balance.
The residual value is nil. The use full life is four years.
Solution:
The grant should be recognized in the same proportion as the depreciation.
1. Straight line

Year Depreciation Grant income
1 1,00,000 50,000
2 1,00,000 50,000
3 1,00,000 50,000
4 1,00,000 50,000

(b) Treating the grant as deferred income

Year 1 Year 2 Year 3 Year 4 Total
Profit before depreciation 50,000 50,000 50,000 50,000 2,00,000
Depreciation (25,000) (25,000) (25,000) (25,000) (1,00,000)
Grant 5,000 5,000 5,000 5,000 20,000
Profit 30,000 30,000 30,000 30,000 1,20,000

The depreciation charge on a straight line basis, for each year, is 1/4 of $ (10,000 – 20,000) = 20,000.
Statement of financial position of year end (extract)

Year 1 Year 2 Year 3 Year 4
Non-current asset 1,00,000 1,00,000 1,00,000 1,00,000
Depreciation 25% (25,000) (50,000) (75,000) (1,00,000)
Carrying amount 75,000 50,000 25,000 –
Government grant Deferred income [Carrying amount x 20%] 15,000 10,000 5,000 –

Question 7.
Classify whether the following is tangible or an intangible asset:
(a) Operating system of a laptop
(b) Publishing software package
(c) Specialised software installed in the computer controlled machine tools
(d) A firewall controlling access to restricted section of an internet website
Solution:
(a) The O.S. of a laptop is an integral internal part of a laptop. lit is not an intangible asset. Thus, it is classified to be tangible asset.

(b) Computer software that is publishing software package is an intangible asset.

(c) Computer software is specialised software integrated to production. It is not an intangible asset Thus, it is classified to be a tangible asset.

(d) Companies developing firewall software to protect their own website may also sell technology to other organisations. Thus, it is grouped to be an intangible asset.

Question 8.
Shwetha kalmath ltd; is developing a new distribution system of its materials, following are the expenses undergone at various stages on research and development process.
Year – Phase – Amount ( )
2011 – Research – 8 crores
2012 – Research – 10 crores
2013 – Development – 30 crores
2014 – Development – 36 crores
2015 – Development – 40 crores
On 31/03/2016, Shwetha kalmath ltd, identified the level of cost savings at 16 crores p.a, expected to be achieved by the new system over a period of 5 years, in addition this system developed can be marketed by the way of consultancy which will earn a cash flow of 10 crores p.a., the company meets all the requirements of asset recognition on 01/01/2014.

Calculate the amount / cost which will be expensed and to be capitalised as intangible assets, presuming that no active market exists to determine the price of the system developed. The product shall be available for use from 2018, impairment testing can be done taking 10% discount factor.
Solution:
As per A.S – 26 research cost of 8 crores and 10 crores is to be expensed in respective financial years (that is 2011, 2012) respectively.
A. Calculation of the impairment assuming the discount factor @ 10%:

Year Cost Savings Inflow Total CIF Disc factor @ 10% PV CIF
2018 16 10 26 0.909 23.634
2019 16 10 26 0.826 21.48
2020 16 10 26 0.751 19.53
2021 16 10 26 0.683 17.76
2022 16 10 26 0.621 16.15
98.54

Total PV of the Cash In Flows is = 98.54

B. The development expenses shall be capitalised from the date that the internally generated assets meets the requirements that is 01/01/2014. Thus, 106 crores (30 + 36 + 40) crores to be capitalised as an intangible asset.

C. Calculation of the Impairment Losses:
Capitalised cost of the total intangible asset (-) PVCIF
106 crores (-) 98.54 crores = 7.46 crores.

D. 98.54 crores would be carried to the Balance Sheet as an intangible asset

E. No amortisation of asset shall be done in 30/03/2016. As the asset is put in use only on 2018.

Question 9.
Krishnan India ltd; is developing a new production process. During the financial year 31/12/2015, the total expenditure incurred on this process was 25 lakhs. The production process met the criteria for recognition as an intangible asset on 01/09/2015. Expenditure incurred till this date was 11 lakhs.

Further the firm incurred expenditure on the process during the financial year ended on 31/12/2016 was 40 lakhs. As on 31/12/ 2011, the recoverable amount of Know- how embedded in the process is estimated to be 36 lakhs. This also includes the inflows as well as the outflows of the future cash.
Calculate:
A. What is the expenditure to be debited to the profit and loss account for the financial year ended on 31/12/2015?
B. What is the carrying amount of intangible asset as on 31/12/2015?
C. What is the expenditure to be debited to the profit and loss account for the year ended as on 31/12/2016?
D. What is the carrying amount of intangible asset as on 31/12/2016?
Solution:
A. Expenditure incurred up to 01/09/2015 is debited to the profit and loss account = 11 lakhs.

B. Carrying amount will be the expenditure incurred after 31/12/2015 = 14 lakhs (25 lakhs (-) 11 lakhs)

C. Book cost of the intangible asset as on 31/12/2016 is as follows:

Carrying amount as on 31/12/2010 14,00,000
(+) Expenditure as on 2015 40,00,000
Total book cost 54,00,000

(-) Recoverable amount as estimated 36,00,000
Amount to be debited to the profit and loss account 18,00,000 as on 31/12/2016

D. Carrying amount on 31/12/2016 will be (Cost (-) Impairment Loss) = 36,00,000

Question 10.
Dr.V Rajesh Kumar Ltd; got the licence to produce particular medicine for 10 years at a licence fee of’ 200 lakhs. Given below is the pattern of expected production and expected operating cash inflows.

Year Medicines (1000’s) Net Operating CIF
1 300 900
2 600 1800
3 650 2300
4 800 3200
5 800 3200
6 800 3200
7 800 3200
8 800 3200
9 800 3200
10 800 3200

Suggest the amortisation method.
Solution:

Year Net Op. CIF Ratio Amortisation Amount
1 900 0.03 06
2 1800 0.06 12
3 2300 0.08 16
4 3200 0.12 24
5 3200 0.12 24
6 3200 0.12 24
7 3200 0.12 24
8 3200 0.12 24
9 3200 0.12 24
10 3200 0.11
(Bal. Fig)		 22
Total 27,400 1.0000 200 lakhs

Ratio = (Net Op. CIF/ Production) / (100)
If the pattern of economic benefit in the form of Net Op. CIF is not determined reliably. Then, the Straight Line Method should be used. It is not the case here as the Net Op. CIF has increased from 4th year due to increase in the Production and reduction in the cots.

Question 11.
Bakuladevi Ltd; incurred the following expenditure on purchasing the technical-know-how for manufacturing a smart phone from Balaji Krishnan. Bakuladevi ltd; has paid 5 crores to Balaji Krishnan and it can be used for a period of 4 years, the firm estimates the production of mobiles as follows:

Year Number of mobiles (1000’s)
1 25
2 50
3 75
4 100

Ongoing into production at the end of the 1st year it achieved its target production but considered to redraw the estimates for the next three years as follows:

Year Number of mobiles
2 35
3 65
4 80

A. How will Bakuladevi Ltd; amortise the technical-know-how Fee as per the A.S-26?

B. Whether the amortisation be charged as an expenditure or should it form a part of the production cost of the mobiles?

Question 12.
Panduranga Rao ltd; has a single manufacturing plant which has a carrying amount of ’28, 80,000. A Govt, in Japan passed legislation in its parliament to restrict exports of the products produced by the company. As a result, PRR Ltd; production will be cut by 80%.
With the following information available, calculate the impairment loss?

Year Future Cash Flows
1 80,000
2 35,000
3 22,000
4 1,00,000
5 9,00,000

Discount factor is @ 15%
Assume there is no deferred tax and general inflation effects.

Question 13.
Prathibha Ltd., acquired 100% of the ordinary share capital of PP Gopal Ltd; for 10,00,000 ON 01st January, 2015. The stated amount also includes goodwill worth 9,60,000. Prathibha Ltd; is preparing the group accounts from the 1st to 5th year on 31st December, 2015 and due to heavy market volatility, the company has decided to carry out an important review of the fixed assets and goodwill of PP Gopal Ltd.

Question 14.
Girish ltd; has identified an indication of impairment and is conducting a review.
The summarized information of the balance sheet of Girish ltd; is as follows:

Goodwill (lakhs)
Property 600
Plant 820
Net current assets 730
Total assets 265
Share capital reserve 2415
Total liabilities 2415

→ Whole company is considered to be a cash generating unit
→ The present value of the future cash flows is estimated at 1.2 million
→ Assume net assets value is at the lower of the cost and the net realizable value
→ The net realizable value of the property is 9,00,000
Calculate:
(i) Impairment loss
(ii) Allocation of the impairment loss

Question 15.
From the following information given below, determine whether the lease is a financial lease or an operating lease?
Lessor’s cost of the leased asset – 80,000
Fair value of the leased asset at inception (01/01/2015) – 80,000
The lease is for four years and the rentals, which have to be paid in advance at the beginning of each year, are 40,000, 25,000, 15,000 and 10,000 respectively. The estimated residual value of the leased assets at the end of the lease term is 5% of the cost of the asset; the lessor expects a return of 18% on investment.

Question 16.
X Limited, was taken Machinery on lease from Y Limited, 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%. Calculate the value of the lease liability.
Discount rate at 15%.

Year : 1 2 3 4
Present Value : 0.8696 0.7561 0.6575 0.5718

Question 17.
From the information given below, identify the lease category to which the assets belong to:
Rajalakshmi (Pvt) Ltd; has entered into a new lease agreement on building and a land. The fair value of the building is 50, 00,000 and the fair value of the land is 30, 00,000. The lease is for a period of twenty years, which is the expected life of the factory, with annual payments in arrears of 5, 00,000. The cost of capital is 8%.
Solution:
Computation of the present value of the building and the land: Building
The lease payment in arrears for the building is =
Total lease payment arrears = \(\frac { F.V. of the building }{ Total F.V. of building + land }\)
5,00,000 x \(\frac { 50.00,000 }{ 80,00,000 }\) = 3,12,500
Present value of the building: 3,12,500 x 9.818 = 30,68,125
Since the building is used as a leased asset for major part of its useful life (approx 90% in this case), thus it is classified as financial lease even though the PV of the building is not substantially equal to its future value.
Land:
The lease payment in arrears for the land is
(5,00,000) x (30,00,000) / (80,00,000) = 1,87,500.
The present value of the land is
1,87,500 x 9.818 = 18,40,875
The land is classified as a operating lease as its present value is not substantially equal to its fair value.

Question 18.
Calculate the borrowing cost of Excel Ltd.
(i) 8 crores arranged by issuing 8% debentures repayable after 10 years.
(ii) 3 crores by a loan from IDBI with 10 years term at interest of 10% p.a.
(iii) 3 crores overdraft from Canara Bank at interest of 10% p.a.
(iv) Cost of issue of debentures is 15,00,000
(v) Processing and counsultancy charges for IDBI loan – 5% of loan.
(vi) Debentures are repayable at 5% premium

Question 19.
PQR Co. constructing power generation plant. This project requires totally 12 crores, which are raised as follows:
(a) 4 crores from IFCI for 10 years at 11% interest rate.
(b) 2 crores of loan from HDFC bank for 6 years at 10% interest rate.
(c) 2 crores of loan from SBI bank for 4 years at 12% interest rate.
(d) 3 crores from 10% debentures for 5 years at 5% discount
(e) 1 crores as overdraft from corporation bank at 4% interest rate.
(f) Out of total borrowed fund 5 crores are kept in HUDCO bank as short term deposit for 6 months at 5% rate.
(g) IFCI bank loan is borrowed through consultation and the consultancy charges are 2% of total loan amount.
Calculate total borrowing cost accordance with Ind. AS-23.

Question 20.
Ravi Ltd. purchased equipment for its company the price paid for the equipment is 2,50,000 inclusive of value added tax of 60,000.
The entity gets a credit of VAT while calculating the tax payable on the finished goods sold.
Additional 10,000 customs duty 8,000
Installation expenses of 5,000
The estimate of dismantling and removing the item would be 5,000
After the equipment was put to use 5,000 was spent on cleaning the spare parts.
Calculate the cost of the asset according to Ind AS-16.
Solution:
Statement of calculation of cost of the asset

Particulars Amount
Purchase price (2,50,000-60,000) 1,90,000
Freight 90,000
Customs duty 8,000
Installation expenses 5,000
Add: Estimate of dismantling and removing item 5,000
Total cost as per Ind AS-16 2,18,000

Note: Cleaning charges of ‘ 5,000 should be charged to profit and loss A/c as it does not have any revenue generating capacity.

Question 21.
Sri Ram Ltd. purchased a machine costing 40,00,000 on 10.1.2015.
The company received grants from the govt, to the extent of 50% of the assets cost. The products are to be supplied to the govt, upto the extent of 50% of the production and at a price which is 20% below the average market price.
Average market price of the product

Year Price
2015 37.5
2016 40
2017 42.5
2017 45
2019 47.5

The capacity utilisation of the machine in %

Year % capacity utilisation
2015 50%
2016 50%
2017 60%
2015 70%
2019 80%

The Production capacity is 1 lakh units per annum.
Calculate the (a) Revenue subsidy (b) Gain from grants

Question 22.
Prepare Stores Ledger under FIFO method from the following information.
June 07, 2007 Purchased 500 units @ 12 per unit.
June 13, 2007 Purchased 700 units @ 10 per unit.
June 22, 2007 Issued 1,000 units.
June 25, 2007 Purchased 1,500 units @ 8 per unit.
June 30, 2007 Issued 1,000 units.

Question 23.
From the following particular relating to Material A, show how the value of the issues should be arrived under FIFO Method.
1.1.2011 Opening stock 1000 units at 5 each
3.1.2011 Purchased 900 units at 6 each
7.1.2011 Issued on Job No. 10 1200 units
11.1.2011 Purchased 800 units at 6.20 each
13.1.2001 Issued 1000 units

Question 24.
The stock of materials on 1st Jan. 2009 ws 800 units at the rate of 2.00 per unit. Following purchases and issues of these items were made.

Date Receipts units Rate per unit Issues units
Jan. 6th – – 350
Jan. 9th 600 2.25 –
Jan. 15th 450 2.50 –
Jan. 18th – – 750
Jan. 21st – – 300
Jan. 24th 750 2.60 –
Jan.26th – – 450
Jan.30th – – 300

Prepare Stores Ledger Account under FIFO Method.

Question 25.
Following is the history of receipts and issues of raw-material in Nitin Ltd., during April, 2008.
April 1 Opening balance 500 units at 25 per unit.
April 3 Issued 70 units
April 4 Issued 100 units
April 8 Issued 80 units
April 13 Purchased 200 units at 24.50 per unit
April 14 Return of surplus 15 units at 24 per unit
April 16 Issued 180 units
April 20 Purchased 240 units at 24.40 per unit April 24 Issued 304 units
April 25 Purchased 320 units at 24.30 per unit April 26 Issued 112 units
April 27 Return of surplus 12 units at 24.50 per unit
April 28 Purchased 100 units at 25 per unit and paid freight charges 200
The stock verification reveals that on the 155h April, 2008 there was a shortage of 5 units and on 27th April, 2008 another shortage of 8 units.
You are required to prepare Stores Ledger under LIFO method.

Question 26.
The following transactions occurred in purchases and issue of material in an organisation during October, 2009.
Receipts – Quantity – Rate
4-10-2009 – 200 units – 24 per unit
10-10-2009 – 150 units – 23 per unit
18-10-2009 – 100 units – 24 per unit
22-10-2009 – 100 units – 23.50 per unit.

Issues – Quantity
5-10-2009 – 250 units
12-10-2009 – 200 units
25-10-2009 – 250 units
The stock on 1-10-2009 was 200 units @ 25 per unit.
Prepare the Stores Ledger Accounts first by adopting FIFO method of charging material issued and secondly by LIFO method.

Question 27.
A firm furnishes the following store transactions for Dec. 2010.
Dec.
” 1 – Opening balance 50 units valued at 325
” 4 – Issue reQuestion No. 8-16 units
” 6 –  Receipts, GRN No. 2 – 100 units at 5.75 per unit
” 7 – Issue ReQuestion No. – 24 units
” 10 – Returns to vendors (purchased on Dec. 6) – 20 units
” 12 – Issue ReQuestion No. 10 – 30 units
” 13 – Issue ReQuestion No. 11-40 units
” 15 – Receipts GRN No. 3-50 units at 6.10 per unit
” 17 – Issues ReQuestion No. 12 – 20 units
” 19 – Received replacement from vendors GRN No. 4-20 units (Returned on Dec. 10)
” 20 – Returned from Department 10 units
” 22 – Transfer from Job No. 123 to Job No. 145 in the department MTR No. 1 – 10 units
” 26 – Issues Req. No. 13 – 20 units
” 29 – Transfer from Dept. X to Dept. Y MTR No. 2-10 units
” 30 – Shortage in stock taking – 4 units
Write up the Stores Ledger A/c under FIFO method.

Question 28.
The following transactions occur in respect of a material:
Jan.02 Purchased 4000 units at 4 per unit’
Jan.20 Purchased 500 units at 5 per unit
Feb.05 Issued 2000 units
Feb.10 Purchased 6000 units at 6 per unit
Feb.12 Issued 4000 units
Mar.02 Issued 1000 units
Mar.05 Issued 2000 units
Mar.15 Purchased 4500 units at 5.50 per unit
Mar.20 Issued 3000 units
From the above prepare stores ledger account using weighted average price.

Question 29.
The following transactions took place in respect of material ‘B’.

Accounting for Assets and Liabilities Short Answer Type Questions

Accounting for Assets and Liabilities Short Answer Type Questions

Question 1.
Write a short note on investment property IAS 40 with an example.
Answer:
1. Investment Property applies to the accounting for property (land and/or buildings) held to earn rentals or for capital appreciation (or both).

2. Investment properties are initially measured at cost and, with some exceptions. May be subsequently measured using a cost model or fair value model, with changes in the fair value under the fair value model being recognised in profit or loss.

Example:
An entity owns a building that it rents out to independent third parties under operating leases in return for rental payments. The entity provides cleaning, security and maintenance services for the lessees of the building.

If the services provided by the entity are insignificant to the arrangement as a whole, then the property is investment property. In most cases cleaning, security and maintenance services will be insignificant and hence the building would be classified as investment property.

Question 2.
Explain the Recognition and Measurement of Investment property IAS 40.
Answer:
Recognition: Investment property is recognised as an asset when it is probable that the future economic benefits that are associated with the property will flow to the enterprise, and the cost of the property can be reliably measured.

Measurement: Initial measurement Investment property is initiaily measured at cost, Including transaction costs. Cost does not include start-up costs, abnormal waste, or initial operating losses incurred before the investment property achieves the planned level of occupancy. Subsequent measurement An entity can choose between the fair value and the cost model. The accounting policy choice must be applied to all investment property.

Question 3.
Explain the various model of Investment properties IAS 40.
Answer:
1. Fair Value Model:
Investment property is remeasured at fair value, which is the amount for which the property couid be exchanged between knowledgeable, willing parties in an arm’s length transaction. Gains or losses arising from changes in the fair value of investment property must be included in net profit or loss for the period in which it arises.

Fair value should reflect the actual market state and circumstances as of the balance sheet date. The best evidence of fair value is normally given by current prices on an active market for similar property in the same location and condition and subject to similar lease and other contracts. In the absence of such information, the entity may consider current prices for properties of a different nature or subject to different conditions, recent prices on less active markets with adjustments to reflect changes in economic conditions, and dis¬counted cash flow projections based on reliable estimates of future cash flows.

There is a rebuttable presumption that the entity will be able to determine the fair value of an investment property reliably on a continuing basis.
→ If an entity determines that the fair value of an investment property under construction is not reliably determinable but expects the fair value of the property to be reliably determinable when construction is complete, it measures that investment property under construction at cost until either its fair value becomes reliably determinable or construction is completed.

→ If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably determinable on a continuing basis, the entity shall measure that investment property using the cost model in IAS 16. The residual value of the investment property shall be assumed to be zero. The entity shall apply IAS 16 until disposal of the investment property.

2. Cost Model:
After initial recognition, investment property is accounted for in accordance with the cost model as set out in IAS 16 Property, Plant and Equipment – cost less accumulated depreciation and less accumulated impairment losses. [IAS 40.56]

  • Transfers to or from investment property classification
  • Transfers to, or from, investment property should only be made when there is a change in use, evidenced by one or more of the following:

Commencement of owner-occupation (transfer from investment property to owner-occupied property).
Commencement of development with a view to sale (transfer from investment property to inventories).
End of owner-occupation (transfer from owner-occupied property to investment property).
Commencement of an operating lease to another party.

Question 4.
Explain the concept of Government Grants.
Answer:
An entity should not recognise Government grants (including non-monetary grants at fair value) until it has reasonable assurance that:

  • The entity will comply with any conditions attached to the grant.
  • The entity will actually receive the grant.

Even if the grant has been received, this does not prove that the conditions attached to it have been or will be fulfilled. It makes no difference in the treatment of the grant whether it is received in cash or given as a reduction in a liability to government, i.e. the manner of receipt is irrelevant. Any related contingency should be recognized under IAS 37 provisions, contingent liabilities and contingent assets, once the grant has been recognized.

In the case of a forgivable loan from government, it should be treated in the same way as a government grant when it is reasonably assured that the entity will meet the relevant terms for forgiveness.

Question 5.
Explain the scope of Government grants as covered by IAS 20.
Answer:
The treatment of Government grants is covered by IAS 20 Accounting for government grants and disclosure of Government assistance. Assistance by government. In the form of transfers of resources to an entity. In return for past or future compliance with certain conditions relating to the operating activities of the entity. Exclude forms of government assistance which cannot reasonably have a value placed on them and which cannot be distinguished from the normal trading transactions of the entity.

IAS 20 does not cover the following situations:

  • Accounting for Government grants in financial statements reflecting the effects of changing prices.
  • Government assistance given in the form of ‘tax breaks’.
  • Government acting as part-owner of the entity.

Question 6.
Explain the Accounting treatment of Government Grants.
Answer:
(i) IAS 20 requires grants to be recognized as income over the relevant periods to match them with related costs which they have been received to compensate. This should be done on a systematic basis. Grants should not, therefore, be credited directly to equity.

(ii) It would be against the accruals assumption to credit grants to income on a receipts basis, so a systematic basis of‘matching must be used. A receipts basis would only be acceptable if no other basis was available.

(iii) It will usually be easy to identify the cist related to a government grant, and thereby the period (s) in which the grant should be recognized as income, i.e when the cost are incurred. Where grants are received in relation to a depreciating asset, the grant will be recognized over the periods in which the assets is depreciated and in the same proportions.

Question 7.
Explain the various types of Government Grants.
Answer:
1. Grants related to Income: A grant receivable as compensation for costs, either:

  • Already incurred.
  • For immediate financial support, with no future related costs. Recognise as income in the period in which it is receivable.

A grant relating to income may be presented in one of two ways:

  • Separately as ‘other income’.
  • Deducted from the related expense.

Grants are recognised when both:

  • There is reasonable assurance the entity will comply with the conditions attached to the grant.
  • The grant will be received.

2. Grants related to Assets:
A grant relating to assets may be presented in one of two ways:

  • As deferred income (and released to profit or loss when related expenditure impacts profit or loss)
  • By deducting the grant from the asset’s carrying amount.

Question 8.
Explain the scope of borrowing cost.
Answer:
1. An entity shall apply this Standard in accounting for borrowing costs.

2. The Standard does not deal with the actual or imputed cost of equity, including preferred capital not classified as a liability.

3. An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production of: (a) A qualifying asset measured at fair value, for example, a biological asset or (b) Inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis.

Question 9.
Briefly explain the scope, recognition criteria and disclosure requirements of provisions and contingent liabilities as per Ind AS-37.
Answer:
Scope: This standard should be applied in accounting for provisions and contingent liabilities and dealing with contingent assets except.

Recognition – Provision: A provision should be recognised when –

  • An enterprise has a present obligation as a result of a past event.
  • It is probable that outflow of resources embodying economic benefits will be required to settle the obligation; and
  • A reliable estimate can be made of amount of the obligation.

If these conditions are not met no provision should be recognised.

Recognition – Contingent liabilities:
A contingent liability is disclosed unless the possibility of an outflow of resources embodying economic benefits is remove. Where an enterprise is jointly and severally liable for an obligation, the part of the obligation that is enterprise to be met by other parties is treated as a contingent liability.

Disclosure requirement: For each class of provision an enterprise should disclose –

  • The carrying amount at the beginning and end of the period.
  • Additional provision made in the period including increases to existing provisions.
  • Amounts used (i.e. incurred and charged against the provision) during the period; and
    Unused amounts reversed during the period.

Question 10.
Explain the recognition, Commencement of Capitalisation and Diselosure of Borrowing costs IAS 23.
Answer:
Recognition:
(a) Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are required to be capitalised as part of the cost of that asset.

(b) Other borrowing costs are recognised as an expense when incurred.

(c) If funds are borrowed specifically, the amount of borrowing costs eligible for capitalisation are the actual borrowing costs incurred on that borrowing less any investment income on the temporary investment of any excess borrowings not yet used.

(d) If funds are borrowed generally, the amount of borrowing costs eligible for capitalisation are determined by applying a capitalisation rate (weighted average of borrowing costs applicable to the general borrowings) to the expenditures on that asset of The amount of the borrowing costs capitalised during the period cannot exceed the amount of borrowing costs incurred during the period.

Commencement of Capitalisation:
An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:

  • It incurs expenditures for the asset.
  • It incurs borrowing costs.
  • It undertakes activities that are necessary to prepare the asset for its intended use or sale.

Disclosure:
An entity shall disclose:

  • The amount of borrowing costs capitalised during the period.
  • The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.

Question 11.
Mention the list of close members of the family as per Ind AS-24.
Answer:
Close members of the family as per AS-24:
Close member of the family of a person are those family members who may be expected to influence or be influenced by, that person in their dealings with the entity include:

  • That person’s children, spouse or domestic partner, brother, sister, father and mother.
  • Children of that person’s spouse or domestic partner.
  • Dependents of that person or that person’s spouse or domestic partner.

Question 12.
Write note on construction contracts of Ind AS – 11.
Answer:
This Statement deals with accounting for construction contracts in the financial statements of enterprises undertaking such contracts. The Statement also applies to enterprises undertaking construction activities of the type dealt with in this Statement not as contractors but on their own account as a venture of a commercial nature where the enterprise has entered into agreements for sale.

The feature which a construction contract dealt with in this statement is the fact that the -date at which the contract is secured and the date when the contract activity is completed fall into different accounting periods. The specific duration of the contract performance is not used as a distinguishing feature of a construction contract. Accounting for such contracts is essentially a process of measuring the results of relatively long-term events and allocating those results to relatively short-term accounting periods.

For the purposes of this Statement, a construction contract is a contract for the construction of an asset or of a combination of assets which together constitute a single project.

Examples of activity covered by such contracts include the construction of bridges, dams, ships, buildings and complex pieces of equipment. Contracts for the provision of services come within the scope of this Statement to the extent that they are directly related to a contract for the construction of an asset.

Examples of such service contracts are contracts for the services of project managers and architects and for technical engineering services related to the construction of an asset.

Question 13.
Explain the scope of Share based payments based on IFRS 2.
Answer:
IFRS 2 does not apply to:
(a) Transactions in which the entity acquires goods as part of the net assets acquired in a business combination to which IFRS 3 Business Combinations applies.

(b) Share-based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement.

(c) Transactions with an employee in his/her capacity as a holder of equity instruments.
IFRS 2 also applies to transfers by shareholders to parties that have transferred goods or services to the entity. This would include transfers of equity instruments of the entity or fellow subsidiaries by the entity’s parent entity to parties that have provided goods and services

Question 14.
Explain the provision of Recognition based on IAS 37.
Answer:
A provision should be recognised as a liability in the balance sheet and as an expense in the economic outturn account when:

  • An entity has a present obligation (legal or constructive) as a result of a past event.
  • A reliable estimate can be made of the amount of the obligation.
  • It is probable that an economic outflow of economic resources embodying economic benefits or service potential will be required to settle the obligation.

Question 15.
Discuss the Treatment of Contingent Liabilities.
Answer:
Contingent liabilities should not be recognized in financial statements but they should be disclosed. The required disclosures are:

  • A brief description of the nature of the contingent liability.
  • An estimate of its financial effect.
  • An indication of the uncertainties that exist.
  • The possibility of any reimbursement.

Accounting for Assets and Liabilities Very Short Answer Type Questions

Accounting for Assets and Liabilities Very Short Answer Type Questions

Question 1.
What is an Current Assets?
Answer:
Current assets are short-term economic resources that are expected to be converted into cash within one year. Current assets include cash and cash equivalents, accounts receivable, inventory, and various prepaid expenses.

Question 2.
What is an Fixed Assets?
Answer:
Fixed assets are long-term resources, such as plants, equipment and buildings. An adjustment for aging of fixed assets is made based on periodic charges called depreciation, which may or may not reflect the loss of earning power of a fixed asset.

Question 3.
What are Financial Assets?
Answer:
Financial assets represent investments in the assets and securities of other institutions. Financial assets include stocks, sovereign and corporate bonds, preferred equity and other hybrid securities. Financial assets are valued depending on how the investment is categorized and the motive behind it.

Question 4.
What are Intangible Assets?
Answer:
Intangible assets are economic resources that have no physical presence. They include patents, trademarks, copyrights and goodwill. Accounting for in¬tangible assets differs depending on the type of asset, and they can be either amortized or tested for impairment each year.

Question 5.
What are Liabilities?
Answer:
A liability is a company’s legal debt or obligation that arises during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

Question 6.
What are property plant and equipment?
Answer:
Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than one period.

Question 7.
Give the definition of Investment Properties.
Answer:
Investment property is property i.e. land or a building or part of a building or both held by the owner or by the lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for: (i) Use in the production or supply of goods or services or for administrative purposes or (ii) Sale in the ordinary course of business.

Question 8.
Give the definition of Government Grants.
Answer:
Assistance by government in the form transfer of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.

Question 9.
State the various types of Government Grants.
Answer:

  • Grants related to Income
  • Grants related to Assets

Question 10.
What is Government assistance?
Answer:
Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.

Question 11.
What is Grants related to assets?
Answer:
Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire non-current assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

Question 12.
What is Grants related to income?
Answer:
Government grants other than those related to assets.

Question 13.
What is Forgivable loans?
Answer:
Loans for which the lender undertakes to waive repayment under certain prescribed conditions.

Question 14.
What is Fair value?
Answer:
The price that would be received to sell assets or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 15.
Give the meaning of Borrowing Costs.
Answer:
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense.

Question 16.
What is cost of sales?
Answer:
The cost of sales is the accumulated total of all costs used to create a product or service, which has been sold. The term is most commonly used by retailers. Cost of sales = Sales – Gross Profit.

Question 17.
What do you mean by Provision?
Answer:
A provision is a liability of uncertain timing or amount.

Question 18.
Give the meaning of Contingent Liabilities.
Answer:
Contingent liability is the possible obligations that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Question 19.
What do you mean by the term inventories?
Answer:
The term inventories:

  • Held for sale in the ordinary course of business
  • In the process of production for such sale or
  • In the form of materials or supplies to be consumed in the production process or in the rendering of services.

Question 20.
What are the criteria for investment properties?
Answer:
Investment property should be recognized as an asset when it is probable that the future economic benefits that are associated with the property will flow to the entity, and the cost of the property can be reliably measured.

Question 21.
What is a Contingent Asset?
Answer:
Contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

Question 22.
What are Events occurring after the reporting Period?
Answer:
Favourable or unfavourable event, that occurs between the reporting date and the date that the financial statements are authorised for issue.

Question 23.
Give the meaning of Impairment loss.
Answer:
An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Question 24.
What is Recoverable amount?
Answer:
Recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.

Question 25.
Give the meaning of Residual value.
Answer:
The residual value of an asset is the estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Question 26.
Define intangible assets.
Answer:
Intangible assets are defined by IAS 38 as non-monetary assets without physical substance. An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Question 27.
What are the objectives of intangible assets?
Answer:

  • To establish the criteria for when an intangible asset may or should be recognised.
  • To specify how intangible asset should be measured.
  • To specify the disclosure requirements for intangible assets.

Question 28.
What is net realizable value?
Answer:
Net realizable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

Question 29.
Define Inventories as per IAS 2.
Answer:

  • Held for sale in the’ordinary course of business.
  • In the progress of production for such sale.
  • In the form of materials or supplies to be consumed in the production progress or in the rendering of services.

Question 30.
Define lease.
Answer:
An agreement whereby the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time.

Question 31.
Define finance lease.
Answer:
A lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred.

Question 32.
What are lease payments?
Answer:
The payments over the lease term that the lessee is or can be requiring to make.

Question 33.
Define lease term.
Answer:
The non-cancellabie period for which the lease has contracted to lease the asset together with any future terms for which the lessee has the option to continue to lease the assets, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.

Question 34.
Define impairment.
Answer:
Impairment is determined by comparing the carrying amount of the asset with its recoverable amount. This is the higher of its fair value less costs of disposal and its.value in use.

Question 35.
List the items included in the shareholder’s fund.
Answer:
The items included in the shareholder’s fund are:

  • Share capital
  • General reserves
  • Dividend equalization reserves
  • P&.L balance

International Financial Reporting Standards Long Answer Type Questions

International Financial Reporting Standards Long Answer Type Questions

Question 1.
Give the list of IFRS issued by IASB.
Answer:

  • IFRS 1: First-time Adoption of International Financial Reporting Standards
  • IFRS 2: Share-based Payment
  • IFRS 3: Business Combinations
  • IFRS 4: Insurance Contracts
  • IFRS 5: Non-current Assets Held for Sale and Discontinued Operations
  • IFRS 6: Exploration for and Evaluation of Mineral Assets
  • IFRS 7: Financial Instruments: Disclosures
  • IFRS 8: Operating Segments
  • IFRS 9: Financial Instruments

Question 2.
Give the list of IAS issued by IASB.
Answer:

  • IAS 1 Disclosures requirements about assessment of going concerned
  • IAS 1 Issues related to the application of IAS 1
  • IAS 1 Encouraged versus required disclosures
  • IAS 1 Classification of liabilities
  • IAS 1 Presentation of other OCI arising from equity-accounted investments
  • IAS 1 Clarification of the requirements for comparative information
  • IAS 2 Should interest be accreted on prepayments in long-term supply contracts?
  • IAS 7 Identification of cash equivalents
  • IAS 7 Classification of expenditures in the statement of cash flows
  • IAS 7 Definitions of operating, investing and financing
  • IAS 7 Interest paid that is capitalised
  • IAS 8 Classification of cash payments for deferred and contingent consideration
  • IAS 8 Distinction between a change in an accounting policy and a change in an accounting estimate
  • IAS 1 Reissuing previously issued financial statements
  • IAS 12 Accounting for income tax consequences of interest payments on, and issuing costs of, financial instruments that are classified as equity
  • IAS 12 Recognition of current income tax on uncertain tax position Recognition and measurement of deferred tax assets when an entity is loss-making
  • IAS 12 Recognition of deferred tax for a single asset in a corporate wrapper
  • IAS 12 Impact of an internal reorganisation on deferred tax amounts related to goodwill
  • IAS 12 Recognition of deferred tax assets for unrealised losses
  • IAS 12 Selection of applicable tax rate for measurement of deferred tax relating to investment in associate
  • IAS 12 Draft IFRIC Interpretation-Uncertainty in income taxes
  • IAS 12 Recognition through profit or loss of deferred faxes for the effect of exchange rate changes on the tax basis of non-current assets through profit or loss
  • IAS 12 Expected manner of recovery of indefinite life intangible assets when measuring deferred tax
  • IAS 16 Recognition of compensation when it ‘becomes receivable’
  • IAS 16 Classification of servicing equipment
  • IAS 16 Revaluation method-proportionate restatement of accumulated depreciation
  • IAS 16 Variable payments for the separate acquisition of PPE and intangible assets
  • IAS 16 Accounting for net proceeds and costs of testing for property, plant and equipment
  • IAS 16 Accounting for core inventories
  • IAS 16 Disclosure of carrying amounts under the cost model
  • IAS 16 Clarification of acceptable methods of depreciation and amortisation (Proposed amendments to
  • IAS 16 and IAS 38)
  • IAS 17 Meaning of ‘incremental costs’
  • IAS 19 Actuarial assumptions: Determination of discount rate
  • IAS 19 Pre-tax or post-tax discount rate
  • IAS 19 Employee benefits plans with a guaranteed return on contributions or notional contributions
  • IAS 19 Discount rate: regional market issue
  • IAS 19 Defined Benefit Plans: Employee Contributions (proposed amendments to IAS 19)
  • IAS 19 Remeasurement on a plan amendment, curtailment or settlement
  • IAS 19 Should longevity swaps held under a defined benefit plan be measured at fair value as part of plan assets or on another basis as a qualifying insurance policy?
  • IAS 20 Accounting for recoverable cash payments
  • IAS 21 Foreign exchange restrictions and hyperinflation
  • IAS 21 Draft IFRIC Interpretation Foreign Currency Transactions and Advance Consideration
  • IAS 23 Borrowing costs on completed qualifying assets
  • IAS 24 Key management personnel
  • IAS 24 Definition of close members of the family of a person
  • IAS 27 Contributions to a jointly controlled entity or an associate
  • IAS 28 Associates and common control
  • IAS 28 Purchase in stages-fair value as deemed cost
  • IAS 28 Application of the equity method by a non-investment entity investor to an investment entity investee
  • IAS 28 Equity method: Share of Other Net Asset Changes
  • IAS 28 Elimination of gains or losses arising from transactions between an entity and its associate or joint venture
  • IAS 28 Measuring investees at fair value: an investment-by-investment choice or a consistent policy choice?
  • IAS 28 Assesment of significant influence: fund manager acting as agent and holding own investment in the fund
  • IAS 28 Gains or losses on transactions between an entity and its associate or joint venture
  • IAS 29 Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units
  • IAS 32 Offsetting and cash pooling
  • IAS 32 Classification of a financial instrument that is mandatorily convertible into a variable number of shares upon a contingent ‘nonviability’ event
  • IAS 32 A financial instrument that is mandatorily convertible into a variable number of shares (subject to cap and floor) but gives the issuer the option to settle by delivering the maximum (fixed) number of shares
  • IAS 32 Accounting for a financial instrument that is mandatorily convertible into a variable number of shares subject to cap and floor
  • IAS 32 Classification of financial instruments that give the issuer the contractual right to choose the form of settlement
  • IAS 32 Classification of the puttable instruments criteria for income trust units
  • IAS 32 Put options written on non-controiling interests
  • IAS 32 Tax effect of distribution to holders of equity instruments
  • IAS 32 Classification of the liability for prepaid cards issued by a bank in the bank’s financial statements.
  • IAS 32 Accounting for a written put option over non-controiling interests to be settled by a variable number of the parent’s shares
  • IAS 33 Calculating earnings per share considering non-cumulative preference dividends
  • IAS 34 Condensed statement of cash flows
  • IAS 34 Interim financial reporting and segment information for total assets and liabilities
  • IAS 34 Disclosure of information “elsewhere in the interim financial report”
  • IAS 36 Accounting for impairment testing of goodwill when non-controlling interests are recognised
  • IAS 36 Recoverable amount and carrying amount of a cash-generating unit
  • IAS 36 Recoverable Amounts Disclosures for Non-Financial Assets (replaced: Harmonisation of disclosures for value in use and fair value less costs of disposal)
  • IAS 37 Measurement of liabilities arising from emission trading schemes
  • IAS 39 Novation of derivatives and Continuation of Hedge Accounting (Proposed amendments to IAS 39 and IFRS 9)
  • IAS 39 Classification of a hybrid financial instrument by the holder
  • IAS 39 Holder’s accounting for exchange of equity instruments
  • IAS 39 Accounting for term-structured repo transaction
  • IAS 39 Term-extending in fixed rate-debt instruments
  • IAS 39 Income and expenses arising on financial instruments with a negative yield -presentation in the statement of comprehensive income
  • IAS 39 Accounting for embedded foreign currency derivatives in host contracts
  • IAS 39 Recognition and Measurement-Separation of an embedded floor from a floating rate host contract in a negative interest rate environment
  • IAS 40 Clarifying the interrelationship of IFRS 3 Business Combinations and IAS 40 Investment Property when classifying property as investment property or owner-occupied property
  • IAS 40 Accounting for a structure that appears to lack the physical characteristics of a building
  • IAS 40 Transfers of investment property
  • IAS 41 Valuation of biological assets using a residual method
  • IAS 41 Disclosure of the components of changes in fair value and associated valuation techniques
  • IAS 41 Revenue on sale of agricultural produce

Question 3.
Give the list of Ind AS issued by ICA.
Answer:

  • IAS 1 Disclosures requirements about assessment of going concern
  • IAS 1 Issues related to the application of IAS 1
  • IAS 1 Encouraged versus required disclosures
  • IAS 1 Classification of liabilities
  • IAS 1 Presentation of other OCI arising from equity-accounted investments
  • IAS 1 Clarification of the requirements for comparative information
  • IAS 2 Should interest be accreted on prepayments in long-term supply contracts?
  • IAS 7 Identification of cash equivalents
  • IAS 7 Classification of expenditures in the statement of cash flows
  • IAS 7 Definitions of operating, investing and financing
  • IAS 7 Interest paid that is capitalised
  • IAS 7 Classification of cash payments for deferred and contingent consideration
  • IAS 8 Distinction between a change in an accounting policy and a change in an accounting estimate
  • IAS 10 Reissuing previously issued financial statements
  • IAS 12 Accounting for income tax consequences of interest payments on, and issuing costs of, financial instruments that are classified as equity
  • IAS 12 Recognition of current income tax on uncertain tax position
  • IAS 12 Recognition and measurement of deferred tax assets when an entity is loss-making
  • IAS 12 Recognition of deferred tax for a single asset in a corporate wrapper
  • IAS 12 Impact of an internal reorganisation on deferred tax amounts related to goodwill
  • IAS 12 Recognition of deferred tax assets for unrealised losses
  • IAS 12 Selection of applicable tax rate for measurement of deferred tax relating to investment in associate
  • IAS 12 Draft IFRIC Interpretation-Uncertainty in income taxes
  • IAS 12 Recognition through profit or loss of deferred taxes for the effect of exchange rate changes on the tax basis of non-current assets through profit or loss
  • IAS 12 Expected manner of recovery of indefinite life intangible assets when measuring deferred tax
  • IAS 16 Recognition of compensation when it ‘becomes receivable’
  • IAS 16 Classification of servicing equipment
  • IAS 16 Revaluation method-proportionate restatement of accumulated depreciation
  • IAS 16 Variable payments for the separate acquisition of PPE and intangible assets
  • IAS 16 Accounting for net proceeds and costs of testing for property, plant and equipment
  • IAS 16 Accounting for core inventories
  • IAS 16 Disclosure of carrying amounts under the cost model
  • IAS 16 Clarification of acceptable methods of depreciation and amortisation (Proposed amendments to IAS 16 and IAS 38)
  • IAS 17 Meaning of ‘incremental costs’
  • IAS 19 Actuarial assumptions: Determination of discount rate
  • IAS 19 Pre-tax or post-tax discount rate
  • IAS 19 Employee benefits plans with a guaranteed return on contributions or notional contributions
  • IAS 19 Discount rate: regional market issue
  • IAS 19 Defined Benefit Plans: Employee Contributions (proposed amendments to IAS 19)
  • IAS 19 Remeasurement on a plan amendment, curtailment or settlement
  • IAS 19 Should longevity swaps held under a defined benefit plan be measured at fair value as part of plan assets or on another basis as a qualifying insurance policy?
  • IAS 20 Accounting for recoverable cash payments
  • IAS 21 Foreign exchange restrictions and hyperinflation
  • IAS 21 Draft IFRIC Interpretation Foreign Currency Transactions and Advance Consideration
  • IAS 23 Borrowing costs on completed qualifying assets
  • IAS 24 Key management personnel
  • IAS 24 Definition of close members of the family of a person
  • IAS 27 Contributions to a jointly controlled entity or an associate
  • IAS 28 Associates and common control
  • IAS 28 Purchase in stages-fair value as deemed cost
  • IAS 28 Application of the equity method by a non-investment entity investor to an investment entity investee
  • IAS 28 Equity method: Share of Other Net Asset Changes
  • IAS 28 Elimination of gains or losses arising from transactions between an entity and its associate or joint venture
  • IAS 28 Measuring investees at fair value: an investment-by-investment choice or a consistent policy choice?
  • IAS 28 Assesment of significant influence: fund manager acting as agent and holding own investment in the fund
  • IAS 28 Gains or losses on transactions between an entity and its associate or joint venture
  • IAS 29 Applicability of the concept of financial capital maintenance defined in terms of constant purchasing power units
  • IAS 32 Offsetting and cash pooling
  • IAS 32 Classification of a financial instrument that is mandatorily convertible into a variable number of shares upon a contingent ‘nonviability’ event
  • IAS 32 A Financial instrument that is mandatorily convertible into a variable number of shares (subject to cap and floor) but gives the issuer the option to settle by delivering the maximum (fixed) number of shares
  • IAS 32 Accounting for a financial instrument that is mandatorily con¬vertible into a variable number of shares subject to cap and floor
  • IAS 32 Classification of financial instruments that give the issuer the contractual right to choose the form of settlement
  • IAS 32 Classification of the puttable instruments criteria for income trust units
  • IAS 32 Put options written on non-controlling interests
  • IAS 32 Tax effect of distribution to holders of equity instruments
  • IAS 32 Classification of the liability for prepaid cards issued by a bank in the bank’s financial statements
  • IAS 32 Accounting for a written put option over non-controlling interests to be settled by a variable number of the parent’s shares
  • IAS 33 Calculating earnings per share considering non-cumulative preference dividends
  • IAS 34 Condensed statement of cash flows
  • IAS 34 Interim financial reporting and segment information for total assets and liabilities
  • IAS 34 Disclosure of information “elsewhere in the interim financial report”
  • IAS 36 Accounting for impairment testing of goodwill when non-controlling interests are recognised
  • IAS 36 Recoverable amount and carrying amount of a cash-generating unit
  • IAS 36 Recoverable Amounts Disclosures for Non-Financial Assets (replaced: Harmonisation of disclosures for value in use and fair value less costs of disposal)
  • IAS 37 Measurement of liabilities arising from emission trading schemes
  • IAS 39 Novation of derivatives and Continuation of Hedge Accounting (Proposed amendments to IAS 39 and IFRS 9)
  • IAS 39 Classification of a hybrid financial instrument by the holder
  • IAS 39 Holder’s accounting for exchange of equity instruments
  • IAS 39 Accounting for term-structured repo transaction
  • IAS 39 Term-extending in fixed rate-debt instruments
  • IAS 39 Income and expenses arising on financial instruments with a negative yield -presentation in the statement of comprehensive income
  • IAS 39 Accounting for embedded foreign currency derivatives in host contracts
  • IAS 39 Recognition and Measurement-Separation of an embedded floor from a floating rate host contract in a negative interest rate environment
  • IAS 40 Clarifying the interrelationship of IFRS 3 Business Combinations and IAS 40 Investment Property when classifying property as investment property or owner-occupied property
  • IAS 40 Accounting for a structure that appears to lack the physical characteristics of a building
  • IAS 40 Transfers of investment property
  • IAS 41 Valuation of biological assets using a residual method
  • IAS 41 Disclosure of the components of changes in fair value and associated valuation techniques
  • IAS 41 Revenue on sale of agricultural produce

Question 4.
Give the list of Ind AS issued by MCA.
Answer:

Notifications Description
G.S.R 111(E) dated 16 Feb 2015 The Companies (Indian Accounting Standards) Rules, 2015.
Indian Accounting Standard (Ind AS) 101 First-time Adoption of Indian Accounting Standards
Indian Accounting Standard (Ind AS) 102 Share-based Payment
Indian Accounting Standard (Ind AS) 103 Business Combinations
Indian Accounting Standard (Ind AS) 104 Insurance Contracts
Indian Accounting Standard (Ind AS) 105 Non-current Assets Held for Sale and Discontinued Operations
Indian Accounting Standard (Ind AS) 106 Exploration for and Evaluation of Mineral Resources
Indian Accounting Standard (Ind AS) 107 Financial Instruments: Disclosures
Indian Accounting Standard (Ind AS) 108 Operating Segments
Indian Accounting Standard (Ind AS) 109 Financial Instruments
Indian Accounting Standard (Ind AS) 110 Consolidated Financial Statements
Indian Accounting Standard (Ind AS) 111 Joint Arrangements
Indian Accounting Standard (Ind AS) 112 Disclosure of Interests in Other Entities
Indian Accounting Standard (Ind AS) 113 Fair Value Measurement
Indian Accounting Standard (Ind AS) 114 Regulatory Deferral Accounts
Indian Accounting Standard (Ind AS) 115 Revenue from Contracts with Customers
Indian Accounting Standard (Ind AS) 1 Presentation of Financial Statements
Indian Accounting Standard (Ind AS) 2 Inventories
Indian Accounting Standard (Ind AS) 7 Statement of Cash Flows
Indian Accounting Standard (Ind AS) 8 Accounting Policies, Changes in Accounting Estimates and Errors
Indian Accounting Standard (Ind AS) 10 Events after the Reporting Period
Indian Accounting Standard (Ind AS) 12 Income Taxes
Indian Accounting Standard (Ind AS) 16 Property, Plant and Equipment
Indian Accounting Standard (Ind AS) 17 Leases
Indian Accounting Standard (Ind AS) 19 Employee Benefits
Indian Accounting Standard (Ind AS) 20 Accounting for Government Grants and Disclosure of Government Assistance
Indian Accounting Standard (Ind AS) 21 The Effects of Changes in Foreign Exchange Rates
Indian Accounting Standard (Ind AS) 23 Borrowing Costs
Indian Accounting Standard (Ind AS) 24 Related Party Disclosures
Indian Accounting Standard (Ind AS) 27 Separate Financial Statements
Indian Accounting Standard (Ind AS) 28 Investments in Associates and Joint Ventures
Indian Accounting Standard (Ind AS) 29 Financial Reporting in Hyperinflationary Economies.
Indian Accounting Standard (Ind AS) 32 Financial Instruments: Presentation
Indian Accounting Standard (Ind AS) 33 Earnings per Share
Indian Accounting Standard (Ind AS) 34 Interim Financial Reporting
Indian Accounting Standard (Ind AS) 36 Impairment of Assets
Indian Accounting Standard (Ind AS) 37 Provisions, Contingent Liabilities and Contingent Assets
Indian Accounting Standard (Ind AS) 38 Intangible Assets
Indian Accounting Standard (Ind AS) 40 Investment Property
Indian Accounting Standard (Ind AS) 41 Agriculture

Question 5.
Explain the opportunites from IFRS’s convergence.
Answer:
Opportunities from IFRS’s convergence:
(i) International Opportunity: Indian CAs can take their professional abilities and deep knowledge anywhere around the world.

(ii) Potential Demand of Valuation Experts: As per the IFRSs assets and liabilities are to be recognized at fair values. This fair valuation will require valuers.This is one new area that can be explored by CAs.

(iii) Appointment in Companies as IFRS specialist:Companies would be working along the teams of experts and consultants. CAs would be required for interpreting the various complex issues and preparing financial statements according to the standards.The banking industry in India which is most affected by the implementation of IFRSs will also require these professionals as this industry will have to prepare its financial statements as per the new standards.

The persons with expertise in international accounting standards will also have an edge over others in educational institutes which are running certificate diplomas and training programmes in this area.

(iv) Continuing Professional Education: Intensive IFRS training needs to be imparted to key management personnel of companies. ICAI has taken steps in this regard.

Question 6.
Explain the challenges face by India implementing of IFRS’s convergence.
Answer:
Challenges from IFRS’s convergence
(i) First time Reporting of Financial Statements as per IFRS will be a critical factor. IND-AS 101 has been issued by ICAI in this regard that requires preparation of opening Balance Sheet which requires recognition and reclassification of certain items of assets and liabilities.First time adoption has its own challenges. Quite a few new policies need to adopted and previous policies may need a change. The entity is required to evaluate the impact of all these on its financial in the long term.

(ii) Regrouping / Reclassification: Current items shall have to be regrouped or reclassified to conform to the new method of preparation. Under IND-AS if any reclassification needs to be done the same shall have to be disclosed separately.

(iii) Planning for Effective Transition Audit: The changeover to IFRS poses a fundamental shift in financial reporting. Changes in the application of new policies, the configuration of systems and maintenance of internal controls will all have an effect on audit risk, significantly increasing the risk of misstatements and fraud. In turn, this will have a considerable impact on how audits are conducted. That’s why it’s important to properly plan the engagement – a step that everyone agrees is the key to a successful transition.Planning should focus on two major areas: assessing and updating the knowledge of professionals; and participating in the company’s conversion process.

(iv) Users Concerns and Professional Risks: One thing is certain, the first IFRS financial statements will be closely scrutinized by the various stake¬holders, including financial backers, investors, market analysts and regulators. All the stakeholders will be concerned about the impact, the changes will have and how it will affect them.This issue and its impact on audit engagements will naturally need to be addressed.

(v) High Risks: In their risk assessment, auditors should also consider the possibility of figures being manipulated by management. The changeover is a convenient opportunity to embellish the results and financial position or to conceal previously undetected errors in the opening balance adjustment.Early in the planning process, auditors should identify the files that present the greatest risk, either because of their complexity, major differences between GAAP and IFRS. This will enable them to take the necessary precautions to ensure the audit is properly performed. Obviously, vigilance and professional skepticism should be the key objectives of the auditor.

(vi) Managements’s Transition Plans:-The active involvement of auditors in ail stages of the planning, development and implementation of the company’s conversion process is critical to the engagement and essential to their work and conclusions, given the extent of the change, the high level of professional risk and the potential adverse effects inherent in the process.

(vii) Remaining Independent: Auditor should be free from any bias and prejudice as a matter of his moral code of conduct. To enforce the rules of professional conduct respecting independence and to avoid placing the auditor in a real or perceived conflict of interest situation, both the company and the audit committee will need to put processes in place to define the extent of the auditor’s involvement and collaboration with the management team.

International Financial Reporting Standards Short Answer Type Questions

International Financial Reporting Standards Short Answer Type Questions

Question 1.
State the needs and objectives of Accounting Standards.
Answer:
Needs for Accounting Standards:
Practically speaking, in order to avoid the variance which may arise between the accounting principles and accounting practice and also to find a uniformity among diversity among the various underlying principles of accounting. We emphasise the Accounting Standards framed by the IASC or IAS (Indian Accounting Standard, based on IASC) for maintaining accounting practice in our country.

However, the reasons for setting the Standards are:
(a) Comparison between two firms is possible if both of them maintain the same, principle, otherwise proper comparison is not possible. For example, if Firm A follows the FIFO method of valuation of stock whereas Firm B follows the LIFO method for valuing stock, the comparison between the two firms becomes useless. The same is possible only when both of them follow identical method of valuing closing stock.

(b) The firms are not allowed to maintain and present their accounts according to their own will or choice or cannot prepare report of financial statements for various interested groups. The same is possible only when there is some fixed standard for setting practice.

(c) The Accounting Standards recognise the principle of equity applicable for different users of accounting information, viz. creditors, investors, shareholders etc. Thus the purpose of setting Accounting Standards is nothing but to find a uniformity in accounting practice while formulating financial reports and make consistency and proper comparison of data which are contained in financial statements for the users of accounting information. Practically, Accounting standards have been presented in order to maintain fairness, consistency and transparency in accounting practice which will satisfy the users of accounting.

Objectives of Accounting Standards:

  • To provide a standard for the diverse accounting policies and principles.
  • To put an end to the non-comparability of financial statements.
  • To increase the reliability of the financial statements.
  • To provide standards which are transparent for users.
  • To define the standards which are comparable over all periods presented.
  • To provide a suitable starting point for accounting.
  • It contains high quality information to generate the financial reports. This can be done at a cost that does not exceed the benefits.
  • For the eradication the huge amount of variation in the treatment of accounting standards.
  • To facilitate ease of both inter-firm and intra-firm comparison.

Question 2.
State the scope and functions of Accounting Standards Board.
Answer:
The scope and functions of Accounting Standards Board are:
1. To formulate accounting standard: To formulate accounting standard so that such standards may be established by the council of the Institute in India. While formulating the accounting standards. ASB will take into consideration the applicable laws, customs, usages and business environment.

2. To support the objectives of International Accounting Standards: To support the objectives of International Accounting Standards, Committees (IASC) as the institute is one of the members of IASC. ASB will give due consideration to International Accounting Standards while formulating the Accounting standards to the extent possible in the light of the conditions are practices prevailing in India.

3. Propagate the Accounting standards: To propagate the Accounting standards and persuade the concerned parties to adopt them in the preparation and presentation of financial statements.

4. Issue guidance notes: To issue guidance notes on the accounting standards and give clarifications on issues arising therefrom.

5. Review the Accounting Standards: To review the Accounting Standards at periodical intervals.

Question 3.
Explain the history of International financial reporting standards (IFRS).
Answer:
Foundation in 1966:
1. The foundation for international accounting standards was laid in 1966, when it was proposed that an International Study Group be started comprising the Institute of Chartered Accountants of England & Wales (ICAEW), American Institute of Certified Public Accountants (AICPA) and Canadian Institute of Chartered Accountants (CICA),

2. As a result, the Accountants International Study Group (AISG) was set up in 1967, which published papers on important topics.

3. In June 1973 the International Accounting Standards Committee (IASC) came into existence, with the stated intent that the new international standards it released must “be capable of rapid acceptance and implementation world-wide”.

4. The IASC survived for 27 years, until 2001, when the organization was restructured and the International Accounting Standards Board (IASB) came into existence. Between 1973 and 2000 the International Accounting Standards Committee (IASC) released a series of standards called ‘International Accounting Standards’ in a numerical sequence that began with IAS 1 and ended with IAS 41 Agriculture which was published in December 2000.

5. IASB stated that they would adopt the body of standards issued by the Board of the International Accounting Standards Committee which would continue to be designated ‘International Accounting Standards’ but any new standards would be published in a series called International Financial Reporting Standards.

Question 4.
Explain the assumptions in IFRS.
Answer:
1. Economic Entity: Economic activity can be identified with particular unit of accountability. That means, company must separate its activity from the owners and other business.

2. Going Concern: The company will have long life and will be operate for foreseeable future.

3. Monetary Unit Assumption: Money is used as common denominator of economic activity and provides appropriate basic accounting measurement and analysis. It ignores price-level changes such as inflation and deflation because it assumes that the unit of measure currency remains stable, except if the dramatically change such as hyperinflation.

4. Accrual Basis: The transactions in accounting are recorded when the events are recognized as they occur, not when cash is paid or received.

Question 5.
Explain the relevance of IFRS to India.
Answer:
1. Investors:
Convergence with IFRS makes accounting information more reliable, relevant, timely and comparable across different legal frameworks and requirements as it would then be prepared using a common set of accounting standards thus facilitating those who want to invest outside India.

2. Industry:
Industry which is in the process to convergence with IFRS will be benefited because of –

  • Increased confidence in the minds of the foreign investor.
  • Decreased burden in financial reporting.
  • It leads to lower cost of preparing the financial statements using different sets of accounting standards.

3. Accounting Professionals:
Although there would be initial starting problems, convergence with IFRS would definitely benefit the accounting professionals as the later would then be able provide the services of their expertise.

4. Corporate world:
Convergence with IFRS would raise the reputation and relationship of the Indian corporate world with the international financial community. Moreover, the corporate houses back in India would be benefited because of achievement of higher level of consistency between the internal and external reporting, because of better access to international market.

5. Economy:
The discussions made above explains how convergence with IFRS would help industry grow and is advantageous to the corporate houses in the country as this would bring higher level of consistency between the internal and external reporting along with improving the risk rating among the international investors.

Question 6.
Explain the process of setting IFRS.
Answer:
IFRS Standards are developed through an international consultation process the “due process”, which involves interested individuals and organizations.
1. Setting the agenda:
The IASB evaluates the merits of adding a potential item to its agenda mainly by reference to the needs of investors. The IASB considers:

  • The relevance to users of the information and the reliability of information that could be provided.
  • Whether existing guidance is available.
  • The possibility of increasing convergence.
  • The quality of the standard to be developed.
  • Resource constraints.

2. Planning the project:
When adding an item to its active agenda the IASB also decides whether to:

  • Conduct the project alone.
  • Jointly with another standard-setter.

3. Developing and publishing the Discussion Paper, including public consultation:

  • A comprehensive overview of the issue.
  • Possible approaches in addressing the issue.
  • The preliminary views of its authors or the IASB.
  • An invitation to comment.

4. Developing and publishing the Exposure Draft, including public consultation
The development of an Exposure Draft begins with the IASB considering:

  • Issues on the basis of staff research and recommendations.
  • Comments received on any discussion paper.
  • Suggestions made by the IFRS Advisory Council, Consultative groups and accounting standard-setters, and arising from public education sessions.

After resolving issues at its meetings, the IASB instructs the staff to draft the exposure draft.

5. Developing and publishing the Standard – In considering the need for re-exposure, the IASB:

  • Identifies substantial issues that emerged during the comment period on the exposure draft that it had not previously considered.
  • Assesses the evidence that it has considered.
  • Evaluates whether it has sufficiently understood the issues and actively sought the views of constituents.
  • Considers whether the various viewpoints were aired in the exposure draft and adequately discussed and reviewed in the basis for conclusions.

6. Procedures after a Standard is issued:
After a Standard is issued, the staff and the IASB members hold regular meetings with interested parties, including other standard-setting bodies, to help understand unanticipated issues related to the practical implementation and potential impact of its proposals. The IFRS Foundation also fosters educational activities to ensure consistency in the application of IFRS Standards

Question 7.
Discuss the practical challenges in implementing IFRS. Nov 2017
Answer:
1. First time reporting of financial statements as per IFRS will be a critical factor. IND-AS 101 has been issued by ICAI in this regard that requires preparation of opening Balance Sheet which requires recognition and reclassification of certain items of assets and liabilities. First time adoption has its own challenges.

2. Regrouping/Reclassification; Current items shall have to be regrouped or reclassified to conform to the new method of preparation. Under IND-AS if any reclassification needs to be done the same shall have to be disclosed separately.

3. Planning for Effective Transition Audit: The changeover to IFRS poses a fundamental shift in financial reporting. Changes in the application of new policies, the configuration of systems and maintenance of internal controls will all have an effect on audit risk, significantly increasing the risk of misstatements and fraud. Planning should focus on two major areas: assessing and updating the knowledge of professionals and participating in the company’s conversion process.

4. Users Concerns and Professional Risks: The first IFRS financial statements will be closely scrutinized by the various stakeholders, including financial investors, market analysts and regulators. All the stakeholders will be concerned about the impact, the changes will have and how it will affect them. This issue and its impact on audit engagements will naturally need to be addressed.

5. High Risks: In their risk assessment, the changeover is a convenient opportunity to embellish the results and financial position or to conceal previously undetected errors in the opening balance adjustment. Early in the planning process, auditors should identify the files that present the greatest risk, either because of their complexity, major differences between GAAP and IFRS. This will enable them to take the necessary precautions to ensure the audit is properly performed.

6. Management’s transition Plans: The active involvement in ail stages of the planning, development and implementation of the company’s conversion process is critical to the engagement and essential to their work and conclusions, given the extent of the change, the high level of professional risk and the potential adverse effects inherent in the process.

Question 8.
Explain the Merits of IFRS.
Answer:

  • IFRS users can increase ability to secure cross boarder listing their companies.
  • IFRS provides better financial information for the shareholders and regulatory system in India.
  • IFRS enhance global ability and improve transparency of results.
  • To help of IFRS one can improve management of global operations and better access the capital market.
  • IFRS facilitate global investment opportunities inbound and outbound and also reduced cost of capital.
  • It reduces barriers to enter global market and lowered the risk associated with dual filings of accounts.
  • With the help of IFRS one can conduct review only one of financial reporting and information system for control.
  • Uniform accounting standard enabled investors to understand investment opportunity as against two different set of national standard.

Question 9.
What are the limitations of IFRS.
Answer:

  • IFRS implementation brings change in new standard to this it’s become complex for users to how to finalize the old and new accounting data.
  • In India there is no separate committee for implementation, follow up and feedback process of IFRS.
  • Indian GAAP is different from US GAAP. Due to this it’s become difficult to synchronising the financial statement.
  • Lack of proper training and guidance program in India, postponed the process of IFRS implementation.
  • A new system always considers value of money, so that it becomes mandatory for companies to find out cost-benefit analysis.
  • Taxation system also impacts after the implementation process of IFRS in India.
  • IFRS simply a principal set by IASC but it does not provide detailed rules to follow up.
  • IFRS mainly focuses on presenting its financial statement and focus is very less on the users of accounting standard.
  • Lack of awareness between users about the international financial reporting practices.
  • Lack of proper data impacts the effective implementation of IFRS process.
  • Lack of proper resources also effects the IFRS implementation successfully.

Question 10.
List the Indian Accounting Standards.
Answer:
AS 1 Disclosure of Accounting Policies : The Standard deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in the preparation and presentation of the financial statements. The accounting policies followed vary from enterprise to enterprise. Disclosure of significant accounting policies followed is necessary if the view presented is to be properly appreciated.

AS 2 Valuation of Inventories : A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognised. This Statement deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realisable value.

AS 3 Cash Flow Statements : The Statement deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of. a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.

AS 4 Contingencies and Events Occuring after the Balance Sheet Date: This Statement deals with the treatment in financial statements of (a) contingencies 4 and (b) events occurring after the balance sheet date.

AS 5 Net Profit or Loss for the period,Prior Period Items and Changes in Accounting Policies: The objective of this Statement is to prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis.

Accordingly, this Statement requires the classification and disclosure of extraordinary and prior period items, and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accounting treatment for changes in accounting estimates and the disclosures to be made in the financial statements regarding changes in accounting policies.

AS 6 Depreciation Accounting : This Statement deals with depreciation accounting and applies to all depreciable assets. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.

AS 7 Construction Contracts (revised 2002): The objective of this Statement is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods.

AS 8 Accounting for Research and Development : Accounting Standard (AS) 8, Accounting for Research and Development, is withdrawn from the date of AS 26, Intangible Assets, becoming mandatory for respective enterprises.

AS 9 Revenue Recognition : This Statement deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise arising from the sale of goods, the rendering of services, and the use by others of enterprise resources yielding interest, royalties and dividends.

AS 10 Accounting for Fixed Assets : Financial statements disclose certain information relating to fixed assets. In many enterprises these assets are grouped into various categories, such as land, buildings, plant and machinery, vehicles, furniture and fittings goodwill, patents, trade marks and designs. This statement deals with accounting for such fixed assets

AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003): An enterprise may carry on activities involving foreign exchange in two ways. It may have transactions in foreign currencies or it may have foreign operations. In order to include foreign currency transactions and foreign operations in the financial statements of an enterprise, transactions must be expressed in the enterprise’s reporting currency and the financial statements of foreign operations must be translated into the enterprise’s reporting currency. The principal issues are to decide which exchange rate to use and how to recognise in the financial statements the financial effect of changes in exchange rates.

AS 12 Accounting for Government Grants : This Statement deals with accounting for government grants. Government grants are sometimes called by other names such as subsidies, cash incentives, duty drawbacks, etc.

AS 13 Accounting for Investments : This Statement deals with ac¬counting for investments in the financial statements of enterprises and related disclosure requirements.

AS 14 Accounting for Amalgamations : This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This statement is directed principally to Companies although some of its requirements also apply to financial statements of other enterprises.

AS 15 (revised 2005) Employee Benefits: The objective of this Statement is to prescribe the accounting and disclosure for employee benefits. The Statement requires an enterprise to recognise: (a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) an expense when the enterprise consumes the economic benefit arising from service provided by an employee in exchange for employee benefits.

AS 15 (issued 1995)Accounting for Retirement Benefits in the Financial Statement of Employers : This Statement applies to retirement benefits in the form of provident fund, superannuation/pension and gratuity provided by an employer to employees, whether in pursuance of requirements of any law or otherwise. It also applies to retirement benefits in the form of leave encasement benefit, health and welfare schemes and other retirement benefits.

AS 16 Borrowing Costs : The objective of this Statement is to prescribe the accounting treatment for borrowing costs. Borrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds.

AS 17 Segment Reporting : The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates.

AS 18, Related Party Disclosures: The objective of this Statement is to establish requirements for disclosure of: (a) related party relationships; and (b) transactions between a reporting enterprise and its related parties.

AS 19 Leases : The objective of this Statement is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosures in relation to finance leases and operating leases.

AS 20 Earnings Per Share : The objective of this Statement is to prescribe principles for the determination and presentation of earnings per share which will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise. The focus of this Statement is on the denominator of the earnings per share calculation.

AS 21 Consolidated Financial Statements : The objective of this Statement is to lay down principles and procedures for preparation and presentation of consolidated financial statements.

AS 22 Accounting for Taxes on Income: The objective of this Statement is to prescribe accounting treatment for taxes on income. This includes the determination of the amount of the expense or saving related to taxes on income in respect of an accounting period and the disclosure of such an amount in the financial statements.

AS 23 Accounting for Investments in Associates in Consolidated Financial Statements: The objective of this Statement is to set out principles and procedures for recognising, in the consolidated financial statements, the effects of the investments in associates on the financial position and operating results of a group.

AS 24 Discontinuing Operations : The objective of this Statement is to establish principles for reporting information about discontinuing operations, thereby enhancing the ability of users of financial statements to make projections of an enterprise’s cash flows, earnings-generating capacity, and financial position by segregating information about discontinuing operations from information about continuing operations.

AS 25 Interim Financial Reporting : The objective of this Statement is to prescribe the minimum content of aninterim financial report and to prescribe the principles for recognition and measurement in a complete or condensed financial statements for an interim period. Timely and reliable interim financial reporting improves the ability of investors, creditors, and others to understand an enterprise’s capacity to generate earnings and cash flows, its financial condition and liquidity.

AS 26 Intangible Assets: The objective of this Statement is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting Standard. This Statement requires an enterprise to recognise an intangible asset if, and only if, certain criteria are met

AS 27 Financial Reporting of Interests in Joint Ventures : The objective of this Statement is to set out principles and procedures for accounting for interests in joint ventures and reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors.

AS 28 Impairment of Assets : The objective of this Statement is to prescribe the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and this Statement requires the enterprise to recognise an impairment loss.

AS 29 Provisions, Contingent Liabilities and Contingent Assets : The objective of this Statement is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount.

International Financial Reporting Standards Very Short Answer Type Questions

International Financial Reporting Standards Very Short Answer Type Questions

Question 1.
What are Accounting Standards?
Answer:
Accounting standards are the guidelines laid down by an apex expert accounting body as to how business transactions or events are to be recorded in the books of accounts, and the manner in which the business transactions are to be exhibited in the financial statements.

Question 2.
Give importance of Accounting standards.
Answer:
They laydown the accounting principles to be followed by all in the preparation and presentation of financial statement. So they ensure uniformity in Accounting records of all and they are comparable for any purpose.

Question 3.
State the nature of accounting standards.
Answer:
The accounting standards may be recommendatory or mandatory in nature. Generally, the accounting standards are recommendatory in the initial issue of their issue i.e., after they had created requisite awareness amongst the business houses.

Question 4.
Write a note on extra ordinary items to be disclosed as per AS-5.
Answer:
Extraordinary items are unusual items distinct from the day-to-day operations of the enterprise. AS-5 lays down that, if extraordinary items are included in the income statement of an accounting period, those items should be separately disclosed in the statement of profit or loss of the current period, stating their nature and amount.

Question 5.
Which is the Authority which issues Accounting Standards?
Answer:
Accounting standards are issued by central government and recommended by Institute of Chartered Accountants of India.

Question 6.
Give the meaning of IFRS.
Answer:
International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements.

Question 7.
State any four IFRS.
Answer:

  • IFRS 2 Share-based Payment
  • IFRS 3 Business Combination’s
  • FRS 4 Insurance Contracts
  • IFRS 9 Financial Instruments

Question 8.
State any four assumptions in IFRS.
Answer:
Four assumptions of IFRS are:

  • Economic Entity
  • Going Concern
  • Monetary Unit Assumption
  • Accrual Basis

Question 9.
Mention two objectives of IFRS.
Answer:
The objectives of IFRS are:

  • To create comparable, reliable and transparent financial statement
  • To make a common platform for better understanding of accountin internationally
  • To faciliate greater cross border capital raising and trade.

Question 10.
Write any two demerits of IFRS.
Answer:
The two demerits of IFRS are:

  • Additional disclosures are longer and stricter and as such will require more work and will therefore cost more to produce and audit.
  • It requires high costs.

Question 11.
What are consolidated financial statements?
Answer:
Financial statements prepared by a Holding company by combining the financial statements of its subsidiary company as per AS-21 are called consolidated financial statements.

Question 12.
What is an Intangible asset as per AS-27?
Answer:
The AS-27 defines an intangible asset as “an identifiable non-monetary asset without physical substance, held for use in production and supply of goods and services, for rental to others, or for an administrative purposes.”

Question 13.
State the objectives of IFRS-1.
Answer:
To prescribe the procedures when an entity adopts IFRSs for the first time as the basis for preparing its general purpose financial statements.

Question 14.
State the objectives of IFRS 2 Share-based Payment.
Answer:
To prescribe the accounting for transactions in which an entity receives or acquires goods or services either as consideration for its equity instruments or by incurring liabilities for amounts based on the price of the entity’s shares or other equity instruments of the entity.

Question 15.
State the objectives of IFRS 3 Business Combinations.
Answer:
An acquirer of a business recognizes the assets acquired and liabilities assumed at their acquisition-date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition.

Question 16.
State the objectives of IFRS 4 Insurance Contracts.
Answer:
To prescribe the financial reporting for insurance contracts until the IASB completes the second phase of its project on insurance contracts. This standard applies to insurance contracts that an entity issues.

Question 17.
State the objectives of IFRS 5 Non-current Assets held for Sale and Discontinued.
Answer:
To prescribe the accounting for non-current assets held for sale and the presentation and disclosure of discontinued operations.

Question 18.
What is investment property as per Ind AS-40?
Answer:
It is the property held by the owner to earn rentals or for capital appreciation or both, rather use in the production or supply of goods or services or far administrative purposes or sale in the ordinary course of business.

Question 19.
State the objectives of IFRS 6 Exploration for and Evaluation of Mineral Resources.
Answer:
To prescribe the financial reporting for the exploration for and evaluation of mineral resources until the IASB completes a comprehensive project in this area.

Question 20.
State the objectives of IFRS 8 Operating Segments.
Answer:
An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Question 21.
State the objectives of IFRS 9 Financial Instruments.
Answer:
IFRS 9 sets out requirements for recognition and measurement, impairment, derecognition and general hedge accounting.

Question 22.
State the objectives of IFRS 10 Consolidated Financial Statements.
Answer:
To prescribe a single consolidation model for all entities based on control, irrespective of the nature of the investee i.e. whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities.

Question 23.
State the objectives of IFRS 11 Joint Arrangements.
Answer:
To establish principles for financial reporting by entities that have an interests in joint arrangements.

Question 24.
What is EPS?
Answer:
EPS. Represents earnings per share and EPS = Amount for equity dividends measures the return per share. No. of equity shares.

Question 25.
State the objectives of IFRS13 Fair Value Measurement.
Answer:
To establish a definition of fair value, provide guidance on how to determine fair value and prescribe the required disclosures about fair value measurements. However, IFRS 13 does not stipulate which items should be measured or disclosed at fair value.

Question 26.
Expand I.A.S.Band G.A.A.P.
Answer:

  • IASB – International Accounting Standard Board
  • GAAP – Generally Accepted Accounting Principles.

Preparing The Business Plan Long Answer Type Questions

Preparing The Business Plan Long Answer Type Questions

Question 1.
State the various steps of Business plan, Discuss. OR Give the outline of a business plan.
Answer:
The outline for a business plan is as follows:
I. Introductory Page:
This is the title or cover page that provides a brief summary of the business plans contents. It should contain the following:

  • Name and address of the company
  • Name of the entrepreneur, telephone number, fax number, e-mail address, website address (if any)
  • Paragraph describing the company and nature of business.
  • Amount of finance required
  • A statement of the confidentiality of the report for security purposes.

II. Executive Summary:
This section of the plan is written after the total plan is prepared. The executive summary should stimulate the interest of the potential investor. It would highlight in a concise and convincing manner the key points in the business plan.

III. Environmental and Industry Analysis:
Environmental analysis is the assessment of external uncontrollable variables that may impact the business plan. Examples of these factors are:

  • Economy: Trends in GNP, unemployment, disposable income and so on.
  • Culture : Shifts in the population by demographics, shifts in attitudes, concern for environment trends in safety, health and nutrition.
  • Technology: Potential technological developments.
  • Legal concerns: Legal issues in starting the ventures, future legislation, deregulation of prices, restrictions on media advertising and safety regulations.

Once an assessment of the environment is complete, the entrepreneur should conduct an industry analysis that will focus on specific industry trends and competitive strategies. Some examples of these factors are:

  • Industry Demand: Whether market is growing or declining, the number of new competitors and possible changes in consumer needs.
  • Competition: Potential threats from larger corporations, their strengths and weaknesses.

IV. Description of the Venture: This provides complete overview of products, services, and operations of the new venture. This statement describes the nature of the business and what the entrepreneur hopes to accomplish with that business.

V. Production plan: This plan will describe the complete manufacturing process, the subcontractors ( if any), including location, reasons for selection, costs and any contracts that have been completed.

VI. Marketing Plan: It describes the market conditions and the strategy related to how products and services will be distributed, priced and promoted.

VII. Organisational Plan: It describes the form of ownership and lines of authority and responsibility of members of the new venture.

VIII. Assessment of Risk: This section will identify the potential hazards and alternative strategies to meet business plan goals and objectives.

IX. Financial Plan: This gives the projections of key financial data that determine economic feasibility and necessary financial investment commitment.

X. Appendix: This section generally contains any backup material that is not necessary in the text of the document.

Question 2.
Explain typical business plan format.
Answer:
There is no standard outline for all business plans. It depends on the aim of the entrepreneur, the target audience, the intended industry and so on.
A general format of a business plan in given below:
(i) The Executive Summary: The Executive summary is the starting point of the business plan. It gives a brief arid quick information of who you are and what the business is all about.

(ii) Description of the business: Name of business, its location, its goals, and the strategies adopted.

(iii) Product/service: Describe the nature of product/service offered, the target market being served, and the customer demand situation.

(iv) Management: Form and type of organisation and its culture.

(v) Financial requirements: Purpose of financing and financial history of the business.

(vi) Organisation description: Responsibility and authority, organisation chart describing the level and status of each executive, legal structure.

(vii) Industry: Industry size, market share analysis, principal markets, factors affecting industry, customer tastes and preferences, nature of competition, competitor’s strengths and weaknesses.

(viii) Marketing strategy: Pricing policy, promotion policy, field support, technology adopted, intellectual property.

(ix) Production/Operations Plan: Physical facilities, key suppliers, labour/ employee situation, manufacturing processes.

(x) Ownership: Names, addresses of owners

(xi) Key Personnel; Duties, responsibilities, job descriptions.

(xii) Accounting Records: Accounting methods, record keeping systems.

(xiii) Financial Information: Balance sheet, income statement, cashflow, projections, sources and uses of funds.

(xiv) Appendices: Catalogs, Sales Brochures, Public relations material, customer lists, transacting banks, terms of loan, market research data, reference letters etc.

Question 3.
What are the pitfalls of business planning? Explain how the pitfalls are avoided in business planning.
Answer:
The pitfalls of business planning are:

  • Incredible financial projections.
  • Lack of a viable opportunity.
  • No clear route to market.
  • Overestimation of revenues.
  • Lack of good cash flow management.
  • No clear objective.
  • No evidence of real demand.
  • Business plan inconsistencies.
  • Playing down the competition.
  • Rushing the output.

The pitfalls are avoided in business planning by the following ways.

  • Using business systems to define and control workflow.
  • Effective organization structure.
  • Break down tasks into a step-by-step process with checkpoints to ensure quality.
  • Understand payment terms.
  • Cover legal bases.
  • Define banking boundaries.
  • Identify the target markets.
  • Proper estimation of revenue.
  • Proper cash flow management.
  • Understand the competition.

Question 4.
Discuss the various steps involved before commencing a business.
Answer:
The various steps involved before starting a business includes the following:
Step 1 – Write a Business Plan: Write a business plan whether it is a need to secure a business loan or not. A well-prepared plan revisited often – will help to steer business all along its growth curve. Break it down into mini-plans such as for marketing, one for pricing, one for operations, and so on.

Step 2 – Get Help and Training: Starting a business can be a lonely endeavor, but there are lots of resources that may come handy and that can help advice you as you get started.

Step 3 – Choose Your Business Location: Where to locate business may be the single most important decision to make. Many factors come into play such as proximity to suppliers, the competition, transportation access, demographics, and zoning regulations.

Step 4 – Understand the Financing Options: Choose to bootstrap, fall back on savings, or even keep a full-time job until your business is profitable, explain the options data collected and streamlined.

Step 5 – Decide on a Business Structure: Going it alone or forming a partnership? Thinking of incorporating? What about an LLC? How you structure business can reduce the personal liability for business losses and debts. Some choices can give you tax benefits.

Step 6 – Register Business Name (“Doing Business As”): Registering a “Doing Business As” name or “trade name” is only needed if naming business as something other than personal name, the names of your partners, or the officially registered name of your LLC or corporation.

Step 7 – Get a Tax ID: Not every business needs a tax ID from the IRS also known as an “Employer Identification Number” or EIN, but if possessing employees, run a business partnership, a corporation or meet certain IRS criteria, it is a must to obtain an EIN from the IRS. There is a need to start paying estimated taxes to the IRS.

Step 8 – Register with Tax Authorities: Employment taxes, sales taxes, and state income taxes are handled at the state-level. Possessing a good knowledge to take decisions with the advice of good practising consultants matter a lot. Hence registering with tax authorities is beneficial.

Step 9 – Apply for Permits and Licenses: All businesses, even home-based businesses, need a license or permit to operate.

Step 10 – Hiring Employees: As the proposed plan is now gained momentum, hiring employees according to the business plan and requirement of role and responsibility to be fulfilled matters.

Question 5.
Explain the major aspects of business plan.

Preparing The Business Plan Very Short Answer Type Questions

Preparing The Business Plan Very Short Answer Type Questions

Question 1.
What is the business plan?
Answer:
The business plan is a written document prepared by the entrepreneur that describes all the relevant external and internal elements involved in starting a new venture.

Question 2.
State any two importance of business plan.
Answer:
The importance of business plan is as follows:

  • Business plans are documents used for planning out specific details about the business.
  • It helps in setting up a clear statement of the business mission and vision.

Question 3.
Mention any 4 functions of business plan.
Answer:
The various functions of business plan are as follows:

  • A business plan offers a path to follow in making crucial startup decisions.
  • It is an operational tool.
  • It is a benchmark for good operational management.
  • A business plan provides for future growth.

Question 4.
Write any four marketing aspects of business plan.
Answer:
The four marketing aspects of a business plan are:

  • Well defined market
  • Channel Strategy
  • A positioning statement
  • The pricing strategy

Question 5.
Mention steps to prepare of Business plan.
Answer:
The steps to prepare of business plan are:

  • The executive summary
  • Description of the business

Question 6.
What is financial plan?
Answer:
A financial plan is an outline of a company’s financial goals and the steps that are necessary to reach them.

Question 7.
What is Human Resource aspect of the Business plan?
Answer:
The human resources aspect of the business plan deals with planning the human resources i.e. the amount of people required, the type of people needed to drive the business, the methods in which they will be recruited etc.

Question 8.
What is Technical aspect of the Business plan?
Answer:
The technical aspect of the business plan deals with the discussion of the basic and operational flow of the project. It includes the list of equipments, materials, structure plan and the source of supplies used in the proposed business.

Question 9.
Give the meaning of Social aspects of the Business plan.
Answer:
The social aspects of the business plan are:

  • Take the welfare of society into consideration
  • Focus on values of society

Question 10.
State any two pitfalls of a Business plan.
Answer:
The two pitfalls of a business plan are:

  • Not Including Successful Companies in the Competitive Discussion.
  • Focusing Too Much on the Future.

B.Com 1st Sem Marketing and Services Management Questions and Answers

B.Com 1st Sem Marketing and Services Management Questions and Answers

Unit 1 Introduction to Marketing

Unit 2 Marketing Environment

Unit 3 Marketing Mix

Unit 4 Introduction to Service Management

Unit 5 Service Sector Management

B.Com 1st Sem Marketing and Services Management Model Papers

B.Com 1st Sem Marketing and Services Management Syllabus

Objective: To familiarize the students with the principles of marketing and focus then on marketing and management of services.

Unit 1 Introduction to Marketing (12 Hours)
Meaning and definition – Goals Concepts of Marketing – Approaches to Marketing – Functions of Marketing. RECENT TRENDS IN MARKETING – e-business – Telemarketing – M-Business – Green Marketing – Retailing, Relationship Marketing – Customer Relationship Management.

Unit 2 Marketing Environment (12 Horus)
Meaning – demographic-economic – natural – technological – political-legal – social-cultural environment. MARKET SEGMENTATION AND CONSUMER BEHAVIOUR – Meaning & Definition – Bases of Market Segmentation – Consumer Behaviour -Factors influencing Consumer Behaviour.

Unit 3 Marketing Mix (16 Hours)
Meaning – elements – PRODUCT – Product mix; product the product life cycle product planning – new product development – branding – packing and packaging. PRICING – factors influencing pricing, methods of pricing (only meaning), and pricing-policy -PHYSICAL DISTRIBUTION, meaning, factors affecting channels, types of marketing channels, PROMOTION – meaning and significance of promotion – personal selling and advertising.

Unit 4 Introduction to Service Management (10 hours)
Meaning of services -characteristics of services classification of services – marketing mix in the service industry – growth of service sector, Service processes – Designing the service process – service blueprint – back office and front office process)

Unit 5 Service Sector Management (10 hours)
Tourism and Travel Services – concept, nature, significance and marketing. Health Care services – concept, nature, significance and marketing. Educational services – concept, nature; significance and marketing.

Skill Development:

  • Identify the producer of your choice and describe at which stage of the product life cycle it is positioned.
  • Suggest strategies for the development of a product.
  • Study Consumer Behaviour for a product of your choice.
  • Develop an Advertisement copy for a product.
  • Prepare a chart for distribution networks for different products.