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CLASSROOM
MATERIAL
FOR
ACCOUNTING
STANDARDS
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Preface
At the outset, I place a sincere thanks to all the readers of this classroom material. Sincere efforts
have been made to condense the subject into summary notes, the content is drafted in such a way
to help students revise the topics quickly the day before the exam.
Important to highlight that this material should be used alongside the classroom lectures, this
material is only supplementary to the lectures, it is not advisable to read only the content available
here and skipping the classroom lectures.
I personally believe that for any subject at any level of the CA course, a conceptual understanding
will enable you to remember the subject for life, more than solving 1000 different problems,
understanding the concept will teach you to solve any problem on your own and this is the objective
of these classes. The lectures have also been structured in a way to provide you a conceptual
understanding and these notes are an add-on to help you revise the subject in a quick and efficient
manner.
Wishing you all the best for your exams!
Regards,
Karthik Manikonda
Approach to the Subject
Step 1
Develop a liking towards the subject as Accounting standards are nothing but common accounting
practices which are codified, understand that AS at CA inter level will guarantee you a minimum
score of 40 marks.
Step 2
Watch the lectures in detail for the AS which is about only 35 hours to give you in-depth conceptual
clarity on the subject and along with the lectures you would have already solved 75 plus questions
covering SM/RTP/MTP questions.
Step 3
Once you are done with one time reading, watching the lectures and understanding of the subject,
ensure that you frequently revise the subject in periodical intervals, practice additional questions
and take up mock tests to stay In touch with the subject for your exams.

Index
Group 1
AS
S.NO NAME PAGE NO
NAME
1 AS 1 Disclosure of Accounting policies 1 TO 2
2 AS 2 Valuation of Inventories 3 TO 5
3 AS 3 Cash flow statement 6 TO 9
4 AS 10 Property, Plant and Equipment 20 TO 26
5 AS 11 The effect of changes in foreign exchange rates 27 TO 30
6 AS 12 Accounting for Government grants 31 TO 33
7 AS 13 Accounting for Investments 34 TO 36
8 AS 16 Borrowing costs 37 TO 39
Group 2
Contingencies and Events occuring after the balance sheet 10 TO 11
9 AS 4 date
Net profit or loss for the period, prior period items and 12 TO 14
10 AS 5 changes in accounting policies
11 AS 7 Construction contracts 15 TO 17
12 AS 9 Revenue Recognition 18 TO 20
13 AS 17 Segment Reporting 40 TO 42
14 AS 18 Related party disclosures 43 TO 45
15 AS 19 Leases 46 TO 49
16 AS 20 Earnings per share 50 to 53
17 AS 22 Accounting for taxes on income 54 to 55
18 AS 24 Discontinuing operations 56 to 57
19 AS 26 Intangible Assets 58 to 61
20 AS 29 Provisions, Contingent liabilities and Contingent Assets. 62 to 64


CA - INTERMEDIATE
Accounting Policies : Major points considered for selection and application of Accounting policies
refer to specific accounting
principles and method of
applying those principles
Adopted by the enterprise in
the preparation and Secondary Criteria:
Primary Criteria :
presentation of the Financial Select a policy which
statements. gives a true&fair view of
profit and loss statement
Substance over form: Materiality:

Prudence:
Transactions and other FS Should disclose all
When can you change Provision should be
events should be material items i.e. the
Accounting policy ? created for all known
accounted for and items the knowledge of
1. Required by statute/ liabilities and losses (even
presented in accordance which might influence
Compliance with and AS though only a best
with their substance and the user of financial
2. It is considered that change estimate can be made )
financial reality and not statement. ( They can be
would result in more both quantitative or
appropriate presentation of merely by their legal form
qualitative).
financial statement.
What are fundamental

Accounting
Disclosures: Assumptions??
Disclose the following only when these are
Where to disclose ? -> Financial statements -> Notes to account not followed by the entity , it is generally
What to disclose ? -> Any deviation from accounting policies 1. Going Concern
deemed that these are always followed in
How to disclose ? -> At one place 2. Consistency
preparation of FS.
3. Accrual
AS 1 : Disclosure of Accounting Policies

CA KARTHIK MANIKONDA PAGE 1
CA - INTERMEDIATE
Questions for Practise in AS 1
1. In the books of M/s Prashant Ltd., closing inventory as on 31.03.20X2 amounts to `

1,63,000 (on the basis of FIFO method).
The company decides to change from FIFO method to weighted average method for
ascertaining the cost of inventory from the year 20X1-X2. On the basis of weighted average
method, closing inventory as on 31.03.20X2 amounts to ` 1,47,000. Realisable value of the
inventory as on 31.03.20X2 amounts to ` 1,95,000.
Discuss disclosure requirement of change in accounting policy as per AS-1.
2. Jagonnath Ltd. had made a rights issue of shares in 20X2. In the offer document to its
members, it had projected a surplus of ` 40 crores during the accounting year to end on
31st March, 20X2. The draft results for the year, prepared on the either to followed
accounting policies and presented for perusal of the board of directors showed a deficit of
` 10 crores. The board in consultation with the managing director, decided on the
following:
I. Value year-end inventory at works cost (` 50 crores) instead of the hitherto method
of valuation of inventory at prime cost (` 30 crores).
II. Provide depreciation for the year on straight line basis on account of substantial
additions in gross block during the year, instead of on the reducing balance method,
which was hitherto adopted. As a consequence, the charge for depreciation at ` 27
crores is lower than the amount of ` 45 crores which would have been provided had
the old method been followed, by ` 18 crores.
III. Not to provide for "after sales expenses" during the warranty period. Till the last
year, provision at 2% of sales used to be made under the concept of “matching of
costs against revenue" and actual expenses used to be charged against the provision.
The board now decided to account for expenses as and when actually incurred. Sales
during the year total to ` 600 crores.
IV. Provide for permanent fall in the value of investments - which fall had taken place
over the past five years - the provision being ` 10 crores.
3. ABC Ltd. was making provision for non-moving inventories based on no issues for the last
12 months up to 31.3.2019.
The company wants to provide during the year ending 31.3.2020 based on technical
evaluation:
Total value of inventory ` 100 lakhs
Provision required based on 12 months issue ` 3.5 lakhs
Provision required based on technical evaluation ` 2.5 lakhs
Does this amount to change in Accounting Policy? Can the company change the method of
provision?

Inventories AS-2
(Summary)
Definition of Inventory :
Inventory is an Asset :
1. Held for sale in the ordinary course of Scope:
Measurement of
business (FG) Objective: Not applicable to -
inventories:
2. in the process of production of such sale Determination of -> Construction contract
Lower of COST or
(WIP) cost and realizable ->Financial Instruments
NET REALIZABLE
3. in the form of materials or supplies to be Value -> Biological assets
VALUE (NRV)
consumed in the production process or -> WIP of services
rendering of services. (RM)
CA KARTHIK MANIKONDA
Net Realizable Value:
Cost: =
Estimated Selling Price
1.Cost of Purchase LESS
2.Cost of conversion Estimated Cost of
3.Bringing Cost Completion
LESS
Cost Necessary to make
the sale.
Cost of purchase includes:

1. Purchase price Cost of conversion:
2. Duties and Taxes ( Non-refundable) 1. Direct Material and labour
3. Freight inward cost Exclusions from
Bringing Cost:
4.Other expenses directly attributable to the 2. Production Overhead Cost:
Cost of Purchase: Cost incurred to
acquisition ( VOH -> Based on Actual 1. Interest cost
Purchase cost* LESS bring Inventory to
until the goods reach the factory/godown. production 2. Storage cost
Trade discounts/ Present location and
LESS FOH -> Based on Normal 3. SOH
rebates condition.
5. Duties and taxes ( Refundable) Production) 4. Abnormal cost
6. Trade discount
7. Rebate
8.Other Similar items
Cost Formula
1. FIFO
2. Weighted Cost

Cost in Certain Cases:
Few Concepts
1. Inventory of service provider : Disclosures:
PAGE 3
1. Machinery spares(Read with
AT COST 1. Classification of Inventories
AS10)
2. Cost of agriculture produce 2. Carrying Value
2. Concept of Cost of RM when
harvested : Fair value LESS cost to 2. Cost Formula
Cost of FG Falls below Cost.
sell
CA - INTERMEDIATE
1. The company deals in three products, A, B and C which are neither similar nor
interchangeable. At the time of closing of its account for the year 2016-17, the Historical
Cost and Net Realisable Value of the items of closing stock are determined as follows:
Items Historical Cost Net Realisable Value
(` in lakhs) (` in lakhs)
A 40 28
B 32 32
C 16 24
What will be the value of closing stock?
2. X Co. Limited purchased goods at the cost of ` 40 lakhs in October, 2016. Till March, 2017,
75% of the stocks were sold. The company wants to disclose closing stock at ` 10 lakhs.
The expected sale value is ` 11 lakhs and a commission at 10% on sale is payable to the
agent. Advise, what is the correct closing stock to be disclosed as at 31.3.2017.
3. Omega Ltd., has a normal wastage of 4% in the production process. During the year 2016-
17. the Company used 12,000 MT of raw material costing Rs. 150 per MT. At the end of
the year 630 MT of wastage was ascertained in stock. The accountant wants to know how
this wastage is to be treated in the books.
You are required to compute the amount of normal and abnormal loss and treatment
thereof in line with AS 2 "Valuation of inventories"
4. You are required to value the inventory per kg of finished goods consisting of:
` per kg.
Material cost 200
Direct labour 40
Direct variable overhead 20
Fixed production charges for the year on normal working capacity of 2 lakh kgs is ` 20
lakhs. 4,000 kgs of finished goods are in stock at the year end.
5. On 31st March 2017, a business firm finds that cost of a partly finished unit on that date
is ` 530. The unit can be finished in 2017-18 by an additional expenditure of ` 310. The
finished unit can be sold for ` 750 subject to payment of 4% brokerage on selling price.
The firm seeks your advice regarding the amount at which the unfinished unit should be
valued as at 31st March, 2017 for preparation of final accounts. Assume that the partly
finished unit cannot be sold in semi-finished form and its NRV is zero without processing
it further.

CA - INTERMEDIATE
6. A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required.

The company provides you following information for the year ended 31st March. 2017.
` Per unit
Raw Material X
Cost price 380
Unloading Charges 20
Freight Inward 40
Replacement cost 300
Chemical Y
Material consumed 440
Direct Labour 120
Variable Overheads 80
Additional Information:
I. Total fixed overhead for the year was ` 4,00,000 on normal capacity of 20,000
units.
II. Closing balance of Raw Material X was 1.000 units and Chemical Y was ` 2,400
units.
You are required to calculate the total value of closing stock of Raw Material X and
Chemical Y according to AS 2, when
I. Net realizable value of Chemical Y is ` 800 per unit
II. Net realizable value of Chemical Y is ` 600 per unit
7. A private limited company manufacturing fancy terry towels had valued its closing
inventory of inventories of finished goods at the realizable value, inclusive of profit and
the export cash incentives. Firm contracts had been received and goods were packed for
export, but the ownership in these goods had not been transferred to the foreign buyers.
You are required to advise the company on the valuation of the inventories in line with
the provisions of AS 2.

AS 3 Cash flow statement
Classification of Cash flow Activities
Operating Activities Investing Activities Financing Activities

Represent the extent to which expenditures
These are primarily derived from the principal These are activities that result in changes in the
have been made for resources intended to
revenue generating activities of the enterprise. size and composition of the owner’s capital
generate future income and cash flows, i.e. they
These activities are essential to support the (Including Preference share capital) and
relate to acquisition and disposal of long term
working capital of the enterprise. borrowing’s of the enterprise (Only Direct
assets and Investments not included in cash
(Direct or Indirect Method) Method)
equivalents. (Only Direct Method)
• Cash receipts from sale of goods/ rendering • Cash payments to acquire Property, plant • Cash proceeds from issuing shares or other
of services and equipment (Including intangible assets). equity instruments (eg : warrants)
• Cash payment to supplier for goods/ Payments in relating to capitalised R&D • Cash payments to owners to acquire or
services. costs and self constructed fixed assets. redeem the entity’s shares. (Eg : Buy back)
• Cash receipts and payments of taxes unless • Cash receipts from sale of PPE, intangibles • Cash proceeds from issuing debentures,
they can be specifically identified with and other long term investments. loans, notes, bonds, mortgages and other
Investing/Financing activities. • Cash receipts/ payments from derivative short-term or long term borrowings.
• Cash receipts and payments in relation to contracts except when such derivative • Cash repayments of amounts borrowed (eg:
derivate contracts when such contracts are contracts are held for trading/speculative Bank loan, debentures etc)
held for trading / speculative purpose. purposes (i.e. held for investment) or when • Cash payments by lessee in a finance lease
• Cash flow arising from dealing in securities such receipts/ payments are classified as against outstanding liability
financing activities.
STEPS TO SOLVE A SUM IN AS 3 – Use format as prescribed in AS 3

1. First, read through the problem and identify and classify all activities into the above three buckets.
2. Second, In direct method remember that all you have to do is prepare a vertical cash account classifying all transactions into receipts and payments to identify how much cash was
received in the business and how much was used and how much is left ( Opening cash + Receipts – Payments = Closing cash balance).
3. Third, In Indirect method, what we do here is we start from Net profit and make all logical adjustments to arrive at the cash generated, i.e. we know that Net profit is not equal to
cash earned from operating items because of various non-cash items (Eg : Depreciation and other items present in the Pnl), then we make necessary adjustments for changes in working
capital from BS and arrive at cash generated from operations. We are basically moving from Net profit for the year into arriving at cash generated from operating activities for the year.
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CA - INTERMEDIATE
Questions for Practise from AS 3
1. Classify the following activities as (a) Operating Activities, (b) Investing Activities, (c) Financing
Activities
(d) Cash Equivalents.
a) Purchase of Machinery.
b) Proceeds from issuance of equity share capital
c) Cash Sales.
d) Proceeds from long-term borrowings.
e) Proceeds from Trade receivables.
f) Cash receipts from Trade receivables.
g) Trading Commission received.
h) Purchase of investment.
i) Redemption of Preference Shares.
j) Cash Purchases.
k) Proceeds from sale of investment
l) Purchase of goodwill.
m) Cash paid to suppliers.
n) Interim Dividend paid on equity shares.
o) Wages and salaries paid.
p) Proceed from sale of patents.
q) Interest received on debentures held as investment.
r) Interest paid on Long-term borrowings.
s) Office and Administration Expenses paid
t) Manufacturing Overheads paid.
u) Dividend received on shares held as investments.
v) Rent Received on property held as investment.
w) Setting and distribution expense paid.
x) Income tax paid
y) Dividend paid on Preference shares.
z) Underwritings Commission paid,
aa) Rent paid.
bb) Brokerage paid on purchase of investments.
cc) Bank Overdraft
dd) Cash Credit
ee) Short-term Deposits
ff) Marketable Securities
gg) Refund of Income Tax received.
2. Following in the cash flow abstract of Alpha Ltd. For the year ended 31st March, 20X1:
Inflows ` Outflows `
Opening balance: Cash 10,000 Payment for Account Payables 90,000
Bank 70,000 Salaries and wages 25,000
Share capital - shares issued 5,00,000 Payment of overheads 15,000
Collection on account of Trade 3,50,000 Property, plant and equipment acquired 4,00,000
Receivables Debentures redeemed 50,000

CA - INTERMEDIATE
Sale of Property, plant and 70,000 Bank loan repaid 2,50,000

equipment
Taxation 55,000
Dividends 1,00,000
Closing balance: Cash 5,000
bank 10,000
10,00,000 10,00,000
Prepare Cash flow statement for the year ended 31st March, 20X1 in accounting standard 3.
3. Classify the following activities as per AS 3 Cash Flow Statement:

a) Interest paid by financial enterprise
b) Tax deducted at source on interest received from subsidiary company (Hi) Deposit with Bank
for a term of two years
c) Insurance claim received towards loss of machinery by fire
d) Bad debts written off
4. Ryan Ltd provides you the following information at the year-end, March 31, 20X1:
` `
Sales 6,98,000
(5,20,000)
Cost of Goods Sold Operating Expenses 1,78,000
(including Depreciation Expense of f37,000) Other (1,47,000)
Income / (Expenses): 31,000
Interest Expense paid (23,000)
Interest Income received 6,000
Gain on Sale of Investments 12,000
Loss on Sale of Plant (3,000) (8,000)
23,000
Income tax (7,000)
16,000
Information available:
31st March 20X1 31st March 20X0
Plant 7,15,000 5,05,000

Less: Accumulated Depreciation (1,03,000) (68,000)
6,12,000 4,37,000
Investments (Long term) 1,15,000 1.27,000
Inventory 1,44,000 1,10,000
Trade receivables 47,000 55,000
Cash 46,000 15,000
Prepaid expenses 1,000 5,000
Share Capital 4,65,000 3,15,000
Reserves and surplus 1,40,000 1,32,000
Bonds 2,95,000 2,45,000

CA - INTERMEDIATE
Trade payables 50,000 43,000

Outstanding liabilities 12,000 9,000
Income taxes payable 3,000 5,000
Analysis of selected accounts and transactions during 20X0-XI

1) Purchased investments for ` 78,000.
2) Sold investments for ` 1,02,000. These investments cost ` 90,000.
3) Purchased plant assets for ` 1,20,000.
4) Sold plant assets that cost ` 10,000 with accumulated depreciation of ` 2,000 for f 5,000.
5) Issued ` 1,00,000 of bonds at face value in an exchange for plant assets on 31st March,
20X1.
6) Repaid ` 50,000 of bonds at face value at maturity.
7) Issued 15,000 shares of ` 10 each.
8) Paid cash dividends ` 8,000.
Prepare Cash Flow Statement as per AS-3 (Revised), using indirect method.

AS 4 Contingencies and Events occurring after the balance sheet date
Events OCCURING the after

balance sheet date
“ Events Occurring after the balance
sheet date are those events both
favourable and unfavourable that
occur between the balance sheet
date and the date on which financial
statements are approved by the
competent authority. “
Non – Adjusting Events

Adjusting Events New Events relating to Assets (or)
Events which give additional evidence of Liabilities on Balance sheet date
a condition (or) situation of Assets (or)
(Eg : Fire after 31st march, new merger
Liabilities on balance sheet date deal after 31st march etc)
Accounting Treatment
Accounting Treatment No Adjustment in Financial Statements,
Adjust Corresponding Assets / Liabilities However, if the amount (or) transaction is
as on balance sheet date material and involves financial commitment,
then disclose in the report of the approving
authority (i.e. Director’s Report)
When Non – Adjusting

Event will become an Proposed Dividend
Adjusting Event? adjustment
When the Event is so material Proposed dividend is a

that it affects Going Concern of Non – adjusting event,
the Business. (i.e. Fundamental disclose only in Notes
Accounting Assumption is to Account.
Affected)
AS 4
CA - INTERMEDIATE
Questions for Practise on AS 4
1. In X co Ltd, there was a theft of 5 lakhs by the cashier in Jan 2021, which was detected only in May
21. The accounts of the company was not yet approved by the board of directors of the company.
Whether the theft of cash has to be adjusted in the accounts of the company for the year ended
31st March 2021. Decide.
2. An earthquake destroyed a major warehouse of ACO Ltd On 20.5.20X2. The accounting year of the
company ended on 31.3.20X2. The accounts were approved on 30.6.20X2. The loss from earthquake
is estimated at `30 lakhs. State with reasons, whether the loss due to earthquake is an adjusting or
non-adjusting event and how the fact of loss is to be disclosed by the company.
3. A company has filed a legal suit against the debtor from whom ` 15 lakh is recoverable as on
31.3.20X1. The chances of recovery by way of legal suit are not good as per legal opinion given by
the counsel in April, 20X1. Can the company provide for full amount of ` 15 lakhs as provision for
doubtful debts? Discuss.
4. In preparing the financial statements of R Ltd. for the year ended 31st March, 20X1, you come across
the following information. State with reasons, how you would deal with this in the financial
statements:
“The company invested 100 lakhs in April, 20X1 before approval of Financial Statements by the
Board of directors in the acquisition of another company doing similar business, the negotiations
for which had started during the year.”
5. A Limited Company closed its accounting year on 30.6.20X1 and the accounts for that period were
considered and approved by the board of directors on 20th August, 20X1. The company was
engaged in laying pipeline for an oil company deep beneath the earth. While doing the boring work
on 1.9.20X1 it had met a rocky surface for which it was estimated that there would be an extra cost
to the tune of ` 80 lakhs. You are required to state with reasons, how the event would be dealt with
in the financial statements for the year ended 30.6.20X1.
6. While preparing its final accounts for the year ended 31st March, 20X1 a company made a provision
for bad debts @ 5% of its total trade receivables. In the last week of February, 20X1 a trade
receivable for ` 2 lakhs had suffered heavy loss due to an earthquake; the loss was not covered by
any insurance policy. In April, 20X1 the trade receivable became a bankrupt. Can the company
provide for the full loss arising out of insolvency of the trade receivable in the final accounts for the
year ended 31st March, 20X1?
7. During the year 20X1-20X2, Raj Ltd, was sued by a competitor for ` 15 lakhs for infringement of a
trademark. Based on the advice of the company's legal counsel, Raj Ltd. provided for a sum of ` 10
lakhs in its financial statements for the year ended 31st March, 20X2. On 18th May, 20X2, the Court
decided in favour of the party alleging infringement of the trademark and ordered Raj Ltd. to pay
the aggrieved party a sum of ` 14 lakhs. The financial statements were prepared by the company's
management on 30th April, 20X2, and approved by the board on 30th May, 20X2.

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AS 5 Net profit for the period , Prior period Items From www.castudynotes.com
, Change in Accounting Estimates and change in Accounting Policies.
CA - INTERMEDIATE
Ordinary Change in
Extraordinary Prior Period
Activities Accounting
Items Items
Estimate
They are activities that are carried Prior period items are income or Accounting estimates are amounts
on by the enterprise as part of it’s Items that arise from activities expenses which arise in the current determined where reliable
business and all related activities which are other than ordinary period as a result of errors or measurement cannot be made.
which are carried on in furtherance activities. These items are usually omissions in the preparation of Acc. Estimate may change due to ;
of OR incidental to OR arising from non-recurring in nature. financial statements of one or 1. Result of new information
business. more prior periods. 2. Change in circumstances.
Disclose Separately in the Disclose separately in the Disclose separately in the

statement of Profit and loss statement of profit and loss in a statement of profit an loss in a Quantify the effect and disclose;
every item of manner that their impact on the manner that their impact on the 1. Effect on current year profits.
income/Expense whose nature current profit or loss can be current profit or loss can be 2. Effect on future profits.
is different AND size is material perceived. perceived.
Examples :
Examples : Examples : Examples :
1. Arithmetical errors
1. Profit on sale of Inventory 1. Attachment of property of 1. Change of useful life for an
2. Misinterpretation of facts
2. Loss on sale of unsold enterprise asset. (Depreciation)
3. mistakes in applying
inventory at the year end 2. Earthquake 2. Provision for Bad debts.
accounting policies.
Quantify effect of change and

Change in What is an Accounting policy AND Examples :
disclose;
Accounting when can you change and 1. WDV To SLM method
1. Impact on current year profits.
Policy accounting policy – AS 1. 2. FIFO to Weighted
2. Impact on Future profits. average.
(Refer to AS 1)

CA - INTERMEDIATE
What is not a Change in Accounting Policy?
A. The Adoption of an accounting policy for events or transactions that differ in substance from
previously occurring events or transactions.
B. The adoption of a new accounting policy for events or transactions which did not occur
previously or that were immaterial.
Exceptional Items
These are not defined in AS 5 or Schedule III.
Certain items of Income or Expense within profit or loss from ordinary activities are of such size,
nature or incidence that their disclosure is relavent to explain the performance of the enterprise for
the period, the nature and amount of such items should be disclosed separately.
Examples
a. Litigation Settlements
b. Disposal of long term investments / Fixed assets
c. Write down of Inventory to NRV as well as reversal of write downs.
d. Restructuring activies of an enterprise and the reversal of any provision for the costs of
restructuring ( Eg : Merger)
e. Legislative changes having restrospective application ( Eg : Retrospective change in labour
laws)
Questions for Practice in AS 5
1. Fuel surcharge is billed by the State Electricity Board at provisional rates. Final bill for fuel
surcharge of ` 5.30 lakhs for the period October, 2008 to September, 2015 has been received
and paid in February, 2016. However, the same was accounted in the year 2016-17. Comment
on the accounting treatment done in the said case.
2.
I. During the year 2016-2017, a medium size manufacturing company wrote down its
inventories to net realisable value by ` 5,00,000. Is a separate disclosure necessary?
II. A company signed an agreement with the Employees Union on 1.9.2016 for revision of
wages with retrospective effect from 30.9.2015. This would cost the company an additional
liability of ` 5,00,000per annum. Is a disclosure necessary for the amount paid in 2016-17?
3. Bela Ltd. has a vacant land measuring 20,000 sq. mts, which it had no intention to use in the
future. The Company decided to sell the land to tide over its liquidity problems and made a
profit of ?10 Lakhs by selling the said land. Moreover, there was a fire in the factory and a part
of the unused factory shed valued at ? 8 Lakhs was destroyed. The loss from fire was set off
against the profit from sale of land and profit of? 2 lakhs was disclosed as net profit from sale of
assets.
You are required to examine the treatment and disclosure done by the company and advise the
company in line with AS 5.

CA - INTERMEDIATE
4. (all are PPE)

State whether the following are Prior period items or
a. Applying incorrect rate of depreciation in previous year
b. Treating operating lease as finance lease
c. Capitalization of borrowing cost on working capital
5. ( YES PPE )
Goods of ` 5,00,000 were destroyed due to flood in September, 2015. A claim was lodged with
insurance company, but no entry was passed in the books for insurance claim.
In March, 2018, the claim was passed and the company received a payment of ` 3,50,000
against the claim. Explain the treatment of such receipt in final accounts for the year ended
31st March, 2018.
6. The Accountant of Mobile Limited has sought your opinion with relevant reasons, whether the
following transactions will be treated as change in Accounting Policy or not for the year ended
31st March. 2017. You are required to advise him in the following situations in accordance with
the provisions of AS 5
I. Provision for doubtful debts was created @ 2% till 31st March. 2016. From the
Financial year 2016-2017, the rate of provision has been changed to 3%.
II. During the year ended 31st March. 2017. the management has introduced a formal
gratuity scheme in place of ad-hoc ex-gratia payments to employees on retirement.
III. Till the previous year the furniture was depreciated on straight line basis over a period
of 5 years. From current year, the useful life of furniture has been changed to 3 years.
IV. Management decided to pay pension to those employees who have retired after
completing 5 years of service in the organization. Such employees will get pension of `
20,000 per month. Earlier there was no such scheme of pension in the organization.
V. During the year ended 31st March. 2017. there was change in cost formula in
measuring the cost of inventories

AS 7 Construction Contracts
Construction Contract Types of Construction contracts
It is a contract for construction of an asset (or) group of assets
which are closely interrelated in terms of design and function.
Applicability: It is applicable only in the books of contractor for Fixed price contract Cost plus contract
measuring revenue, expenses, assets and liabilities.
(also includes contracts for destruction/restoration of an asset)
Disclosures
A. Revenue recognised
Contract Revenue includes Accounting for both to be done using percentage of
B. method of arriving % of completion 1. Basic contract price completion method ONLY.
C. cost incurred D. any advance billing
E. progress payment received 2. Claims/ reimbursements
F. Amount due/from customers 3. Variations
(contract costs + recognised profit – recognised loss) – (progress
payments received + progress payment to be received) 4. Incentives
Revenue Cost
Segmentation of Contracts vs Combination of Contracts

1. Generally the profit/loss arising from a contract is to be computed for each A. Cost to Cost Method No % of completion method
contract individually, whether the work is done individually or together; 1. compute percentage of for accounting costs, costs to
A. separate proposals for each asset B. cost and revenue for each asset can be be accounted as and when it
identified C. each asset has been to separate negotiation and the contractor and
completion (cost to date /
customer have been able to accept/reject that part of the contract relating to cumulative cost incurred + is incurred.
each asset. (segmentation of contracts) estimated cost to complete)
* 100 Contract costs includes the following;
2. In certain cases the profit/loss from a contract may be calculated in
combination of two or more contracts or group of combined contracts for 1. Expenses incurred directly attributable to the
accounting purpose because in substance these contracts are part of a single
2. Current revenue = contract net of incidental income if any.
Contract price * percentage (eg : site labour costs, cost of materials used,
project with an overall profit margin (Combination of contracts). depreciation of Machinery used in site, costs of
of completion – previously
design and technical assistance etc)
recorded revenue
Provision for expected losses
2. General OH allocated on a reasonable basis,
B. Survey method interest subject to AS 16.
Architect/engineer to provide a Costs does not include;
certificate stating amount of work 1. Admin OH
Forceable losses Enforceable losses certified. 2. Finance costs
To be recognised in full Provision should NOT be
3. any penalty paid
irrespective of stage of the made C. Physical measurement method
contract. (actually measure the amount of
work completed) AS 7
CA - INTERMEDIATE
1. A firm of contractors obtained a contract for construction of bridges across river Revathi. The
following details are available in the records kept for the year ended 31st March,
20X1.
(` in lakhs)
Total Contract Price 1,000
Work Certified for the cost incurred 500
Work yet not Certified for the cost incurred 105
Estimated further Cost to Completion 495
Progress Payment Received 400
To be Received 140
The firm seeks your advice and assistance in the presentation of accounts keeping in view the
requirements of AS 7 issued by your institute.
2. On 1st December, 20X1, Vishwakarma Construction Co. Ltd. undertook a contract to construct
a building for ` 85 lakhs. On 31st March, 20X2, the company found that it had already spent `
64,99,000 on the construction. Prudent estimate of additional cost for completion was `
32,01,000. What amount should be recognized in the statement of profit and toss for the year
ended 31st March, 20X2 as per provisions of Accounting Standard 7 (Revised)?
3. X Ltd. commenced a construction contract on 01/04/X1. The contract price agreed was
reimbursable cost plus 10%. The company incurred ` 1,00,000 in 20X1-X2, of which cost of `
90,000 is reimbursable. The further non-reimbursable costs to be incurred to complete the
contract are estimated at ` 5,000. The other costs to complete the contract could not be
estimated reliably.
4. Show Profit & Loss A/c (Extract) in books of a contractor in respect of the following data.
` 000
Contract price (Fixed) 600
Cost incurred to date 390
Estimated cost to complete 260
5. Uday Constructions undertake to construct a bridge for the Government of Uttar Pradesh. The
construction commenced during the financial year ending 31.03.2019 and is likely to be
completed by the next financial year. The contract is for a fixed price of ` 12 crore with an
escalation clause. You are given the following information for the year ended 31.03.2019:
Cost incurred upto 31.03.2019 ` 4 crore
Further cost estimated to complete the contract ` 6 crore
Escalation in cost was by 5%. Hence, the contract price is also increased by 5%.
You are required to ascertain the stage of completion and compute the amount of revenue
and profit to be recognized for the year as per AS 7.

CA - INTERMEDIATE
6. GTI Ltd. negotiates with Bharat Oil Corporation Ltd. (BOCL), for construction of “Retail Petrol
& Diesel Outlet Stations'. Based on proposals submitted to different Regional Offices of BOCL,
the final approval for one outlet each in Region X, Region Y, Region Z is awarded to GTI Ltd. A
single agreement is entered into between two. The agreement lays down values for each of
the three outlets i.e., ` 102 lacs, ` 150 lacs, ` 130 lacs for Region X, Region Y, Region Z
respectively. Agreement also lays down completion time for each Region.
Comment whether GTI Ltd. will treat it as single contract or three separate contracts with
reference to AS-7?
7. A construction contractor has a fixed price contract for ` 9000 lacs to build a bridge in 3
years’ time frame. A summary of some of the financial data is as under:
(Amount ` in lacs)
Year 1 Year 2 Year 3
Initial Amount for revenue agreed in contract 9,000 9,000 9,000
Variation in Revenue (+) - 200 200
Contracts costs incurred up to the reporting date 2,093 6,168 8,100
Estimated profit for whole contract 950 1,000 1,000
Includes ` 100 lacs for standard materials stored at the site to be used in year 3 to complete the
work.
Excludes ` 100 lacs for standard material brought forward from year 2.
The variation in cost and revenue in year 2 has been approved by customer.
Compute year wise amount of revenue, expenses, contract cost to complete and profit or loss to
be recognized in the Statement of Profit and Loss as per AS-7 (revised).

AS 9 Revenue recognition
Definition – Revenue
Revenue means GROSS inflow of

• Cash Record Such
• Receivables Revenue at
• Other consideration, “ Invoice Value”
From, Sale of goods, rendering of services, use by others of
enterprise resources yielding interest, dividend & Royalty, in
the ordinary course of business.
Recognition Criteria
General Conditions Specific Conditions
1. No uncertainty in Amount Use by others of

Enterprise Resource
Rendering of services Sale of Goods
2. No uncertainty in Ultimate
Collection
(if there is uncertainty? – deffer to the
extent of uncertainty) When the seller has
transferred the
property to the
buyer for
1. Dividend –> When Service involves
right to receive is Service involving consideration.
single Act Multiple Acts
established (Percentage of
(i.e. when declared) (Completed Service
Method) completion method)
2. Interest –> On eg : Wedding events
eg : Swiggy delivery
accrual based on time contract
And transfers
3. Royalty -> as per
term’s of agreement
significant Risk &
Rewards to the buyer
Special Cases
1. In case of Agency business revenue should be recognized for “commission” only
2. In case of consignment sale, risk an rewards are transferred only after goods are sold to third party.
3. In case of sale on approval basis, revenue should not be recognized until goods until goods have been
formally accepted by the buyer or buyer has done an act which amounts to acceptance
(including not responding withing reasonable time where time is mentioned)
4. for warranty sales, sales should be recognised immidiately but provision should be made to cover the
unexpired warranty.
5. Special orders and shipments,revenue to be recognised when goods are identified and ready for delivery
6. Inter divisional sales/ Transfers are not Revenue as per AS-9.

CA - INTERMEDIATE
Questions for Practise of AS 9
1. The Board of Directors decided on 31.3.20X2 to increase the sale price of certain items
retrospectively from 1st January, 20X2. In view of this price revision with effect from 1st
January 20X2, the company has to receive ` 15 lakhs from its customers in respect of sales
made from 1st January, 20X2 to 31st March, 20X2. Accountant cannot make up his mind
whether to include ` 15 lakhs in the sales for 20Xl-20X2.Advise.
2. Y Ltd., used certain resources of X Ltd. In return X Ltd. received ` 10 lakhs and ` 15 lakhs as
interest and royalties respective from Y Ltd. during the year 20X1-X2. You are required to state
whether and on what basis these revenues can be recognized by X Ltd.
3. A claim lodged with the Railways in March, 20X1 for loss of goods of ` 2,00,000 had been
passed for payment in March, 20X3 for ` 1,50,000. No entry was passed in the books of the
Company, when the claim was lodged. Advise P Co. Ltd. about the treatment of the following
in the Final statement of Accounts for the year ended 31st March, 20X3.
4. In the year 20X1-X2, XYZ supplied goods on Consignment basis to ABC - a retail outlet worth `
10,00,000. As per the terms, ABC will only pay XYZ for the goods which are sold by them to
the third party. Rest of the goods can be returned back to XYZ and ABC will not have any
further liability for these goods.
During the year 20X1-X2, ABC has sold goods worth ` 5,50,000 only and rest of the goods are
still lying in its store which may get sold by next year. Advise XYZ, how much revenue it can
recognize in its books for period 20X1-X2.
5. Raj Ltd. entered into an agreement with Heena Ltd. to dispatch goods valuing ` 5,00,000 every
month for next 6 months on receipt of entire payment Heena Ltd. accordingly made the entire
payment of ` 30,00,000 and Raj Ltd. started dispatching the goods. In fourth month, due to
fire in premise of Heena Ltd., Heena Ltd. requested to Raj Ltd. not to dispatch goods worth `
15,00,000 ready for dispatch. Raj Ltd. Accounted ` 15,00,000 as sales and transferred the
balance to Advance received against Sales account.
Comment upon the above treatment by Raj Ltd. with reference to the provision of AS-9.
6. The following information of Meghna Ltd. is provided:

Goods of ` 60,000 were sold on 20-3-2019 but at the request of the buyer these were
delivered on 10-4-2019.
On 15-1-2019 goods of ` 1,50,000 were sent on consignment basis of which 20% of the goods
unsold are lying with the consignee as on 31-3-2019.
` 1,20,000 worth of goods were sold on approval basis on 1-12-2018. The period of approval
was 3 months after which they were considered sold. Buyer sent approval for 75% goods up
to 31-1-2019 and no approval or disapproval received for the remaining goods till 31-3-2019.
Apart from the above, the company has made cash sales of ` 7,80,000 (gross). Trade discount
of 5% was allowed on the cash sales.
You are required to advise the accountant of Meghna Ltd., with valid reasons, the
amount to be recognized as revenue in above cases in the context of AS-9.

CA - INTERMEDIATE
7. Infosys Ltd recognised revenue of 7.5 lakhs on accrual basis, income from dividend on
securities and units from mutual funds of face value Rs 50 lakhs held by it as at the end of the
financial year 31st March 2021, the dividend on the securities and mutual funds were declared
at the rate of 15% on 15th June 2021. The dividend was proposed on 10th April 2021 by the
declaring company, whether the treatment by the company is correct?
8. Star Sports obtained advertisement right for IPL tournament to be held in June 2020 for 250
lakhs. By 31st March 2020, they paid 150 lakhs to secure this advertisement rights. The
balance 100 lakhs was paid in April 2020. By 31st March 2020 they processed advertisement
for 70% of the available time for 350 lakhs. The advertiser paid 60% of amount by that date.
The balance 40% was received in April 2020. The advertisement for balance 30% was procured
in April 2020 for 150 lakhs. The advertiser paid the full amount while booking the
advertisement. 25% of the advertisement time is expected to be available in May 2020 and
the balance 75% in June 2020.
Calculate Profit or loss for the period April, May, June 2020.

AS 10 Property, Plant & Equipment
What are Bearer plants? (Eg : Oak trees in
Definition of PPE 1. Biological Assets Tea estate)
(eg : Living animals & plants) • It is used in production (or) supply of
A. Used in production (or) supply of goods (or) services, AS 10 N.A to except bearer plants. agricultural produce.
B. for rental to others, • It is expected to bear produce for more
C. for administrative purposes, 2. Wasteful assets than 12 months.
D. Expected to be used for more than one period (Natural resources like iron • Has a remote likelihood of being sold
E. Not held for sale in ordinary course of business. ores) as agricultural produce except for
incidental scrap sale.
Cost of an Item of PPE
Includes Excludes
Purchase Price
It includes price paid to Any directly attributable costs • Cost of opening a new facility
vendor for purchase of PPE
Decommissioning,
(Cost necessary to bring the Asset Restoration and or business.
(Including Non-refundable (inauguration costs)
to the present condition and
duties and Taxes and similar liabilities • Cost of introducing a new
location, necessary for it to operate
excludes trade discounts and (i.e. estimated cost to product or service (including
the way in which management
rebates) intended it to operate) dismantle the asset) costs of advertising and
promotional activities)
• Cost of conducting business in
a new location or with a new
Includes Excludes class of customer (including
1. Cost of employee benefits (i.e. direct labour costs) 1. Cost incurred while an item capable of staff training costs)
2. Cost of site preparation operating in the manner intended by • Administrative and other
3. Initial delivery and handling costs, installation & assembly costs. management has yet to be brought into use or is general overhead
4. professional fees operated at less than full capacity.
6. cost of testing whether the asset is functioning properly, after 2. Initial operating losses
deducting the net proceeds from selling any items produced while 3. Cost of relocating or reorganising part or all of
bringing that asset to that location & condition
Measurement of cost of an Item of PPE in various cases
A. If payment is deferred beyond B. PPE acquired in exchange for a Non-Monetary asset (or) C. PPE Purchased for a D. Cost for
normal credit terms or a combination of monetary and Non-monetary assets consolidated price / Composite finance Lease
- The excess of payment made consideration and Govt Grant
over the cash price equivalent is Measure PPE at Fair value ± cash Unless (Lump sum payment for multiple transactions are
recognised as interest expense A. Exchange lacks commercial substance (future cash flows assets, eg: Slump sale) dealt in
over the period of credit unless of the entity are not expected to change) accordance with
such interest is allowed to be B. fair value of the asset given up (or) received is not “The consideration should be AS 19 & AS 12
capitalised as per AS 16. reliably measurable allocated among individual assets
(In cases A & B, measure PPE at Carrying amount of Asset in the ratio of FV of individual
given up) assets”
E. Cost of Self Constructed Assets Recognition of an item of PPE

• An Entity must record cost of self
constructed assets at COST,
abnormal items of wastage should
Initial Recognition Subsequent Recognition “A class of PPE is
not be included in this cost. a grouping of
• Interest can be capitalized subject (Measurement after recognition) assets of similar
to AS 16. The initial recognition of an item of PPE The entity should choose either nature & use in
must be done using Cost model only. • Cost Model (or) operations of an
enterprise”
[Cost – Any Accumulated depreciation – • Revaluation Model,
(eg: Land, P&M,
Any Accumulated impairment losses] as it’s accounting policy and should apply F&F, office
that policy to an entire class of PPE. equipment etc)
Revaluation Model
-> an asset whose fair value can be reliably measured should be carried at
revalued amount. [FV on the date of revaluation – any subsequent
accumulated depreciation – any subsequent accumulated impairment losses]

Frequency of Revaluation Accounting treatment on Revaluation
Revaluation Results in
Items of PPE experience Items of PPE experience insignificant INCREASE DECREASE

significant & volatile changes in changes in Fair Value – Credit to revaluation surplus Charged to Statement of profit
Fair Value – under owner’s interest and loss account
“ Carry Revaluation every year” “ carry Revaluation once in 3-5 years”
Exception Exception
when the PPE is subsequently when the PPE is subsequently
increased after it was initially decreased after it was initially
decreased, recognise the increased, recognise the decrease in
When can balance in Revaluation reserve be transferred to revenue reserve? increase in statement of Profit Revaluation reserve to the extent of
and loss account to the extent of initial increase and debit the balance
initial decrease. in statement of profit & loss account.
When the Item of PPE is; Some of the surplus may be transferred
• Retired when the asset is used by the
• Disposed enterprise –> Amount transferable De - Recognition of an asset (The carrying amount of an item of
would be ; PPE should be derecognised) – i.e. removing from the books
[Depreciation based on revalued
amount – depreciation based on
original cost]
On disposal of asset by means of; When no Future economic
• Sale benefits are expected from it’s
• Entering into a finance lease use (or) disposal
Retirement of an Asset (or)
“Items of PPE retired from active use and held for disposal should • Donation
be stated at the lower of Carrying Amount (or) NRV”
Compensation from 3rd Parties for items of PPE that were impaired, lost of given up
“ It is Included in determining profit or loss when it becomes determinable”

CA - INTERMEDIATE
Questions for Practice on AS 10
1. Entity A has an existing freehold factory property, which it intends to knock down and
redevelop. During the redevelopment period the company will move its production facilities to
another (temporary) site. The following incremental costs will be incurred:
Setup costs of ` 5,00,000 to install machinery in the new location.
Rent of ` 15,00,000
Removal costs of ` 3,00,000 to transport the machinery from the old location to the
temporary location.
Can these costs be capitalised into the cost of the new building?
2. Shrishti Ltd. contracted with a supplier to purchase machinery which is to be installed in its
Department A in three months' time. Special foundations were required for the machinery
which were to be prepared within this supply lead time. The cost of the site preparation and
laying foundations were ` 1,41,870. These activities were supervised
by a technician during the entire period, who is employed for this purpose of ` 45,000 per
month. The technician's services were given by Department B to Department A which billed the
services at ` 49,500 per month after adding 10% profit margin.
The machine was purchased at ` 1,58,34,000 inclusive of IGST @ 12% for which input credit is
available to Shrishti Ltd. ` 55,770 transportation charges were incurred to bring the machine to
the factory site. Ai Architect was appointed at a fee of ` 30,000 to supervise machinery
installation at the factory site.
Ascertain the amount at which the Machinery should be capitalized under AS 10 considering
that IGST credit is availed by the Shristhi Limited. Internally booked profits should be eliminated
in arriving at the cost of machine.
3. An amusement park has a 'soft' opening to the public, to trial run its attractions. Tickets are sold
at a 50% discount during this period and the operating capacity is 80%. The official opening day
of the amusement park is three months later. Management claim that the soft opening is a trial
run necessary for the amusement park to be in the condition capable of operating in the
intended manner. Accordingly, the net operating cost incurred should be capitalised. Comment.
4. Entity A exchanges car X with a book value of ` 13,00,000 and a fair value of ` 13,25,000 for
cash of ` 15,000 and car Y which has a fair value of ` 13,10,000. The transaction lacks
commercial substance as the company's cash flows are not expected to change as a result of
the exchange. It is in the same position as it was before the transaction. What will be the
measurement cost of the assets received?
5. Entity A is a large manufacturing group. It owns a number of industrial buildings, such as

factories and warehouses and office buildings in several capital cities. The industrial buildings
are located in industrial zones, whereas the office buildings are in central business districts of
the cities. Entity A's management want to apply the revaluation model as per AS 10 (Revised)
to the subsequent measurement of the office buildings but continue to apply the historical cost
model to the industrial buildings.
State whether this is acceptable under AS 10 (Revised) or not with reasons?

CA - INTERMEDIATE
6. Entity A purchased an asset on 1st January 2013 for ` 1,00,000 and the asset had an estimated
useful life of 10 years and a residual value of nil.
On 1st January 2017, the directors review the estimated life and decide that the asset will
probably be useful for a further 4 years.
Calculate the amount of depreciation for each year, if company charges depreciation on Straight
Line basis.
7. A property costing ` 10,00,000 is bought in 2016. Its estimated total physical life is 50 years.
However, the company considers it likely that it will sell the property after 20 years. The
estimated residual value in 20 years' time, based on 2016 prices, is:
Case (a) ` 10,00,000
Case (b) ` 9,00,000.
Calculate the amount of depreciation.
8. Entity B manufactures industrial chemicals and uses blending machines in the production
process. The output of the blending machines is consistent from year to year and they can be
used for different products.
However, maintenance costs increase from year to year and a new generation of machines with
significant improvements over existing machines is available every 5 years. Suggest the
depreciation method to the management.
9. Entity A exchanges surplus land with a book value of ` 70,00,000 for cash of ` 20,00,000 and
plant and machinery valued at ` 25,00,000. What will be the measurement cost of the assets
received?
10. Compute the Amount that has to be Capitalized as per AS 10

Omega Ltd. contracted with a supplier to purchase machinery which is to be installed in its one
department in three months' time. Special foundations were required for the machinery which
were to be prepared within this supply lead time. The cost of the site preparation and laying
foundations were ` 1,40,000. These activities were supervised by a technician during the entire
period, who is employed for this purpose at ` 45,000 per month.
The machine was purchased at ` 1,58,00,000 and ` 50,000 transportation charges were
incurred to bring the machine to the factory site. An Architect was appointed at a fee of ` 30,000
to supervise machinery installation at the factory site.
You are required to ascertain the amount at which the Machinery should be capitalized under
AS 10.
11. In the year 2016-17, an entity has acquired a new freehold building with a useful life of 50 years
for ` 90,00,000. The entity desires to calculate the depreciation charge per annum using a
straight-line method. It has identified the following components (with no residual value of lifts
& fixtures at the end of their useful life) as follows:
Components Useful life (Years) Cost
Land Infinite ` 20,00,000
Roof 25 ` 10,00,000
Lifts 20 ` 5,00,000
Fixtures 10 ` 5,00,000
Remaining of bulking 50 ` 50,00,000
` 90,00,000

CA - INTERMEDIATE
You are required to calculate depreciation for the year 2016 -17 as per componentization
method.
12. ABC Ltd. is installing a new plant at its production facility. It has incurred these costs:
Cost of the plant (cost per supplier's invoice plus taxes) Rs. 25,00,000
Initial delivery and handling costs Rs. 2,00.000
Cost of site preparation Rs. 6,00,000
Consultants used for advice on the acquisition of the plant Rs. 7,00.000
Interest charges paid to supplier of plant for deferred credit Rs. 2,00,000
Estimated dismantling costs to be incurred after 7 years Rs. 3,00,000
Operating losses before commercial production Rs. 4,00.000
Please advise ABC Ltd. on the costs that can be capitalised in accordance with AS 10 (Revised).

AS 11 The effects of changes in Foreign Exchange Rates CA - INTERMEDIATE
Foreign Currency Forward Exchange

Foreign Operations
Transactions Contracts
Any transaction
denominated in foreign Types of Foreign Not intended for
Intended for trading
currency Operations ; trading purpose or
purpose or
1. Integral Foreign speculation. ( i.e.
speculation
Operations Hedging)
( Dependent Branches )
2. Non-Integral Foreign
Operations. Premium or discount
(Independent Branches ) Premium or discount
arising at the
arising on the
Recognition ( i.e. Measurement (i.e. at inception of such
contract is ignored.
when will I record in what value will I forward contract
At each BS date the
the books) record the same?) should be amortized
contract is marked to
as income or expense
market and loss/gain
over the life of the
is recognized in P&L.
contract
Measure using
Recognize on “Date Initial Recognition
“exchange rate on
of transaction”
date on transaction”
On Balance sheet Measure using Exchange difference

* If the transaction is not
Subsequent likely to be settled at
Date Closing rate * arising on
Recognition closing rate subsequent
Subsequent
Measure using (Monetary Items recognition must be at
Recognition ->
On settlement date “exchange rate on Only) the ER at which the
CHARGED TO P&L
date of settlement” transaction is likely to be
settled

CA - INTERMEDIATE
Important Definitions
Exchange rate (ER) Home currency per unit of foreign currency
Transitional Provisions :
Whenever there is a long term foreign currency borrowing
Home Currency Currency in which FS are prepared for the purpose of a depreciable asset the exchange gain/
loss on such borrowing can either be ;
1. Charged to P&l
(or)
2. Adjusted with the cost of the asset.
Foreign currency Other than home currency
Option once exercised is IRRECOVECABLE.
Period of borrowing : 6/12/07 to 31/3/20
Closing rate ER on Balance sheet date In other cases

( i.e. Borrowing not used for Depreciable asset ) then the
exchange difference can be accumulated in “ foreign
currency monetary item translation difference (FCMITD)
Average Rate (Closing rate + Opening rate) / 2 Account.
Are money held and assets and liabilities to be

received or paid in fixed or determinable
Monetary Items amounts of money.
(Trade receivables , Trade payables , BR/BP ,
Bank loan etc. )
Assets and liabilities than monetary items

(E.g. : FA , Investments , Inventories)
Non-Monetary items
1. Carried at either historical Value (or) Fair
value

CA - INTERMEDIATE
1. Opportunity Ltd. purchased an equipment costing ` 24,00,000 on 1.4.2015 and the same was
fully financed by foreign currency loan (US Dollars) payable in four annual equal installments.
Exchange rates were 1 Dollar = ` 60.00 and ` 62.50 as on 1.4.2015 and 31.3.2016 respectively.
First installment was paid on 31.3.2016. The entire difference in foreign exchange has been
capitalised. You are required to state that how these transactions would be accounted
for.
2. Rau Ltd. purchased a plant for US$ 1,00,000 on 01st February 2016, payable after three months.
Company entered into a forward contract for three months @ ` 49.15 per dollar. Exchange rate
per dollar on 01st Feb. was ` 48.85. How will you recognise the profit or loss on forward contract
in the books of Rau Ltd?
3. Mr. A bought a forward contract for three months of US$ 1,00,000 on 1st December at 7 US$ = `
47.10 when exchange rate was US$ 7 = ` 47.02. On 31st December when he closed his books
exchange rate was US$ 7 = ` 47.75. On 31st January he decided to sell the contract at ` 47.18 per
dollar. Show how the profits from contract will be recognised in the books.
4. A Ltd. purchased fixed assets costing ` 3,000 lakhs on 1.1.2016 and the same was fully financed
by foreign currency loan (US. Dollars) payable in three annual equal instalments. Exchange rates
were 1 Dollar = ` 40.00 and ` 42.50 as on 1.1.2016 and 31.12.2016 respectively. First instalment
was paid on 31.12.2016. The entire difference in foreign exchange has been capitalised.
You are required to state, how these transactions would be accounted for.
5.
I. Classify the following items as monetary or non-monetary item:
Share Capital
Trade Receivables
Investment in Equity shares
Fixed Assets.
II.
Exchange Rate per $
Goods purchased on 1.1.2017 for US $ 15.000 ` 75
Exchange rate on 31.3.2017 ` 74
Date of actual payment 7.7.2017 ` 73
You are required to ascertain the loss/gain for financial years 2016-17 and 2017- 18. also give their
treatment as per AS 11.
6. (AS 16 + AS11)
Sun Ltd borrowed a sum of USD 12.5 Million at the commencement of the financial year 2011-12
for its solar project when interest rate in US is 5%. The interest is payable at the end of each
financial year. The loan was availed when the rate of interest was 45 to the US Dollar while the
rate on 31st march 2012 is 48 to the US Dollar. Ha sun Ltd borrowed the rupee equivalent loan in
India the rate of interest would have been 11%. You are required to compute borrowing costs
and also show the extent of exchange difference as per prevailing accounting standards.

CA - INTERMEDIATE
SAMPLE DISCLOSURE TEXT (From other AS)

Inventories
Inventories are valued at the lower of cost and net realisable value.
The cost of raw materials, components, consumable stores and spare parts and stock in trade Are
determined on a FIFO basis.
Cost includes freight, taxes and duties and other charges incurred for bringing the goods to the
present location and condition and is net of credit under the cenvat scheme and VAT, where
Applicable.
The valuation of manufactured finished goods and work-in-progress includes the combined cost
of material, labour and manufacturing overheads incurred in bringing the goods to the Present
location and condition.
Due allowance is estimated and made by the Management for slow moving/ non-moving items
of inventory, wherever necessary, based on the past experience and such allowances Are
adjusted against the carrying inventory value.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Property plant and equipment

Land and buildings held for use in the production or supply of goods or services, or for
administrative purposes, are stated in the balance sheet at cost less accumulated depreciation
and accumulated impairment losses, if any. Freehold land is not depreciated.
Cost of Properties includes import duties and non-refundable taxes, professional fees and, for
qualifying assets, borrowing costs capitalised in accordance with the Company’s accounting
policy.
Such properties are classified to the appropriate categories of property, plant and equipment
when completed and ready for intended use. Depreciation of these assets, on the same basis as
other property assets, commences when the assets are ready for their intended use. Fixtures and
equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Any part or components of fixed assets which are separately identifiable and expected to have a
useful life which is different from that of the main assets are capitalised separately, based on the
technical assessment of the management.
Cost of modifications that enhance the operating performance or extend the useful life of
Property, Plant and Equipment are also capitalised, where there is a certainty of deriving future
economic benefits from the use of such assets. Internally manufactured vehicles are capitalized
at cost including an appropriate share of relevant overheads.

Government Includes: Grant does not include:
Grant Definition: 1. State and central government 1. Assistance in form other than grants (eg: Tax
“ Refers to any Assistance from government in cash 2. government department and agencies Exemptions)
(or) in kind 3. other similar bodies whether , local , National (or) 2. Government participation in ownership of
International. enterprise
Types of grant
Non-Monetary
Debit : BANK Monetary Grant (Cash)
Grant(Kind)
Grant in the nature of Revenue Grant: Concessional Grant: Free of cost

promoter’s Contribution Grant for Specific Fixed DEBIT : Asset DEBIT : Asset
Asset CREDIT : P&L Account (or) CREDIT : BANK CREDIT : Capital Reseve
CREDIT : Capital Reserve Reduce from Expense (At concessional value ) ( At Nominal Value )
Refund of Grant :
DEBIT whatever was Conditions for Accounting
CREDITED Earlier , Balance 1. Reasonable assurance
Non-Depreciable Fixed to be credited to Income that enterprise will comply
Depreciable Fixed Asset: statement. with the conditions
Asset:
CREDIT : Cost of Fixed Note : Post refund , attaching to it.
CREDIT : Capital reserve
Asset provide depreciation 2. the Grant will be
(or)
(or) PROSPECTIVELY received
CREDIT : Cost of Fixed
Deffered income method
Asset
AS 12 : Accounting for Government Grants

CA - INTERMEDIATE
Questions for Practice for AS 12

1. Z Ltd. purchased a fixed asset for ` 50 lakhs, which has the estimated useful life of 5 years with the salvage
value of ` 5,00,000. On purchase of the assets government granted it a grant for ` 10 lakhs. Pass the
necessary journal entries in the books of the company for first two years if the grant amount is deducted
from the value of fixed asset.
2. Santosh Ltd. has received a grant of Z8 crores from the Government for setting up a factory in a backward
area. Out of this grant, the company distributed 12 crores as dividend. Also, Santosh Ltd. received land free
of cost from the State Government but it has not recorded it at all in the books as no money has been spent.
In the light of AS 12 examine, whether the treatment of both the grants is correct.
3. Top & Top Limited has set up its business in o designated backward area which entities the company to
receive from the Government of India a subsidy of 20% of the cost of investment, for which no repayment
was ordinarily expected. Moreover, there was no condition that the company should purchase any specified
assets for this subsidy. Having fulfilled all the conditions under the scheme, the company on its investment
of ` 50 crore in capital assets received IT 10 crore from the Government in January, 20X2 (accounting period
being 20X1-20X2). The company wants to treat this receipt as an item of revenue and thereby reduce the
losses on profit and loss account for the year ended 31st March, 20X2.
Keeping in view the relevant Accounting Standard, discuss whether this action is justified or not.
4. A fixed asset is purchased for ` 20 lakhs. Government grant received towards it is ` 8 lakhs. Residual Value
is ` 4 lakhs and useful life is 4 years. Assume depreciation on the basis of Straight Line method. Asset is shown
in the balance sheet net of grant. After 1 year, grant becomes refundable to the extent of ` 5 lakhs due to
non- compliance with certain conditions. Pass journal entries for first two years.
5. On 1.4.20X1, ABC Ltd. received Government grant of ` 300 lakhs for acquisition of machinery costing ` 1,500
lakhs. The grant was credited to the cost of the asset. The life of the machinery is 5 years. The machinery is
depreciated at 20% on WDV basis. The Company had to refund the grant in May 20X4 due to non-fulfillment
of certain conditions.
How you would deal with the refund of grant in the books of ABC Ltd. assuming that the company did not
charge any depreciation for year 20X4?
6. A Ltd. purchased a machinery for ` 40 lakhs. (Useful life 4 years and residual value ` 8 lakhs) Government
grant received is ` 16 lakhs. Show the Journal Entry to be passed at the time of refund of grant in the third
year and the value of the fixed assets, if:
I. the grant is credited to Fixed Assets A/c.
II. the grant is credited to Deferred Grant A/c.
7. How would you treat the following in the accounts in accordance with AS 12 'Government Grants'?
I. ` 35 Lakhs received from the Local Authority for providing Medical facilities to the employees.
II. ` 100 Lakhs received as Subsidy from the Central Government for setting up a unit in a notified
backward area.
III. ` 10 Lakhs Grant received from the Central Government on installation of antipollution equipment.
8. Samrat Limited has set up its business in a designated backward area which entitles the company for subsidy
of 25% of the total investment from Government of India. The company has invested ` 80 crores in the
eligible investments. The company is eligible for the subsidy and has received ` 20 crores from the
government in February 2019. The company wants to recognize the said subsidy as its income to improve
the bottom line of the company.
Do you approve the action of the company in accordance with the Accounting Standard?

CA - INTERMEDIATE
9. Viva Ltd. received a specific grant of ` 30 lakhs for acquiring the plant of ` 150 lakhs during 2014-15 having
useful life of 10 years. The grant received was credited to deferred income in the balance sheet and was not
deducted from the cost of plant. During 2017-18, due to non-compliance of conditions laid down for the
grant, the company had to refund the whole grant to the Government. Balance in the deferred income on
that date was ` 21 lakhs and written down value of plant was ` 105 lakhs. What should be the treatment of
the refund of the grant and the effect on cost of the fixed asset and the amount of depreciation to be charged
during the year 2017-18 in profit and loss account? AS 13 Accounting for Investments.

AS 13 Accounting for Investments
Types of Investments
Current Investment Long Term Investment. Investment Property

Such investments are readily realisable and is intended It is an investment in land or building that is not intended to be occupied
Investment Other than Current
to be held for not more than one year from the date on substantially for use by or in their operation of the investing enterprise.
investment
which such investment is made. (Eg : an enterprise is purchasing a Land or Building for capital appreciation or
earning rental income, but not used for its operations) – Investment property is
accounted in accordance with the Cost model as prescribed in AS 10.
Cost of Investment Carrying amount of Investment (BV)

Cost of Investment comprises of Purchase price and other charges such as
brokerage, fees and duties, Different scenarios are as under
Current Investment
Long term Investments
Lower of Cost or Realisable Value
Usually carried at COST.
Note: Decline in value of investment
Case Cost of Investment Note: Any reduction in realisable
which is not temporary -> reduce
value is debited to profit and loss
Investment is acquired by issue of shres or Purchase price is the Fair value of account, if realisable value is
carrying amount of investment,
other securities securities issued Reverse such reduction when
increased subsequently, such
investment value increases and such an
Cost of investment is Fair value of asset increase to the extent of cost is
increase should not be temporary.
credited to Pnl.
Investment acquired in exchange of given up (or) Fair value of Investment
another asset received, whichever is more clearly
evident.
Deduct such interest from cost of Whenever any investment is disposed of, the difference between the
investment at the time of receipt of such carrying amount and net sale proceeds is recognised in the PnL Account
Pre-acquisition interest
interest whenever such interest was part
of cost of investment
Deduct from cost of investment when Reclassification of Reclassification of
Dividend dividend is declared from pre-acquisition investment from Long investment from
term to Current Current to long term AS 13 N.A to Banks,
profits. Investment Investment Mutuals funds, PFI,
if investment is purchased at Cum-Rights Transfers are made at Transfers are made at Venture capital funds,
insurance companies,
and later on such investments become Ex- lower of cost of lower of cost or Fair AS 19 & AS 15 cases
Rights shares carrying amount at the Value at the date of
rights, reduce the amount received on date of transfer. transfer.
sale of rights.
CA - INTERMEDIATE
1. An unquoted long-term investment is carried in the books at a cost of lakhs. The published
accounts of the unlisted company received in May, 20X1 showed that the company was
incurring cash losses with declining market share and the long-term investment may not fetch
more than ` 20,000. How will you deal with this in preparing the financial statements of R Ltd.
for the year ended 31st March, 20X1?
2. X Ltd. on 1-1-20X1 had made an investment of ` 600 lakhs in the equity shares of Y Ltd. of
which 50% is made in the long-term category and the rest as temporary investment. The
realisable value of all such investment on 31-3-20X1 became ` 200 lakhs as Y Ltd. lost a case
of copyright. From the given market conditions, it is apparent that the reduction in the value
is not temporary in nature. How will you recognise the reduction in financial statements for
the year ended on 31 -3-20X1?
3. M/s Innovative Garments Manufacturing Company Limited invested in the shares of another
company on 1st October, 20X3 at a cost of f 2,50,000. It also earlier purchased Gold of `
4,00,000 and Silver of ` 2,00,000 on 1st March, 20X1. Market value as on 31st March, 20X4 of
above investments are as follows:
`
Shares 2,25,000
Gold 6,00,000
Silver 3,50,000
How above investments will be shown in the books of accounts of M/s Innovative Garments
Manufacturing Company Limited for the year ending 31st March, 20X4 as per the provisions
of Accounting Standard 13 "Accounting for Investments “?
4. ABC Ltd. wants to re-classify its investments in accordance with AS 13 (Revised).

Decide and state on the amount of transfer, based on the following information:
1) A portion of current investments purchased for ` 20 lakhs, to be reclassified as long-
term investment, as the company has decided to retain them. The market value as on
the date of Balance Sheet was ` 25 lakhs.
2) Another portion of current investments purchased for ` 15 lakhs, to be reclassified as
long-term investments. The market value of these investments as on the date of
balance sheet was ` 6.5 lakhs.
3) Certain long-term investments no longer considered for holding purposes, to be
reclassified as current investments. The original cost of these was ` 18 lakhs but had
been written down to ` 12 lakhs to recognise other than temporary decline as per AS
13 (Revised).
5. Paridhi Electronics Ltd. has current investment (X Ltd.’s shares) purchased for ` 5 lakhs, which
the company want to reclassify as long term investment on 31.3.2018. The market value of
these investments as on date of Balance Sheet was ` 2.5 lakhs. How will you deal with this as
on 31.3.18 with reference to AS-13?

CA - INTERMEDIATE
6. Z Bank has classified its total investment on 31-3-2018 into three categories (a) held to
maturity (b) available for sale (c) held for trading as per the RBI Guidelines.
‘Held to maturity1 investments are carried at acquisition cost less amortized amount Available
for sale’ investments are carried at marked to market ‘Held for trading’ investments are valued
at weekly intervals at market rates. Net depreciation, if any, is charged to revenue and net
appreciation, if any, is ignored.
You are required to comment whether the policy of the bank is in accordance with AS 13?

Definition of Additional
Definition of Capitalize the Borrowing
Borrowing Cost Qualifying Conditions of
Borrowing Cost Cost
Asset Capitalization
YES YES Then
Borrowing Cost includes:

1. Interest General Conditions :
2. Commitment charges Definition of Qualifying Asset: 1. There should be future economic benefits
3. Amortization of premium or Qualifying asset means an asset 2. Cost should be reliably measured
discounting charges which necessarily takes substantial Specific Conditions :
4. Finance charges in a finance lease period of time to get ready for 1. Borrowing cost should be incurred
5. exchange difference on foreign intended use (or) sale. 2. Expenditure should be incurred
currency borrowing to the extent 3. There should be activity on the qualifying asset
attributable to interest
Measurement of Suspension of Borrowing

Borrowing Cost Cost
Cessastion
General Cease capitlisation when asset is
Specific substantially ready. Disclosure:
Borrowings :
Borrowing : Where borrowing cost comprises A. Total Borrowing cost incurred
Capitalize at Avoidable Suspension:
Capitalize Actual of multiple assets and where some B. LESS: Borrowing cost capitalized
WACB (Weighted BC Should NOT be
borrowing cost assets are ready and capable of C. Borrowing cost recognized as
average cost of capitalized
incurred independent use stop expense (A-B)
borrowing). Unavoidable Suspension:
Should be capitalized capitalisation for assets which are
ready for use.
Note : Reduce income from short term

investments
Entry For capitalisation :

Dr -> Relavent Asset ( Eg : Building )
PAGE 37
AS 16 Borrowing Costs Cr-> Bank
CA - INTERMEDIATE
Questions for Practise on AS-16
asdasd
1. X Ltd. began construction of a new building on 1st January, 2016. It obtained ` 7 lakh special loan
to finance the construction of the building on 1st January, 2016 at an interest rate of 10%. The
company's other outstanding two non-specific loans were:
Amount Rate of Interest

` 5,00,000 11%
` 9,00,000 13%
The expenditures that were made on the building project were as follows:
January 2016 2,00,000

April 2016 2,50,000
July 2016 4,50,000
December 2016 1,20,000
Building was completed by 31st December, 2016. Following the principles prescribed in AS 16
'Borrowing Cost; calculate the amount of interest to be capitalised and pass one Journal Entry for
capitalising the cost and borrowing cost in respect of the building.
2. PRM Ltd. obtained a loan from a bank for ` 50 lakhs on 30-04-2016. It was utilised as follows:
Particulars Amount (` in lakhs)

Construction of a shed 50
Purchase of a machinery 40
Working Capital 20
Advance for purchase of truck 10
Construction of shed was completed in March 2017. The machinery was installed on the date of
acquisition. Delivery of truck was not received. Total interest charged by the bank for the year
ending 31 -03-2017 was ` 18 lakhs. Show the treatment of interest.
3. The company has obtained Institutional Term Loan of ` 580 lakhs for modernisation and
renovation of its Plant & Machinery. Plant & Machinery acquired under the modernisation
scheme and installation completed on 31st March, 2017 amounted to ` 406 lakhs, ` 58 lakhs has
been advanced to suppliers for additional assets and the balance loan of ` 116 lakhs has been
utilised for working capital purpose. The Accountant is on a dilemma as to how to account for the
total interest of ` 52.20 lakhs incurred during 2016-2017 on the entire Institutional Term Loan of
` 580 lakhs.
4. In May, 2016, Capacity Ltd. took a bank loan to be used specifically for the construction of a new
factory building. The construction was completed in January, 2017 and the building was put to its
use immediately thereafter. Interest on the actual amount used for construction of the building
till its completion was ` 18 lakhs, whereas the total interest payable to the bank on the loan for
the period till 31st March, 2017 amounted to ` 25 lakhs.

CA - INTERMEDIATE
Can ` 25 lakhs be treated as part of the cost of factory building and thus be capitalized on the
plea that the loan was specifically taken for the construction of factory building? Explain the
treatment in line with the provisions of AS 16.
5. A company incorporated in June 2017, has setup a factory within a period of 8 months with
borrowed funds. The construction period of the assets had reduced drastically due to usage of
technical innovations by the company. Whether interest on borrowings for the period prior to
the date of setting up the factory should be capitalized although it has taken less than 12 months
for the assets to get ready for use. You are required to comment on the necessary treatment with
reference to AS 16.
6. Suhana Ltd. issued 12% secured debentures of Rs. 100 Lakhs on 01.05.2016, to be utilized as
under:
Particulars Amount (Rs. in lakhs)
Construction of factory building 40
Purchase of Machinery 35
Working Capital 25
In March 2017. construction of the factory building was completed and machinery was installed
and ready for it's intended use. Total interest on debentures for the financial year ended
31.03.2017 was Rs. 11,00,000. During the year 2016-17, the company had invested idle fund out
of money raised from debentures in banks fixed deposit and had earned an interest of Rs. 2,0,000.
Explain the treatment of under Accounting Standard 16 and also explain nature of assets.

CA - INTERMEDIATE
AS 17 Segment Reporting
How many of these

How to identify number Identification of Apply Test for Reportable
identified segments are
of segments for an entity Reportable segments Segments
to be reported ?
5 Tests
1. Revenue test (10%)
2. Asset Test (10%)
3. Result test (10%)
Business Segment Geographical Segment 4. Discretionary test
5. 75 % External revenue
test
Other Concepts
Distinguishable component of 1. Goodwill
an enterprise , engaged in Component of an enterprise 2. Interest on borrowings
providing individual product providing goods and services in 3. Comparatives
(or) service (or) group of an economic environment 4. Matrix Reporting
related product (or) service whose risk and rewards are
which is DISTINCT from other DISTINCT from other economic
components of the enterprise environments in which the
based on risk and rewards. entity operates Segment Policies :
A) Enterprise policies
AND
B) Policies specific to preparation of segment report.
1. Basis of allocation of common items
2. Inter-segment transfer pricing.
Basis of Classification
Basis of identification ;
1. Currency risk
1. Nature of products and
2. Exchange control regulations
services
3. Similarity of political and
2. Method of Production Secondary Reporting :
economic environment
3. Method of Distribution 1. Revenue greater than 10% from EXTERNAL Customers
4. special risk associated with
4. Class of customers 2. segment assets greater than 10% of total segment
operating in specific areas
5. Regulatory requirements assets.
5. proximity of operations.
3. Additions to assets.

CA - INTERMEDIATE
Segment Revenue Segment Expenses
Excludes : Includes :
Includes : Excludes :
1. Extraordinary items as 1. Expenses incurred
1. External Revenue 1. Extraordinary items as
per AS 5 through external
2. Internal revenue per AS 5
2. Interest , Dividend etc. transactions
3. Common revenue 2. Interest , Dividend etc.
unless operations are of 2. Expenses incurred
allocated on a reasonable unless operations are of
Financial Nature through internal
basis Financial Nature
( E.g. : Banks ) Transaction
( E.g. : Banks )
3. Common expenses
3. Income tax (Corporate
allocated on a reasonable
item )
basis
Segment Assets Segment Liabilities
Includes : Includes :
1. Assets which are 1. Liabilities arising from Excludes :
Excludes :
directly identifiable with external transactions 1. Corporate items ( E.g. :
1. Income Tax ( e.g. :
the segment directly attributable to provision for tax ,
Advance tax , Outside
2. Common assets business ( E.g. : RM dividends , Debentures
investments )
allocated on a reasonable Payables ) etc. )
basis. 2. Common liabilities
allocated on a reasonable
basis

CA - INTERMEDIATE

1. The Chief Accountant of Sports Ltd. gives the following data regarding its six segments:
` in lakhs
Particulars M N O P Q R Total
Segment Assets 40 80 30 20 20 10 200
Segment Results SO (190) 10 10 (10) 30 (100)
Segment Revenue 300 620 80 60 80 60 1,200
The Chief accountant is of the opinion that segments "M" and "N" alone should be reported. Is
he justified in his view? Discuss.
2. A Company has an inter-segment transfer pricing policy of charging at cost less 10%. The market
prices are generally 25% above cost. Is the policy adopted by the company correct?
3. M/s XYZ Ltd. has three segments namely X, Y, Z The total Assets of the Company are ` 10.00
crores. Segment X has 2.00 crores, segment Y has ` 3.00 crores and segment Z has ` 5.00 crores.
Deferred tax assets included in the assets of each segments are X- ` 0.50 crores, Y— ` 0.40
crores and Z— ` 0.30 crores. The accountant contends that all the three segments are
reportable segments. Comment.
4. M/s XYZ Ltd. has three segments namely X, Y, Z The total Assets of the Company are ` 10.00
crores. Segment X has 2.00 crores, segment Y has ` 3.00 crores and segment Z has ` 5.00 crores.
Deferred tax assets included in the assets of each segments are X- ` 0.50 crores, Y— ` 0.40
crores and Z— ` 0.30 crores. The accountant contends that all the three segments are
reportable segments. Comment.
5. Calculate the segment results of a manufacturing organization from the following information:
Segments A B C Total
Directly attributed revenue 5,00,000 3,00,000 1,00,000 9,00,000
Enterprise revenue (allocated in 5 :
1,10,000
4 :2 basis)
Revenue from transactions with
other segments
Transaction from B 1,00,000 50,000 1,50,000
Transaction from C 10,000 50,000 60,000
Transaction from A 25,000 1,00,000 1,25,000
Operating expenses 3,00,000 1,50,000 75,000 5,25,000
Enterprise expenses (allocated in 5 77,000
:4 :2 basis) Expenses on
transactions with other segments
Transaction from B 75.000 30,000
Transaction from C 6,000 40,000
Transaction from A 18,000 82,000

AS 18 Related Party Disclosures
What to report in AS 18 ? What are the reporting requirements?
Exemptions from Disclosures in AS 18
1. Intra – Group relationships/ transactions in the case of consolidated
financial statements.
2. Transactions between 2 state controlled enterprises
“ All Related party All Related Party Transactions 3. where law permits confidentiality ( Eg : Banking regulation Act)
Relationships where
there is Control ”
Disclose what?
• Name of Party Deemed NOT to be related parties ( AS 18 – N.A)
• Nature of Relationship (I.e. transactions that look like a transaction with control but AS 18
Disclose what ? • Nature of Transaction says otherwise)
• Amount – Either value (or) • 2 Companies merely having a common director unless such a
• Name of the Related proportion. director is influencing policies in both the companies in their
Party • Amount O/s (Receivable/payable) mutual dealings
• Nature of relationship • Amount written off (or) written • Sole supplier, Sole customer, Sole franchisee with whom the
back enterprise has a significant volume of business
Note: Disclose even if there • Any other material information • Providers of finance, trade unions, public utility providers,
are ZERO transactions for better understanding of government departments & agencies including government
financial statements. sponsored bodies.
Entity (B)
where people mentioned in
SET M and SET N have KMP of entity (A) It’s Associate
Control or significant and their Relatives (or) Joint Venture
influence over entity (B), (SET N) (for associate / JV,
then Entity A and B are
related parties
Entity (A) the investing party
(or) party exercising
[Related
joint control is
parties for an a related party)
Entity]
1. Individuals AND
their Relatives,
having control or • Holding company of Entity A
significant Influence • Subsidiary company of Entity A
in Entity (A) • Fellow subsidiaries of Entity A
(SET M) AS 18
AS 18 Related Party Disclosures
Key Definitions
Related Party Relationships Joint Venture

A party is related to another, if when at any point of time, there was Entity which is Jointly controlled by two or more parties through a
either control (or) significant influence. CONTRACTUAL ARRANGEMENT.
Control
• Voting power of more than half of nominal share capital, either
directly or indirectly.
• Controlling the Composition of Board of directors.
• Substantial interest, together with the power to direct affairs of TEST FOR SIGNIFICANT INFLUENCE
the enterprise arising from Statute (or) agreement.
TEST 1
Substantial interest in voting power( 20% and
above), it is presumed to give rise to significant
Significant Influence influence, Unless demonstrated otherwise.
Participation in the Financial (or) operating policies of the enterprise,
but NOT control over the policies.
TEST 2
Absence of substantial interest, voting power of
less than 20%, it is presumed that there is no
Key Managerial Personnel significant influence unless demonstrated
KMP are personnel who have BOTH authority AND responsibility for otherwise.
planning and control of affairs of the enterprise.
Relatives
Spouse, parents, brothers, sisters and children who MAY BE EXPECTED
to influence (or) be influenced.
1. On the basis of provisions of AS 18 'Related Party Disclosures’: (i) Identify the related parties in the
following cases:
I. X Limited holds 60% shares of Y Limited Y Limited holds 55% shares of W Limited Z Limited
holds 35% shares of W Limited
II. Himalaya Limited sold goods for ` 40 Lakhs to Aravalli Limited during financial year ended on
March 31, 2019. The Managing Director of Himalaya Limited owns 80% shares of Aravalli
Limited. The sales were made to Aravalli Limited at normal selling prices followed by Himalaya
Limited. The chief accountant of Himalaya Limited contends that these sales need not require
a different treatment from the other sales made by the company and hence no disclosure is
necessary as per AS 18. You are required to comment on this.
2. Narmada Ltd. sold goods for ` 90 lakhs to Ganga Ltd. during financial year ended 31-3-20X1. The
Managing Director of Narmada Ltd. own 100% of Ganga Ltd. The sales were made to Ganga Ltd. at
normal selling prices followed by Narmada Ltd. The Chief accountant of Narmada Ltd contends that
these sales need not require a different treatment from the other sales made by the company and
hence no disclosure is necessary as per the accounting standard. Is the Chief Accountant correct?
3. SP hotels Limited enters into an agreement with Mr. A for running its hotel for a fixed return payable
to the later every year. The contract involves the day-to-day management of the hotel, while all
financial and operating policy decisions are taken by foe Board of Directors of foe company. Mr. A
does not own any voting power in SP Hotels Limited. Would he be considered as a related party of SP
Hotels Limited”?
4. Arohi Ltd. sold goods for ` 90 lakhs to Anya Ltd. during financial year ended 31-3-2019. The Managing
Director of Arohi Ltd. own 100% of Anya Ltd. The sales were made to Anya Ltd. at normal selling prices
followed by Arohi Ltd. The Chief accountant of Arohi Ltd contends that these sales need not require a
different treatment from the other sales made by the company and hence no disclosure is necessary
as per the accounting standard. Is the Chief Accountant correct? Comment in accordance with AS 18.

AS 19 Accounting for Leases
Finance Lease Lease is an agreement which
conveys “Right to use” an asset Operating Lease
A lease where substantial risk
(tangible (or) intangible) to another A lease which is NOT a finance
and rewards are transferred party for a payment or series of lease
to the lessee payment for an agreed period.
A price at which an asset is

exchanged (or) liabilities
Indicators of a Finance Lease settled between
Fair Value
1. the present value of lease payments is substantially knowledgeable parties,
equal to fair value of the asset. willingly parties in an arm’s
2. the lease period is almost equal to the economic life length transaction
of the asset.
3. the lessee has the option to buy the asset at the end Value at which asset is recorded in the
of the lease period at less than FAIR VALUE. books of lessee at the inception of lease,
4. the nature of the asset is a specific purpose asset.
however record at other than FV where
5. the RISK associated with the asset is borne by the
lessee during the lease period. PV of MLP from stand point of lessee is
6. the lease is generally non-cancellable, however they less than the Fair value (FV)
are cancellable by mutual consent. This is the rate at which the present
value (PV) of MLP from standpoint of
Depreciation Interest rate lessor + UGRV is equal to the FV of the
Depreciation is provided in the books of the lessee in
Implicit on Lease asset. (lessee to use this rate for
case of a finance lease & in the books of the lessor in
case of a operating lease. discounting when IRR is known at the
inception of the lease_
In case of a Finance lease
Depreciation has to be provided based on the life of Rate at which the lessee can borrow a
the asset (not lease period), however if lessee is not Incremental similar amount, for a similar period for
expected to take ownership of the asset at the end of borrowing rate security of a similar asset. (use this rate
the lease period, depreciation should be computed when IRR is not known)
based on the lease period.
AS 19 Accounting for Leases
Residual Value Minimum Lease payments (MLP)
Guaranteed Residual Unguaranteed Residual MLP From

MLP From
Value Value (UGRV) standpoint of Lessor
Amount agreed to be paid Difference Between
standpoint of Lessee
Aggregate of payments
at the end of the lease Residual value (RV) and Aggregate of payments
during the lease period
period either by lessee (or) Guaranteed residual value during the lease period
and GRV from lessee (or)
a third party. (GRV) and GRV from lessee
any third party
Accounting for Profit/Loss on Sale and

Gross Investment in lease (GIL) – PV of
Unearned Finance Income Lease back Transactions (SLB)
Gross investment in lease (PV of MLP
(UFI) from standpoint of lessor + PV of UGRV)
SLB transactions SLB transactions results in a

Gross investment in Lease (GIL) = results in a Finance Operating Lease
Gross Investment in Lease MLP from standpoint of lessor + lease
1. Profit / Loss should be recognised
The profit/Loss should be
(GIL) unguaranteed Residual value treated as Revaluation
in PnL Account.
(UGRV) 2. However, if the sale is at other
profit/Loss and should
NOT be recognised in Pnl than fair value then;
Account. A. Profit/Loss upto FV –> Should be
The Gain/Loss should be recognised in PnL Account
Gross Investment in lease (GIL) – deferred and amortised
Unearned Finance Income (UFI) over the lease period in B. Profit/Loss beyond FV –> Should
Net Investment in Lease (NIL) [ Value at which asset is recorded in the same proportion of be deferred and amortised over the
depreciation lease period.
books of lessor at the inception of lease]

CA - INTERMEDIATE
Questions for Practice of AS 19
1. S. Square Private Limited has taken machinery on finance lease from S.K. Ltd. The
information is as under:
Lease term = 4 years
Fair value at inception of lease = ` 20,00,000 Lease rent = ` 6,25,000 p.a. at the end of year
Guaranteed residual value = ` 1,25,000 Expected residual value = ` 3,75,000 Implicit
interest rate -15%
Discounted rates for 1st year, 2nd year, 3rd year and 4th year are 0.8696, 0.7561, 0.6575 and
0.5718 respectively.
Calculate the value of the lease liability as per AS-19 and disclose impact of this on Balance
sheet and Profit & loss account at the end of year 1
2. Prakash Limited leased a machine to Badal Limited on the following terms:
(` In lakhs)
I. Fair value of the machine 48.00
II. Lease term 5 years
III. Lease rental per annum 8.00
IV. Guaranteed residual value 1.60
V. Expected residual value 3.00
VI. Internal rate of return 15%
Discounted rates for 1st year to 5th year are 0.8696, 0.7561, 0.6575, 0.5718, and 0.4972
respectively.
Ascertain Unearned Finance Income.
3.
Annual lease rents = ` 50,000 at the end of each year.
Lease period = ` years;
Guaranteed residual value = ` 25,000
Unguaranteed residual value (UGR) = ` 15,000
Fair Value at the inception (beginning) of lease = ` 2,00,000
Interest rate implicit on lease is computed below:
Interest rate implicit on lease is a discounting rate at which present value of minimum lease
payments and unguaranteed residual value is ` 2 lakhs.
PV of minimum lease payments and unguaranteed residual value at guessed rate 10%
Compute IRR rate at which FV = PV of MLP of lease payments and PV of UGRV
4. Aksat International Limited has given a machinery on lease for 36 months, and its useful life is
60 months. Cost & fair market value of the machinery is ` 5,00,000. The amount will be paid
in 3 equal annual installments and the lessee will return the machinery to lessor at termination
of lease. The unguaranteed residual value at the end of 3 years is` 50,000. IRR of investment
is 10% and present value of annuity factor of ` 1 due at the end of 3 years at 10% IRR is 2.4868
and present Value of ` 1 due at the end of 3rd year at 10% IRR is 0.7513.

CA - INTERMEDIATE
You are required to comment with reason whether the lease constitute finance lease or
operating lease. If it is finance lease, calculate unearned finance income.
5. ABC Ltd. took a machine on lease from XYZ Ltd., the fair value being ` 10,00,000. The economic
life of the machine as well as the lease term is 4 years. At the end of each year, ABC Ltd. pays
` 3,50,000. The lessee has guaranteed a residual value of ` 50,000 on expiry of the lease to
the lessor. However, XYZ Ltd. estimates that the salvage value of the machine will be only
`35,000 only. It was not practicable for the lessee to determine the interest rate implicit in
the lease, However the incremental borrowing rate of ABC Ltd. is determined at 16.4%. PV
factors at 16.4% for year 1, year 2, year 3 and year 4 are 0.8591,0.7381,0.6341 and 0.5447
respectively. You are required to calculate the value of machinery to be considered by ABC
Ltd. and the finance charges for each year.
6.
a) Classify the following into either operating or finance lease:
I. If Present value (PV) of Minimum lease payment (MLP) = "X"; Fair value of the asset is
"Y" and X=Y.
II. Economic life of the asset is 7 years, lease term is 6.5 years, but asset is not acquired
at the end of the lease term;
III. Economic life of the asset is 6 years, lease term is 2 years, but the asset is of special
nature and has been procured only for use of the lessee.
b) Viral Ltd. sold machinery having WDV of ` 40 lakhs to Saral Ltd. For ` 50 lakhs and the same
machinery was leased back by Saral Ltd. to Viral Ltd. The lease back is in nature of operating
lease. You are required to explain the treatment in the given cases -
I. Fair value is ` 45 lakhs and sale price is ` 38 lakhs.
II. Fair value is ` 40 lakhs and sale price is ` 50 lakhs.
III. Fair value is ` 46 lakhs and sale price is ` 50 lakhs

Summary notes for AS 20 Earnings per share CA - INTERMEDIATE
Part - I
Computation of Basic EPS
Profit available to Equity shareholders ( Note 1 )

EPS =
Weighted average number of equity shares Outstanding
Note 1
Particulars Amount
Profit available to Equity shareholders:- XX
1. Net profit after tax ( PAT ) XX
2. Less : Appropriation towards preference divident (#) (XX)
3. Profit available for Equity Shareholders (1-2) XX
(#)
Cummulative preference shares - Deduct whether divident is declared or not
Non - Cummulative preference shares - Deduct only if divident is declared.
Note 2
1. WANES can be computed either on a cummulative basis or individual level.
WANES in case of partly paid up shares - Compute equivalent number of shares

WANES in case of different paid up value - Compute equivalent value of shares
Different cases which requires adustments.
1. Change in number of shares without change in Shareholders Funds

(Eg : Bonus issue/ Share split / Consolidation of shares)
The number of equity shares outstanding before the before making such issue (Eg : Bonus ) is adjusted for
propotionate number of equity shares outstanding as if such issue (Eg bonus) had occurred at the beginning of the
earliest period reported.
2. Change in number of shares with corresponding change in shareholders funds at other than face value
( Rights issue )
1. Compute theoretical ex-rights price
Aggregate fair value of shares Proceeds from exercise of rights ( rights

+
immidiately prior to exercise of shares * issue price )
Number of shares outstanding immidiately after the rights issue
2. Ascertain rights adjustment factor
Fair value prior to rights

Theoretical ex-rights price
3. Apply rights adjustment factor to the opening shares
4. Compute WANES

Summary notes for AS 20 Earnings per share CA - INTERMEDIATE
Part - I I
Computation of Diluted EPS
Profit available to Equity shareholders

Diluted ( After adjustment for diluted earnings ) [ Note 1 ]
EPS =
Average number of weighted equity shares outstanding during the period
(assuming the conversion of diluted potential equity shares)
[ Note 2 ]
Note 1
Particulars Amount
1. Net proft as computed under Basic earnings of shares XX
2. Add : Interest on convertibles XX
3. Less : Tax impact on above interest (XX)
4. Add : Divident of preference shares of convertibles XX
5. Add: Divident distribution Tax XX
5. Any other item XX
6. Numerator for Diluted EPS XX
Note 2
WANES for Diluted EPS
Particulars Amount
1. WANES as per Basic EPS XX
2. Add : Potential equity shares (##) XX
##
Potential Equity shares
1. Convertibles ( Convertible preference shares / Convertible debentures )
2. Options and warrants ( ESOP )
3. Contingently issuable shares

CA - INTERMEDIATE
Questions for practice on AS 20
1.
Date Particulars Purchased Sold Balance

1st January Balance at beginning of year 1,800 - 1,800
31st May Issue of shares for cash 600 - 2,400
1st November Buy Back of shares - 300 2,100
Calculate Weighted Number of Shares.
2.
Net profit for the year 2016 ` 71,00,000
No. of shares outstanding prior to rights issue 5,00,000 shares
Rights issue price ` 15.00
Last date to exercise rights 1st March 2017
Rights issue is one new share for each five outstanding (i.e. 1,00,000 new shares)
Fair value of one equity share immediately prior to exercise of rights on 1st March 2017 was ` 21.00.
Compute Basic Earnings Per Share
3. While calculating diluted EPS, effect is given to all dilutive potential equity shares that were outstanding
during the period." Explain this statement in the light of relevant AS.
Also calculate the diluted EPS from the following information:
Net Profit for the current year (After Tax) ` 1,00,00,000
No. of Equity shares outstanding 10,00,000
No. of 10% Fully Convertible Debentures of ` 100 each 1,00,000
(Each Debenture is compulsorily & fully convertible into 10 equity
shares issued at the mid of the year)
Debenture interest expense for the current year ` 5,00,000
Assume applicable Income Tax rate @30%
4. Net profit for the year 2016 ` 18,00,000

No. of equity shares outstanding until 30th September 2017 ` 20,00,000
Bonus issue 1st October 2017 was 2 equity shares for each equity share outstanding at 30th
September, 2017
Calculate Basic Earnings Per Share.

CA - INTERMEDIATE
5. NDA Corporation has outstanding equity shares of 20,00,000 on 1-1-2020, average fair value per
equity share during 2010 was Rs 75, potential equity shares are as follows:
(i) 1,00,000 options with exercise price of Rs 60
(ii) 8% Convertible preference shares of 8,00,000 shares to be converted into 2 equity shares,
attributable Corporate dividend tax is 10%
(iii) 12% convertible debentures of Rs 100 each, Nominal value of Rs 10 crores convertible into 4
equity shares.
Tax Rate is 30% Net profit is 1 Crore. Calculate Diluted EPS.

CA - INTERMEDIATE
Questions for Practise on AS-22

1. Rama Ltd., has provided the following information:
2. `
Depreciation as per accounting records 2,00,000
Depreciation as per income tax records 5,00,000
Unamortised preliminary expenses as per tax record 30,000
There is adequate evidence of future profit sufficiency. How much deferred tax asset/ liability
should be recognised as transition adjustment? Tax rate 50%.
2. From the following details of A Ltd. for the year ended 31-03-2017, calculate the deferred tax asset/
liability as per AS 22 and amount of tax to be debited to the Profit and Loss Account for the year.
Particulars
Accounting Profit 6,00,000
Book Profit as per MAT 3,50,000
Profit as per Income Tax Act 60,000
Tax rate 20%

MAT rate 7.50%
3. PQR Ltd.'s accounting year ends on 31st March. The company made a loss of ` 2,00,000 for the year
ending 31.3.2015. For the years ending 31.3.2016 and 31.3.2017, it made profits of ` 1,00,000 and `
1,20,000 respectively. It is assumed that the loss of a year can be carried forward for eight years and
tax rate is 40%. By the end of 31.3.2015, the company feels that there will be sufficient taxable income
in the future years against which carry forward loss can be set off. There is no difference between
taxable income and accounting income except that the carry forward loss is allowed in the years
ending 2016 and 2017 for tax purposes. Prepare a statement of Profit and Loss for the years ending
2015, 2016 and 2017.
4. Omega Limited is working on different projects which are likely to be completed within 3 years
period. It recognises revenue from these contracts on percentage of completion method for financial
statements during 2014-2015, 2015-2016 and 2016-2017 for ` 11,00,000, ` 16,00,000 and `
21,00,000 respectively. However, for Income-tax purpose, it has adopted the completed contract
method under which it has recognised revenue of ` 7,00,000, ` 18,00,000 and ` 23,00,000 for the
years 2014-2015, 2015-2016 and 2016- 2017 respectively. Income-tax rate is 35%. Compute the
amount of deferred tax asset/ liability for the years 2014-2015, 2015-2016 and 2016-2017.
5. Beta Ltd. is a full tax-free enterprise for the first ten years of its existence and is in the second year of
its operation. Depreciation timing difference resulting in a tax liability in year 1 and 2 is ` 1,000 lakhs
and ` 2,000 lakhs respectively. From the third year it is expected that the timing difference would
reverse each year by ` 50 lakhs. Assuming tax rate of 40%, you are required to compute to the
deferred tax liability at the end of the second year and any charge to the Profit and Loss account.

CA - INTERMEDIATE
Summary Notes for AS 22 – Accounting for Taxes on Income
Items
contributing
to DTA
MAT
TAX Holiday
1. Mat is in the nature of Penal
Timing difference reversing in
tax
Holiday period – IGNORE 1. Unabsorbed
2. Payment of a higher amount
where Normal tax is Nil or Zero Depreciation or
Timing difference originating 1. Other items ->
3. Deferred Tax should be Carried forward
and reversing in period other Create DTA if
computed only on the basis of business loss ->
than holiday period – Create reasonable certainty
Normal Tax and not on the Create DTA only if
DTL/DTA exists
basis on MAT virtual certainty
exists

AS 24 Discontinuing Operations
Discontinuing operation is a Component of the enterprise, that the enterprise pursuant to a single
plan is;
A. Disposing off “Substantially in its

entirety” the component through a
B. Disposing off the component
single sale transaction by demerger
assets in a piecemeal manner and C. Termination by abandonment
(or) spin off (or) hive off the
settling the liabilities individually.
component to the enterprise
shareholder.
That represents a Major line of business (or) geographical area of operations AND that is identified
separately for operating AND financial Reporting purpose.
Key disclosures
Initial Disclosure event (IDE) – Trigger • A description of the nature of discontinuing operation.
Examples of activities that do not necessarily • Nature and date of IDE
satisfy criteria A. of the definition, but that might when AS 24 applies
• Period in which discontinuance is expected to be completed
do so in combination with other circumstances • Carrying amounts of the Assets to be disposed off and
include the following EARLIER OF liabilities to be settled as on balance sheet date
• Amount of revenue and expenses attributable towards DCO.
Board approval of • Amount of pre-tax profit and tax attributable towards DCO.
• Amount of net cash flows attributable towards DCO (break up
• Gradual or evolutionary phasing out Formal plan of Enterprise entering
towards Operating, Investing and Financing activities)
of a product line or class of service. discontinuance into a Binding sale
• Discontinuing, even if relatively AND public agreement
abruptly, several products within an announcement
Important Notes
ongoing business 1. All items below PBT(including PBT has
• Shifting of production facilities to be broken down into continuing and
discontinuing operations
• Closing of a facility to achieve Withdrawal of plan of discontinuance
2. updating disclosures have to be
provided every year until the year of sale
productivity improvements or other -> Disclose reason for withdrawal of discontinuance 3. if there are Multiple DCO information
cost savings. and stop disclosure as per AS 24 must be given for each DCO.
CA CS Karthik Manikonda (75501 37279) for The CA classroom & Incite Commerce studies PAGE 56
CA - INTERMEDIATE
Questions for Practise of AS 24
1. A Health care producer has changed the product line as follows;
Particulars Washing soap Bathing soap

Jan 2020 – Sep 2020 per month 2,00,000 2,00,000
Oct 2020 – Dec 2020 per month 1,00,000 3,00,000
Jan 2021 – Mar 2021 per month 0 4,00,000
The company has enforced a gradual enforcement of change in product line on the basis
of an overall plan. The board of directors of the company has passed a resolution in march
2021 to this effect. The company follows calendar year as it’s accounting year. Is this a
discontinuing operation?
2. Tata Motors are in the business of manufacturing passenger cars and commercial
vehicles, the company is working on a strategic plan to shift from the passenger vehicles
to commercial vehicles car segment over the next 5 years, however no specific plans have
been drawn up for sale of neither the division nor its assets. As part of it’s plan it will
reduce the production of passenger cars by 20% annually. It also plans to commence
another new factory for manufacture of commercial vehicles plus transfer of employees
in a phased manner:
(i) Comment if mere gradual phasing out in itself can be considered a “discontinuing
operation” within the meaning of AS 24?
(ii) If the company passes a resolution to sell some of the assets in the passenger car
division and also transfer and also transfer few other assets to the passenger car
division to the new factory, does this trigger the application of AS 24?
(iii) Would your answer to the above be different if the company resolves to sell the
assets of the passenger car division in a phased by time bound manner?

AS 26 Intangible Assets
Asset Intangible Asset
Asset is a resource arising from it is an IDENTIFYABLE non-monetary
Recognition criteria (measure initially at cost)
past events which is controlled by asset without physical substance held
1. There should be future economic benefits
the enterprise from which future for use in production of goods,
2. The costs should be reliably measured
economic benefits are expected rendering of services (or) administrative
(Higher income, savings in cost or both) purpose and not for sale
Internally generated Internally Generated Goodwill

Intangible asset –
It is not recognised as an asset in
Research and Development Classify into R&D Phase
the books as it is not an
identifiable resource controlled
by the enterprise that can be
measured reliably at cost.
Research Phase Development Phase
Original Planned investigation for Application of existing knowledge Intangible Items
gaining new scientific knowledge, of knowledge gained from Intangible items are ficticious assets,
design, process etc research for deriving commercial these have to be immidiately debited to
(eg :Activities aimed at obtaining new benefit/future economics benefit Pnl Account unless they form part of
knowledge, search for alternatives etc) cost of an intangible asset (Eg :
Advertisement, preliminary expenses )
Accounting Treatment
Recognise as Expense, because Capitalize Subject to the Following;

while the expenditure is spent we 1. The Development is technically feasible, so that it can be sold later.
are uncertain about 2. cost should be reliably measured
development, subsequent 3. there should be future economic benefits
success of research will not 4. entity should have intent to putting it to commercial use
influence the accounting 5. there should be availability of technical, financial and other resources
treatment 6. ability to use and sell the intangible asset
(eg : design, construction, testing of pre-production or pre-use prototypes or models,
designing of jigs, moulds & dies involving new technology etc, operation of pilot plant, testing
of chosen alternatives for new and improved systems, processes, materials and products.

AS 26 Intangible Assets
Amortisation Residual Value Cost of an Internally generated Asset
The depreciable amount of The residual value of an It is the sum of expenditure incurred from the time when
an intangible asset should be Intangible asset is ZERO, the intangible asset first meets the recognition criteria.
1. Expenditure on materials and services used or consumed
allocated on a systematic unless there is a
in generating the intangible asset.
basis over the best estimate commitment by third party 2. the salaries, wages and other employment related costs
of the useful life (review to purchase the asset at the or person engaged in generating the asset.
amortisation period and end of the useful life (or) 3. any expenditure that is directly attributable to generating
method annual) there is an active market for the asset (eg : legal fees to register the asset with registry)
that asset and the RV can be 4. OH that are necessary to generate the asset and allocated
on a reasonable basis.
determined with reference
Usually the presumption is to that market
EXCLUSIONS FROM COST
that useful life of an
• SOH, AOH & other general OH unless these expenses can
intangible asset does not be directly attributable to making the asset ready for use
exceed 10 Years. However, • Expenditure on staff training to operate the asset
the same is rebuttable • Initial operating losses before asset achieves planned
(debatable) performance
Subsequent Expenditure on Concepts present in AS 26 i.e.

Intangible asset same as the concepts provided in
If there is evidence that Subsequent expenditure onMethods of AS 10.
useful life is longer than 10
Intangible asset after it’s purchase or
Amortisation – • Exchange of asset
completion should be debited to Pnl
First choice – SLM, • Retirements and disposals
years, the same can be Exception
other options -> WDV
Expenditure can be measured and • Different methods of
applied, however the entity (or) Units of
attributed to the asset and it results Amortisation ( Depreciation in
has to validate the production method
in generation of future economic AS 10)
recoverable amount every benefits excess of originally assessed
standards
year to check for any
impairment loss. Join Us on Telegram http://t.me/canotes_ipcc AS 26
CA - INTERMEDIATE
1. ABC Ltd. developed know-how by incurring expenditure of ` 20 lakhs, The know-how was used
by the company from 1.4.20X1. The useful life of the asset is 10 years from the year of
commencement of its use. The company has not amortised the asset till 31.3.20X8. Pass
Journal entry to give effect to the value of know-how as per Accounting Standard-26 for the
year ended 31.3.20X8.
2. The company had spent ` 45 lakhs for publicity and research expenses on one of its new
consumer product, which was marketed in the accounting year 20X1-20X2, but proved to be
a failure. State, how you will deal with the following matters in the accounts of U Ltd. for the
year ended 31st March, 20X2.
3. A company with a turnover of ` 250 crores and an annual advertising budget of ` 2 crores had
taken up the marketing of a new product. It was estimated that the company would have a
turnover of ` 25 crores from the new product. The company had debited to its Profit and Loss
account the total expenditure of ` 2 crore incurred on extensive special initial advertisement
campaign for the new product.
Is the procedure adopted by the company correct?
4. X Ltd. carried on business of manufacturing of Bakery products. The company has two
trademarks "Sun" and "Surya". One month before, the company comes to know through one
of the marketing managers that both trademarks have allegedly been infringed by other
competitors engaged in the same field. After investigation, legal department of the company
informed that it had weak case on trademark “Sun" and strong case in regard to trademark
“Surya”. X Ltd. incurred additional legal fees to stop infringement on both trademarks. Both
trademarks have a remaining legal life of 10 years. How should X Ltd. account for these legal
costs incurred relating to the two trademarks?
5. A company acquired patent right for ` 1200 lakhs. The product life cycle has been estimated
to be 5 years and the amortization was decided in the ratio of estimated future cash flows
which are as under:
Year 1 2 3 4 5
Estimated future cash flows in lakhs) 600 600 600 300 300
After 3rd year, it was ascertained that the patent would have an estimated balance future
life of 3 years and the estimated cash flow after 5th year is expected to be ` 150 lakhs. You
are required to determine the amortization pattern under Accounting Standard 26.
6. K Ltd. launched a project for producing product X in October, 2018. The Company incurred `
40 lakhs towards Research and Development expenses upto 31st March, 2019. Due to
prevailing market conditions, the Management came to conclusion that the product cannot
be manufactured and sold in the market for the next 10 years. The Management hence wants
to defer the expenditure write off to future years.
Advise the Company as per the applicable Accounting Standard.

CA - INTERMEDIATE
7. During 2020 Robo Ltd incurred costs to develop and produce a routine, low-risk computer
software product as follow;
Particulars Amount
Completion of detailed program design 13,000
Costs incurred for coding and testing to 10,000
establish technological feasibility
Other coding costs after establishment of 24,000
technological feasibility
Other testing costs after establishment of 20,000
technological feasibility
Cost of producing product masters for training 15,000
materials
Duplication of computer software and training 25,000
materials from product masters (1,000 units)
Packaging product (500 units) 9,000
What is the amount to be capitalized as software cost, subject to amortization and

what is the amount to be shown as inventory?

AS 29 Provisions, Contingent liabilities & Contingent Assets
Provisions Contingent Liability – Disclose in Notes to

Accounts
There is a present The settlement of A reliable estimate

obligation arising liability is likely to Possible obligation
can be made Present obligation
from past events result in outflow of arising from past
arising from past
resources embodying events, the
events for which
economic benefits settlement of which
EITHER
is based on
1. Provision is a liability which involves substantial degree of estimation “occurrence or non-
2. Provisions are NOT Accruals. occurrence” of one
3. Debit Profit and Account and Create a liability. or more future
There will be NO Reliable
uncertain events, not
outflow of resources Estimate
wholly within the
embodying economic CANNOT be
Contingent Assets benefits made.
control of the
enterprise.
Possible asset which may occur due to Accounting

past events, of which realisation depends Recognise as an asset Reimbursements
on occurrence or non-occurrence of one only on receipt, until 1. An enterprise with a present obligation may be able to seek
or more future events not wholly within receipt, disclose in reimbursement of part or all of the expenditure from another party
the control of the enterprise Director’s report. (eg : Insurance contract / warranty provided by supplier)
2. Accounting: The reimbursement is treated as a separate asset and
such a reimbursement should be recognised only when it is virtually
Restructuring Costs certain that such amount will be received after settlement of the
obligation. The provision will be accounted for separately.
Restructuring is a program planned and controlled by the Does not Include Onerous Contracts
>
enterprise and materially changes either scope or business or • cots of retaining or B.Economic
A. Compare cost of fulfilling an onerous contract
manner in which business is undertaken. relocating staff benefits to
(e.g: sale/termination of line of business,closurere/location of • Marketing costs
(i.e. unavoidable cost of fulfilling a contract) (or)
be
business in a country or region, change in management structure) • Investment in new compensation to exit it. choose the lower of these two.
recovered
Accounting: Provision for restructuring cost is recognised only system or distribution
when it meets the criteria for recognition of a provision, it should • Expected loss on sale of
include only the DIRECT EXPENDITURE arising from restructuring assets due to
& not associated with ongoing activities of the enterprise If A > B, Create a provision, otherwise ignore
restructuring. AS 29
CA - INTERMEDIATE
Questions for practice of AS 29
1. EXOX Ltd. is in the process of finalising its accounts for the year ended 31a March, 20X2. The
company seeks your advice on the following:
I. The Company's sales tax assessment for assessment year 20X1-X2 has been completed
on 14th February, 20X4 with a demand of ` 2.76 crore. The company paid the entire due
under protest without prejudice to its right of appeal The Company files its appeal before
the appellate authority wherein the grounds of appeal cover tax on additions made in the
assessment order for a sum of 2.10 crore.
II. The Company has entered into a wage agreement in May, 20X2 whereby the labour union
has accepted a revision in wage from June, 20X1. The agreement provided that the hike
till May, 20X2 will not be paid to the employees but will be settled to them at the time of
retirement. The company agrees to deposit the arrears in Government Bonds by
September, 20X2.
2. At the end of the financial year ending on 31st December 20X1, a company finds that there
are twenty law suits outstanding which have not been settled till the dateof approval of
accounts by the Board of Directors. The possible outcome as estimated by the Board is as
follows:
Probability Loss (`)

In respect of five cases (Win) 100% -
Next ten cases (Win) 50% -
Lose (Low damages) 40% 1,20,000
Lose (High damages) 10% 2,00,000
Remaining five cases
Win 50% -
Lose (Low damages) 30% 1,00,000
Lose (High damages) 20% 2,10,000
3. M/s. XYZ Ltd. is in a dispute with a competitor company. The dispute is regarding alleged
infringement of Copyrights. The competitor has filed a suit in the court of law seeking damages
of ` 200 lacs.
The Directors are of the view that the claim can be successfully resisted by the Company.
How would the matter be dealt in the annual accounts of the Company in the light of AS 29?
Explain in brief giving reasons for your answer.
4. Alpha Ltd. has entered into a sale contract of ` 7 crores with Gamma Ltd. during 2018-19
financial year. The profit on this transaction is ` 1 crore. The delivery of goods to take place
during the first month of 2019-20 financial year. In case of failure of Alpha Ltd. to deliver within
the schedule, a compensation of ` 2 crores is to be paid to Gamma Ltd. Alpha Ltd. planned to
manufacture the goods during the last month of 2018-19 financial year. As on balance sheet
date (31.3.2019), the goods were not manufactured and it was unlikely that Alpha Ltd. will be
in a position to meet the contractual obligation. You are required to advise Alpha Ltd. on
requirement of provision for contingency in the financial statements for the year ended 31st
March, 2019, in line with provisions of AS 29?

CA - INTERMEDIATE
5. XYZ Ltd. has not made provision for warrantee in respect of certain goods due to the fact that
the company can claim the warranty cost from the original supplier. Hence the accountant of
the company says that the company is not having any liability for warrantees on a particular
date as the amount gets reimbursed. You are required to comment on the accounting
treatment done by the XYZ Ltd. in line with the provisions of AS 29.
6. With reference to AS 29, how would you deal with the following in the annual accounts of
the company at the Balance Sheet dates:
I. An organization operates an offshore oilfield where its licensing agreement requires it to
remove the oil rig at the end of production and restore the seabed. Ninety percent of the
eventual costs relate to the removal of the oil rig and restoration of damage caused by
building it, and ten percent arise through the extraction of oil. At the balance sheet date,
the rig has been constructed but no oil has been extracted.
II. During 2018-19 Ace Ltd. gives a guarantee of certain borrowings of Brew Ltd., whose
financial condition at that time is sound. During 2019-20, the financial condition of Brew
Ltd. deteriorates and on 31s1 Dec. 2019, it goes into liquidation. (Balance Sheet date 31-
3-19).


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Approach to the Subject

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Substance over form: Materiality:

What are fundamental

AS 1 : Disclosure of Accounting Policies

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Questions for Practise in AS 1

1. In the books of M/s Prashant Ltd., closing inventory as on 31.03.20X2 amounts to `

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Cost of purchase includes:

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Questions for Practise in AS 2

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6. A Limited is engaged in manufacturing of Chemical Y for which Raw Material X is required.

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Classification of Cash flow Activities

Operating Activities Investing Activities Financing Activities

STEPS TO SOLVE A SUM IN AS 3 – Use format as prescribed in AS 3

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Questions for Practise from AS 3

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Sale of Property, plant and 70,000 Bank loan repaid 2,50,000

3. Classify the following activities as per AS 3 Cash Flow Statement:

31st March 20X1 31st March 20X0

Plant 7,15,000 5,05,000

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Trade payables 50,000 43,000

Analysis of selected accounts and transactions during 20X0-XI

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AS 4 Contingencies and Events occurring after the balance sheet date

Events OCCURING the after

Non – Adjusting Events

When Non – Adjusting

When the Event is so material Proposed dividend is a

Questions for Practise on AS 4

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Disclose Separately in the Disclose separately in the Disclose separately in the

Quantify effect of change and

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What is not a Change in Accounting Policy?

These are not defined in AS 5 or Schedule III.

Questions for Practice in AS 5

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4. (all are PPE)

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Segmentation of Contracts vs Combination of Contracts

Questions for Practise in AS 7

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Revenue means GROSS inflow of

General Conditions Specific Conditions

1. No uncertainty in Amount Use by others of

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Questions for Practise of AS 9

6. The following information of Meghna Ltd. is provided:

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E. Cost of Self Constructed Assets Recognition of an item of PPE