Perctical Book

FR CONCEPT BUILDER PRACTICAL EXAMPLES BOOK
INDEX
Sr. No Topic Page no

1 FRAMEWORK FOR PREPARATION AND PRESENTATION OF 1.1 to 1.3
FINANCIAL STATEMENTS
2 IND AS 16 - PROPERTY, PLANT & EQUIPMENT 2.1 to 2.4
3 IND AS 2 - INVENTORIES 3.1 to 3.2
4 IND AS 38 -INTANGIBLE ASSETS 4.1 to 4.2
5 IND AS 116 - LEASES 5.1 to 5.13
6 IND AS 23 - BORROWING COSTS 6.1 to 6.6
7 IND AS 36 - IMPAIRMENT OF ASSETS 7.1 to 7.6
8 INDAS 12 - INCOME TAXES 8.1 to 8.7
9 IND AS 21 - THE EFFECTS OF CHANGES IN FOREIGN 9.1 to 9.4
EXCHANGE RATE
10 IND AS 33 - EARNINGS PER SHARE 10 to 10.3
11 IND AS 102 - SHARE BASED PAYMENT 11.1 to 11.3
12 IND AS 103 – BUSINESS COMBINATION 12.1 to 12.18
IND AS 110 – CONSOLIDATION
13 FINANCIAL INSTRUMENTS 13.1 to 13.18
IND AS – 109, 2 & 107
FRAMEWORK
1. FRAMEWORK FOR PREPARATION AND PRESENTATION OF

FINANCIAL STATEMENTS
Practical Example 1
Balance sheet of a trader on 31st March, 20X1 is given below:
Particulars Rs
Assets
Non-current assets
Property, Plant and Equipment 65,000
Current assets
Inventories 30,000
Financial assets
Trade receivables 20,000
Other asset 10,000
Cash and cash equivalents 5,000
1,30,000
Equity and Liabilities
Equity
Share capital 60,000
Other Equity - Profit and Loss Account 25,000
Non-current liabilities
10% Loan 35,000
Current liabilities
Financial liabilities
Trade payables 10,000
1,30,000
Additional information:
(a) The remaining life of Property, Plant and Equipment is 5 years. The pattern of use of the asset is
even. The net realisable value of Property, Plant and Equipment on 31.03.20X2 was Rs 60,000.
(b) The trader’s purchases and sales in 20X1-20X2 amounted to Rs 4 lakh and Rs 4.5 lakh respectively.
(c) The cost and net realisable value of inventories on 31.03.20X2 were Rs 32,000 and Rs 40,000
respectively.
(d) Employee benefit expenses for the year amounted to Rs 14,900.
(e) Other asset is written off equally over 4 years.
(f) Trade receivables on 31.03.20X2 is Rs 25,000, of which Rs 2,000 is doubtful. Collection of another
Rs 4,000 depends on successful re-installation of certain product supplied to the customer.
(g) Cash balance on 31.03.20X2 is Rs 37,100 before deduction of interest paid on loan.
(h) There is an early repayment penalty for the loan Rs 2,500.
The Profit and Loss Accounts and Balance Sheets of the trader are shown below in two cases
(i) assuming going concern (ii) not assuming going concern.
SOLUTION:
Profit and Loss Account for the year ended 31st March, 20X2
Case (i) Rs Case (ii) Rs
Revenue from operations – Sales (A) 4,50,000 4,50,000
Expenses
Purchases 4,00,000 4,00,000
Changes in inventories (2,000) (10,000)
Employee benefit expenses 14,900 14,900
FR Concept Builder Practical Examples 1.1
FRAMEWORK
Finance cost 3,500 6,000

Depreciation and amortisation expenses 15,500 15,000
Other expenses - Provision for doubtful debts 2,000 6,000
Total Expenses (B) 4,33,900 4,31,900
Profit for the period (A-B) 16,100 18,100
Balance Sheet as at 31st March, 20X2

Liabilities Case (i) Rs Case (ii) Rs
Assets
Non-current assets
Property, Plant and Equipment 52,000 60,000
Current Asset
Inventories 32,000 40,000
Financial assets
Trade receivables (less provision) 23,000 19,000
Other asset 7,500 Nil
Cash and cash equivalents (after interest paid on loan) 33,600 33,600
1,48,100 1,52,600
Equity
Share Capital 60,000 60,000
Other Equity - Profit & Loss A/c 41,100 43,100
Non-current liabilities
10% Loan 35,000 37,500
Current liabilities
Trade payables 12,000 12,000
1,48,100 1,52,600
Practical Example 2:
A trader commenced business on 01/01/20X1 with Rs 12,000 represented by 6,000 units of a certain
product at Rs 2 per unit. During the year 20X2 he sold these units at Rs 3 per unit and had withdrawn
Rs 6,000. Thus:
Opening Equity = Rs 12,000 represented by 6,000 units at Rs 2 per unit.
Closing Equity = Rs 12,000 (Rs 18,000 – Rs 6,000) represented entirely by cash.
Retained Profit = Rs 12,000 – Rs 12,000 = Nil
The trader can start year 20X3 by purchasing 6,000 units at Rs 2 per unit once again for selling them
at Rs 3 per unit. The whole process can repeat endlessly if there is no change in purchase price of the
product.
In the previous example, suppose that the average price indices at the beginning and at the end of year
are 100 and 120 respectively.
Opening Equity = Rs 12,000 represented by 6,000 units at Rs 2 per unit.
Opening equity at closing price = (Rs 12,000 / 100) x 120 = Rs 14,400 (6,000 x Rs 2.40)
Closing Equity at closing price
= Rs 12,000 (Rs 18,000 – Rs 6,000) represented entirely by cash.
Retained Profit = Rs 12,000 – Rs 14,400 = (-) Rs 2,400

FRAMEWORK
The negative retained profit indicates that the trader has failed to maintain his capital. The available
fund RS 12,000 is not sufficient to buy 6,000 units again at increased price Rs 2.40 per unit. In fact,
he should have restricted his drawings to Rs 3,600 (Rs 6,000 – Rs 2,400).
Had the trader withdrawn Rs 3,600 instead of Rs 6,000, he would have left with Rs 14,400, the fund
required to buy 6,000 units at Rs 2.40 per unit.
In the previous example, suppose that the price of the product at the end of year is 2.50 per unit. In
other words, the specific price index applicable to the product is 125.
Current cost of opening stock = (Rs 12,000 / 100) x 125 = 6,000 x Rs 2.50 = Rs 15,000
Current cost of closing cash = Rs 12,000 (Rs 18,000 – Rs 6,000)
Opening equity at closing current costs = Rs 15,000
Closing equity at closing current costs = Rs 12,000
Retained Profit = Rs 12,000 – Rs 15,000 = (Rs 3,000)
The negative retained profit indicates that the trader has failed to maintain his capital. The available
fund Rs 12,000 is not sufficient to buy 6,000 units again at increased price Rs 2.50 per unit. The
drawings should have been restricted to Rs 3,000 (Rs 6,000 – Rs 3,000).
Had the trader withdrawn Rs 3,000 instead of Rs 6,000, he would have left with Rs 15,000, the fund
required to buy 6,000 units at Rs 2.50 per unit.
Capital maintenance can be computed under all three bases as shown below:
Financial Capital Maintenance at historical costs
Rs Rs
Closing capital (At historical cost) 12,000
Less: Capital to be maintained
Opening capital (At historical cost) 12,000
Introduction (At historical cost) Nil (12,000)
Retained profit Nil
Financial Capital Maintenance at current purchasing power

Rs Rs
Closing capital (At closing price) 12,000
Opening capital (At closing price) 14,400
Introduction (At closing price) Nil (14,400)
Retained profit (2,400)
Physical Capital Maintenance

Rs Rs
Closing capital (At current cost) 12,000
Opening capital (At current cost) 15,000
Introduction (At current cost) Nil (15,000)
Retained profit (3,000)

IND AS 16
2. IND AS 16 - PROPERTY, PLANT & EQUIPMENT
Fair value of Asset Purchased Rs. 1,00,000/-
Fair Value of Asset Given up Rs. 70000/-
Cash Paid Rs. 25000/-
Carrying Amount of Given up asset Rs. 55000/-
How to Record Asset Purchased, assume Commercial substance is present in the transaction.
Solution:
New Asset A/c Dr. 95000
To Old Asset A/c 55000
To Bank A/c 25000
To Gain (P&L) 15000 (B/f)
Fair value of Asset Purchased Rs. 3,00,000/-Fair Value of Asset given up is not known Carrying
Amount of Given up asset Rs. 5,50,000/-Cash Received - 200000
How to record as per IND AS 16, Assume Commercial substance is present in the transaction.
Solution:
New Asset A/c Dr. 3,00,000
Bank A/c Dr. 2,00,000
Loss on Ex. Dr. 50,000
To Old Asset A/c 5,50,000
Fair value of Asset Purchased Rs. 3,00,000/-
Fair Value of Asset given up 3,30,000/-
Carrying Amount of Given up asset Rs. 2,00,000/-
Cash Paid 50,000/-
Give Accounting Treatment as per IND AS 16,
Assuming No Commercial substance is present in the transaction.
Solution
New Asset A/c Dr. 2,50,000 (B/f)
To Old Asset A/c 2,00,000
To Cash A/c 50,000

IND AS 16
Jupiter Ltd. has an item of plant with an initial cost of Rs. 100,000. At the date of revaluation
accumulated depreciation amounted to Rs. 55,000. The fair value of asset, by reference to transactions
in similar assets, is assessed to be Rs.65,000. Find out the entries to be passed?
SOLUTION:
Method – I: Accumulated Depreciation is eliminated
Accumulated depreciation Dr. 55,000
To Asset A/c 55,000
Asset A/c Dr. 20,000
To Revaluation reserve 20,000
The net result is that the asset has a carrying amount of ₹ 65,000 (100,000 – 55,000 + 20,000).
Method – II: Change in gross carrying amount and accumulated depreciation
Carrying amount (100,000 – 55,000) 45,000

Fair value (revalued amount) 65,000
Surplus 20,000
% of surplus (20,000/ 45,000) 44.44%
Entries to be Made:
Asset (1,00,000 x 44.44%) Dr. 44,444
To Accumulated Depreciation (55,000 x 44.44%) 24,444
To Surpluson Revaluation 20,000
Upward revaluation and further Downward:-
31.03.2010 Carrying amount 500000
31.03.2010 Fair Value 650000
31.03.2011 Fair Value Case 1 - 550000 and Case 2 - 450000
Pass Journals.
Solution:
Case 1:
31.03.2010
PPE a/c Dr. 150000
To Revaluation Reserve 150000
31.03.2011
Revaluation Reserve Dr. 100000
To PPE 100000

IND AS 16
Case 2:
31.03.2010
PPE a/c Dr. 150000
To Revaluation Reserve 150000
31.03.2011
Revaluation Reserve Dr. 150000
P/L a/c Dr. 50000
To PPE 200000
PPE (CAR) whose carrying amount is Rs. 5,00,000, is sold at Rs. 6,00,000
Case 1 - Selling CARs after use is not regular ordinary activity.
Here 1,00,000 Gain should be transfer to Profit and Loss Statement.
Case 2 - Selling CARs after use is Regular Ordinary activity Here, Carrying Amount of PPE should
be converted as Inventory and gross sale proceeds should be treated as Revenue from Operation.
A) On the date of re-classification

1) Inventory A/c Dr 5,00,000
To PPE A/c 5,00,000
B) On the date of sale

2) COGS A/c Dr 5,00,000
To Inventory A/c 5,00,000
3) Bank A/c Dr 6,00,000

To Sales A/c 6,00,000
PPE costs Rs. 50 Lacs acquired on 01.04.21 with estimated useful life of 20 years. Estimated
Decommissioning liability to be incurred after 20 years is 12 Lacs. Discounting Rate is 10%. At the end
of the 6th Year, estimated outflow of Decomm. Liab. Changed to Rs. 10 Lacs & discounting rate changed
to 11%.
Apply IND AS 16 till 6th Year.

IND AS 16
Solution
1. Calculate total cost of PPE as on 1/4/21
Particular Amount
Purchase & Direct Cost 50,00,000
+ PV of Decommissioning liability 1,78,320
(12,00,000 x 0.148)
Cost of PPE 51,78,320
Journal Entry
PPE a/c Dr. 51,78,320
To Bank/Creditor 50,00,000
To Provision for Decommissioning cost 1,78,320
2. Calculate the amt of provision to be shown at the end of the year under b/s
1st year. Interest cost as 178320 @ 10% = 17,832
Interest cost (p&l) Dr. 17,832
To Provision a/c 17,832
Year Opening Balance Interest During the year Closing Balance
st
1 year 1,78,320 17,832 1,96,152
2nd year 1,96,152 19,615 2,15,767
rd
3 year 2,15,767 21,577 2,37,344
th
4 year 2,37,344 23,734 2,61,078
th
5 year 2,61,078 26,108 2,87,186
th
6 year 2,87,186 28,718 3,15,905
Carrying amount = Provision for decommissioning cost at the end of the 6th year = 3,15,905
3. Calculate the change in provision of Decommissioning cost as on 1/4/27: -

What should be the provision amt based as following received figures: -
Discount rate = 11%
Out flow = 10,00,000
Remaining period = 20 – 6 = 14 years
PVF @ 11% for 14th year = 0.232
Revised provision based as change (0.232 x 10,00,000) = 2,32,000 as on 1/4/27
Carrying amount (opening balance) of provision = 3,15,905 as on 1/4/27
Decrease in liabilities = 83,905
Case 1: Suppose PPE is under Cost model:

Provision a/c Dr. 83905
To PPE a/c 83905
Case 2: Suppose PPE is under Revaluation model:
Provision a/c Dr. 83905
To Rev. Surplus a/c 83905
However, Gain to the Extent of earlier Revaluation loss shall be changed to P&l a/c.

IND AS 2
3. IND AS 2 - INVENTORIES
At the end of its financial year, company P has 100 units of inventory on hand recorded at a
carrying amount of ₹10 per unit. The current market price of ₹8 per unit at which these units
can be sold. Company P has a firm sales contract with company Q to sell 60 units at ₹11 per
unit, which can not be settled net. Estimated incremental selling cost is ₹1 per unit.
Calculate Net Realisable Value of the inventory of company P.
Solution:
Calculation of Total NRV:
Sr.No. Particulars Amount
1 Goods to be sold to company Q 600
(60 units X ₹ 10)
2 Remaining goods 280
(40 units X ₹ 7)
Total NRV 880
WN 1: Calculation of NRV per unit= Expected selling price – Estimated incremental
NRV per unit= Expected Selling Price – Estimated Incremental Selling Cost
Sr. No. Particulars Amount
1 Goods to be sold to company Q (11 - 1) 10
2 Remaining goods (8-1) 7
Pluto ltd. has a plant with the normal capacity to produce 5,00,000 unit of a product per annum and the
expected fixed overhead is ₹ 15,00,000. Fixed overhead on the basis of normal capacity is ₹ 3 per unit
(15,00,000/5,00,000).
Case 1:
Actual production is 5,00,000 units. Fixed overhead on the basis of normal capacity and actual overhead
will lead to same figure of ₹ 15,00,000. Therefore, it is advisable to include this on normal capacity.
Case 2:
Actual production is 3,75,000 units. Fixed overhead is not going to change with the change in output
and will remain constant at₹ 15,00,000, therefore, overheads on actual basis is ₹ 4 p/u
(15,00,000/3,75,000).

IND AS 2
Hence by valuing inventory at ₹ 4 each for fixed overhead purpose, it will be overvalued and the losses
of ₹ 3,75,000 will also be included in closing inventory leading to a higher gross profit then actually
earned.
Therefore, it is advisable to include fixed overhead per unit on normal capacity to actual production
(3,75,000 x 3) ₹ 11,25,000 and balance ₹ 3,75,000 shall be transferred to Profit & Loss Account.
Case 3:
Actual production is 7,50,000 units. Fixed overhead is not going to change with the change in output
and will remain constant at₹ 15,00,000, therefore, overheads on actual basis is ₹ 2 (15,00,000/
7,50,000). Hence by valuing inventory at ₹ 3 each for fixed overhead purpose, we will be adding the
element of cost to inventory which actually has not been incurred. At ₹ 3 per unit, total fixed overhead
comes to ₹ 22,50,000 whereas, actual fixed overhead expense is only ₹ 15,00,000. Therefore, it is
advisable to include fixed overhead on actual basis (7,50,000 x 2) ₹ 15,00,000.

IND AS 38
4. IND AS 38 – INTANGIBLE ASSETS
Practical Example 1: - Separate Acquisition

Jupiter Ltd acquires new energy efficient technology that will significantly reduce its energy costs
for manufacturing.
Costs incurred Cost to be capitalised
include as per Ind AS 38
Cost of new solar technology 10,00,000 10,00,000
Trade discount provided (1,00,000) (1,00,000)
Training course for staff in 50,000 -
new technology
Initial testing of new technology 35,000 35,000
Losses incurred while other 25,000 -
parts of plant shut down during
testing and training
Total 10,10,000 9,35,000
Practical Example 2: (Intangible Acquired thru Business Combination)

st
On 31 March 20X1, Earth India Ltd paid Rs 50,00,000 for a 100% interest in Sun India Ltd. At that
date Sun Ltd’s net assets had a fair value of Rs 30,00,000. In addition, Sun Ltd also held the following
rights:
Trade Mark named “GRAND” – valued at Rs 1,80,000 using a discounted cash flow technique.
Sole distribution rights to an electronic product. Future cash flows from which are estimated to be
Rs 1,50,000 per annum for the next 6 years.
10% is considered an appropriate discount rate. The 6 year, 10% annuity factor is 4.36.
Calculate goodwill and other Intangible assets arising on acquisition.
SOLUTION:
Particulars Amount(Rs.) Amount(Rs.)
Purchase Consideration (A) 50,00,000
Net Asset acquired 30,00,000
Trade Mark 1,80,000
Distribution Rights (1,50,000 x 4.36) 6,54,000
Total (B) (38,34,000)
Goodwill on Acquisition 11,66,000
Practical Example 3: (Intangible Asset with indefinite useful life)

The broadcasting licence is renewable every 10 years if the entity provides at least an average level of
service to its customers and complies with the relevant legislative requirements. The licence may be

IND AS 38
renewed indefinitely at little cost and has been renewed twice before the most recent acquisition. The
acquiring entity intends to renew the licence indefinitely and evidence supports its ability to do so.
Historically, there has been no compelling challenge to the licence renewal. The technology used in
broadcasting is not expected to be replaced by another technology at any time in the foreseeable
future. Therefore, the licence is expected to contribute to the entity’s net cash inflows indefinitely.
The broadcasting licence would be treated as having an indefinite useful life because it is expected to
contribute to the entity’s net cash inflows indefinitely. Therefore, the licence would not be amortised
until its useful life is determined to be finite. The licence would be tested for impairment in accordance
with Ind AS 36 annually and whenever there is an indication that it may be impaired.

IND AS 116
5. IND AS 116 - LEASES

Practical Example 1: (Accounting for Lessee’s Books)
1. Lease Term = 6 years
2. IRI = 9% p.a.
3. Down Payment = 2,50,000 at Beginning
4. Initial Direct Cost = 1,20,000
5. Fixed Lease Payments = 5,00,000 For 1st year, further increased by 10% every year.
6. Annual Payments to be made at the end of every year.
7. Other Information:
Guaranteed Residual Value (GRV) 4,50,000
Purchase price option 25,00,000
Penalty for termination if terminated before 6 years 1,80,000
● It is reasonably certain that the lease term will not exceed 5 years and the lessee has to
terminate and will pay the penalty.
● PV of decommissioning cost after 5th year is 3,00,000/-.
Show the Accounting in the books of Lessee as per INDAS 116.
Solution:
1. Lease Term is 5 Years
2. Calculation of Lease Liability:
Year Lease Payment Amount PV factor @9% PV Amount
1 Fixed LP 5,00,000 0.917 4,58,500
2 Fixed LP 5,50,000 0.842 4,63,100
3 Fixed LP 6,05,000 0.772 4,67,060
4 Fixed LP 6,65,500 0.708 4,71,174
5 Fixed LP 7,35,050 0.650 4,75,833
5 GRV 4,50,000 0.650 2,92,500
5 Penalty 1,80,000 0.650 1,17,000
Initial Measurement of Lease Liability 27,45,507
3. Calculation of ROU Asset:

Initial measurement of Lease Liability 27,45,507
Add: Down Payment 2,50,000
Add: Initial Direct Cost 1,20,000
Add: PV Of Decommissioning Cost 3,00,000
Cost Of ROU 34,15,507
4. Journal Entry for Initial Recognition:

ROU asset a/c Dr. 34,15,507
To Lease Liability a/c 27,45,507
To Lessor / Bank a/c 2,50,000
To Bank / Creditor a/c 1,20,000
To Provision for decom. Liability a/c 3,00,000

IND AS 116
5. Annual Depreciation on ROU = 34,15,507 / 5 = 6,83,101

6. Schedule of Interest on Lease Liability:
Year Opening O/s Interest @ 9% Lease payment Closing O/s
1 27,45,507 2,47,096 (5,00,000) 24,92,603
2 24,92,603 2,24,334 (5,50,000) 21,66,937
3 21,66,937 1,95,024 (6,05,000) 17,56,961
4 17,56,961 1,58,127 (6,65,500) 12,49,588
5 12,49,588 1,12,462 (13,62,050) 0
Practical Example 2: (Calculation of Interest Rate Implicit in Lease)

1. Initial Direct Cost = 50,000
2. Lease Term = 4 years
3. Annual Lease Payment = 1,50,000 p.a.
4. Guaranteed Residual Value = 75,000
5. Unguaranteed Residual Value = 25,000
6. Fair value at Beginning at Lease term = 5,00,000
Calculate IRR?
Solution:
a) Fair value + IDC = 5,50,000
b) Consider two rates on trial basis as under:
1st rate 10 % = 5,43,781/-
2nd rate 9% = 5,56,800/-
IRR = 9% + (6,800 ÷ 13,019)% = 9.52%
Practical Example 3: (Foreign Currency)

Lease term is 4 years.
Annual lease payment is $ 10,000, payable at end of each year.
Discount rate is 10%.
Dollar Rupee Rates are as under:
1. Spot Rate as on Beginning of Lease = ₹82/- Per $
2. Avg. Rate = ₹82.18/- per $
3. Closing Ex. Rate = ₹82.5/- per $
Sow the accounting treatment for the above.
Solution:
1) INITIAL RECOGNITION AT SPOT RATE
PV of $10,000 @ 10% for 4 years $ 31,698.65
Lease liability (in ₹) $ 31698.65 x 82 = 25,99,290
2) Subsequent measurement of Lease Liability
At Beg. - lease liability $31,69,8.65 82.00/- 25,99,290
At End - Interest @ 10% $ 3,16,9.87 82.18/- 2,60,500

IND AS 116
At End – Lease Payment $ 10,000 82.50/- 8,25,000

At End – Closing Bal. $24,868.52 20,34,790
(monetary item) Carrying Amt.
At End – Closing Bal. as per $24,86,8.52 x 82.5 20,51,653
Closing Ex. Rate Remeasured Amt.
Change in Lease Liability (Increase) 16,863/-
3) Journal entry for change in lease liability:

Profit & loss A/c Dr. 16,863
To Lease Liability A/c 16,863
Practical Example 4: (Remeasurement of Lease Liability)

1. Lease period = 5 years (2 years renewal period certain to exercise)
2. Fixed Payment = 1,20,000 pa payable at the end of each year
3. Incentive of 20% in 1st year only.
4. Above payment shall be increased based on Current price index
5. Current index = 1,000
6. Guaranteed Residual Value = 50,000
7. Payment for 2 years renewal period = 1,50,000 pa
8. Purchase option at Rs. 2,00,000 (It is certain to exercise after 7th year)
9. Discount Rate = 10%
10. Initial Direct Cost = 25,000
11. Down Payment = 1,00,000
12. Estimated cost of decommissioning after 15 years = 1,30,000
13. Consumer Price Index at the 4th year beginning = 1,200
Calculate Lease Liability & ROU Asset at the beginning & any change due to change in index.
Solution:
1) Calculation of Lease Liability at Initial Recognition
Year Lease Payments PV @ 10 %
1 96,000 0.909
2 1,20,000 0.826
3 1,20,000 0.751
4 1,20,000 0.683
5 1,20,000 0.621
6 1,50,000 0.564
7 1,50,000 + 12,00,000 0.513
Total PV 12,10,134
2) Calculation of ROU Asset

Down Payment 1,00,000
Lease Liability 12,10,134
Initial Direct Cost 25,000
PV of Decommissioning Cost 31,121

IND AS 116
ROU ASSET 13,66,255
3) Interest Schedule
Year Opening O/S Interest @ Lease Payment Closing O/S
10%
1 12,10,134 1,21,013 96,000 12,35,147
2 12,35,147 1,23,515 1,20,000 12,38,662
3 12,38,662 1,23,866 1,20,000 12,42,528
th
Carrying amount at 4 year beginning = 12,42,528
4) Remeasurement of LP and LL due to change in consumer price index:

Year Lease Payment PV @ 10%
1,20,000/1,000*1,200
4 1,44,000 0.909
5 1,44,000 0.826
6 1,80,000 0.751
7 1,80,000 + 12,00,000 0.683
13,27,714
Increase in Lease Liability = 13,27,714 – 12,42,528 = 85,186
5) Journal Entry for Increase in LL:

ROU Asset a/c Dr 85,186
To Lease Liability a/c 85,186
Practical Example 5: (Lease modification due to Increase in lease term)

Original terms:
Lease Term = 4 years
Discount Rate = 10%
Annual Lease Payment = 2,50,000 (at year end)
Guaranteed Residual Value (GRV) = 1,20,000
After 2 years:
Lease Term increased by 3 more years
Lease Payment for such 3 more years would be 3,00,000 p.a.
Estimated GRV is now = 90,000
Discount rate = 9%.
Solution:
1) Initial Recognition:
ROU Asset a/c Dr 8,74,428
To Lease Liabilities a/c 8,74,428
(Present value of Lease Payment @ 10% for 4 years)
2) Lease liabilities schedule:
Year Opening O/S Interest@10% Installment Closing O/S
1 8,74,428 87,443 (2,50,000) 7,11,871
IND AS 116
2 7,11,871 71,187 (2,50,000) 5,33,058
3) Carrying Amount of lease liability at the beginning of 3rd year = 5,33,058
4) ROU Asset at beginning of 3rd year = 8,74,428 ÷ 4 × 2 = 4,37,214
5) Modification Accounting
New revised Lease Term (remaining) = 5 years
Year Lease Payments PV factor @ 9% PV Amount
1 2,50,000 0.917 2,29,250
2 2,50,000 0.842 2,10,500
3 3,00,000 0.772 2,31,600
4 3,00,000 0.708 2,12,400
5 3,00,000 0.650 1,95,000
6 90,000 0.596 53,640
Revised Lease Liability 11,32,390
6) Increase In Lease Liability = 11,32,390 - 5,33,058 = 5,99,332
7) Journal entry for change in Lease Liability:-

ROU Asset a/c Dr. 5,99,332
● 3rd year Interest = 11,32,390 × 9% = 1,01,915/- (Transfer to P&L)

● Revised Depreciation = [(43,7214 + 604376) ÷ 5] = 2,08,318/- (Transfer to P&L)
Practical Example 6: (Lease modification due to change in consideration only)

Original Terms:
Lease payments = 3,00,000 pa. It is to be paid at the end of each year.
Discount rate = 7%
Lease Modification:
Lease payments changed at the beginning of 3rd year.
Revised lease payment = 3,25,000 (for remaining period)
Revised discount rate = 8%
Solution:
1) Initial Recognition of lease liability and ROU asset
Lease liability ROU Asset
PV of 3,00,000 p.a. for 5 years @ 7% = 12,30,059 12,30,059

IND AS 116
2) Subsequent measurement
Lease Liability ROU Asset
st
1 Year Opening 12,30,059 WDV at 3rd year beginning
(+) Interest 86,104 = (12,30,059 ÷ 5 × 3)
(-) Payment (3,00,000) = 7,38,035
nd
2 Year Opening 10,16,163
(+) Interest 71,131
(-) Lease Payment (3,00,000)
rd
3 Year Opening 7,87,294
3) Lease Modification:
Lease Payment (Revised) = 3,25,000 p.a.
Revised Discount rate = 8.1 %
Revised Lease Liability = PV of 3,25,000 p.a. @ 8% for 3 years = 8,37,557
Change in Lease Liability:

Revised Lease Liability 8,37,557
(-) Carrying amount 7,87 294
Change in Lease Liability 50,263
4) Journal entry for change in lease liability:

ROU Asset a/c Dr. 50,263
To Lease Liability a/c 50,263
● Revised Carrying Amount of ROU Asset = 7,38,035 + 50263 = 7,88,298
● Revised Depreciation = 2,62,766
Practical Example 7: (Lease modification due to decrease in lease term)

Original Terms:
Discount rate = 8% p.a.
Annual lease rent = 1,80,000 pa. It is to be paid at the end of each year.
Modification after 3 years:
Revised Lease Term (Remaining) = 3 Years
Revised discount rate = 9% p.a.
Annual lease Rent = 2,00,000 pa. It is to be paid at the end of each year.
Show the necessary accounting treatment for lease modification.

IND AS 116
Solution:
1) Initial Recognition
Lease Liability ROU Asset
(PV of 1,80,000 p.a. for 8 years @ 8%) + (PV of 10,88,422
th
1,00,000 p.a. for 8 year @ 8%) = 10,88,422
2) Subsequent Measurement at 4th year Beginning

● ROU Asset Carrying Amount = 10,88,422 ÷ 8 × 5 = 6,80,264
● Carrying amount of Lease Liability = 7,86,747
3) Modification:
Step 1: Change lease liability and ROU Asset
Lease liability:
Revised LL = PV of 2,00,000 p.a. at 8% for 3 years (including GRV) = 6,26,556
Decrease in Lease Liability = 7,86,747 - 6,26,556 = 1,60,191
ROU Asset:
Revised ROA Carry amount = 6,80,264 ÷ 5 × 3 = 4,08,158
Decrease in ROU = 6,80,264 - 4,08,158 = 2,72,106
Loss (P&L) a/c Dr. 1,11,915
Leaves liability a/c Dr. 1,60,191
To ROV Asset a/c 2,72,106
Step 2: Remeasure Lease Liability @ Revised Discounting Rate

(PV of 2,00,000 p.a. for 3 years @ 9%) + (PV of 1,40,000 p.a. for 3rd year @ 9%) = 6,14,364
Decrees in Lease Liability = 6,26,556 – 6,14,364 = 12,191
Journal entry for decrease in lease liability:

Lease Liability a/c Dr. 12,191
To ROU asset a./c 12,191
Note: New carrying amount of ROU = 4,08,158 - 12,191 = 3,95,967
Example 8: (Lease Modification due to decrease in ROU Scope):

Lease of a 1,500 sq ft space at 5,20,000 p.a. rent for 5 years. Discount rate = 6%.
After 2 years, Lessee requested to reduce the space to 1000 sq ft at revised Lease Payment = 4,00,000
p.a. Discount rate = 7%. Show the necessary accounting treatment.
Solution:-
1. Initial Recognition
PV of 5,20,000 for 5 years @ 6% = 21,90,429 21,90,429

IND AS 116
2. Subsequent Measurement
rd
Carrying amount at 3 year beginning = 13,89,996 13,14,257
3. Modification (Step 1)
Revised Lease Liability (Proportionately) Revised ROU
= 13,89,966 ÷ 1,500 × 1000 = 13,14,257 ÷ 1,500 × 1000
= 9,26,644/- = 8,76,171
decrease in Lease Liability = 4,63,322 decrease in ROU Asset = 4,38,086
4. Journal entry for lease modification

Lease Liability a/c Dr 4,63,322
To ROU Account 4,38,086
To Gain Account 25,236
5. Remeasure Lease Liability thru ROU (Step 2)

Year Lease Payments PV factor @7% PV Amount
3 4,00,000 0.935 3,74,000
4 4,00,000 0.873 3,49,200
5 4,00,000 0.816 3,26,400
10,49,600
Increase in LL = 10,49,600 – 9,26,644 = 1,22,956
6. Journal entry for lease modification: -

ROU Asset a/c Dr. 1,22,956
Practical Example 9: (Increase in scope of ROU Asset without Standalone SP)

Lease term = 7 years
Lease payments = 80,000 p.a.
Discount Rate original = 7% P.a.
Scope = 2,000 sq ft space
At the beginning of 3rd year, additional space of 1000 sq ft taken from same lessor at additional
payment of 30,000/- p.a. which doesn’t represent stand-alone price
Revised discount rate = 8% p.a.
Show the necessary accounting treatment.
Solution:-
1) Initial measurement:
ROU Asset a/c Dr, 4,31,143
2) Carrying amount of 3rd year Beginning:

ROU Asset = 4,31,143 ÷ 7 × 5 = 3,07,959
IND AS 116
Lease liability @ 7% = 3,28,016 (PV of 80,000 pa for 5 years)
3) Lease Modification:
Additional ROU @ 30000/- lease payment
Remeasure Existing Lease liability Calculate Additional Lease Liability
@ Revised Discount Rate For 30,000 @ 8% p.a. for 5 Years = 1,19,781
(PV of 80,000 for 5 years ROU Asset Dr. 1,19,781
@ 8% = 3,19,417) To lease Liability 1,19,781
4) Reduction in lease liability = 3,28,016 - 3,19,417 = 8,599

Journal entry for decrease in lease liability:-
Lease Liability a/c Dr. 8,599
To ROU Asset 8,599
5) Depreciation & Interest for 3rd year

ROU Revised = 3,07,959 – 8,599 + 1,19,781 = 4,19,141
Depreciation = 83,828 /-
Interest @ 8% on revised LL = 3,19,417 + 1,19,781 = 4,39,198 × 8% = 35,136
Practical Example 10: (Non-Dealer Lessor Finance Lease)

Lease term = 6 years
IRR = 8% p.a.
Down payment = 2,00,000
Annual lease Rent = 3,00,000 p.a. (paid at the end of each year)
Carrying Amount of Asset = 15,00,000
Estimated UGRV = 1,50,000
At the end of 2nd year:- Estimated UGRV = 1,35,000
At the end of 4th year:- Estimated UGRV = 1,60,000
Prepare Lease Receivable account for 6 years.
Solution:
1) Initial Recognition
Lease receivable = PV. of (Lease Payment +UGRV)
Year GIL PV. Of @ 8% PV Amount
0 2,00,000 1 2,00,000
1 3,00,000 0.926 2,77,800
2 3,00,000 0.857 2,57,100
3 3,00,000 0.794 2,38,200
4 3,00,000 0.735 2,20,500
5 3,00,000 0.681 2,04,300
6(including UGRV) 4,50,000 0.630 2,83,500
16,81,390

IND AS 116
Lease Receivable account Dr. 16,81,390

To Asset account 15,00,000
To P&L account 1,81,390
2) Subsequent Measurement
Lease receivable account
Date Particulars Amount Date Particulars Amount
Y1 Beg. To Asset 15,00,000 Y1 Beg. BY bank (DP) 2,00, 000
To P&L 1,81,390
Y1 End To finance Income 1,18,511 Y1 End By Bank 3,00,000
Y1 End By Balance c/d 12,99,901
Y2 Beg To Balance 12,99,901 Y2 Beg By Bank 3,00,000
Y2 End To Finance 92,966 Y2 End By Balance c/d 10,92,867
Income (B/F) (this balance is
revised as per
revised UGRV)
Alternatively:
Finance Income gross = 12,99,901 * 8% = 1,03,993
Difference in above account = 1,03,993 - 92,966 = 11,027
Above difference is charged to P&L and deducted from finance income head
Lease Receivable Account (Continued)

Date Particulars Amount Date Particulars Amount
Y3 Beg. To Balance 10,92,867 Y3 End By Bank 3,00,000
Y3 End To Financial income 87,429 Y3 End By Balance 8,80,296
Y4 End To Financial 83,284 Y4 End By Balance 6,63,580
income (bal. fig.) (revised
balance as per
1,50,000 UGRV)
Y5 End To Financial 53,086 Y5 End By Balance c/d 4,16,666
income
Y6 Beg. To Balance 4,16,666 Y6 End By Bank (only 3,00,000
Fixed LP)
Y6 End To Financial 33,333 Y6 End By Balance c/d 1,50,000
income (its equal to
UGRV)
Case 1: Lessor sold the Asset at 1,40,000

Bank A/c Dr. 1,40,000
Profit and Loss A/c Dr. 10,000
To Lease Receivable A/c 1,50,000

IND AS 116
Case 2: Asset Taken back by lessor and not sold

Asset A/c Dr. 1,50,000
To Lease Receivable A/c 1,50,000
Practical Example 11: (Control is not transferred)

Building sold by Nishant to Vishal at ₹ 50,00,000, Same Building taken on lease by Nishant for entire
remaining useful life. Incremental Borrowing Rate is 7% p.a. Lease term = 7 Years. Annual lease payment
= 9,27,000
Solution:
In this transaction, control over the asset is not transferred by Nishant since asset is taken back by
Nishant for life time Lease.
This is a finance arrangement where Nishant is a Borrower & Vishal is a Lender.
Books of Nishant:
1) Building shall not be Derecognized.
2) Nishant shall Continue to Depreciate the Building.
3) Money received by Nishant shall be treated as Loan taken from Vishal.
4) Nishant Shall Book interest Exp every year.
Beg. Bank A/c Dr. 50,00,000
To Loan A/c 50,00,000
Year Interest A/c Dr. 3,50,000
End To Loan A/c 3,50,000
Year Loan A/c Dr. 9,27,000
End To Bank A/c 9,27,000
Books of Vishal:
Vishal shall not Recognise the Asset purchased.
Beg. Loan To Nishant Dr. 50,00,000
To Bank A/c 50,00,000
Year Loan To Nishant Dr. 3,50,000
End To Interest Income 3,50,000
Year Bank Dr. 9,27,000
End To Loan A/c 9,27,000
Practical Example 12: (Control is Transferred to Buyer & Sale Value = Fair Value)
Building owned by A Ltd. and sold to B Ltd. Consider following information:
Carrying Amount of Property 80,00,000
Useful Life of Building 20 Years
Property Sold at 1,00,00,000
Fair Value of Property 1,00,00,000
Same Building taken back by A Ltd. on Operating lease
Lease Term 6 Years
Annual Lease Payments 6,00,000

IND AS 116
Discount Rate 8% p.a.
Solution:
1. Total Gain to A Ltd. Fair value less Carrying 20,00,000
Amount On entire building having 20 years
life
2. A Ltd. has taken back the Asset for 6 years that means A Ltd. has sold 14 years rights only. Hence
Full Gain should not be recognised by A Ltd.
3. Lease Liability for A Ltd. PV of LP @ 8% 27,73,728/-
(6 years Lease Term) (this becomes the FV of 6 years
Building)
4. ROU to be recognised ROU shall be recognised From 80,00,000 ÷ 10,000,000 ×
By A Ltd. (6 Years) Carrying Amount of Building 27,73,728 = 22,18,982
5. Ratio (PV Of LP) ÷ FV Right retained ÷
Total Rights for 20 years
6. Gain in Respect of Total Gain × (PV of LP) ÷ FV 20,00,000 × 27,73,728 ÷
Rights actually 1,00,00,000 = 54,746/-
retained (not Transferred)
i.e. 6years
(This gain should be
ignored.)
7. Gain to be recognised 20,00,000 – 5,54,746 =14,45,254
Journal Entry:
Bank account Dr. 1,00,00,000
ROU asset a/c Dr. 22,18,982
To Building a/c 80,00,000
To Gain (P&L) 14,45,254
Practical Example 13: (Control Transferred - Sale value is Higher than FV)
Sale Value 80,00,000
Fair Value 70,00,000
Carrying Amount 62,50,000
Lease Term 5 years
Annual Lease payment 5,00,000
Discount Rate 10%
Solution:
Since FV is 70 lacs Hence Rs.10 lacs Collected is treated as loan
1) Total Gain = FV-CA = 70,00,000 - 62,50,000 = 7,50,000
2) PV of Agreed payment

IND AS 116
PV of 5,00,000 p.a. @10 % for 5 years 18,95,393
18,95,393 divided into two parts

Loan PV OF Lease Payment.
10,00,000 8,95,395
3) Lease Liability to be recognised = 8,95,395
Loan to be recognised separately = 10,00,000
4) Ratio = (PV of LP : Fair value) = 8,95,395 : 70,00,000

5) Gain to be recognised = 7,50,000 – (7,50,000 × 8,95,395 ÷ 70,00,000) = 6,54,065
6) ROU Asset = 6,25,000 × 8,95,395 ÷70,00,000 = 7,99,458/-
7) Journal entry
Bank Account Dr. 80,00,000
ROU Asset Dr. 7,99,458
To Asset 62,50,000
To Lease liability 8,95,395
To Loan 10,00,000
To Gain 6,54,865
Practical Example 14: (Control Transferred – Sale Value is Lower than Fair Value)
Same as example 13 above with following Changes.
Sale 80,00,000
FV 85,00,000
Solution:
Total Gain 22,50,000
PV of LP 18,95,393
Ratio 18,95,393 ÷85,00,000
ROU Asset (62,50,000 × 18,95,393 ÷ 85,00,000) + 5,00,000
= 18,93,671
Gain to be recognised 22,50,000 – (22,50,000 × 18,95,393 ÷ 85,00,000)
= 17,48,278
Journal Entry:
Bank a/c Dr. 80,00,000
ROU Asset Dr. 18,93,671
To Asset 62,50,000
To LL 18,95,393
To Gain 17,48,278

IND AS 23
6. IND AS 23 – BORROWIG COSTS
Practical Example 1: (Effective rate of interest)

Vsmart Ltd. Borrowed 50,00,000 from a Bank @9% p.a. Interest. Borrowing was arranged through a
broker to whom vsmart paid 2% brokerage immediately repayment terms are equal principle plus
interest additionally in 5 years.
Processing fees, Stamp duty & Documentation charges charged by bank are 1,25,000 at beginning.
Calculate the Effective Rate of Interest & Amount of Borrowing Costs. For each Year.
Solution
Current Loan Proceedings = 50,00,000 (Inflows)
Year Outflow
0 1,00,000+1,25,000
1 14,50,000
2 13,60,000
3 12,70,000
4 11,80,000
5 10,90,000
Future Values 65,75,000
Effective Rate of Interest means the rate at which sum of PV of all Future outflows should be equal
to Initial proceeds
At 10% = ₹ 51,04,079
At 11% = ₹ 49,87,890
Hence ERI = 10.90%
YEAR OPENING O/S BORR. COST @ PAYMENT CLOSING O/S

10.90%
1 50,00,000 – 2,25,000 = 5,20,475 14,50,000 38,45,475
47,75,000
2 38,45,475 4,19,157 13,60,000 29,04,632
3 29,04,632 3,16,605 12,70,000 19,51,2379
4 19,51,237 2,12,685 11,80,000 9,83,922
5 9,83,922 1,06,078 1,06,078 0
TOTAL 15,75,000
Total Borrowing cost = 15,75,000
An entity can borrow funds in its functional currency (Rs) @ 12%. It borrows $ 1,000 @ 4% on April 1,
20X1 when $ 1 = Rs 40. The equivalent amount in functional currency is Rs 40,000. Interest is payable
on March 31, 20X2. On March 31, 20X2, exchange rate is $ 1 = Rs 50. The loan is not due for repayment.
The exchange loss in this case is Rs 10,000 [$ 1000 x (Rs 50- Rs 40)]. The borrowing cost is Rs 2,000
($ 1,000 x 4% x Rs 50). Had the entity borrowed in functional currency the borrowing cost would have
been Rs 4,800 (Rs 40,000 x 12%). The entity will treat exchange difference up to Rs 2,800 (Rs 4,800

IND AS 23
– Rs 2,000) as a borrowing cost that may be eligible for capitalization under this Standard. Thus the
total eligible borrowing cost is Rs 4,800 (Rs 2,000 + Rs 2,800) equivalent to the cost of borrowing cost
in functional currency.
If the exchange rate on March 31, 20X2, is $ 1 = Rs. 41. The exchange loss is Rs 1,000 [$ 1,000
– (Rs 41 – Rs 40)]. The entity will treat the entire exchange loss as an eligible borrowing cost as total
cost of the borrowing Rs2,640 (Rs1,640 = $1000*4%*41) + Rs1,000) in foreign currency does not
exceed the cost of borrowings in functional currency, i.e., Rs 4,800.
If the exchange rate on March 31, 20X2, is $ 1 = Rs. 39. There is an exchange gain of is Rs 1,000
[($ 1,000 x (Rs 40 – Rs 39)]. The eligible borrowing cost will be Rs. 1,560 ($1000*4%*39) being interest
paid to the foreign lender, since there is exchange gain only.
Continuing with the aforesaid example:
If the exchange rate on March 31, 20X3, is $ 1 = Rs. 48; the exchange rate on March 31, 20X2,
being $ 1= Rs 50, the borrowings are still not due for payment. The entity will recognise a borrowing
cost of Rs 1,920 ($ 1,000 x 4% x Rs 48). There is an exchange gain of Rs 2,000 ($ 1,000 x (Rs 50 –
Rs48). This will be adjusted in the borrowing cost as there is unrealised exchange loss and the
adjustment is less than the exchange loss of Rs. 2,800 recognised in earlier year.
If the exchange rate on March 31, 20X3, is $ 1 = Rs. 44; the exchange rate on March 31, 20X2,
being $ 1 = Rs 50, the borrowings are still not due for payment. The entity will recognise a borrowing
cost of Rs 1,760 ($ 1,000 x 4% x Rs 44). There is an exchange gain of Rs 6,000 [$ 1,000 x (Rs 50 – Rs
44)]. This will be adjusted in the borrowing cost upto Rs. 2,800 as there is unrealised exchange loss
and the adjustment of the exchange loss recognised in earlier years is of Rs 2,800.
If the exchange rate on March 31, 20X3, is $ 1 = Rs. 44 and part of loan is repaid; the exchange
rate on March 31, 20X2, being $ 1 = Rs 50; $ 600 of the borrowings was paid on March 31, 20X2, $
400 of the borrowings are still not due for payment. The entity will recognise a borrowing cost of Rs
704 ($ 400 x 4% x Rs 44). There is an exchange gain of Rs 2400 [$ 400 x (Rs 50 – Rs 44)]. The
unrealised exchange loss of earlier year is Rs 4,000 [$ 400 x (Rs 50 – Rs 40)] out of which Rs 1,120 (Rs
2,800 x $ 400 / $ 1000) was charged in March 31, 20X1, as borrowing cost. Thus there will be an
adjustment in the borrowing cost upto Rs 1,120 as this is unrealised exchange loss.
Practical Example 4: (Specific Borrowing Cost Capitalization)

Entity took a loan of 15,00,000 on 1/4/22 @10% p.a. Interest for the purpose of Building Construction
Expenditure on Construction was made on 1/Aug in lumpsum of Rs. 18 lakhs
Calculate Capitalisation of Borrowing Cost if Construction is still WIP as on Year End.

IND AS 23
Solution:
Total Borrowing Cost = 15,00,000 x 10% = 1,50,000
Borrowing Cost Capitalisation shall commence from the date of Expenditure incurred till year end.
Therefore, Borrowing Cost to be Capitalised (for 8Months) = 1,50,000 x 8/12 = 1,00,000
Borrowing Cost to be Charged to P&L = 50,000
Practical Example 5: (Specific Borrowing Cost)

Continuing with above Example 4. Building Construction completed on 31/July in next year i.e. FY 23-
24. Calculate Borrowing Cost to be Capitalised in FY 23-24 if 3,00,000/- Loan was repaid on 1/4/23.
Solution:
Total Borrowing Cost for 23-24 = 12,00,000 x 10% = 1,20,000
Borrowing Cost in 23-24 shall be Capitalised till July 23 only since w.e.f. 1/Aug/23. Building is ready to
use. Hence, No Capitalisation from 1/Aug
1,20,000 x 4/12 = 40,000/- (Capitalised)
Borrowing Cost Transfer to P&L A/c = 1,20,000 – 40,000 = 80,000
Practical Example 6: - (Specific Borrowing Cost)

Entity took a SBI Loan of 25,00,000 @12% p.a. on 1/4/22 for Building Construction:
1/5/22 = 15,00,000
1/Aug/22 = 10,00,000
Construction Completed on 28/Feb/23
Calculate Borrowing Cost to be Capitalised.
Solution:
Capitalisation Shall start from 1/May till 28/Feb
1/May = 15,00,000 x 12% x 10/12 = 1,50,000
1/Aug = 10,00,000 x 12% x10/12* = 1,00,000
Borrowing Capital to be Capitalised = 2,50,000
Borrowing Capital to be transfer to P&L A/c = 3,00,000 – 2,50,000 = 50,000
*Note: Under specific Borrowing, Capitalisation Shall Commence from the date of First Expenditure
incurred on Qualifying Asset for all Expenditure incurred further.
Practical Example 7: (General Borrowing Cost)

Financial Year 20X1-X2
1st April SBI Loan @10% 20 lakhs
1st June HDFC Loan @12% 25 lakhs
1st Dec ICICI Loan @10.5% 30 lakhs
75 lakhs

IND AS 23
Calculate Weightage Average Borrowing Rate.
Solution:
Interest on SBI 20,00,000 x 10% 2,00,000
Interest on HDFC 25,00,000 x 12% x 10/12 2,50,000
Interest on ICICI 30,00,000 x 10.5% x 4/12 1,05,000
Total BC 5,55,000
Weighted Average Borrowing Rate (or) Weighted Average Capital Rate.

20,00,000𝑥12 25,00,000𝑥10 30,00,000𝑥4
= (5,55,000)/ ( )+( )+ ) x 100
12 12 12
= 5,55,000 / 50,83,333 x 100

= 10.918%

Continuing with above Example 7 above with following Information:
Out of above Borrowings, entity has incurred following Capital Expenditure as Qualifying Asset: -
Date Qualifying Asset Expenditure
1st April Machine A 6,50,000
st
1 June Machine B 20,00,000
st
1 July Building A 18,00,000
st
1 Jan Building A 21,00,000
65,50,000
How Much Borrowing Cost to be Capitalised in Qualifying Asset & How Much Transfer to Profit &
Loss A/c.
Solution
Weighted Average Capital Rate = 10.918% p.a.
This Rate shall be applied to the Expenditure Amount
1) Machine A: 6,50,000 x 10.918% x 12/12 = 70,967/-
2) Machine B: 20,00,000 x 10.918% x 10/12 = 1,81,967/-
3) Building A: 1/7 = 18,00,000 x 10.918% x 9/12 = 1,47,393/-
4) Building A: 1/Jan = 21,00,000 x 10.918% x 3/12 = 57,320/-
Total on Building A = 2,04,713/-
Total BC Capitalised on all Qualifying Assets = 4,57,647/-
Total BC Transfer to P&L = 5,55,000 – 4,57,647 = 97,353/-

FY 20X1-X2 Entity is in Construction of Office Building out of general borrowings.
Date of Expenditure

IND AS 23
1/Dec/X1 = 1,00,000; 1/Jan/X3 = 2,50,000; 1/Feb/X3 = 2,50,000 & 1/March/X3 = 2,50,000

Following are General Borrowings:
(a) 10% Debentures issued during the year = 20 lakhs
(b) One Bank Overdraft Facility availed as under: -
5,00,000 during Dec to Feb & 7,50,000 in March
Interest on Over Draft is 15% in Dec & 16% from Jan to March
Calculate Weighted Average Capital Rate.
Solution:
Working Note 1: Calculation of Total Borrowing Cost
Particular Amount
10% Debentures for Full Year (20,00,000 x 10%) 2,00,000
5,00,000 Over Draft @15% on Dec (5,00,000 x 15% x 1/12) 6,250
5,00,000 Over Draft @16% in Jan & Feb (5,00,000 x 16% x 2/12) 13,333
7,50,000 Over Draft @16% in March (7,50,000 x 16% x 1/12) 10,000
2,29,583
Working Note 2:
Total Borrowing Outstanding During the Year.
Debentures 20,00,000 x 12/12 20,00,000
OD 5,00,000 x 3/12 1,25,000
7,50,000 x 1/12 62,500
21,87,500
Weighted Average Capital Rate = 2,29,583 / 21,87,500 x 100 = 10.495%

1/Dec/22 1,00,000 x 10.495% x 4/12 3,498
1/Jan/23 2,50,000 x 10.495% x 3/12 6,559
1/Feb/23 2,50,000 x 10.495% x 2/12 4,373
1/March/23 2,50,000 x 10.495% x 1/12 2,186
Borrowing Cost Capitalised 16,616
Example 10: (Specific & General Borrowings)

Entity took a Loan from Axis Bank for Rs. 2,00,000 for Building Construction @9% p.a. on 1/4/X2.
Entity has other two general Borrowings as Under:
10% SBI Loan = 9,00,000
12% HDFC Loan = 6,00,000
Expenditure on Building Construction are as Under:
1/4/X2 – 1,20,000; 1/5/X2 – 4,00,000; 1/7/X2 – 6,80,000 & 1/12/X2 = 4,00,000
Calculate BC to be Capitalised

IND AS 23
Solution:
Whenever Specific & General both borrowings are applied to a Qualifying Asset. We shall assume
that Specific borrowing is applied first
Working Note 1: Weighted Average Capitalisation Rate.

Borrowings Borrowing Cost
9,00,000 90,000
6,00,000 72,000
15,00,000 1,62,000
1,62,000 / 15,00,000 x 100 = 10.8%
Working Note 2: Capitalisation

Date Particular Specific General
1/4/X2 Expenditure out of Specific 1,20,000 x 9% = 10,800 -
Loan
1/5/X2 Total Expenditure 80,000 x 9% 3,20,000 x 10.8% x
= 7,200 11/12 = 31,680
1/7/X2 Expenditure out of General - 6,80,000 x 10.8% x
Loan 9/12 = 55,080
1/12/X2 Expenditure out of General - 4,00,000 x 10.8% x
Loan 4/12 = 14,400
Borrowing Cost to be 18,0000 1,01,160
Capitalised
Borrowing Cost Charged to P&L A/c:

Out of Specific Loan = Nil
Out of General Loan = 1,62,000 – 1,01,160 = 60,840

IND AS 36
7. IND AS 36 – IMPAIRMENT OF ASSETS
Practical Example 1: (Foreign Currency Cash Flows)

On March 31, 20X1, XYZ Ltd. makes following estimate of cash flows for one of its asset located in
USA:
Year Cash flows
20X1-20X2 US $ 80
20X2-20X3 US $ 100
20X3-20X4 US $ 20
Following information has been provided:

Particulars India USA
Applicable discount rate 15% 10%
Exchange rates are as follows:

As on Exchange rate
March 31, 20X1 Rs 45/US $
As on Expected Exchange rate
Calculate value in use as on March 31, 20X1.
SOLUTION
Year Cash flows Present value Discounted cash flows
(US $) factor @ 10% (US $)
20X1-20X2 80 0.9091 72.73
20X2-20X3 100 0.8264 82.64
20X3-20X4 20 0.7513 15.03
Total Discounted cash flows in US $ 170.40
Exchange rate as on March 31, 20X1, i.e., date of calculating value in use ₹ 45/US $
Value in use as on March 31, 20X1 ₹ 7,668
Practical Example 2: (Estimating Future Cash Flows)

Cash flow of ₹ 1,000 may be received in one year, two years or three years with probabilities of 10%,
60% and 30%, respectively. Calculate expected cash flows assuming applicable discount rate of 5%,
5.25% and 5.5% in year 1, 2 and 3, respectively.
SOLUTION
Years Cash Flows PVF Present Probability Expected
Value Cash Flows
1 1000 0.95238 952.38 10% 95.24
2 1000 0.90273 902.73 60% 541.64
3 1000 0.85161 851.61 30% 255.48

IND AS 36
Total 892.36
The expected present value is ₹ 892.36.
Pacific Bio Ltd, an Indian company, owns property in Japan. The property is held under the IND AS 16
Revaluation Model and has a carrying amount of Rs. 10.9 million at 30 September 20X3.
On this date Pacific Bio conducted an impairment test on the property and found its value in use to be
Yen 23 million and its fair value less costs of sell to be Yen 21.5 million. The company has previously
recognised a revaluation surplus in respect of the property and the balance on the revaluation surplus
in equity is Rs. 1,656,750.
How is the impairment accounted for as at 30th September 20X3? Exchange rate on 30th September
20X3: Rs. 1: 2.5 Yen.
SOLUTION
The recoverable amount is Yen 23 million, being the higher of value in use and fair value less costs of
disposal. The recoverable amount is translated to Rs. 9.2 million, therefore an impairment loss of Rs.
1.7 million is recognised.
Rs. 1,656,750 reduces the revaluation surplus to nil and the balance of Rs. 43,250 is recognised in
profit or loss (Rs.):
DEBIT Revaluation surplus (other comprehensive income) 1,656,750
DEBIT Profit or loss 43,250
CREDIT Property 1,700,000
Mercury ltd has an identifiable asset with a carrying amount of Rs1,000. Its recoverable amount is Rs
650. The tax rate is 30% and the tax base of the asset is Rs 800. Impairment losses are not deductible
for tax purposes. The effect of the impairment loss is as follows:
SOLUTION:
Identifiable assets Impairment Identifiable assets
before impairment loss after impairment
loss loss
Rs Rs Rs
Carrying amount 1,000 (350) 650
Tax Base 800 - 800
Taxable (deductible) 200 (350) (150)
temporary difference
Deferred tax liability 60 (105) (45)
(asset) at 30%
In accordance with Ind AS 12, the entity recognises the deferred tax asset to the extent that it is
probable that taxable profit will be available against which the deductible temporary difference can
be utilized.
IND AS 36
Holding Co. acquired 75% shares of Subsidiary Co. Total number of shares of subsidiary = 1,00,000.
Market Price per share is Rs. 45. Market value of Net Assets acquired are Rs. 42,00,000/- Calculate
NCI & Goodwill by both methods.
Solution:
WN1) NCI as per fair value method
Particulars Amount
NCI’s no. of shares (A) 25,000
Market Price per share (B) 45
NCI = (A x B) (C) 11,25,000
Holding co.’s investment (75000 x 45) 33,75,000

(+) NCI 11,25,000
(-) 100 %. Net Assets (42,00,000)
Full Goodwill 3,00,000
WN2) NCI as per Proportion of Net Assets Method

Particulars Amount
Fair Value of Total Net Assets (A) 42,00,000
NCI % (B) 25%
NCI = (A X B) 10,50,000
Holding co.’s investment 33,75,000
(+) NCI 10,50,000
(-) 100 % Net Assets (42,00,000)
Practical Goodwill 2,25,000
Conclusion: Goodwill value is dependent as NCI's measurement.
Practical Example 6: (Impairment of Goodwill when there is NCI)
Case 1: NCI as per Fair Value Method

Goodwill = 3,75,000
Carrying Amount of CGU = 15,00,000 (Assuming goodwill is fully allocable to this CGU)
Therefore; Total CA of CGU = 18,75,000
Recoverable Amount = 14,00,000
Therefore Impairment Loss = 4,75,000
Impairment loss allocated to Goodwill = 3,75,000
Impairment loss allocated to CGU = 1,00,000
Journal Entry
IND AS 36
(a) Impairment Loss A/c Dr. 4,75,000

To Goodwill A/c 3,75,000
To PPE A/c 1,00,000
(b) P&L of Parent A/c Dr. 3,32,500

NCI A/c Dr. 1,42,500
To Impairment Loss A/c 4,75,000
Case 2: NCI as per Proportion of Net Assets Method

Goodwill = 3,00,000
Carrying Amount of CGU = 15,00,000
Therefore; Total CA of CGU = 18,00,000 (Including goodwill) AS PER BOOKS
Total Recoverable Amount = 14,00,000
Carrying Amount of CGU (including Parent's Share of 3,00,000 in goodwill) = 18,00,000
(+) Notional Goodwill (share of NCI) = 1,28,571
Total CA of CGU including full goodwill (including Notional) = 19,28,571
Impairment Loss = 5,28,571
(-) Goodwill = (4,28,571)
PPE Impairment = 1,00,000
Impairment Loss to be Recognised: -
Towards CGU 1,00,000
Towards Recognised Goodwill 3,00,000
Total Impairment Loss 4,00,000
Entry:
NCI A/c Dr. 30,000
P & L A/c (Parent) Dr. 3,70,000
To Goodwill 3,00,000
To PPE 1,00,000
Case 3: NCI as per Proportion of Net Assets Method

Recoverable Asset 16,00,000
CA (Including Notional) 19,28,571
Impairment Loss 3,28,571
70% of above Impairment Loss belongs to Parent's share:

Impairment Loss (P&l) A/c Dr. 2,30,000
To Goodwill A/c 2,30,000
(30% of remaining loss belongs to NCI but not to be recognized, since it was Notional not originally
recorded earlier)
Practical Example 7: (Reversal of Impairment Loss)

IND AS 36
As on 1/4/16 Original Cost of PPE = 30,00,000; Estimated Life = 12 years; Depreciation is charged
under SLM Method. Therefore, Original Depreciation = 2,50,000 pa.
On 1/4/19, Fair Value of PPE was 27,00,000 (PPE is under Revaluation Model)
Carrying Amt. (CA) as on 1/4/19 = 30,00,000/12 X 9 = 22,50,000
Therefore, Revaluation Surplus = 4,50,000
Revised CA as on 1/4/19 = 27,00,000
Remaining Life = 9 years
Revised Depreciation = 3,00,000 P.a.
Assuming entity opted to transfer partial revaluation surplus to GR equal to excess depreciation i.e.
50,000 p.a.
On 31/3/21, PPE tested for impairment & Recoverable amount is 16,00,000
CA as on 31/3/21 = 21,00,000
Recoverable Amount = 16,00,000
Impairment Loss = 5,00,000
Setoff out of Revaluation Surplus = 3,50,000
Remaining Transfer to P&L = 1,50,000
Revised CA as on 31/3/21 = 16,00,000
Balance of Revaluation Surplus = Nil
Depreciation = 2,28,571 (P.A.) with useful life of 7 years
On 31/3/24, Indicators of Reversal of Impairment arise,
Recoverable Amount is:-
Case 1 = 11,00,000
Case 2 = 15,00,000
Current CA (as on 31/3/24) = 9,14,286
Reversal (Case 1)
Recoverable Amt. = 11,00,000
CA had there been no Impairment earlier = 27,00,000/9 X 4 = 12,00,000
Whichever is less; i.e. 11,00,000
CA of PPE should be increased to 11,00,000
Reversal of I/L = 1,85,714 (11,00,000 – 9,14,286)
What could be the revaluation surplus Balance had there been no impairment earlier ?
4,50,000/9 X 4 = 2,00,000 (Hence entire reversal shall be made through Revaluation Surplus)
PPE A/c Dr. 1,85,714
To Revaluation Surplus 1,85,714
Reversal (Case 2)
Recoverable amount = 15,00,000
CA had there been no Impairment earlier = 12,00,000
Whichever is lower i.e. CA shall be increased to ₹ 12,00,000
Reversal = 2,85,714
Maximum Revaluation Surplus that could be increased (had there been no impairment) = 2,00,000
Profit & Loss = 85,714
IND AS 36
PPE A/c Dr. 2,85,714

To Revaluation Surplus 2,00,000
To P & L A/c 85,714

IND AS 12
8. IND AS 12 – INCOME TAXES
Practical Example 1 (DTA on Goodwill – Not allowed)

An entity acquires a subsidiary and pays Rs. 1,00,000. The fair value of net identifiable assets is Rs.
65,000. The following entry shall be made in the books:
Entry 1:
Goodwill Dr. 35,000
Net Assets Dr. 65,000
To Consideration 1,00,000
The tax base of goodwill is Rs Nil. Hence the difference is Rs. 35,000. Assuming tax rate to be 30%,
deferred tax liability of Rs. 10,500 needs to be created. Now because of recognition of this deferred
tax liability, the following entry needs to be passed instead of the above entry:
Entry 2:
Goodwill Dr. 45,500
Net assets Dr. 65,000
To Consideration 1,00,000
To Deferred tax liability 10,500
The difference now is Rs. 45,500 and not Rs. 35,000 and the resultant deferred tax liability should be
Rs. 13,650 (45,500 x 30%) and not Rs. 10,500. Thus, deferred tax liability in entry 2 should be
increased by Rs. 3,150 which in turn will increase goodwill by a similar amount with consequent impact
on taxable temporary difference and deferred tax liability. The circle goes on. Therefore, no deferred
tax liability is to be recognised in the case of differences arising on the initial recognition of goodwill
in a business combination in tax jurisdiction where such goodwill is not tax deductible.
Practical Example 2: (DTL on Revaluation of PPE)

Company A buys an asset worth Rs.100 on 1st April, 2010. The useful life of the asset is five years and
the tax laws allow it to be depreciated over four years. One year later, on 31st March, 2011, the
Company revalue the asset to Rs.120. Tax Rate is 30%. In such a case the temporary difference will be
as shown in the following Table.
Solution
Table:
Year ending March 31, 2011 2012 2013 2014 2015
Net book value 120 90 60 30 0
Tax base 75 50 25 0 0
Temporary difference 45 40 35 30 0
In the above case, the deferred tax liability created on revaluation on 31st March, 2011, of Rs.45
reverses in the subsequent periods. The accounting entry for the year 2011 would be:

IND AS 12
Revaluation reserve (OCI) A/c Dr. 40x30%

Profit and Loss A/c Dr. 5x30%
To Deferred tax liability A/c 45x30%
Suppose on 31st March, 2013, the Company decides to sell the asset at Rs.70. In this case, there would
be a gain of Rs.10 as per the books of accounts. However, the tax books will show a gain of Rs.45, thus
offsetting the temporary difference of Rs.35.
Detailed Calculation:
2011 2012 2013 2014 2015
CA without Revaluation 80 60 40 20 0
Tax Base 75 50 25 0 0
Temporary difference due to 5 10 15 20
Depreciation
CA with Revaluation 120 90 60 30 0
Total Temp. Diff. 45 40 35 30 0
Temp. Diff. due to Revaluation 40 30 20 10 0
Practical Example 3: (Business Combination)

Company A buys Company B for Rs. 1,500
● Book value of assets of B = 1 000
● Fair value of assets of B = 1,200
● Goodwill = 1,500 – 1,200 = 300
● Tax Rate = 30%
● Taxable temporary difference = 1,200 – 1,000 = 200
● DTL = 200x30% =60
● Goodwill = 300 + 60 = 360
ACCOUNTING ENTRY:
Goodwill A/c Dr. 60 (200 * 30%)
To DTL A/c 60

Balance Sheet of Subsidiary Co.
Particulars Amount Particulars Amount
Equity 1300000 NCA 1200000
Liability 600000 CA 700000
Total 1900000 Total 1900000
● H Co. acquired subsidiary at an Investment of Rs. 14,00,000/- (acquired 100% shares)
● Non-Current Assets having Fair Value = Rs. 1250000
● All other are having Fair Value Equal to their book value.
Determine Deferred Tax impact on Consolidated Financial Statements of Holding co. Assume Tax
Rate is 30%.
IND AS 12
SOLUTION:-
In the books of H CO.
Standalone Financial Statements Consolidated Financial Statements
Investment A/c Dr 14,00,000 Non-Current Asset A/c Dr. 12,50,000
To Bank A/c 14,00,000 Current Assets A/c Dr. 7,00,000
Goodwill (B/f) A/c Dr. 50,000
To Liability A/c 6,00,000
To Investments A/c 14,00,000
● Here we can see that Goodwill arise in business combination is = 50,000/-

● However, DTL shall be recognized on 50,000 Temporary difference due to recognition
of Non-current Assets as Fair Value at 12,50,000 (assuming Tax base is same as book
value i.e. 12,00,000) = 50,000 x 30% = 15,000
● Such DTL shall be recognized as a part of business combination transaction and hence
this DTL shall directly affect Goodwill (as a balancing figure) arising due to Business
Combination.
Hence Correct Journal Entry in Consolidated Financial Statements:

NCA Dr. 12,50,000
CA Dr. 7,00,000
Goodwill (B/f) Dr. 65,000
To CL 6,00,000
To DTL 15,000
To Investment 14,00,000
Conclusion: due to recognition of DTL, goodwill is increased by the same amount.
Example 5: (Tax Rate of Holding and Subsidiary)
● Company X (Holding) sold goods costing ₹ 60 to Company Y (Subsidiary)

● In the Standalone Balance Sheet of Y stock is shown at ₹ 100
● In the Consolidated Balance Sheet Stock will be shown at ₹ 60
● Tax base for Y is ₹ 100 and Y’s Tax rate is 30%, X’s Tax rate is 25%
● Deductible Temporary Difference = 100-60 = ₹ 40
● DTA = Rs.40 x 30% = ₹12
ACCOUNTING ENTRY:
Deferred Tax Asset A/c Dr. 12
To Profit and Loss A/c 12
Practical Example 6: (Reconciliation)

IND AS 12
An entity has made an accounting profit of Rs 1,00,000. The tax rate is 30%. In computing the
accounting profit, a penalty of Rs 10,000 has been considered which is not tax deductible. There are
no other tax impacts. In this case, the taxable profits are Rs1,10,000 (Rs1,00,000 + Rs10,000) and tax
expense @ 30% is Rs. 33,000.
The two types of disclosures are as under:
Particulars Amount (Rs)

Accounting profit 1,00,000
Tax at the applicable tax rate of 30% 30,000
Tax effect of expenses that are not deductible in
determining taxable profits:- 3,000
Penalties Tax expense 33,000
The two types of disclosures are The effective tax rate is as per the national income-tax rate.
Particulars %
Applicable tax rate 30
Tax effect of expenses that are not deductible in
determining taxable profits:- Penalties 3
Average effective tax rate 33
The effective tax rate is as per the national income-tax rate.

A Company operating in India, Australia and Dubai. Australia and Dubai is considered as Branches.
Tax rates and accounting incomes are as under:
Particulars India HO Australia Branch Dubai Branch
Accounting Income 5,00,000 3,00,000 8,00,000
Applicable Tax Rates 30% 18% 5%
Permanent Differences (exp. 50,000 30,000 Nil
Disallowed)
Calculate the following:
1) Current Taxes in their respective tax jurisdictions
2) Reconcile Total Current Tax of whole entity and Tax on Accounting Profit as a whole.
Solution:
1) Calculation of Current Taxes in their respective tax jurisdictions:
S.No. Particulars India Australis Dubai
A Tax rate 30% 18% 5%
B A/C Income 5,00,000 3,00,000 8,00,000
C (+) Parmanent Difference 50,000 30,000 NIL
D Taxable Income 5,50,000 3,30,000 8,00,000
E Current Tax (DxA) 1,65,000 59,400 40,000

IND AS 12
Hence Total Current Tax as a whole = Rs. 2,64,400/-
2) Reconciliation of Total Current Tax with Tax on Accounting Income as a whole:

PARTICULARS AMOUNT
Total Accounting profit (as a whole) 16,00,000
Domestic Tax Rate 30%
Total Tax on Total Accounting Profit at Domestic Rate 4,80,000
(as shown in combined profit and loss)
Less:
Tax Effects due to change in tax rates of branches
Australia = 3,00,000 x 12% (36,000)
Dubai = 8,00,000 x 25% (2,00,000)
Add:
Tax effect due to Parmanent differences
80,000 x 30% 24,000
Less:
Tax effect on Parmanent difference item of Australia branch (3,600)
30,000 x 12%
Total Aggregate Current Tax as a Whole 264,400
In Short :-Tax expense = 1,65,000 + 59,400 + 40,000 = 2,64,400

In 20X2, an entity has accounting profit in its own jurisdiction (country A) of Rs.1500 (20X1: Rs. 2000)
and in country B of Rs.1500 (20X1: Rs.500). The tax rate is 30% in Country A and 20% in country B. In
country A, Expense of Rs. 100(20X1: Rs.200) are not deductible for tax purposes.
Reconcile Total Current Tax of whole entity and Tax on Accounting Profit as a whole?
Solution:
The following reconciliation will be prepared:
Particulars Amount
20X2 20X1
Accounting Profit 3,000 2500
Tax at the domestic rate of 30% 900 750
Tax effect of expenses that are not tax deductible for 30 60
tax purposes (150) (50)
Effect of lower tax rates in country B 780 760
Tax Expense
Practical Example 9: (DTL on Compound Financial Instruments)

If the instrument is classified on initial recognition in two components viz. Equity and Liability then
Taxable temporary difference will arise since in books liability will have lower amount and in tax base
the entire amount is liability. Therefore, DTL is recognized through Equity. The same example has

IND AS 12
been explained as under -

8% Convertible Debentures issued of Rs. 10,00,000. Holders are given an option to convert the
instruments into equity shares or to receive cash after 5 years. Entity’s IRR/Effective Rate of
Interest is 12% pa. Calculate the Deferred Tax Impact.
SOLUTION
By applying IndAS 109 Financial Instruments, following will be the Journal Entry at the time of Issue
of Debentures –
Bank A/c Dr. 10,00,000
To 8% Debentures (FL) A/c 8,56,000
To 8% Debentures (Equity) A/c 1,44,000
Now the Carrying Amount of Liability at the time of issue is 8,56,000 however the Tax Base will be Rs.
10,00,000 therefore, Temporary Difference of Rs. 1,44,000 arises (because of IndAS 109 principle by
segregating the Financial Instrument into Liability and Equity)
Hence DTL of Rs. 43,200 (assuming 30% Tax Rate i.e. 1,44,000 x 30%) will be created through Equity
at the time of issue as under-
Other Equity (Reserve) A/c Dr. 43,200
To DTL A/c 43,200
Practical Example 10: (DT on Share Based Payment Transaction)

On 1st April 20X1, P Ltd. had granted 1 Cr share options worth ₹ 4 Cr subject to a two-year vesting
period. The income tax law permits a tax deduction at the exercise date of the intrinsic value of the
options. The intrinsic value of the options at 31st March 20X2 was ₹ 1.60 Cr and at 31st March 20X3
was ₹ 4.60 Cr. The increase in the fair value of the options on 31st March 20X3 was not foreseeable
at 31st March 20X2. The options were exercised at 31st March 20X3.
Give the accounting for the above transaction for deferred tax for period ending 31st March, 20X2
and 31st March, 20X3. Assume that there are sufficient taxable profits available in future against
any deferred tax assets. Tax rate of 30% is applicable to P Ltd.
SOLUTION:
On 31st March 20X2: The tax benefit is calculated as under:
Carrying amount of Share based payment ₹ 0.00 Cr
Tax Base of Share based payment (₹ 1.60 Cr x ½) ₹ 0.80 Cr
Temporary Difference (Carrying amount – tax base) ₹ 0.80 Cr
Deferred Tax Asset recognized (Temporary Difference x Tax rate)
(0.80 Cr x 30%) ₹ 0.24 Cr
Journal Entry for above:

Deferred Tax Asset Dr. ₹ 0.24 Cr
To Tax Expense ₹ 0.24 Cr
(Being DTA recognized on equity option)
On 31st March 20X3:

The options have been exercised and a current tax benefit will be available to the entity on the basis
of intrinsic value of ₹ 4.60 Cr. Initially recognized deferred tax asset will no longer be required.
The accounting entry will be done as under:
Tax Expense Dr. ₹ 0.24 Cr
To Deferred Tax Asset ₹ 0.24 Cr
IND AS 12
(Being DTA reversed on the exercise of the option)

IND AS 21
9. IND AS 21 –
THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
Practical Example 1 (Identification of Functional Currency)

1. M Ltd., a subsidiary in India, purchases goods from A Inc., its holding company in USA.
2. Purchases are done in USD and are based on prices in the US Market
3. It sells goods in USD and the sale price is influenced by the holding company.
4. Other expenses are incurred locally.
5. M Ltd. has an External Commercial Borrowing from AInc. For financing its activities.
Solution:
Factors (M Ltd.) Influenced by which Currency
Sales USD
Sales Market Influenced by USD
Expenses INR
Purchases USD
Financing USD
Cash flows USD/INR
Functional Currency (Based on Above) USD
The above conclusions are based on Primary indicators

1. N Ltd., a subsidiary in India, purchases goods from A Inc., its holding company in USA.
2. Purchases are done in USD and are based on prices in US Market.
3. It sells goods in INR but the sale price is influenced by the country of the holding company.
5. N Ltd. has an External Commercial Borrowing from A Inc. for financing its activities.
Solution:
Factors (N Ltd.) Influenced by which Currency
Sales INR
Sales Market Influenced by USD
Expenses INR
Purchases USD
Financing USD
Cash flows USD/INR
Functional Currency (Based on Above) USD

1. USA Ltd (U) owns a subsidiary in India, Dragon Ltd (D).
2. D assembles all goods in India using a combination of locally sourced materials and materials
manufactured by U.

IND AS 21
3. All goods are then exported and sold in Australia, based on selling prices determined by U
and influenced by Indian market.
4. The company has a loan from an Indian Bank.
Solution:
Factors (Dragon Ltd.) Influenced by which Currency
Sales AUD
Sales Market Influenced by INR
Expenses INR
Purchases INR/USD
Financing INR
Cash flows USD/INR/AUD
Functional Currency (Based on Above) INR

1. X Ltd., a subsidiary in India, purchases goods from A Inc., its holding company in USA.
2. Purchases are done in USD and are based on prices in US Market.
3. It sells goods in INR and the sale price is market determined.
5. It remits its proceeds to the holding company.
Solution:
• Sales are in INR and are market determined whereas goods are purchased from USA.
• The primary indicators do not give a clear picture.
• On the basis of additional factors, in the given case X Ltd. is carrying out its activities as
an extension of holding company’s foreign operations since it only sells goods imported
from the reporting entity and remits its proceeds to it, its functional currency should be
USD.
Practical Example 5: (FCMI)

Mr. A Purchased Goods of $30,000 on 1/Feb for which payment to be made in next year 30/4
Issue 1: How to record on 1/Feb because it is in $
Issue 2: What to do on Balance Sheet Date i.e., 31/3 because $ Changes
Issue 3: on 30/4 Settlement is in $ the how to Measure?
Solution:
Issue 1:
All Foreign Currency transaction must be recorded at the rate prevailing on transaction Date (i.e.
SPOT Rate)
Suppose 1st Feb $1 = 76/-
Transaction Vale = $30,000 x 76 = 22,80,000/-
1st Feb:
IND AS 21
Purchase A/c Dr. 22,80,000

To Foreign Creditor A/c 22,80,000
Trading A/c
To Purchases 22,80,000
Balance Sheet
Foreign Creditors 22,80,000
($30,000)
Issue 2:
On 31st March $1 = ₹ 77
All Monetary Assets/Liabilities which are in foreign Currency (FCMI) should be measured at Closing
Exchange Rate on Balance Sheet Date.
Revised Foreign Creditors = $30,000 x 77 = 23,10,000
Exchange Difference (Loss) = 23,10,000 – 22,80,000 = 30,000
Exchange Loss A/c Dr. 30,000
To Foreign Creditor A/c 30,000
Exchange Difference due to measurement of FCMI should be transfer to P&L A/c

31/3
P&L A/c Dr. 30,000
To Exchange Loss A/c 30,000
Trading A/c
To Purchases 22,80,000
To Exchange Loss 30,000
Balance Sheet
Foreign Creditors 23,10,000
($30,000)
Issue 3:
At the time of settlement $ again Change to ₹ 77.80
Amount to be paid in ₹ = $30,000 x 77.80 = 23,34,000/-
30/4
Foreign Creditors A/c Dr. 23,10,000
Exchange Loss A/c Dr. 24,000
To Bank A/c 23,34,000
Exchange Difference at settlement shall be transferred to P&L A/c
Practical Example 6: (Translation of Non-Monetary Item)

1. Company Apple’s Functional currency is INR
2. On 01.01.2017 company buys a building for US $ 100,000
3. The exchange rate is INR 54.48 per US $
4. Company Apple’s year end, 31stMarch
5. The building is not depreciated as it is not yet available for use

IND AS 21
6. On 31.03.2017 the exchange rate is INR 55.54 per US $ and the value of building is US $
1,10,000
SOLUTION:
Initial Recognition
• On 01.01.2017 the building is capitalized at the rate at the transaction date

Building Dr 54,48,000
To Bank Cr 54,48,000
Subsequent Recognition:
• If cost model adopted as accounting policy under IndAS 16 for PPE, Building is carried at its
historical cost, hence no adjustment to be made
• If revaluation model adopted as accounting policy under IndAS 16 for PPE, value of building to
be adjusted for revised value.
• Hence the building being a non-monetary item and held at fair value, is to be translated at the
date of valuation
Building Dr 661,400
To Revaluation Reserve Cr 661,400
Revaluation reserve includes exchange component ($ 100000 * (55.54-54.48)) + ($ 10000 *55.54)

IND AS 33
10. IND AS 33 - EARNINGS PER SHARE
Practical Example 1: (Weighted Avg. Ordinary Shares)

Following is the data for company XYZ in respect of number of equity shares during the financial
year 20Xl-20X2. Find out the number of shares for the purpose of calculation of basic EPS as per
IndAS 33.
Sr. Date Particulars No of

No. shares
1 1-Apr-20X1 Opening balance of outstanding equity 100,000
shares
2 15-Jun-20X1 Issue of equity shares 75,000
3 8-Nov-20X1 Conversion of convertible pref shares in 50,000
Equity
4 22-Feb-20X2 Buy back of shares (20,000)
5 31-Mar-20X2 Closing balance of outstanding equity 205,000
shares
Solution
Sr. Date Particulars No of No of days Weighted
No. shares shares were average no
outstanding of shares
1 1-Apr-20X1 Opening balance of 100,000 365 100,000
outstanding equity
shares
2 15-Jun-X1 Issue of equity 75,000 290 59,589
shares
3 8-Nov-X1 Conversion of 50,000 144 19,726
convertible
preference shares
in Equity
4 22-Feb-X2 Buy back of shares (20,000) (38)* (2,082)
5 31-Mar-X2 Closing balance of 205,000 177,233
Outstanding equity
shares
Practical EXAMPLE 2: (Basic EPS)

EBIT = 49,80,000 (Current Year = 23-24)
Current Tax = 12,45,000
DTL = 2,15,000
85% Debenture issued on 1/7/23, ₹75 lacs
9% Non-Cumulative Preference Shares Capital are Outstanding ₹ 40 lacs From Beginning
IND AS 33
10% Preference Shares Capital are issued on 1/3/24, ₹ 80 lacs

Preference Dividend not yet Declared
Ordinary Shares during Current Year 23-24 are:
1/4/23 10,00,000 Shares are Outstanding
1/7/23 New issue 60,000 no.
1/11/23 Buy Back 25000 no.
Calculate Basis EPS
SOLUTION:
Calculation of EAESH:
Earnings Before Interest & Tax 49,80,000
(-) Interest (4,78,125)
Earning Before Tax 45,01,875
(-) Tax Expenses (14,60,000)
Earnings After Tax 30,41,875
(-) Preference Dividend on Cumulative Shares only (66,667)
(since dividend is not declared hence Dividend on
Non-Cumulative Pref. Share is ignore)
Earnings Available for Equity Share Holder 29,75,208
Calculation of Weighted Avg. Ordinary Shares:

1/4 10,00,000 x 12/12 10,00,000
New Issue 1/7 60,000 x 9/12 45,000
Buy Back 1/11 25,000 x 5/12 (10,417)
10,34,583
Basic EPS = 29,75,208 ÷ 10,34,583 = 2.876/-
Practical Example 3: (Partly Paid-up Shares)

Calculate Basic earnings per share for 10-11
Earnings attributable for Equity shareholders (10-11)- Rs. 10,00,000/-
Equity Shares opening Balance 1/4/2010: 16,500 shares of Rs. 10 each Rs.7 paid up
Public Issue - 1/7/2010: 10,000 shares of Rs. 10 each Rs.6 paid up
Received calls on 1/10/2010: 16,400 shares Rs. 3 per share
Received calls on 1/11/2010: 10,000 shares Rs. 4 per share
(Answer: EPS - 49.56)
Practical Example 4: (Compulsory Convertible Debentures)

O/s Equity shares as on 01.04.2018 = 1,00,000 no. of Rs.10/-
Issued 9% Compulsorily convertible debentures on 01.07.2018 = 10,000 No. (100/-)

IND AS 33
Convertible after 3 years in the ratio of 3:1

EBIT-12,00,000; Tax Expenses 1,80,000
Practical Example 5: (Right Issue)

X Co. Ltd. supplied the following information. You are required to compute the Basic EPS. (Accounting
year 1.1.2002 - 31.12.2002)
Net Profit for the accounting years 2002 and 2003 is Rs. 20,00,000 and Rs.30,00,000.
No. of shares outstanding prior to Right Issue 10,00,000 shares
Rights Issue: One new share for every 4 Shares outstanding i.e., 2,50,000 shares
Right Issue Price: Rs. 20. Last date for exercise of rights is 31.3.2003
Fair Rate of one Equity Share immediately prior to exercise of right on 31.3.03 = Rs. 25
(Answer: Basic EPS for the current year = Rs. 2.50.

EPS for the previous year as originally reported = Rs. 2.00,
Adjusted EPS for the previous reporting period Rs.20,00,000 ÷ (10,00.000 x 1.042) = Rs. 1.92)

P Ltd. has earnings of Rs 15,00,000, o/s equity shares 50,000 no.
P Ltd. has one subsidiary co. S Ltd. (80% investment) whose earnings Rs. 5,00,000, Subsidiary has total
equity shares O/s 20,000. During the year S ltd. paid dividend Rs.150000 to its shareholders. Calculate
BEPS of PL td. for Separate as well as Consolidated Financial Statements.
Ans: EPS 30 & 35.6

IND AS 102
11. IND AS 102

SHARE BASED PAYMENT
PRACTICAL EXAMPLE 1: (Equity Settled Option)

A company announced Share Based Payment Scheme (ESOP) for its 150 No. of Employees on 1/4/23.
Service condition is 3 Years. Exercise price is 80/-
Each employee will be eligible after 3 years’ service only for 100 no. of shares. FV of option on GD is
45/-
a) Position as on 31/3/24: -
(i) 8 employees already left the Job
(ii) Estimated Departure rate is 3% P.A. for remaining period
b) Position as on 31/3/25: -
(i) 6 more employees left the job
(ii) Estimated Departure Rate is reduced to 2% P.A.
c) Position as on 31/3/26: -
Option is vested to 129 employees
d) Out of 129 employees, option for 4 employees lapsed
Solution:
1st Year = [(150 - 8) - 3%] X 100 X 45
3 = 2,00,412
Employee Benefit Expense A/c Dr. 2,00,412
To SBP Reserve A/c 2,00,412
2nd Year = {(150-8-6)-2%} x 100 x 45 = 5,99,760

Cumulative till 2 years i.e., 31/3/25 = 5,99,760/3 x 2 = 3,99,840
(-) expenses already recognised till last year = 2,00,412
2nd Year Expenses = 1,99,428
Employee Benefit Expense A/c Dr. 1,99,428

3rd Year = 129 x 100 x 45 = 5,80,500

Cumulative for 3 years = 5,80,500
(-) Expenses recognised till 2nd Year = 3,99,840
3rd year Expense = 1,80,660
Employee Benefit Expenses A/c (P&L) Dr. 1,80,660

125 employees:

IND AS 102
5,80,500/129 x 125 = 5,62,500

SBP Reserve Converted into Share Capital
Bank A/c (125 x 100 x 80/-) Dr. 10,00,000

SBP Reserve A/c (125 x 100 x 45/-) Dr. 5,62,500
To Share Capital A/c (10/-) 1,25,000
To Securities Premium A/c 14,37,500
4 employees:
5,80,500/129 x 4 = 18,000
Transfer to General Reserve/Free Rreserve
SBP A/c Dr. 18,000

To General Reserve 18,000
PRACTICAL EXAMPLE 2: (Equity Settled but Vesting condition not satisfied)

Company offers 5000 shares at FV of Option @250/- to Rajat (employee) at a condition of minimum
service period of 3 years.
Solution
1st Year
Employee benefit Expenses A/c (P&L) Dr. 4,16,667
To SBP Reserve A/c (5,000 x 250/3) 4,16,667
2nd Year
Rajat Left the Job
SBP Reserve A/c Dr. 4,16,667
To Employee Benefit Expense A/c (P&L) 4,16,667
(Unvested option is cancelled due to not fulfilling Vesting Condition)
Practical Example 3: (Modification)

Total Share Options = 12,000
Vesting Period = 3 Years
Exercise price per share = 30/-
Market Price per share = 50/-
FV of option as on Grant Date is 24/-
1st Year expenses to be Recognised:

Employee Benefit Expenses A/c Dr. 96,000
To SBP Reserve A/c 96,000
(12,000 x 24)/3 x 1

IND AS 102
In the beginning of 2nd Year, to make the offer more attractive, entity has reduced Exercise price to
Rs. 18/-
This decision is taken since there is a continuous reduction in MP of company due to which the overall
FV of option is reduced from 24/- to 15/-.
But as soon as the decision to reduce exercise price is taken the FV of option got improved to Rs. 20/-
.
FV before modification = 15/-
FV after modification = 20/-
Additional Expenditure = 5/- (Recognition in remaining period)
2nd Year expenses to be Recognised:

((12,000 x 24)/3 x 2) – 96,000 = 96,000
+ Additional expenses (12,000 x 5)/2 x 1 = 30,000
= 1,26,000
3rd Year expenses to be Recognised:
Suppose 11,500 options is actually vested
((11,500 x 24)/3 x 3) – 1,92,000 = 84,000
+ Additional Expenses ((11,500 x 5)/2 x 2) – 30,000) = 27,500
= 1,11,500

CA. Jai Chawla IND AS 103 & 110
Topic 12
IND AS 103 – BUSINESS COMBINATION
IND AS 110 – CONSOLIDATION
(PRACTICAL EXAMPLES)
Practical Example 1: (Preparation of Consolidated F/s)

Balance Sheet of A Ltd. & B Ltd. as on 31/3/23
A B
All Other Assets 90,00,000 75,00,000
Investment in B Ltd. (90%) 50,00,000 -
1,40,00,000 75,00,000
Equity share capital (10/-) 40,00,000 30,00,000
Other Equity 50,00,000 15,00,000
Liabilities 50,00,000 30,00,000
1,40,00,000 75,00,000
On 31/3/23, A Ltd made investment in B Ltd. Carrying Amount of Net Assets of B are equal to FV.
Apply IND AS 103 & 110 (MP of Equity Share of B = 16)
Solution
Date of Acquisition = 31/3/23
1) PC = 50,00,000
2) 100% of Net Assets at FV = 45,00,000
3) NCI (outside SH of B Ltd)
(a) Proportionate share in FV of N.A.
45,00,000 X 10% =4,50,000
(b) FV Method Alternate 1:
30,00,000 X 10%
30,000 No. x 16 (i.e. MV) = 4,80,000
Note: If MP is missing but we want to calculate NCI through FV method only, Then
Alternate 2:
Investment by A (90%) = 50,00,000
50,00,000/90 X 10 = 5,55,555
4) Goodwill/Gain on Bargain Purchase:

Journal entries in CFS:
Net Assets A/ c Dr. 45,00,000
Goodwill A/c Dr. 9,80,000
To NCI A/c 4,80,000
To Investment A/ c 50,00,000
Cost of Control (COC)

Investment 50,00,000
NCI 4,80,000
54,80,000
(-) 100% Net Assets 45,00,000
Goodwill 9,80,000

Consolidated Balance Sheet

Particular Amount
Assets (90+75) 1,65,00,000
Goodwill 9,80,000
1,74,50,000
Equity Share Capital (10%) 40,00,000
Other Equity 50,00,000
NCI 4,80,000
Liabilities (50+30) 80,00,000
1,74,50,000
Practical Example 2: (Time Adjustment of Profits of Subsidiary)

FY 23-24, Date of Acquisition is 1/9/23
ESC of Acquiree is Rs. 20 lakhs Outstanding for Whole Year
Balance of Other Equity as on 1/4/23 was Rs.15 Lakhs & as on 31/3/24 was Rs. 27 Lakhs.
During the Year there was an abnormal loss of Rs. 54,000 in the month of October.
80% Investment Purchased by Acquirer is Rs. 30 Lakhs
Calculate Goodwill/Gain on Bargain Purchase also share of Acquirer in Post-Acquisition Period Profit.
Solution:
Statement of Changes in Net Assets
Particulars Position as on DOA Changes after DOA Balance Sheet
1/09/23 (1/9 - 31/3) 31/03/23
Other Equity 15,00,000 12,00,000 27,00,000

+ Abnormal Loss - 54,000
15,00,000 12,54,000
+/- Time Adjustment 5,22,500 (5,22,500)
for 5 Months
20,22,500 7,31,500
- Abnormal Loss - (54,000)
Final Balances of 20,22,500 6,77,500
Profits
Equity Share Capital 20,00,000 -
Total Net Assets as 40,22,500 -
on DOA
P’s Share 80% - 5,42,500
NCI’s Share 20% 1,35,500
Cost of Control
Investment as on DOA 30,00,000

+ NCI as on DOA (Proportion of NA) 8,04,500
38,04,500
(-) 100% Net Assets as on DOA 40,22,500

Gain from Bargain Purchase 2,18,000
Practical Example 3: (Abnormal Items)

Financial Year 23-24, Date of Acquisition 1/8/23
Date Particulars Amount
1/4/23 Balance of Other Equity of Subsidiary 15,00,000
3/3/24 Balance of Other Equity of Subsidiary 21,00,000
During the year: - Abnormal loss in the month of September (Dr. in Profit & Loss already) = 60,000
Abnormal gain in the month of May 2023 = 1,45,000. Prepare Statement of Changes in Net Assets of
Subsidiary.
SOLUTION:
Statement of Changes in Net Assets
Particular Pre Acquisition Post Acquisition Balance Sheet
st
(1 Aug) (Aug to March) 31st March
Balance of Reserve & Surplus 15,00,000 6,00,000 21,00,000
(as on 01/04) (12 Months)
(+) Abnormal loss (September) - 60,000
(-) Abnormal gain (May) - (1,45,000)
Balance 15,00,000 5,15,000
(+/-) Time Adjustment for 4 months 1,71,667 (5,15,000/12 X 4)
16,71,667 3,43,333
(+/-) Restatement of Abnormal Items 1,45,000 (60,000)
Final Balances 18,16,667 2,83,333 21,00,000
Practical Example 4: (Bonus Issue)

Standalone Balance Sheet as on 31/3/24
H S
Equity share capital 8,00,000 5,00,000
Other Equity 6,00,000 4,00,000
Liabilities 5,00,000 3,00,000
19,00,000 12,00,000
Investment 80% 7,00,000 -
Other Asset 12,00,000 12,00,000
19,00,000 12,00,000
● Date of Acquisition - 1/7/23
● On 1st March 2024 - Bonus issue of shares by subsidiary in the ratio of 1:4 (i.e., 1,00,000/-).
Whose entry is already passed by subsidiary.
● Opening Other Equity Balance of Subsidiary as on 1/4/23 = 2,50,000
SOLUTION:
How much Net Profit earned by subsidiary company? Let’s understand this with the help of below
ledger account of R&S

Reserves & Surplus (FY 23-24)

Particular Amount Particular Amount
To Equity share Capital 1,00,000 By Opening Balance 2,50,000
(Bonus Entry Passed)
To Closing Balance 4,00,000 By Net Profit (B/f) 2,50,000
Note: As we can understand from the above R&S account that NP during the year is 2,50,000 for
which Time Adjustment is required by assuming that it is earned equally every month.
Working Note 1: Statement of Changes in Net Assets

Balances Post Acq. Profits B/S
st st
As on 01/07 1 July -31 31st
March March
Other Equity Balance (after bonus issue) 2,50,000 1,50,000 4,00,000
Bonus Adjustment (-)1,00,000 +1,00,000
Revised Balances 1,50,000 2,50,000
(+/-) Time Adjustment for 3 Months 62,500 (2,50,000 X 3/12)
Final Balances of Profits 2,12,500 1,87,500
Share Capital 5,00,000 -
st
100% Net Assets as on 1 July 7,12,500 -
Share of H in Post Acquisition Profit (80%) - 1,50,000
Share of NCI in Post Acquisition Profit (20%) - 37,500
Cost of Control: -
Investment (80%) 7,00,000
(+) NCI 20% of Net Assets as on DOA 1,42,500
Total 8,42,500
Goodwill 1,30,000
Non-Controlling Interest:
Proportionate share in Net Assets as on 1,42,500
DOA (20% of 7,12,500)
Share of Post Acquisition Profit 37,500
NCI as on BS Date 1,80,000
Consolidated Other Equity Balance of Group

H’s Balance R&S 6,00,000
(+) H’s share in Post Acquisition Profit 1,50,000
7,50,000

Equity share capital 8,00,000
Consolidated Other Equity 7,50,000

Non-Controlling Interest 1,80,000

Liabilities 8,00,000
25,30,000
Goodwill 1,30,000
Other Asset 24,00,000
25,30,000
Practical Example 5: (Bonus Issue but Entry not yet Passed)

Solve Example 10 by assuming that bonus entry is not yet passed by Subsidiary & Equity share capital
which is given in Balance Sheet i.e. 5,00,000 is without Bonus issue.
SOLUTION:
Amount of Bonus issue of Shares = 5,00,000 X1/4 = 1,25,000
Reserves & Surplus
Particular Amount Particular Amount
- - Opening Balance 2,50,000
Closing Balance 4,00,000 Net Profit 1,50,000
Working Note 1 - Statement of Change in Net Assets

Balances Post Acq. B/S
st
As on 01/07 Profits 31 March
st st
1 July -31
March
Other Equity Balance (before bonus) 2,50,000 1,50,000 4,00,000
(-) Bonus Issue (1,25,000) - (1,25,000)
Revised Balances 1,25,000 1,50,000 2,75,000
(+/-) Time adjustment for 3 months 37,500 (1,50,000 X
3/12)
Final Balances of Profits 1,62,500 1,12,500 2,75,000
Share Capital 6,25,000 - -
st
100% Net Assets as on 1 July 7,87,500 - -
Share of H in Post Acquisition Profit (80%) - 90,000
Share of NCI in Post Acquisition Profit (20%) - 22,500
Cost of Control:
Investments 7,00,000
(+) NCI 20% of Net Assets as on DOA 1,57,500
(-) 100% Net Assets as on DOA (7,87,500)
Goodwill 70,000
Non-Controlling Interest:
Proportionate share in Net Assets as on 1,57,500
DOA (20% of 7,87,500)
Share of Post Acquisition Profit 22,500
NCI as on BS Date 1,80,000

Practical Example 6: (Dividend)

Investment (70%) made by Parent on 1st June 2023 costing Rs. 15,00,000.
Subsidiary paid dividend on 1st August 2023 Rs. 1,50,000
NCI is to be calculated based on proportionate Net Assets.
Other Details are as under:
Particulars 1st April 2023 31st March 2024
Equity Shares Capital 12,00,000 12,00,000
Other Equity 6,00,000 9,00,000
Show the Treatment of Dividend.
Solution:
Based on Above information, following conclusion can be drawn: -
1) Current Year Profit of S is not 3,00,000 (9 lacs -6 lacs)
2) It should be 4,50,000 (3 lacs + 1.5 lacs Dividend) & Time Adjustment is to be made for 4,50,000
3) Since Dividend is paid after 1st June (i.e., DOA) Parent must have received Proportionate share in
Dividend i.e., 1,05,000/-
4) Parent must have already Credited its P&L A/c (other Income) by 1,05,000 in SFS.
5) NCI must have also received it on 1st August as its Proportionate Share i.e., 45,000
Statement of Changes in Net Assets (SCNA): -

Particulars Date of Changes after Balance
Acquisition DOA (1st June Sheet
As on 1st June – 31st March)
Other Equity 6,00,000 3,00,000 9,00,000
+ Dividend Paid - 1,50,000
Revised Balance of Profits 6,00,000 4,50,000
+/- Time Adjustment 75,000 (75,000)
for 2 Months
Final Balances 6,75,000 3,75,000
Equity Share Capital 12,00,000 -
100% Net Assets as on DOA 18,75,000 -
P’s Share in Post Profit 2,62,500
NCI’ Share in Post Profits 1,12,500
Working Note: Non-Controlling Interest

NCI as on DOA 5,62,500
(+) Post Acquisition Share in Acquiree's Profit 1,12,500
6,75,000
(-) Share of NCI in Dividend (45,000)
6,30,000
Working Note: Consolidated Other Equity of Parent Company

R&S Balance in SFS (it already includes dividend received) XXX
Post-Acquisition Share from acquiree 2,62,500
(-) Share of Parent in Dividend (1,05,000)

Working Note on Cost of Control:

Investment Cost (70%) 15,00,000
(+) NCI as on DOA (30% of Net Assets) 5,62,500

Goodwill 1,87,500
Practical Example 7: Equity Dividend and Preference Dividend

Treatment of Preference Share Capital & Preference Dividend in Subsidiaries)
Balance Sheet as on 31/3/24
p E
Equity share capital 15,00,000 9,00,000
9% Preference Share Capital 6,00,000 5,00,000
Other Equity 10,00,000 8,00,000
Liabilities 9,00,000 8,00,000
40,00,000 30,00,000
PPE 14,00,000 20,00,000
Investments:
In Equity Shares (60%) 8,00,000
In Preference Shares (30%) 2,00,000
All Other Assets 16,00,000 10,00,000

40,00,000 30,00,000
1) Both Investment were acquired on 1/4/23
2) Preference Dividend is declared by Subsidiary on 31/3/24. But no entry is yet passed by
both.
3) Equity dividend is paid on subsidiary on 1/10 @12%
4) Balance of other equity of subsidiary as on 1/4/23 = 5,00,000.
Show important workings & Prepare CBS.
Solution : -
Working Note 1: SCNA
Particulars DOA Position Changes after DOA Balance Sheet
1/4/23 12 Months 31/3/24
Other Equity 5,00,000 3,00,000 8,00,000

+ Equity Dividend - 1,08,000
Paid
+ Preference Dividend
Paid (No need to add -
back as entry not
passed)
(-) Preference - (45,000)
Dividend
Final Balances of 5,00,000 3,63,000
Profit
Equity Share Capital 9,00,000 - -
100% Net Assets as 14,00,000 - -

on DOA
P’s Share in Post 2,17,800
Profit
NCI’ Share in Post
Profits 1,45,200
Working Note 2: - (NCI including Preference Share Capital)

NCI (40% of Net Assets as on DOA) 5,60,000
+ Proportionate 70% Preference Share Capital 3,50,000
(+) Share in Post-Acquisition Profit (60%) 1,45,200
(-) Dividend Equity Received (1,08,000 x 40%) (43,200)
TOTAL NCI 1,12,000
**Excluding Preference Share Dividend, it should be separately shown in CBS "Other Current
Liabilities".
Working Note 3: - Cost of Control Investment

Equity 60% 10,00,000
Preference 30% 9,10,000
19,10,000
(-) 100% Net Assets: 14,00,000
100% Pref. Share Capital: 5,00,000 (19,00,000)
Goodwill 10,000
Working Note 4: - Other Equity Balance

Balance with Parent in SFS 10,00,000
+ Post Acquisition Share in Subsidiary Prof it 2,17,800
- Dividend Equity (64,800)
11,53,000
+ Preference Dividend Income 30% 13,500
11,66,500

PPE 34,00,000
Goodwill 10,000
Other Current Asset 26,00,000
60,10,000
Equity Share Capital 15,00,000
9% Preference Share Capital 6,00,000
NCI 10,12,000
Net Dividend Payable (Preference) 31,500
60,10,000

Practical Example 8: (Equity & Preference Dividend)

From the above example 15, but the Date of Acquisition is 1/10
Solution:
Working Note 1: SCNA
1/4/23 12 Months 31/3/24
Other Equity 5,00,000 3,00,000 8,00,000
+ Equity Dividend Paid - 1,08,000
+ Preference Dividend Paid (No need to - -
addback as entry not passed)
5,00,000 4,08,000
(+/-) Time Adjustment for 6 Months 2,04,000 (2,04,000)
7,04,000 2,04,000
(-) Preference Dividend (22,500) (22,500)
Final Balances of Profits 6,81,500 1,81,500
100% Net Assets as on DOA (Equity) 15,81,500
P’s Share in Post Profit 1,08,900 -
-
NCI’ Share in Post Profits 72,600
Working Note 2: NCI including Preference Share Capital

NCI (40% of Net Assets as on DOA) 6,32,600
(+) Proportionate 70% Preference Share Capital 3,50,000
(+) Share in Post-Acquisition Prof it 72,600
(-) Dividend Equity Received (1,08,000 x 40%) (43,200)
10, 12,000
Working Note 3: Cost of Control

Investment in both 10,00,000
+ NCI as on DOA 9,82,600
19,82,600
(-) 100% Net Assets: (20,81,500)
Net Assets attributable to Equity 15,81,500
100% Pref. Share Capital 5,00,000
CAPITAL RESERVE 98,900
Working Note 4: Other Equity Balance

Balance with Parent in SFS 10,00,000
+ Post Acquisition Share in Subsidiary Prof it 1,08,900
- Dividend Equity (64,800)
+ Preference Dividend Income 30% 13,500
10,57,600


PPE 34,00,000
Other Current Asset 26,00,000
60,00,000
9% Preference Share Capital 6,00,000
Other Equity: 10,57,600 11,56,500
CR: 98,900
NCI 10,12,000
Other Liabilities 17,00,000
Preference Dividend Payable 31,500*
60,00,000
*Payable to NCI (Preference Dividend)
Practical Example 9: (Revaluation of Net Assets)

Balance Sheets as on 31.03.18
Particulars H Ltd. S Ltd.
Land 750000 500000
Investment in Sub 75% 840000 -
Other Assets 460000 400000
Share Capital 900000 500000
Other Equity 700000 200000
Liabilities 450000 200000
Investments were made on 1.04.17 when balance in other equity of S was 80,000.
Land is appreciated by Rs. 150000 on 1.4.17. Tax rate 30%. Prepare Consolidated Balance Sheet.
SOLUTION:
Net asset Position as on Date of Acquisition
Other Equity 80,000
+ FV Gain on Land 1,50,000
(-) DTL due to above FV Gain (42,000)
FV of Net Assets 6,85,000
Cost of Control:-
Investment 8,40,000
NCI 1,71,250
(-) 100% NA (6,85,000)
Goodwill 3,26,250
(Answer: BS 2586250/-)

Practical Example 10: (Multiple Adjustments)

Balance Sheets as on 31.03.18
Particulars H Ltd. S Ltd.
Land 1000000 600000
P&M 600000 500000
Investment in Sub 1500000 -
Inventory 600000 400000
Other CA 400000 300000
4100000 1800000
Share Capital 2000000 1000000
Other Equity 1000000 400000
Non-Current Liabilities 600000 200000
Current Liabilities 500000 200000
4100000 1800000
H acquired 80% shares in S on 1/7/17. On that date, MV of Land was 7,00,000 of S. MV of P&M on the
same date was Rs. 800000 with remaining useful life of 10 years. Although estimated useful life as on
1/4/17 was 6 years.
On 1/9/17, dividend was paid by S Rs. 10000
On 1/10/17, Loss by fire in S was Rs. 50,000, Abnormal Gain on 1/5/17 was Rs. 10,000
On 1/4/17, Other Equity balance of S was Rs. 300000. Tax Rate 30%
Prepare CBS of H Ltd.
SOLUTION:
Working Note - 1:
Particulars
Life of Capital asset 6 Years
Carrying Amount on 01/04/2017 6,00,000
Depreciation up to 30/06/2017 (6,00,000 x 3/12 x 1/6) 25,000
Carrying Amount on 01/07/2017 5,75,000
Market Value 8,00,000
Revaluation Gain 2,25,000
Depreciation Effect from 01/07/2017 to 31/03/2018
Actually charged 75,000
Should be charged (8,00,00 x 1/10 x 9/12) 60,000
60,000
Working Note – 2:
Statement of Changes in Net assets
Particulars DOA Changes Balance
01/07/2017 After DOA Sheet
Profit & Loss 31/03/2018
Other Equity 3,00,000 1,00,000 4,00,000
(+/-) Dividend Paid - 10,000
(+/-) Abnormal Items (50,000 - - 40,000
10,000)

Normal Profits 3,00,000 1,50,000

(+/-) Time Adjustments for 3 months 37,500 (1,50,000 x
3/12)
Normal Balance 3,37,500 1,12,500
Before Abnormal Items
(+/-) Abnormal Items 10,000 (50,000)
(+/-) Revaluation Effect -
Land 1,00,000
Plant & Machinery 2,25,000 15,000
(+/-) DTL (97,500) (4,500)
Final Balances of Profits 5,75,000 73,000
(+) Equity share Capital 10,00,000 -
100% Net Assets as on DOA 15,75,000 -
Share of H in Post Profit - 58,400
Share of NCI in Post Profit 14,600
Working Note – 3: Non - Controlling Interest:

Particulars Amount
Non-Controlling Interest on DOA (15,75,000 x 3,15,000
20%)
(+) Post Acquisition Profit 14,600
(-) Dividend already Received (2,000)
Non-Controlling Interest on 31/03/2018 3,27,600
Practical Example 11 (Reverse Acquisition)

The Balance Sheets of Entity A and Entity B immediately before business acquisition are as follows:
Amount (₹in thousands)
Particulars Entity A Entity B
Current Assets 600 800
Non-Current Assets 1,200 2,900
Total Assets 1,800 3,700
Current Liabilities 400 200
Non - Current Liabilities 300 1,200
Total Liabilities 700 1,400
Equity
30,000 Shares of 10/- Each 300
60,000 Shares of 10/- Each 600
Retained Earnings 800 1,700
Total Equity 1,100 1,200
Total Equity and Liability 1,800 3,700
On 31 March 20X1, Entity A issues 2.5 shares in exchange for each share of Entity B. All of entity B's
shareholders exchange their shares. Therefore, Entity A issues 1,50,000 shares in exchange for all
60,000 shares of entity B. Entity A legally owns 100% of entity B.

Solution
The shareholders of Entity B own 83.33% (1,50,000/1,80,000) of the combined entity. The directors
of entity B are appointed 6 out of 8 positions in combined entity board. In accordance with Ind AS
103, Entity B (Legal Acquiree) is the accounting acquirer and Entity A (Legal Acquirer) is the accounting
acquiree as Entity B shareholders control over combined entity.
The quoted market price of Entity B's share as at 31st March, .20X1 is ₹ 105 per share and Entity A's
share price as at 31st March, 20X1 is ₹ 20 per share.
Assume the fair value of Entity A's identifiable net assets as at 31st March, 20X1 are the same as
carrying values and ignore tax effect.
The acquisition date fair value (i.e. at 31st March, 20X1) of the accounting acquirer equity instrument
is generally used to determine the amount of consideration transferred for business combination. In
this case it is 105 per share (Entity B).
So if the business combination had taken place in the form of Entity B issuing additional shares to
Entity A's shareholders in exchange for their shares in Entity A, Entity B would have to issue 12,000
shares (30,000 / 2.5) for the ratio of ownership interest in the combined entity to be same.
(12,000/72,000). Therefore, the consideration for the business combination effectively transferred
by Entity B is ₹ 12, 60,000 (12000 Shares x 105).
Calculation of Goodwill:
Fair value of Assets less Liabilities Assumed (Entity A) - ₹11,00,000
Consideration transferred (by Entity B) - (₹12,60,000)
Goodwill - ₹1,60,000
Practical Example 12: - Chain Holding

Date of Acquisition = 1/7/23
A Ltd. acquired 90% Equity Investment in B Ltd. B Ltd. acquired 70% Investment in c Ltd.
Balance Sheet as on 31/3/24
A B C
Investment : B – 90% 5,00,000 - -
C – 70% - 3,50,000 -
Other Assets 10,00,000 6,50,000 8,00,000
15,00,000 10,00,000 8,00,000
Equity share capital 7,00,000 5,00,000 4,00,000
Reserves & Surplus 4,00,000 2,50,000 1,50,000
Liabilities 4,00,000 2,50,000 2,50,000
15,00,000 10,00,000 8,00,000
1) Dividend paid by C on 1/8/23 @15%

2) Dividend paid by B on 1/8/23 @ 12%
3) C Ltd. Sold goods to A Ltd. Costing Rs. 40,000 @ Rs. 50,000 (All are unsold with A on Balance
Sheet)
4) Other Assets are PPE & FV of PPE is 7,50,000 (B Ltd.) & 10,00,000 (C Ltd.)
Depreciation Rate is 10% P.A.
5) Tax Rate is 25%

6) Reserves & Surplus of B Ltd & C Ltd as on 1/4/23 are 90,000 & 60,000 respectively
Prepare Consolidated Balance Sheet of A Ltd.
Solution:
Working Note 1: Holding Ratio
A in B = 90%
NCI in B = 10%
A in C = 90% x 70% = 63%
NCI in C = 37%
Working Note 2: PPE Adjustment

B C
BV as on 31/3 6,50,000 8,00,000
BV as on 1/4 @10% 7,22,222 8,88,889
BV as on 1/7 7,04,167 8,66,666
7FV as on 1/7 7,50,000 10,00,000
FV Gain 45,833 1,33,333
Depreciation that has been 54,167 66,667

charged from 1/7 to 31/3
Depreciation that should be 56,250 75,000
charged on FV
Excess Depreciation 2,083 8,333
Working Note 3: SCNA of C

Reserves & Surplus 60,000 90,000 1,50,000
+ Dividend Paid - 60,000
60,000 1,50,000
(+/-) Time Adjustment 37,500 (37,500)
for 3 Months
97,500 1,12,500
(-) Unrealized Profit - (10,000)
(+/-) PPE Adjustment 1,33,333 (8,333)
(+/-) DTL on PPE (33,333) 2,083
+ DTA on Stock - 2,500
Adjustment
Final Balances of Profit 1,97,500 98,750
Net Assets as on DOA 5,97,500 - -
A’s Share of Post - 62,213 -
Acquisition Profit
NCI’s Share of Post - 36,537 -
Acquisition Profit

SCNA of B
Reserves & Surplus 90,000 1,60,000 2,50,000
+ Dividend Paid - 60,000
(-) Dividend Received by B (42,000)
90,000 1,78,000
(+/-) Time Adjustment 44,500 (44,500)
for 3 Months
1,34,500 1,33,500
(+/-) PPE Adjustment 45,833 (2,083)
(+/-) DTL on PPE (11,458) 521
+ DTA on Stock - -
Adjustment
Final Balances of Profit 1,68,875 1,31,938
Net Assets as on DOA 6,68,875 - -
A’s Share of Post 1,18,744
Acquisition Profit
NCI’s Share of Post 13,194
Acquisition Profit
Working Note 4: Cost of Control

B Ltd. C Ltd.
Investment 5,00,000 3,15,000
+ NCI as on DOA 66,888 2,21,075
(-) 100% Net Assets (6,68,875) (5,97,500)
Gain on Bargain Purchase 1,01,987 61,425
Working Note 5: Non-Controlling Interest

B Ltd. C Ltd.
NCI as on DOA 66,888 2,21,075
+ Share in Post-Acquisition Profits 13,194 36,537
(-) Dividend (6,000) (18,000)
(-) Share in Investment of B's NCI (35,000) -
39,082 2,39,612
Working Note 6: Consolidated Other Equity

R&S CR
Other Equity Balance with A 4,00,000 -
Share in Post-Acquisition Profits B 1,18,744 -
C 62,213
(-) Dividend received from B (54,000)
+ Gain on Bargain Purchase B - 1,01,987
C - 61,425
5,26,957 1,63,412

Consolidated Balance Sheet of Group

Assets Amount
Other Assets A – 990000 26,08,750
B – 650000
Gain – 45833
Dep – (2083)
C – 800000
Gain – 133333
Dep – (8333)
Deferred Tax Asset (on Unrealised Profit) 2,500

Total 26,11,250
Non-Controlling Interest (39082 + 239612) 2,78,694
DTL (10937 + 31250) 42,187
Other Liabilities 9,00,000
26,11,250
Practical Example 13: - (Change in % of Holding)

Parent Limited. 31/3/24
SFS CFS
Other Assets 30,00,000 50,00,000
Investment in Subsidiary B 100% 8,00,000 -
C 100% 6,00,000
Goodwill B - 50,000
C - 40,000
44,00,000 50,90,000
Equity Share Capital 25,00,000 25,00,000
Other Equity 10,00,000 16,00,000
Liabilities 9,00,000 9,90,000
. 44,00,000 50,90,000
Net Assets of C included in above Balance Sheet: -

Other Assets = 9,00,000
Liabilities = 2,50,000
No 1st April, 2024, Parent sold full Investment of 100% in C @ Rs. 7,00,000
On other transaction on 1st April prepare Separate Balance Sheet & CBS if Parent after above
Transactions.

Solution:
SFS of Parent
Bank A/c Dr. 7,00,000
To Investment A/c 6,00,000
To Gain A/c 1,00,000
Separate Balance Sheet

Other Assets 37,00,000
Investment in B 8,00,000
45,00,000
45,00,000
CFS of Parent
Bank A/c Dr. 7,00,000
Liabilities A/c Dr. 2,50,000
To Gain (P&L) A/c 10,000
To Assets A/c 9,00,000
To Goodwill A/c 40,000

Other Assets (50-9+7) 48,00,000
Goodwill 50,000
48,50,000
Other Equity (16,00,000 + 10,000) 16,10,000
Liabilities (9,90,000 – 2,50,000) 7,40,000
48,50,000
Practical Example 14: (Business Vs. Asset)

Myntra, large clothing company, wants to expand to the new location. During its research it discovers
an old factory with infrastructure owned by the local company. Current owner discontinued the
production recently. Currently, there are only a few people working in the factory on the closing works.
ABC decides to buy the factory, but the owner agrees to sell it only with all its liabilities and assets in
entirety.
The Balance Sheet of the factory is as follows:
Particulars Amount
ASSETS:
Non Current Assets
Factory Premise 30,00,000
Plant and Machinery 12,00,000
DTA 1,50,000
Current Assets:
Inventories 2,50,000
Cash and Cash Equivalents 1,00,000
Total Assets 47,00,000
EQUITY & LIABILITIES:
Equity
Share Capital 2,00,000
Current Liabilities 44,00,000
Total Equity & Liabilities 47,00,000
Fair value of the factory building is Rs. 31,00,000. All other assets in factory Rs.s balance sheet are
stated at fair values. Myntra pays Rs. 5,00,000 for the factory in its entirety. Assess whether Myntra
acquired a business or not.
Solution
Perform a concentration test first.
We need to calculate fair value of gross assets as under:
● Consideration paid: Rs. 5,00,000;
● (+) FV of liabilities: Rs. 44,00,000;
● (-) Cash acquired: Rs. 1,00,000;
● (-) Deferred tax asset acquired: Rs. 1,50,000
● Total: Rs. 46,50,000
OK, so the fair value of gross assets acquired is Rs. 46,50,000; and it is mainly concentrated in building
and P&M.
However factory building and P&M are NOT similar assets, because they represent different classes
of property, plant and equipment.
As a result, the concentration test is NOT met, the fair value is NOT concentrated in a single asset
(or group of similar assets) and as a result, Myntra must assess inputs, processes and outputs in order
to conclude whether the acquired activities and property are a business or not.
First of all, does the set of activities and assets have output?
No, it does not, because the factory has been recently closed.
Therefore, if it does not have an output, we need to see whether there is a substantive process present.
There is a workforce (a few employees working on the closing of factory), but there are no other inputs
that workforce develops or converts into output.
The workforce there only works on the closure.
Thus, Myntra can conclude that it has acquired assets only, not a business (no consolidation, but the
asset acquisition).

CA. Jai Chawla IND AS 109, 32 & 107
Topic - 13
FINANCIAL INSTRUMENTS
IND AS – 109, 32 &107
(PRACTICAL EXAMPLES)
Practical Example 1 (FA – AMC – Loan at off Market Terms):

The loan given to another entity Rs 10,00,000 transaction cost incurred Rs.25,000 (outflow) , Market
rate 10% and Loan Term 4-years, Actual Contract Interest Rate 7%. Show Initial Recognition of
Financial Asset.
Solution:
Step 1 - Total outflow = 10,25,000 (including Transaction Cost)
Step 2 – Contractual Cash Flows (inflow) & its Present Value Market Rate
Year CCF (inflow) PV @10 %
1 70,000 63,636
2 70,000 57,852
3 70,000 52,592
4 10,70,000 7,30,824
PV of CCF 9,04,904
(Fair Value)
Step 3 – Iinitial Recognition at PV of CCF (At Fair Value)

Loan (FA) A/c Dr. 9,04,904
P&L (loss) A/c Dr. 1,20,096
To Bank 10,25,000
Step 4 – Recognise Interest Income at ERI (Market Rate) Always

Year Opening Interest CCF (Inflows) Closing
1 9,04,904 90,490 (70,000) 9,25,394
2 9,25,394 92,539 (70,000) 9,47,933
3 9,47,933 94,793 (70,000) 9,72,726
4 9,72,726 97,274 (10,70,000) -
Practical Example 2 (FA -AMC – Loan at Market Terms):

Loan given to another Company 10,00,000; Transaction Cost Charged From borrower company (inflow)
= 50,000; Interest Rate Charged on Loan Contractually 10%; Term 4 Years; Repayment is Annual
payment of Interest and Principal at maturity.
Solution -
Step 1 – Net Outflow (10,00,000 - 50,000) = 10,50,000
Step 2 – Contractual Cash Flows:

Year Cash Flows

1 1,00,000
2 1,00,000
3 1,00,000
4 11,00,000
In this case the Effective Income is High then 10% because of 50,000 collections of Transaction Cost.
Hence ERI should be calculated.
Step 3 – Calculation of ERI

ERI is a rate at which PV of all CCF should be equal to Initial Net outflow
(i.e. rate at which Step 1 = Step 2)
at 10% = PV is 10,00,000
at 11% = PV is 9,68,976
Effective Rate of Interest is 11.61%
Step 4 – Initial Recognition of Financial Asset at Same Net Outflow (Step 1)

Loan (Financial Asset) A/c Dr. 9,50,000
To Bank A/c 9,50,000
9,50,000 is Fair Value because at 11.61 % PV of all CCF is
equal to 9,50,000
Step 5 – Interest income at ERI

Year Opening Interest CCF Closing
1 9,50,000 1,10,295 (1,00,000) 9,60,295
2 9,60,295 1,11,490 (1,00,000) 9,71,785
3 9,71,785 1,12,824 (1,00,000) 9,84,610
4 9,84,610 1,15,390 (11,00,000) -
Year 1 Beginning:
Purchased 200 No. of Equity shares of Reliance @2,500/- (Fair Value)
Transaction Cost Outflow = 1,000/-
These are not HFT. Hence, designated under FVTOCI
Journal Entry
Investment in Equity ® A/c Dr. 5,01,000
To Bank A/c 5,01,000
Year 1 End:
Market Price becomes 2,610/-
Remeasured @ 2610 x 200 i.e., 5,22,000
Investment in Equity ® A/c Dr. 21,000
To FV Gain A/c (OCI) 21,000

SPL (extract)
Other Comp. Income:-
1) Items that will not be reclassified to P&L:-
FV Gain on Reliance 21,000
SOCIE (Extract)
Reserves & Surplus CR SP other R/E Equity investment through OCI
OCI During the year ------- 21,000
Year 2 End : Market Price = 2,580/-

Remeasured @ 2,580 x 200 = 5,16,000
FV Loss (OCI) Dr. 6,000
To Investment in Equity A/c 6,000
SPL (extract)
Items that will not be reclassified to P&L :-
FV Loss (6,000)
SOCIE (Extract)
Equity through OCI
Opening balance / Restated 21,000
OCI for the year (6,000)
Balance at the end 15,000
Year 3: Shars Sold @ 2,600/-

Bank A/c Dr. 5,20,000
To Investment A/c 5,16,000
To Gain on sale A/c (OCI) 4,000
SPL (extract)
Items that will not be reclassified to P&L:-
Gain on Sale 4,000
SOCIE (Extract)
Reserves & Surplus FV Reserves
Opening balance GR / RIE 15,000
OCI for the year 4,000
Transfer to GR / A&S 19,000 (19,000)
OCI A/c (CY) Dr. 19,000

To GR A/c 19,000

We bought share of Infosys Ltd. at Rs.2100. Transaction cost is Rs.2. On quarter end FV of shares is
Rs.2250. These shares are designated as FVTPL (held for trading)
Answer:
Day-1 (Initial Recognition)
Investment in shares Dr. 2100
Transaction cost (P&L) Dr. 2
To Bank A/c 2102
Quarter end (Subsequent Measurement) –
To Fair value gain (P&L) 150
Now suppose if we sell these shares at Rs.2500 and transaction cost is Rs.3
Bank Dr. 2500
To investment in shares A/c 2250
To P&L (Gain) A/c 250
Transaction Cost (P&L) A/c 3
To Bank A/c 3
We bought shares of Infosys at Rs.2100. Transaction cost is Rs.2. On quarter end FV of shares is
Rs.2250. These shares are designated as FVTOCI, not held for trading.
Answer:
Day-1 Investment in shares Dr. 2102
To Bank A/c 2102
Quarter end –
To OCI 148
Now suppose if we sell these shares at Rs.2500 and transaction cost is Rs.3
Bank Dr. 2497
To investment in shares A/c 2250
To OCI A/c 247
A Ltd. has made a security deposit whose details are described below. Make necessary journal entries
for accounting of the deposit. Assume market interest rate for a deposit for similar period to be 12%
per annum.
Particulars Details
Date of Security Deposit (Starting date) 1/4/X1
Date of Security Deposit (Finishing date) 31/03/X6
Description Leases

Total Lease Period 5

Discount Rate 12%
Security Deposit (A) 10,00,000
Solution:
The above security deposit is an interest free deposit redeemable at the end of lease term for Rs.
1000000. Hence this involves collection of contractual cash flows at specified date and not able to sale
in the market hence will be categorized under “Amortised Cost”.
Journal Entry:
At beg. FA (Security Deposit) A/c Dr. 5,67,427
Prepaid Lease Exp A/c Dr. 4,32,573
To Bank A/c 10,00,000
At the end of 1st Year:

Security deposit A/c Dr. 68,091
To Interest Income A/c 68,091
Prepaid lease expense shall be amortised over the life of lease term on SLM basis unless any other
approach is reasonable.
Rent Expense A/c Dr. 86,515
To Prepaid Expense A/c 86,515
Practical Example 7 - Staff Advance at Concessional Interest: - (Under AMC)

Loan Given to Mansi (Employee) by its employer Entity Rs. 15,00,000 @6% P.a. Market interest Rate is
9% P.a. Repayment terms are: -
Equal Principal Installment in 5 Years + Interest on Outstanding Balance.
Solution:
Staff Loan Shall be Categorized Under AMC.
Initial Recognition @PV of CCF @9%
Year CCF PV & 9%
1 3,90,000
2 3,72,000
3 3,54,000
4 3,36,000
5 3,18,000
13,88,965
Beginning of Loan:
Books of Employer Entity
Loan to Staff (FA) Dr. 13,88,965
Employee Benefits Expenses A/c* Dr. 1,11,035
To Bank A/c 15,00,000

*Either D&A or Directly Transfer to P&L A/c

Loan To Staff A/c
Particular Amount (Rs.) Particular Amount (Rs.)
To Bank A/c 13,88,965 By Bank A/c 3,90,000
To Interest Income @ 9% 1,25,007 By Balance C/d 11,23,972
15,13,972 15,13,972
Assume Same Example Above. But Repayment Terms are:
Equal (Principal + Interest) Installments.
Solution:
Equal Installments (P+I) = 15,00,000 / Annuity Factor* at 6% = 15,00,000 / 4.212
Equal Installment = 3,56,095
FA = P of 3,56,095 @9% for 5 Years = 13,85,085/-

*Annuity Factor is At Contractual Rate Not Effective Rate (Accounting will be at Effective Rate Only)
Year Opening O/s Interest 9% CCF (Inflows) Closing Balance
1 13,85,085 1,24,658 (3,56,125) 11,53,618
2 11,53,618 1,03,826 (3,56,125) 9,01,319
3 9,01,319 81,119 (3,56,125) 6,26,313
4 6,26,313 56,368 (3,56,125) 3,26,556
5 3,26,556 29,569 (3,56,125) -
Kamal Ltd. issued Convertible Debentures (FV = 100) 50,000 No. @ 8% Interest P.a. for 5 Years.
Debentures are Convertible at the option of Holder after 5 Years.
Same Debentures (With no Conversion Rights) could have been issued at a market rate of 11% P.a.
Year CCF PV & 11%
1 4,00,000
2 4,00,000
3 4,00,000
4 4,00,000
5 4,00,000
5 50,00,000**
PV of CCF 44,45,615
*If Holder opts for Cash, Entity cannot deny.

Total Proceeds at Beginning = 50,00,000
PV of CCF (FL) = 44,45,615
Balance Equity = 5,54,385 (SOCIE under “Equity Component of Comp. FI”)

Beginning:
Bank A/c Dr. 50,00,000
To 8% Convertible Debentures A/c (FL) 44,45,615
To 8% Convertible Debentures A/c (Eq) 5,54,385
8% Convertible Debentures (FL) A/c

To Balance C/d 45,34,633 By Interest Exp A/c 4,89,018
(at Effective Rate)
49,34,633 49,34,633
50,33,442 50,33,442
51,43,121 51,43,121
52,64,864 52,64,864
54,00,000 54,00,000
Case 1: Holder opts for Cash Payment:

8% Convertible Debenture (FL) A/c Dr. 50,00,000
To Bank A/c 50,00,000
8% Convertible Debenture (EQ) A/c Dr. 5,54,385
To General Reserve A/c 5,54,385
Case 2: Holder opts for Equity Conversion:

8% Convertible Debenture (FL) A/c Dr. 50,00,000
To 8% Convertible Debenture (EQ) A/c 50,00,000
Now Equity Balance is 55,54,385
Suppose entity issued 1,00,000 No. of 10/- each.

8% Convertible Debenture (EQ) A/c Dr. 55,54,385
To Equity Share Capital A/c 10,00,000
To SP Reserve A/c 45,54,385
Practical Example 10: (Non-Compound Financial Instrument)

Kamal Ltd. issued 9% Bonds (20,000 No. of 100/- FV) @10% Discount. Interest is repayable annually.
Principle after 4 Years in cash with 12% Premium. How to Account for this financial instrument.

Solution
Initial Proceeds = 18,00,000
Year CCF
1 1,80,000
2 1,80,000
3 1,80,000
4 1,80,000
4 22,40,000
1st Rate 14% = Sum of PC of CCF = 18,50,728

2nd Rate 15% = Sum of PC of CCF = 17,94,623
14% +
Increase in % 1 ?
Decrease in Rs. 56105 50728
Hence ERI = 14.904%
Journal Entry in Beginning:

Bank A/c Dr. 18,00,000
To 9% Bonds (FL) A/c 18,00,000
9% Bonds (FL) A/c

To Balance c/d 18,88,272 By Interest Exp A/c 2,68,272
20,68,272 20,68,272
To Bank A/c 1,80,000 By Balance b/d 18,88,272
21,69,700 21,69,700
22,86,245 22,86,245
24,20,000 24,20,000

Practical Example 11
Loan taken of Rs. 50,00,000 @ Contractual Rate = 12% p.a.; Loan Term is 5 Years
Repayment Terms: -
(i) Processing fees at Beginning = 2,00,000
(ii) Equal (P+I) Installment at end every year
At the beginning of 3rd Year: -
Borrower entity approached Bank & requested for restructuring, as per new terms
(i) Remaining repayment period = 4 years
(ii) Now revised CCF would be 12,50,000/- annually
(iii) Modification fee immediately = 50,000/-
(iv) Same loan with similar terms could have been arranged @13% Market Rate.
Solution
(All figures are after considering 12 digits)
(i) Annual Repayment = 50,00,000 / 3.605 = 13,87,049
(ii) Initial Proceeds = 48,00,000
(iii) Annual Contractual Cash Flows
Year CCF
1 13,87,049
2 13,87,049
3 13,87,049
4 13,87,049
5 13,87,049
(iv) We need to calculate ERI at which sum of PV of CCF should be equal to 48,00,000/-
(v) At 12% PV is 50,00,000

At 14% PV is 47,61,851
12% +
Increase in % 2% ?
Decrease in ` 2,38,149 2,00,000
12% + 1.68% = 13.68%

(vi) Amortisation Schedule
Year Opening o/s Interest @ 13.68% Installment Closing O/s
1 48,00,000 6,56,640 (13,87,049) 40,69,591
2 40,69,591 5,56,720 (13,87,049) 32,39,262
Carrying Amount of Loan at Modification Date = 32,39,262

Check 10% Test: -
1) PV of Revised CCF (12,50,000 p.a. for 4 years & 50,000 fees) at Original ERI = 13.68%
Year CCF
0 50,000
1 12,50,000

2 12,50,000
3 12,50,000
4 12,50,000
Revised PV = 37,16,163
2) Difference between Current CA and Revised PV = 4,76,901
% of Change = 4,76,901 / 32,39,262 x 100 = 14.72%
3) Conclusion: Follow Extinguishment A/c
4) Treatment of Extinguishment A/c
a) Derecognize old Loan @12% i.e., 32,39,262
b) **Recognize New 13% Loan at PV of new CCF @13% i.e., 37,68,089
c) Difference transfer to P&L i.e., 5,28,827**
Year CCF
0 50,000
1 12,50,000
2 12,50,000
3 12,50,000
4 12,50,000
PV @13% = 37,68,089
Extinguishment of Financial Liability Entry:

12% Loan A/c Dr. 32,39,262
Loss on Modification A/c Dr. 5,28,827
To 13% Loan A/c 37,68,089
Profit & Loss A/c Dr. 5,28,827

To Loss A/c 5,28,827
Further Accounting:
13% Loan A/c
To Bank A/c (Fee) 50,000 By 12% Loan A/c 32,39,262
By Loss A/c 5,28,827
To Bank A/c 12,50,000 By Interest @13% 4,83,352
To Balance C/d 29,51,441
42,51,441 42,51,441
Practical Example 12
Loan Taken 50,00,000 @10% Interest. Term is 4 years
Repayment Terms:
1) Equal Principal only & Interest Extra.
2) No other charges. Therefore, ERI is also same i.e., 10%

First Year repayment on Time

On Second Year Default in Payment of Principal only Interest is paid
Beginning of 3rd Year: Bank agrees to make following Modifications:
(i) Outstanding Loan of 37,50,000 now to be repaid in 5 Years in equal Principal
(ii) Interest to be paid @same 10% Rate. (Assume now it is not a market Rate)
Apply Extinguishment A/c (ignore 10% Test)
(iii) Fees of Modification paid = 1,00,000
Solution:
Step 1:
Current Carrying Value immediately before Modification = 37,50,000
Step 2: (Extinguishment A/c)

Revised ERI is not given
Calculate New ERI at Which
Sum of PV of New Terms is equal to Current Outstanding Amount (i.e., 37,50,000)
Year CCF Remarks
0 1,00,000
1 11,25,000 (7,50,000 + 3,75,000)
2 10,50,000 (7,50,000 + 3,00,000)
3 9,75,000 (7,50,000 + 2,25,000)
4 9,00,000 (7,50,000 + 1,50,000)
5 8,25,000 (7,50,000 + 75,000)
By Interpolation (Trail & Error) Method New ERI Would be 11.13%
Practical Example 13: Staff Advance Modification

Loan given to employee Rs. 12,00,000 @5% p.a. Principal repayment lumpsum at end of 5th Year.
Market Rate = 9%
Solution:
Initial Recognition
Year CCF
1 60,000
2 60,000
3 60,000
4 60,000
5 12,60,000
PV @ 9% = 10,13,297
Initial Entry:
Loan to Staff (FA) A/c Dr. 10,13,297
Employee Compensation Expense A/c* Dr. 1,86,703
To Bank A/c 12,00,000

● *It is to be Deferred & Amortised SLM in 5 Years

● Finance Income @9% shall be booked.
At the Beginning of 3rd Year. Changes in Repayment Schedule as under for remaining Outstanding: -
He need to pay 2,50,000 p.a. in next 5 years.
Revised market rate = 10% p.a.
Sum of PV of 2,50,00 p.a. @10% p.a. for 5 Years i.e., 9,47,697/-
Carrying Amount at the Beginning of 3rd Year.

Year Opening O/s Amt Interest Actual Repayment Closing Balance
1 10,13,297 91,197 (60,000) 10,44,494
2 10,44,494 94,004 (60,000) 10,78,498
Remaining Unamortized Balance of Employee Compensation A/c =

1,86,703 / 5 x 3 = 1,12,022/- (Dr. Balance)
Change in Financial Asset:
Revised PV 9,47,697
CA 10,78,498
Decrease in FA 1,30,801
Beginning of 3rd Year.

Loss A/c Dr. 1,30,801
To Staff Loan A/c 1,30,801
Employee Compensation Expenses A/c Dr. 1,30,801
To Loss A/c 1,30,801
Revised Unamortised Balance of Employee Compensation = 1,12,022 + 1,30,801 = 2,42,823*

* Deferred & Amortised in Next 5 Year SLM
Staff Loan A/c (FA)

To Balance B/d 10,78,498 By Loss A/c 1,30,801
To FI @10% on 94,770 By Bank A/c 2,50,000
9,47,697 By Balance c/d 7,92,467
11,73,268 11,73,268

Loan Amount is 50,00,000 @ 9% p.a. with guarantee.
Market rate is 12% p.a. without guaranteed term = 4 years
Principal Repayment in 4th Year guarantor has charged 1,00,000 for this service
Solution:
Year CCF @ 12% CCF @ 9% Difference
1 6,00,000 4,50,000 1,50,000

2 6,00,000 4,50,000 1,50,000

3 6,00,000 4,50,000 1,50,000
4 56,00,000 54,50,000 1,50,000
Sum of PV of 1,50,000 p.a. for 4 years @12% p.a. is 4,55,602
Books of Guarantor
Bank A/c Dr. 1,00,000
Investment*/P&L A/c Dr. 3,55,602
To Financial Guarantee (Liabilities) A/c 4,55,602
*If Guarantor is a Parent Company
Financial Guarantee (Liabilities) A/c (AMC)

To Profit & Loss A/c 1,50,000 By Bank / P&L A/c 4,55,602
To Balance C/d 3,60,274 (a) By Interest Cost A/c 54,672
5,10,274 5,10,274
There is a 5% Probability of Default
Expected Loss = 50,00,000 x 5% = 2,50,000 (b)
Remeasurement of Financial Guarantee (Liability) at Higher of: -

(a) 3,60,274
Or
(b) Expected Loss i.e., 2,50,000
Financial Liability need not be re-measured as it has already been shown at Higher amount of 3,60,274
which is more than expected loss due to default.

Staff Loan Given of Rs. 10,00,000 repayable in 4 equal principal and interest separately @3% p.a.
Market Rate of Interest 9% p.a.
1st Year Payment received on Time.
But at end of 1st Year, it is expected that remaining Principal can be recovered only after 5 years. &
No interest will be recovered.
Solution:
(a) PV of CCF (as per Contract): 6,71,882/-
Year CCF
1 2,72,500
2 2,65,000
3 2,57,500
Sum of PV @ 9% for 3 Years Annuity = 6,71,882/- (i.e. Carrying Amount)
(b) PV of Estimated CF to be realised: - 4,87,449/-

PV of 7,50,000 x PV @ 9%
(c) Impairment Loss (a-b) = 1,84,433

Journal Entries:
Impairment Loss A/c Dr. (P&L) 1,84,433
To Loss Allowance A/c 1,84,433

Entity acquired 7.5% bonds of Rs. 500 lakhs, Interest is payable annually. & Principal will be payable
after 4 years at 8% Premium (Intention to Hold till maturity = AMC)
a. On 1st year end: - Interest received, No Significant increase in Credit Risk (hence 12 Month
ECL) 12M POD = 0%
b. On 2nd Year end: - Interest received, No Significant risk - 12M POD = 1.5%
Loss Given Defualt = 20% of (Interest + Principal) May not be recovered.
c. On 3rd Year End: - Interest not received, Significant increase in Credit Risk - LTECL = POD =
8%
LGD = 90% of (Interest + Principal)
d. On 4th Year End: - Interest not received & Borrower defaulted IBC initiated only 80 lakhs
principal is expected to recover.
Solution:
Working Note 1:
Sum of PV of CCF of 37.5 (interest every Year) + 540 (Principal at the end of 4th Year) at Effective
Interest Rate should be = Rs. 500 (i.e. Initial Proceeds)
At 10% = 487.70
At 9% = 504.04
EIR = 9.24%
Working Note 2: Agreed repayment schedule

Year Outstanding amt Interest @ 9.24% payment Closing balance
1 500 46.2 37.50 508.7
2 508.7 47 37.50 518.20
3 518.20 47.88 37.50 528.58
4 528.58 48.92 577.50 0
Working Note 3: Actual schedule & Impairment Loss

Year Outstanding amt Interest @ 9.24% payment Closing balance Impairment Loss
1 500 46.2 37.50 508.7 0
2 508.7 47 37.50 518.20 1.55
3 518.20 47.88 0 566.08 39.21
4 566.08 48.54 80 534.62 493.86
(566.08 – 40.76) x
9.24%

Loss Allowance A/c Dr. 40.76

Impairment loss A/c Dr. 493.86
To FA A/c 534.96
Working Note 4: Impairment Loss of 2nd Year.

LGD = 20%, POD = 1.5%
Expected Loss = 518.20 x 20% x 1.5% = 1.55
Impairment Loss (P&L) A/c Dr. 1.55

To Loss Allowance A/c 1.55
Working Note 5: Impairment Loss on 3rd Year end

LGD = 90%
Opening O/s Amt

rd
Outstanding Carrying amount of 3 Year (566.08 x 90%) 509.47
Impairment Loss (Probability of default 8%) 40.76
Less: Impairment loss till last year (1.55)
Current Year Impairment Loss 39.21
Impairment Loss (P&L) A/c Dr. 39.21

To Loss Allowance A/c 39.21
Practical Example 17 - on Partial Derecognition:

Bank has advanced a loan having carrying amount of 10,00,000 with contractual interest rate of 8%
p.a. Remaining Term = 5 Years. Principal repayment at 5th year end.
Bank transferred rights to receive interest cash flows to another party at Rs. 3,00,000
Current Market Interest Rate is 9% p.a.
Solution:
Loan (FA) Carrying Amount = 10,00,000 which consist of Carrying Amount of Principal Strip and
Carrying Amount of Interest Strip.
CA of Entire FA shall be divided into CA of Principal Strip & CA of Interest Strip in the ratio of Fair
Values.
Calculation of Fair Values: -

FV of Principal Strip = 10,00,000 x PV @ 9% for 5th Year = 6,49,931
FV of Interest Strip = 80,000 x PV @ 9% for 5 Years = 3,11,172
CA of Principal retained = 10,00,000 x (6,49,931 / 9,61,103)

Therefore, CA of Interest Part Sold = 10,00,000 – 6,73,234 = 3,23,766

Journal Entry:
Loan (Principal) A/c Dr. 6,76,234
Loan (Interest) A/c Dr. 3,23,766
To Loan (FA) A/c 10,00,000
Bank A/c Dr. 3,00,000

Loss (P&L) A/c Dr. 23,766
To Loan (Interest) A/c 3,23,766

We have invested in 12% Debenture of 25,00,000/- (CA = 25 lakhs). Redemption is due at par after 5
years.
We have Sold (with Risks) Future Interest Cash Flows to the Extent of 75% & Also 20% Principal
Cash flows to another party at Rs. 9,00,000. Market Interest Rate is 10% p.a.
Show the required Accounting.
Solution:
1) FV Calculation:
a) Sold Part
Year CCF
1 2,25,000
2 2,25,000
3 2,25,000
4 2,25,000
5 2,25,000 + 5,00,000
PV @10% = 11,63,388 (Fair Value of Sold Strip)
a) Retained Part
Year CCF
1 75,000
2 75,000
3 75,000
4 75,000
5 75,000+ 20,00,000
PV @10% = 15,26,152 (Fair Value of Retained Strip)

Carrying Amount = 25,00,000
Therefore Carrying Amount of Strip Sold = 25,00,000 x 11,63,388 / 26,89,540 = 10,81,401
Carrying Amount of Strip Retained = 25,00,000 – 10,81,401 = 14,18,599
Loss on Derecognition of Strip Sold = 10,81,401 – 9,00,000 = 1,81,401
Practical Example 19: Derecognition of FA against another FA:

Entities hold 11% Convertible Debentures of another entity with carrying amount of 12,00,000. It got
the option of conversion and availed. It received equity shares of entity having FV of 13,50,000. What
will be the Journal Entries.
Investment in Equity A/c Dr. 13,50,000

To FV Gain (P&L) A/c 1,50,000
To Investment in Debentures A/c 12,00,000
Practical Example 20: -

Loan Asset (10%) of 50,000 CA & Fair Value 56,000. Show Accounting in following Independent Cases:
-
Case 1: Derecognition
Loan Asset Sold @56,000
Bank A/c Dr. 56,000
To Loan Asset A/c 50,000
To Gain A/c 6,000
Case 2: Cash Flow Expired

Loan Asset Redeemed @50,000 Face Value
Bank A/c Dr. 50,000
To Loan A/c 50,000
Case 3: Partial Derecognition

80% of all Cash Flows transferred for Rs. 44,800/- (Without recourse)
CA = 50,000
Retained = 10,000
Transferred = 40,000
Financial Assets A/c (Transferred) Dr. 40,000
Financial Asset A/c (Retained) Dr. 10,000
To Financial Asset (Full) 50,000
Assuming FV of transferred Portion is also 44800/-
Therefore, FV of retained portion = 56,000 – 44,800 = 11,200

Bank A/c Dr. 44,800
To Financial Asset (Strip transfer) A/c 40,000
To Profit & Loss A/c 4,800
Case 4: Interest portion transferred for Rs. 40,000 (principal retained) (without recourse)
CA = 50,000
Carrying Amount of Interest Portion = 50,000 x 40/56 = 35,714
(assuming FV of Interest portion is also 40,000)
Principal retained = 14,285
Bank A/c Dr. 40,000
To Financial Asset (Sold) A/c 37,715

Case 5: Loan Asset transferred @ 56,000 with recourse for loss to the extent of Rs. 14,000
and FV of guarantee is 3000/-
Bank A/c Dr. 56,000
Continuous Involvement A/c Dr. 14,000
To Associated Liabilities A/c 17,000
Case 6: Transferred 8% (out of 10%) Interest Strip along with full principal also at Rs. 51,000
with recourse to the extent of 5,000 (FV of guarantee 700)
Carrying Amount = 50,000
Carrying Amount of Strip Transferred = 50,000 x 51/56 = 45,536
Carrying Amount of Strip Retained (B/F) = 4,464
Bank A/c Dr. 51,000

Financial Asset (Strip Retained) A/c Dr. 4,464
Continuous Involvement A/c Dr. 5,000
To Associate Liabilities A/c 5,700
**Reconciliation - Gain on Strip transferred = 5,464 (51000 – 45536) less 700 Provision

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FR CONCEPT BUILDER PRACTICAL EXAMPLES BOOK

Sr. No Topic Page no

1. FRAMEWORK FOR PREPARATION AND PRESENTATION OF

Finance cost 3,500 6,000

Balance Sheet as at 31st March, 20X2

FR Concept Builder Practical Examples 1.2

Financial Capital Maintenance at current purchasing power

Physical Capital Maintenance

FR Concept Builder Practical Examples 1.3

2. IND AS 16 - PROPERTY, PLANT & EQUIPMENT

FR Concept Builder Practical Examples 2.1

Method – II: Change in gross carrying amount and accumulated depreciation

Carrying amount (100,000 – 55,000) 45,000

FR Concept Builder Practical Examples 2.2

A) On the date of re-classification

B) On the date of sale

3) Bank A/c Dr 6,00,000

FR Concept Builder Practical Examples 2.3

3. Calculate the change in provision of Decommissioning cost as on 1/4/27: -

Case 1: Suppose PPE is under Cost model:

FR Concept Builder Practical Examples 2.4

WN 1: Calculation of NRV per unit= Expected selling price – Estimated incremental

FR Concept Builder Practical Examples 3.1

FR Concept Builder Practical Examples 3.2

4. IND AS 38 – INTANGIBLE ASSETS

Practical Example 1: - Separate Acquisition

Practical Example 2: (Intangible Acquired thru Business Combination)

Practical Example 3: (Intangible Asset with indefinite useful life)

FR Concept Builder Practical Examples 4.1

FR Concept Builder Practical Examples 4.2

5. IND AS 116 - LEASES

3. Calculation of ROU Asset:

4. Journal Entry for Initial Recognition:

FR Concept Builder Practical Examples 5.1

5. Annual Depreciation on ROU = 34,15,507 / 5 = 6,83,101

Practical Example 2: (Calculation of Interest Rate Implicit in Lease)

Practical Example 3: (Foreign Currency)

FR Concept Builder Practical Examples 5.2

At End – Lease Payment $ 10,000 82.50/- 8,25,000

3) Journal entry for change in lease liability:

Practical Example 4: (Remeasurement of Lease Liability)

2) Calculation of ROU Asset

FR Concept Builder Practical Examples 5.3

ROU ASSET 13,66,255

4) Remeasurement of LP and LL due to change in consumer price index:

5) Journal Entry for Increase in LL:

Practical Example 5: (Lease modification due to Increase in lease term)

2 7,11,871 71,187 (2,50,000) 5,33,058

3) Carrying Amount of lease liability at the beginning of 3rd year = 5,33,058

4) ROU Asset at beginning of 3rd year = 8,74,428 ÷ 4 × 2 = 4,37,214

6) Increase In Lease Liability = 11,32,390 - 5,33,058 = 5,99,332

7) Journal entry for change in Lease Liability:-

● 3rd year Interest = 11,32,390 × 9% = 1,01,915/- (Transfer to P&L)

Practical Example 6: (Lease modification due to change in consideration only)

FR Concept Builder Practical Examples 5.5

Change in Lease Liability:

4) Journal entry for change in lease liability:

Practical Example 7: (Lease modification due to decrease in lease term)

FR Concept Builder Practical Examples 5.6

2) Subsequent Measurement at 4th year Beginning