Ind AS exam questions

Ind AS1: Requirement An enterprise shall make an explicit statement in the financial statements of compliance with all the Indian Accounting Standards What if it does not comply with any particular standard? Ind AS 1 allows deviation from a requirement of an accounting standard in case The management concludes that compliance with Ind ASs will be misleading & if the regulatory framework requires such a departure OR if the regulatory framework does not prohibit such a departure Else Disclosure of non compliance is required to be given Ind AS1: Comparison to IFRS Condition of Contract is breached and money becomes payable on Demand before close of Financial Year -----------------------------------NEXT FINANCIAL YEAR------------------------------------------------ Terms are settled with the bank before the completion of audit DISCLOSE THE LIABILITY CONTINUE TO CLASSIFY AS CURRENT LIABILITY AS NON CURRENT LIABILITY Bank lends term loan to an enterprise Ind AS7: Comparison to AS3 and IAS 7(IFRS) Cash Flow Statement Ind AS 7 & IFRS Classified as Cash Equivalent Being Repayable on Demand AS 3 Classified as Financial Activity Ind AS 7 & AS Classified as Financing Activity IAS 3 (IFRS) Classified as Operaitng Activity Interest on OD Ind AS8: Comparison to AS5, Change in Accounting Policy Cost of Purchase: Rs.50000/-, Date of Purchase: 1.04.2014 Method of Depreciation Adopted: SLM @ 10% Net Block value as on 1.04.2015: Rs.45000/- Wish to switch from SLM to WDV as on 31.3.2015 as required by Companies Act (assume) Can we do so? AS-5 Ind AS 8 Yes, as Change in accounting policy can No, Change in accounting be implemented if required by statute policy can only be implemented for Changes in Ind As or for better presentation of financial statements Ind AS8: Comparison to AS5, Change in Accounting Policy Cost of Purchase: Rs.50000/-, Date of Purchase: 1.04.2014 Method of Depreciation Adopted: SLM @ 10% Net Block value as on 1.04.2015: Rs.45000/- Wish to switch from SLM to WDV @ 15% as on 31.3.2015 for better presentation of financial statements AS 5 & 6 Ind AS 8 For 2014 50000 * 10% 5000 50000 * 15% (revise Previous year figures) 7500 For 2015 50000 * 15% 42500 * 15% TOTAL Less: Depreciation charged up to P.Y. Depreciation to be charged 7500 6375 13875 5000 8875 50000 * 15% (only charge depreciation related to current year) 6375 Ind AS10: Comparison to AS4, Events after the Balance Sheet Date Proposed Dividend by the Company on 8th June 2015 for the Financial Year 2014-15 Audit yet to be completed Accounting in the books of the Company declaring dividend AS 4 Accounted for as proposed dividend in P&L Appropriation and account for as Current liability in P&L in the Financial year 2014-15 Ind AS 10 Accounted as dividend in the P&L Appropriation in the Financial Year 2015-16 In the FY 2014-15, disclosure in the form of notes to accounts shall be made Ind AS12: Comparison to AS22, Accounting for taxes Capital Funds raised by the company through underwriter Underwriter expense in allowable to be treated as expense while deriving profit as per Income Tax Act AS 22 Such tax is recognized in the P&L Ind AS 12 Such tax is recognized in the Capital Account Ind AS12: Accounting for taxes on revaluation Fixed Asset having WDV of Rs.100,000/- as per Income Tax and carrying amount of Rs.120,000/- as on 31.03.2015. Asset was revalued by Rs.100,000/- upwards as on 1.04.2015. Tax rate is 30% and Tax rate on sale of Asset is 20% Deferred tax liability as per books as on 31.03.2015 6,000/- (120000-100000)*30% Deferred tax liability to be recognized as per Ind AS 12 As on 31.03.2016 1,00,000*20% 20,000/- TOTAL DTL 26,000/- Ind AS16: Component Approach for Property Plant and Equipment Car Engine Assume Life: 5yrs Assume Life: 10yrs. Assume Cost: Rs.500000/- Assume Cost: Rs.200000/- (Includes cost of Engine) Ind AS 16 AS 6 Depreciate Car excluding engine over the period of 5yrs (500000-200000)*1/5 Depreciate Engine over the period of 10yrs 200000*1/10 Rs. 60000/- Rs.20000/- Depreciate Car flat over the period of 5yrs 500000*1/5 Rs.100000/- Major Part of Car Ind AS16: Properly, Plant & Equipment Major Repairs of fixed assets AS 10 ICDS Ind AS 16 Expenditure nature item to be transferred to P & L Should be treated as expenditure in the year of occurrence Should be Capitalized Ind AS17: Leases- Operating Lease Rental Agreement:- 150000/- for three years with escalation of 25% for next three years What is the rent to be recognized every year? IAS 17 (IFRS) Ind AS 17 & AS 19 TOTAL Rent Receivable 150000*3 + 150000+25% * 3 =10,12,500/- Rent to be recognized every year= 1012500/6 = Rs. 1,68,750/- Rent to be recognized in first three years = 1,50,000/- Rent to be recognized in next three years = 1,87,500/- Ind AS20: Government Grant Case 1: Land Purchased for Rs.500,000/- Government Grant Received Rs.300,000/- Obligation to be fulfilled in 5yrs AS 12 Ind AS 20 and ICDS Recognize Asset for Rs.500000/- Recognize Capital Reserve of Rs.300,000/- Recognize asset of Rs.500000/- Amortize 300,000/- over the period of 5yrs Case 2: Land received from Government for Rs.200,000/- AS 12 and ICDS Ind AS 20 Recognize Asset for Rs. 200,000/- Recognize asset of Rs.500000/- Amortize 300,000/- over the period of 5yrs Ind AS23: Borrowing Cost on Biological Asset Loan taken from bank Rs.100,000 for development of Calf to Cow Can the interest amount be capitalized over this period of 2yrs.? Ind AS 23 AS 16 and ICDS YES NO, not a recognized asset Will it create a deferred tax asset as per Ind AS 12? YES 2 yrs. To be able to produce milk Ind AS24: Related Party Definition AS 18 Ind AS 24 ICDS 1. spouse, 2. son, 3. daughter, 4. brother, 5. sister, 6. father and 7. mother who may be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise 1. spouse, 2. domestic partner 3. son, 4. daughter, 5. step son 6. step daughter 7. domestic partners son 8. domestic partners daughter 9. brother, 10. sister, 11. father 12. mother 13. father in law 14. mother in law 15. father of domestic partner 16. mother of domestic partner who may be expected to influence, or be influenced by, that individual in his/her dealings with the reporting enterprise As per IT Act Ind AS23: Borrowing Cost on Repeated Inventory AS 16 & ICDS IX Ind AS 23 Yes interest cost can be included as part of the inventory as qualifying period being more than 12 months Ind AS 23 excludes the application of this Standard to borrowing costs directly attributable to the acquisition, construction or production of inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis 2 yr. old wine Can interest cost of borrowing for holding inventory for 2yrs be included as cost of inventory? Ind AS21: Exchange difference on long term fixed and monetary asset Where should exchange difference be accounted for? AS 11 Ind AS 21 ICDS XI Companies: Recognize as part of asset value and claim depreciation prospectively Other than companies: Transfer to P&L Transfer to P&L As per Section 43A of Income Tax, Recognize as part of asset value and claim depreciation prospectively Will it create a DTA/DTL? --------------------------------------YES Machine purchased by taking loan from US Bank Ind AS17: Finance lease of Land Land given on lease for 90yrs. At a lease rent of Rs.1,00,000/- p.a., Fair value of the land is Rs. 10,00,000/- Avg. market interest rate is 10% p.a. P.V. of lease payment receivable= PVIFA(10%, 90yrs)*100000 = 9,99,812/- How should we account for above transaction? Ind AS 17 AS 19 The above deal shall be considered as FINANCE LEASE In books of LESSOR?  land shall be accounted for as sale  LESSEE shall be shown under Loans & Advances In books of LESSEE?  Land shall be accounted for as asset  LESSOR shall be shown under Sundry Creditors Land is not covered under the definition of leases Will is lead to DTA/DTL? YES Ind AS36: Impairment of Financial Assets Can we impair Shares of Subsidiaries/ Associate/ Joint Ventures in case of permanent decline? Ind AS 36 AS 13 Yes, Impairment testing applies to shares of Subsidiaries/ Joint Ventures and Associates as well. In case of decline, impairment of shares will be required to be carried out Now AS 28 does not deals with shares held in subsidiaries, joint ventures and associate. But AS 13 does! AS 13 says in case of permanent decline related to noncurrent investments, they shall be written down to cost…. Tax effect? Tax effect? Income tax does not accept impairment which is reversible in future, hence will create a DTA Income Tax accepts such losses, hence no Deferred tax effect Ind AS23: Borrowing Cost effective interest rate Period of Construction= 2yrs. Repayment Period: 5yrs Interest rate: 12% Processing fees: 2% Repayment Amount: Rs.100000pa Whether interest eligible to be capitalized? YES For how long? 2yrs. Amount of Interest to be capitalized? AS 16 & ICDS IX Ind AS 23 Effective Interest Rate Processing Fees shall be capitalized= 500000 * 2% =Rs.10,000/- Interest Yr. 1= 500,000* 12%= 60000/- Yr. 2= 400000 * 12%= 48000/- Effective interest rate = 13.8% Interest to be Capitalized Yr. 1= 480000* 13.8%= 66,240 Yr. 2= 386240 * 13.8%=53,301 Amount Received after deducting Processing Fees= 480000 So calculating internal rate of return to get NPV = 480000 Which comes at 13.8% Loan taken Rs.500000/- for building a machine