CA Final - Financial Reporting

(Test on IND AS 103, 110, 111, 28)

(FRWITHAK)

Total – 60 Marks
Time Allotted – 2 Hours

Important Points:
1. There is no use of just referring the question paper to check whether it is manageable.
Everything feels manageable until you solve it

2. Try to Complete the Question Paper within the given time limit

3. Read the question carefully and see what is asked in the question. Give Reference of
IND AS & Concept wherever you feel necessary

4. You are not required to match your answer word to word with ICAI. You can answer
in your own words alongwith keywords and appropriate working.

5. Don’t refer the solution of any question until you have completed the paper

6. Its fine if you are not able to recall few points. Solve how much you can & after test is
over do self evaluation and mark the areas which you were not able to recall.

BEST OF LUCK GUYS

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Case Study Based MCQs
CASE SCENARIO 01
All Limited holds 35% of total equity shares of M Limited, an associate company. The value of investments in M
Limited on 31 March 20X3 is Rs. 3,00,00,000 in the consolidated financial statements of All Limited. All Limited
sold goods worth Rs. 3,50,000 to M Limited. The cost of goods sold is Rs. 3,00,000. Out of these goods costing
Rs. 1,00,000 to M Limited were in the closing stock of M Limited. M Limited declared a dividend of Rs.
75,00,000 to the equity shareholders of the Company. During the year ended 31 March 20X4 the statement of
profit and loss of M Limited showed a profit of Rs. 1,50,00,000. (5 MCQs x 1 Mark Each)

Question - 1: What is the share of All Limited in the post-acquisition loss of M Limited?
A : Rs. 1,50,00,000

B : Rs. 52,50,000

C : Rs. 75,00,000

D : Rs. 26,25,000

Question - 2: What is unrealised gain on inventory left unsold with M Limited?

A : Rs. 5,000

B : Rs. 16,667

C : Rs. 50,000

D : Rs. 5,833

Question - 3: What is the share of All Limited in the Dividend declared from M Limited?
A : Rs. 75,00,000

B : Rs. 50,00,000

C : Rs. 26,25,000

D : Rs. 52,50,000

Question - 4: What is the value of investment in M Limited as on 31st March 20X4 as per equity method in the
consolidated financial statements of All Limited?
A : Rs. 3,26,25,000
B : Rs. 3,52,50,000
C : Rs. 3,52,45,000
D : Rs. 3,26,20,000

Question - 5: What is the approximate gross margin on goods sold by All Limited to M Limited?
A : 14.29%
B : 16.67%
C : 50%
D : 5%
CASE SCENARIO 02
On 1st April 20X1, A Limited acquired 80% of the share capital of S Limited. On acquisition date the share
capital and reserves of S Ltd. stood at Rs. 5,00,000 and Rs. 1,25,000 respectively. A Limited paid initial cash
consideration of Rs. 10,00,000. Additionally, A Limited issued 2,00,000 equity shares with a nominal value of
Rs. 1 per share at current market value of Rs. 1.80 per share.
It was also agreed that A Limited would pay a further sum of Rs. 5,00,000 after three years. A Limited's cost of
capital is 10%. The appropriate discount factor for Rs. 1 @ 10% receivable at the end of
1st year: 0.91
2nd year: 0.83
3rd year: 0.75
The shares and deferred consideration have not yet been recorded by A limited.

Below are the Balance Sheet of A Limited and S Limited as at 31 March, 20X3 :
A Limited (Rs. 000) S Limited (Rs. 000)
Non-current assets:
Property, plant & equipment 5,500 1,500
Investment in S Limited at cost 1,000 -
Current assets:
Inventory 550 100
Financial Assets
Receivables 400 200
Cash 200 50
Total 7,650 1,850
Equity:
Share capital 2,000 500
Retained earnings 1,400 300
3,400 800
Non-current liabilities 3,000 400
Current liabilities 1,250 650
Total 7,650 1,850

Further information:
(i) On the date of acquisition the fair values of S Limited's plant exceeded its book value
by Rs. 2,00,000. The plant had a remaining useful life of five years at this date;
(ii) The consolidated goodwill has been impaired by Rs. 2,58,000; and
(iii) The A Limited Group, values the non-controlling interest using the fair value method. At the date of
acquisition, the fair value of the 20% non-controlling interest was Rs. 3,80,000.
(12 MCQs x 1 Mark Each)

Question – 1 : What will be amount of purchase consideration at the acquisition date i.e. 1st April, 20X1? (Rs. in
`000s)
A : Rs.1,000
B : Rs.1,360
C : Rs.1,375
D : Rs.1,735
Question – 2 : Compute the amount of net assets / net worth at the acquisition date i.e. 1st April, 20X1. (Rs. in
`000s)
A : Rs. 825
B : Rs. 625
C : Rs. 500
D ; Rs. 325

Question – 3 : What will be the amount of Goodwill at the acquisition date i.e. 1st April, 20X1? (Rs. in `000s)
A : Rs. 910
B : Rs. 2,115
C : Rs.1,290
D : Rs. 1,032

Question – 4 : What will be the amount of Goodwill on reporting date i.e. 31st March, 20X3? (Rs. in `000s)
A : Rs. 910
B : Rs. 2,115
C : Rs. 1,290
D : Rs. 1,032

Question – 5 : What will the net value of Property, Plant and Equipment (after all adjustment) as on 31st March
20X3 ? (Rs. in `000s)
A : 7,000
B : 7,120
C :6,880
D : 7,200

Question – 6 : Compute value of NCI as on 31st March 20X3. (Rs. in `000s)

A : Rs. 380
B : Rs. 399
C : Rs. 347.40
D : Rs. 328.40
Question – 7 : Compute Post-acquisition gain/(loss) of A Ltd. (after adjustment of impairment on goodwill) as
on 31st March 20X3 (Rs. in `000s)
A : Nil
B : Loss Rs. 130.40
C : Gain Rs. 76
D : Loss Rs. 206.40

Question – 8 : Compute the finance cost for the year 20X1-20X2 and 20X2-20X3 to be recognised in the books
for the respective years. (Rs. in `000s)
A : Rs. 37.50 and Rs. 41.25
B : Rs. 41.25 and Rs. 37.50
C : Rs. 45.375 and Rs. 37.50
D : Rs. 37.50 and Rs. 45.375

Question – 9 : Compute Consolidated Retained Earnings to be shown in the consolidated financial statements
as on 31st March 20X3. (Rs. in `000s)
A : Rs. 1,400
B : Rs. 1,269.60
C : Rs. 1,321.25
D : Rs. 1,190.85

Question – 10 : What will be the value of deferred consideration as on 31st March 20X3?
(Rs. in `000s)
A : Rs. 412.50
B : Rs. 416.25
C : Rs. 453.75
D : Rs. 375.00

Question – 11 : Compute current Liability to be shown in the consolidated balance sheet as on 31st March
20X3. (Rs. in `000s)
A : Rs. 2,353.75
B : Rs. 1,900
C : Rs. 1,250
D : Rs. 1,703.75

Question – 12 : What will be the total of consolidated balance sheet as on 31st March, 20X3? (Rs. in `000s)
A : Rs. 9,304.60
B : Rs. 9,652.00
C : Rs. 9,452.00
D : Rs. 9,000.00
CA Final – Financial Reporting Test Series
Descriptive Questions
Question 1 (14 Marks)
The draft balance sheets of Swan Limited and Duck Limited as at 31st March 2023 is as under:
Amount ₹ in lakhs
Particulars Swan Limited Duck Limited
Assets
Non-Current Assets
Property, Plant and Equipment 800 1,000
Investments 900 240
Current Assets
Inventories 360 260
Financial Assets
- Trade Receivables 1,040 540
- Cash & Cash Equivalents 520 290
Other Current Assets 700 350
Total 4,320 2,680
Swan Limited Duck Limited
Equity and Liabilities
Equity
Share Capital
- Swan Limited: Equity Shares of ₹ 10 each 1,200 -
- Duck Limited: Equity Shares of ₹ 100 each - 900
Other Equity 1,450 420
Non-Current Liabilities
Financial Liabilities
- Long-Term Borrowings 700 500
Long-Term Provisions 140 200
Deferred Tax 80 -
Current Liabilities
Financial Liabilities
- Short-Term Borrowings 250 290
- Trade Payables 500 370
Total 4,320 2,680
On 1st April 2023, Swan Limited acquired 80% equity shares of Duck Limited.
Swan Limited agreed to pay to each shareholder of Duck Limited, ₹ 20 per equity share in cash and to
issue five equity shares of ₹ 10 each of Swan Limited in lieu of every six shares held by the shareholders of
Duck Limited. The fair value of the shares of Swan Limited was ₹ 100 per share as on the date of
acquisition.
Swan Limited also agreed to pay an additional consideration being higher of ₹ 90 lakhs and 30% of any
excess profits in the first year, after acquisition, over Duck Limited's profits in the preceding 12 months
(financial year 2022-2023) made by Duck Limited.
The additional amount will be due in 3 years post the date of acquisition. Duck Limited earned ₹ 30 lakhs
profit in the preceding year and expects to earn ₹ 40 lakhs in financial year 2023-2024.
The fair value exercise resulted in the following:
(i) Fair value of Property, Plant and Equipment and Investments of Duck Limited on 1st April, 2023 was ₹
1,200 lakhs and ₹ 300 lakhs respectively.
(ii) Duck Limited owns a popular brand name that meets the recognition criteria for Intangible Assets
under Ind AS 103 'Business Combinations'. Independent valuers have attributed a fair value of ₹ 250
lakhs for the brand. However, the brand does not have any cost for tax purposes and no tax
deductions are available for the same.
(iii) Following is the statement of contingent liabilities of Duck Limited as on 1st April, 2023:

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CA Final – Financial Reporting Test Series
Particulars Fair Value Remarks
(₹ in lakhs)
Lawsuit filed by a customer for a 5 It is not probable that an outflow of resources
claim of ₹ 20 lakhs embodying economic benefits will be required to
settle the claim. Any amount which would be paid in
respect of lawsuit will be tax deductible.

Income tax demand of ₹ 70 20 It is not probable that an outflow of resources

lakhs raised by tax authorities. embodying economic has challenged the demand in
Duck Limited the High Court benefits will be required to settle the
claim.

(iv) Duck Limited had certain equity settled share-based payment awards (original award) which were
replaced by the new awards issued by Swan Limited. As per the terms of original awards, the vesting
period was 5 years and as of the acquisition date the employees of Duck Limited had already served
2 years of service. As per the new awards, the vesting period has been reduced to 1 year (1 year
from the acquisition date). The fair value of the award on acquisition date was as follows:
Original Awards: ₹ 12 lakhs
New Awards: ₹ 18 lakhs.
(v) Further, Swan Limited has also agreed to pay one of the founder shareholder of Duck Limited a sum
of ₹ 15 lakhs provided he stays with the Company for two years after the acquisition.
(vi) The acquisition cost of Swan Limited for Duck Limited was ₹ 26 lakhs.
(vii) The applicable tax rate for both the companies is 30%.
(viii) Assume 10% per annum discount rate.
(ix) Also, assume, unless stated otherwise, all items have a fair value and tax base equal to their carrying
amounts at the acquisition date.

You are required to prepare opening Consolidated Balance Sheet of Swan Limited as on 1st April 2023.
Working Notes should form part of your answer.

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CA Final – Financial Reporting Test Series
Question 2 (14 Marks)
Prepare the consolidated Balance Sheet as on 31st March, 20X2 of a group of companies comprising P
Limited, S Limited and SS Limited. Their balance sheets on that date are given below:
( ₹ in lakhs)

P Ltd. S Ltd. SS Ltd.

Assets
Non-Current Assets
Property, Plant and Equipment 320 360 300
Investment :
32 lakhs shares in S Ltd. 340
24 Lakhs shares in SS Ltd. 280
Current Assets
Inventories 220 70 50
Financial Assets
Trade Receivables 260 100 220
Bills Receivable 72 - 30
Cash in hand and at Bank 228 40 40
1440 850 640
Equity and Liabilities
Shareholder's Equity
Share capital (₹ 10 per Share) 600 400 320
Other Equity
Reserves 180 100 80
Retained earnings 160 50 60
Current Liabilities
Financial Liabilities
Trade Payables 470 230 180
Bills Payable
P Ltd. 70
SS Ltd. 30
1440 850 640
The following additional information is available :
(i) P Ltd. holds 80% shares in S Ltd. and S Ltd. holds 75% shares in SS Ltd. Their holdings were
acquired on 30th September, 20X1.
(ii) The business activities of all the companies are not seasonal in nature and therefore, it can be
assumed that profits are earned evenly throughout the year.
(iii) On 1st April, 20X1 the following balances stood in the books of S Limited and SS Limited.
( ₹ in lakhs)

S Limited SS Limited

Reserves 80 60
Retained earnings 20 30

(iv) ₹10 lakhs included in the inventory figure of S Limited, is inventory which has been purchased from
SS Limited at cost plus 25%.

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CA Final – Financial Reporting Test Series
(v) The parent company has adopted an accounting policy to measure non-controlling interest at fair
value (quoted market price) applying IND AS 103. Assume market prices of S Limited and SS
Limited are the same as respective face values.

Question 3 (6 Marks)
Scenario A

M Ltd. has invested in 40% share capital of N Ltd. and hence N Ltd. is an associate of M Ltd. During the
year, N Ltd. sold inventory to M Ltd. for a value of ₹ 10,00,000. This included profit of 10% on the
transaction price i.e. profit of ₹ 1,00,000. Out the above inventory, M Ltd. sold inventory of ₹ 6,00,000 to
outside customers. Hence, the inventory of ₹ 4,00,000 purchased from N Ltd. is still lying with M Ltd.
Determine the unrealised profit to be eliminated on above transaction.
Scenario B

Assume the same facts as per Scenario A except that the inventory is sold by M Ltd. to N Ltd. instead of N
Ltd. selling to M Ltd. Determine the unrealised profit to be eliminated on above transaction.

Question 4 (4 Marks)
i) A Ltd. is one of the parties to a joint operation holding 60% interest in a joint operation and the
balance 40% interest is held by another joint operator. A Ltd. has contributed an asset held by it
to the joint operation for the activities to be conducted in joint operation. The carrying value of the
asset sold was ₹ 100 and the asset was actually sold for ₹ 80 i.e. at a loss of ₹ 20. How should A Ltd.
account for the sale of asset to joint operation in its books?

ii) A Ltd. is one of the parties to a joint operation holding 60% interest in the joint operation and the
balance 40% interest is held by another joint operator. A Ltd. has purchased an asset from the
joint operation. The carrying value of the asset in the books of joint operation was ₹ 100 and the asset
was actually purchased for ₹ 80 i.e. at a loss of ₹ 20. How should A Ltd. account for the purchase of
asset from joint operation in its books?

Question 5 (5 Marks)
A Limited ceased to be in investment entity from 1st April 20X1 on which date it was holding 80% of B
Limited. The carrying value of such investment in B Limited (which was measured at fair value through
profit or loss) was ₹ 4,00,000. The fair value of non-controlling interest on the date of change in status was
₹ 1,00,000. The value of subsidiary's identifiable net assets as per Ind AS 103 was ₹ 4,50,000 on the
date of change in status. Determine the value of goodwill and pass the journal entry on the date of change
in status of investment entity. (Assume that non-controlling interest is measured at fair value method)

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