,.

t, ;'',, ,, ,
tttt:,. l.i,t,
',,,, ,,,

What is Interim Financial Reporting (IFR)

24'l rnterim financial reportingis the reporting for periods
a year generany for a period of 3 months. As-p.. of less than
agreement the companies are required to publish
tlurr. 41. of listing
r the financial results on
a quarterly basis
As per this Standard,Interim Financial Report means a financial report
containing either a complete set of financial
staternent or set of con-
densed financial statement for period. r"t"ri- ieriod is a
period of reporting shorter rhan ln.inlerim
ful finan.iliy.ur.
What are financial statements
24-2 A complete set of financial statements
normally includes :
a Balance Sheet
a Statement of profit and Loss Account
a Cash flow Statement
i Notes to Accounts and Accounting policies.
Need
24'3 rn general the basic objective of Interirn.-
Financial Reporting GFR)
is to provide frequent and timely assessment
of enterprise performance.
Horvever interim reporting has inherent
limit;;ion, which is not the case
: :l of annual accounts as tlr{ reporting period is
shortened, the effect of
errors in e'stimations and allocition ie
magnifiea. rrre p-r]per-allocation
of operation expenses is a significant
:i concein. The main problems are :-
j Proper allocation
. ::
of operating expenses.
a Sc-rrne operating expenses may be
,ji incurred in'one interim period
attd r, t-t benefit the full year operation.
,iJ For example, advertising
cxp('nses, repair and maintenance
expenses.
* .
AE
..1':
436
7 ., .,t

.. 'l
 437 pRINCIpLES oF RECoGNITIoN AND MEASUREMENTS Para24.5

o Seasonal fluctuation - for some enterprises revenue may be seasonal

or cyclical and therefore concentrated in certain interim period.
a Year-end events. For example, Bonus, Incentive based on annual
sales target.
Determination of appropriate amount of provision - pension, gratu-
ity, litigation, contingencies etc.
i Income-tax expenses - one interim period may have profit and next
interim period may have losses.
Objective
24.4 The objective of this standard is to prescribe the minimum content
of Interi* Firruncial Report (IFR) and to prescribe the principles for
recognition and measurement in a complete or condensed financial
n staternent for an interim period. As the reporting period is shortened, the
J
D
effect of errors in estimations and allocation increases.
n Principles of recognition and measurements
24.5 As the objective of this Accounting Standard is to prescribe the
t principle for recognition and measurement of income, expenses, assets
and liabilities in a complete or condensed financialrstatements ie.
1
Balance Sheet, Profit and Loss Account, Cash flow Statements and
Accounting Notes and Policies, there may be two distinctive principles/
views of recognition and measurement of income and expenses in
interim financial reporting :
r Integral View
a Discrete View
24.5-l Integral view - An approach to measuring interim p9ri9d income
by viewing each interim period as an integral part of the annual
(Financial) period. Expenses-are recognized in proportion to revenues
earned through the use of special accrupls and deferrals.
24.5-2 Discrete view - An approach to measuring interim period income
by viewing each interim period separately.
AS-25 resolves the debate by prescribing the discrete view in general. As
per the standard - Income and expenses should be recogtized/mea-
sured on year to date basis for interim reporting.
Year to date basis means financial reporting for the period, which begins
on the first day of the fiscal and year ends on given interim date.
Example - X Ltd. prepare the financial report for the first quarter of financial year
2OAZ-2003 Le. lst April, 2002 to 30th June , 2002 for interim financial reporting:
purpose. Year to date basis means ist April, 2AA2 b30th June ,20A2 if it preparg IFR
io, ,".ord quarler Le., lst luly,2AA2 tb :Oth September,2002.Year to date basis
]rreans 1st.April, 2A02 to 30th September and so on.
 1

Para 24.9 INTERIM FINANCIAL REPORTING

438
However' there is slight der"iation,in recognizing
not based on discrete view as explain"d.iol,*" the -' Income-tax expenses, which is
As per the standard the income-tax
expenses
the best estimate of the w"igr,i"J;;;# is recognized in eachinterim period on
expected for the fulr financiar y'ear. ii"""rrua Effective
rjtr'Utrve rrl(
rncome-tax Rate
What is estimated annual effecting
tax rate
24'6 An expected annual tax rate
which reflects
^ vrrvvru vrLurrcrLE
estimates of annual
earnings tax rate, tax credits etc.
Interim period income-tax expense's
is
would be applicable to expected totalaccrued using the tax rate that
estimared average annuar etfective
annual earnings , thatis, the
tax income of the interim period.
;;;;-t"x rate appried to the pre_
If there is loss carry forward and no
deferred tax asset.ym ...ogrrir.g i,
trrg Lgsi"ning of the year then the
criteria of recognizing the bra ir
period and if they are met the effect
uppli"d'ut tt end of each interim
" forward is reflected
in the computation of estimatea ur"rug""ii", [r, .ur.y
u*,rut effective tax rate.
Accounting policies
24'7 An enterprise shourd appry the
interim financial statements as are same accounting policies in the
_-rr.--* in the
applied innual financial
rrrv q.rrrlLrd
statements.
Minimum Components of fnterim Financial
Report
financial report should contain at least
:ji$:#i;:'* the foltowins
a Condensed Balance Sheet
a Condensed profit and Loss Account
o Condensed Cash Flow Statement
t Selected Explanatory Notes
Reporting interim financial statements
prescribed on cost consideration in condensed manner has been
and for timely release of the infornra-
tion. Horvever an enterprise may
release complete financial statements.
Form and contents of interim financial
statements
24'9 An interim financiar report
can contain either a complete set of
financial statements or a set of .orra".r;];;ur.iar
statements. :

24'9-1 complete financiar statements

-If
and presents a. comprete ,"i -of fi"u;;i an^rrur"..r"nts
enterprise opts to prepare
financial reporting.It shoula u" p."pared in the interim
in the same format and as per
the contents and i.q.ri."-""ir ;r
u.r.rra n.rurr.iur statements.
24'9-2 condense-cl financial statements
reporting should contain the folrowing
-A condensed interim financial
*i"i*;;^i"f";;;;',
 MINIMUM DISCLOSURE OF NOTES Para 24.10
t Headings and sub-totals that were included. In the most recent
annual financial statements
a Selected Explanatory Notes
r Additi'onal items or notes if there missing makes the interim finan-
cial reporting misleading
I Basic and diluted earning per share for the interim period as
per AS-20 (not to be annualized) (on the face of Profit and Loss
Statements)
24.9-3 Selection of explanatory notes - Criteria adopted for selection
of
explanatory notes to be included in interim financial report is updating
the financial information, it is assumed that the users of interim financiai
report are having access to the most recent annual financial statements
therefore notes to interim financial report should provide information
on financial year to date basis. However it is necessary to disclor. ury
events or transactions, which are materiai for understanding the interim
financial reporting.
Minimum disclosure of notes
24'10 E91loy11g minimum disciosure of notes and explanatory state-
ments should be made :-
A statement that the same accounting poiicies are followed in the
{nterim financial statements :rs thcse foilorved in the most recent
annual financia-l statemenrs <-,', if these policies have been changed,
a description of the nature and effect ur tn. change.
Description about the seasonai or cvclical effect on interim finan-
cial year
unusual factors that affected assets, liabilities, equity, net income,
and cash flow.
a Effect of change in estimates.
a change in debt and equitv through issuance, repurchase and
repayments.
Details of dividend payment.
t Segment revenue, segment result for business segment or geo-
graphical segment, whichever is the primary basis oT the reporting
entity.
a Material event that occurred after the end of interim period.
t Effect of changes in composition of the enterprise during interim
period - change in composition include business combination,
acquisition, restructuring, clisDosai ol suirsidiaries etc.
i
 !t
.t
s
?
a
t}

:
i
i
l
Para 24.15 INTERIM FINANCIAL REPORTING 440

a Material changes in contingent liabilities since the last Balance

Sheet date.
Materiality
24.11 Materiality is one of the most fundamental concepts underlying
financial report. Therefore, para 21 of the standard provides that in
deciding how to recognize, measure, classify or discLse an item for
interim financial reporting purposes, materiality should be assessed in
relation to the interim period financial data.
Information is material if its mis-statement that is omission or error
could influence the economic decisions of users taken on the basis of the
financial information.
The overriding objective is to ensure that an interim financial report
includes all information that is relevant to understanding u, ..rte.prise,s
financial position and performance during the interim"period.
Seasonal/Occasional Revenue
24.12 As explained earlier the discrete view is taken for measurement
and recognizing the revenues therefore such revenue ur. ...ofi;;
when they occuf-_ Examples include dividends, royalties and Govern-
ment grants' Additionally, some enterprises .orriirt".rtly earn more
1t
1('
revenues in certain interim periods of a financial year ihrr, in other
1;; l
J I interim periods, e.g. seasonal revenues of retailers. buch revenues are
I
i
recognized when they occur.
Change in Estimates
24.13 Amounts of income and expenditure reported in the current
interim period will reflegt an-v change in estimatei of amounts reported
in prior interim period of the financial year. The amount reported
in prior
interim period is not retrospectively adjusted, however ury significant
"
change in estimates may be disclosed.
Change in accounting policy
24.l4lf there is change in accounting policy within the current financial
year the effect of-change in accounting potl.y be applied retrospectively
and therefore prior interim periods financial statements should be re-
stated to includethe effectof change. However the restatement does
not
apply to a change in accounting poticy where any other accounting
standard specifies transition.
Cost incurued unevenly during the financial year
24'15 Costs that are incurred unevenly during an enterprise's financial
vear should be anticipatedor deferred for intelrim ."poii.rg purposes if,
and only if, it is alo appropr"iate to anticipate or defer til;typ"
of cosr
at the end of the finanCial y.u..
 1
0 441 MAJOR PLANNED PERIODIC MAINTENANCE OR OVERHAUL PaTa 24.16

e 24.15-l Foreign currency translation gains and losses - An enterprise

measures foreign currency translation gains and losses for interim
financial reporting by the same principles as at financial year-end in -
o
accordance with the principles as stipulated in AS-11. The effects of
Changes in Foreign Exchange Rates.
1

I Major planned periodic maintenance or overhaul

I 24.16 The cost of major periodic maintenance or overhaul or other
seasonal expenditure that is expected to occur late in the year is not
anticipated for interim reporting purposes unless an event has caused
the enterprise to have a present obligation. The mere intention or
necessity to incur expenditure related to the future is not sufficient to
give rise to an obligation.
24.16-l Intangible assets - An enterprise applies the definition and
recognition criteria for an intangible asset in the same way in an interim
period as in an annual period. An enterprise should not 'defer'costs as
assets in an interim balance sheet in the hope that the recognition criteria
will be met later in the financial year.
24.16-2 Contractual or anticipated purchase price changes - An enter-
prise anticipates volume rebates or discounts and other contractual
changes in the prices of goods and services in interim periods if it is
probable that they will take effect. However, it does not anticipate
discretionary rebates and discounts because the resulting liability u,,ould
not satisfy the conditions of recognition.
24.16-3 Inventories - An enterprise measures inventories for interim
financial reporting by the same principles as at the financial year-end.
Horvever, to save expense and time, enterprises often use estimates to
measure inventories at interim dates to a greater extent than at annual
reporting dates.
24.16-4 Net realizable value of inventories - An enterprise determines the
net realizable value of inventories by reference to selling prices and
related costs to complete and sell the inventories. It r.r.ir", a write-
down to net reahzable value in a subsequent interim period as it would
at the end of its financial year.
24.16-s Impairment of assets - An enterprise applies the same impair-
ment tests, recognition, and reversal criteria at an interim date as it
would at the end of its financial year. An enterprise assesses the indica-
tions of significant impairment since the end of the most recent financial
)iear to determine whether a detailed impairment calculated is needed.
 Para 24.18 INTERIM FINANCIAL REPORTING
442
Depreciation and amortization
24'17 Depreciation and amortization for an interim period
is based only
on assets owned during that interim period.It does nbt
tuk" into account
asset acquisitions or disposals planned for later in
the financial year.
24'17-l Gratuity and other
should estimate provisions in .defined benefit schemes - An enterprise
'gratuity
respect of and other defined
benefit schemes for an interim perio-d o, u y.ur-to-date
the actuarially determined ratei at the errd tf the prior
bu$ b;ffi;
financial year.
This should be- adjusted for significant market fluctuations
since that
currailment, settlements, or other sigrificant one_
:lT: 1d lisnificant
ume events-
24'17-2 Year-endbonuses- An enterprise anticipates a bonus
forinterim
reporting purposes only ,.f, (o) the bonus in a legal
obligation arising flom past practices for whicr, tfr" "uriluti"n
or an
"";"-fr;;;il ;
.:1|rti.,1lternarive but to male rhe payments; and (b)u."riuut"
estimare
or the obligation can be made.
24'17 -3 Provisions - An enterprise applies the
same criteria of recogniz-
ing and measuring a provision at an interim date as
it woulJ at the end
of the financial y"u.. The facts subsisting at the balance sheet
date
deter-mine whether there exist_s a present obligation
that Leets the
definition and recognition criteria oi a riabirity.
24'17-4 Hottt are short-term employee benefits determined
reporting periods - Employee benefits payaLle within for interim
12 months from
the end of the interim reporting period are considered
to be short-term.
The principles for recognising assets, liabilities, income
and expenses for
interim periods are the same is in annual financial statements.however,
the frequercy of reporting should not affect the measurement
of annual
result' Therefore, short-t".- .-ployee benefits in the interim
periods
should be reckoned as benefits payable within 12 months
from the end
of the financial year.
24.18 Applicability of Interim Financial results
fssue
Whether AS-25 is applicable to interim financial results
presented by rn
enterprise pursuant to the requirements of a statute/regJato;'f*
example, quarterly financial reiults as per Listing Agreem!"r."rlrJ
into between stock Exchanges and the iisted enterprises.
 -I II tI
:t
:l

COMPARISON OF AS-25 WITH IND AS-34 Para 24,19 I

1
II
*
Consensus {
I
I
As per Guidance Note issued by the ICAI, the presentation and disclosure rl
I

req-uirements contained in AS-25 should be applied only i! an enterprise i

p.epur"s and presents an 'interim financial report' as defined in AS-25. .t I

f

Accordingly, presentation and disclosure requirements contained in AS-

,i

25 are.roi r"q,rired to be applied in respect of interim financial results

(which do not meet the definition of interim financial report'as per AS-
25) presented by an enterprise. For example, quarterly financial results
of the Listing Agreement entered into between Stock Exchanges and the
listed enterprises do not meet the definition of interim financial report'
as per AS-25. However, the recognition and measurement principles laid
down in AS-25 should be applied for recognition and measurement of
items contained in such interim financial results.
24.19 Comparison of AS-25 with Ind AS-34
AS-25'Interim Financial Reporting' Ind AS-34 'Interim Financial
Reporting'
If an entity is required or elects to Applies only if an entity is required or
prepare and present an interim elects to prepare and Present an
financial report, it should complv with interim financial report in accordance
that standard. r.i'ith Accolrnting Standards. Conse-
cluentlr,', it is specificallv stated in Ind
AS 3-+ ti-rat the fact that an entitv mav
not h:r','e provided interim financial
reports during a particular financial
\/L'ar or ma-v have provided interim
financial reports that do not comply
rvitl-r the revised standard does not
prer,'ent the entity's annual financial
statements from conforming to
Accounting Standards if they other-
rvise do so.
The contents of an interim financial The term 'complete set of financial
report include, at a minimum, a con- statements' appearing in the defi-
densed balance sheet, a condensed nition of interim financial report has
statement of profit and loss, a con- been expanded. The said term in-
densed cash flow statement and cludes balance sheet as at the begin-
selected explanatory notes.Ind AS 34 ning of the earliest comParative
requires, in addition to the above, a period when an entitY aPPlies an
condensed statement of changes in accounting policy retrospectively or
equity for the,period which is pre- makes a retrospective restatement
sented as a part of the balance sheet. of items in its financial statements, or
r^.,h en it reclassifies items in its
financial statements.
 i
1
I

Para 24.19 INTERIId FINANCIAL REPORTL\IG

444
AS-25'fnterim Financial Reporting, Ind AS-34 'Interim Financial

There is no specific prohibition. Prohibits reversal of impairment loss

Prohibition on reversal of impairment recognised in a previous interim
ioss on goodwill or a finaniiui urr.t period in respect of goodwili or an
investment in either an equity
instrument or a financial asset carried
at cost. Separate guidance in
Appendix'A' to this standard.
If an entity's annual financial report States that it neither requires nor
included the consolidated financiat prohibits the inclusion of the parent,s
statements in addition to the separate separate statements in the entitr,,s
financial statements, the interim interim report prepared "
financial report should include botfr consolidated o,, u
basis.
the consolidated financial statements
and separate financial statements,
complete or condensed.
Requires furnishing information, in Requires fr-rrnishing
interim financial report, of dividends, in interim financial of information,
aggregate or per share (in absolute or dends paid,
report, on divi_
aggre_eate or per share
percentage terms), for equity and separatelv
other shares.
for equitl, and other
shares.
Requires furnishing of information Requires fr_rrnishing of inforrnariolr
on contingent liabilities onlr.. on botl-r contingent liabilities and
contingent assets, if thev are signi-
ficant.
Reference to extraordinary items (in No reference to extraordinarv items.
the contexr of materialiiy) in tire
existing standard is deleted.
Does not contain these requirements.
Requires that, where an interim
financiai report has been prepared in
accordance with the requiiements
of the revised standard, that fact
should be disclosed. Further, an
interim financial report should not
be described as cbmplying *ith
Accounting Standardi -.rrI"., it
complies with all of the requirements
of Accounting Standards.lThe larter
statement is applicable when interim
financial statements are prepared on
complete basis instead of ,condensed
basis').
A change in accounting policy, orfr.. Additionally requires restatement ol
than one for which tG-transitional the comparable interim periods of
I
i
I

ILLUSTRATIONS

AS-25'Interim Financial Reporting, Ind AS-34 'Interim Financial

provisions are specified by a new
Standard, should be reflected by
restating the financial statements of
prior interim periods of the current
financial year.
Reporting'
prior financial years that will be
restated in annual financial
statements in accordance with Ind
AS 8, subject to speciai provisions
when such restatement is imprac-
ticable.

ILLUSTRATIONS

Q1. On 1st April, 2009, Builders Associates entered into a Rs.5,00,000 fixed price
contract to construct a factory buiiding for manufacturing compan\,. Builcler
Account for this contract underthe p..."-.rtuge of completion and estimated costs
at completion at the end of each quarter for financial year 2a0g-z0lo.

Qrr. I Qtr. II err. III

Cumulative costs incurred to date 150000 360000 405000
Estimated cost yet to be incurred at quarter end 300000 40000
Progressing billing made during quarter 100000 370000 30000
Coliections of billings 75000 300000 i25000
lVl]al atnount builder as income should report on "Construction Contract,' in its
quai'ierh'income statement based on the above information.
Solution : lncome Statement
(Percentage of completion method)
Qtr. I etr. II etr. II Torul
Contract revenue earned 166667. 293333.. 50000... 500000
Cost of revenues earned (is0000) (210000) (4s000) (40s000)
Gross Profit 16667 73333 5000 9s000
Working Note- i 150000/450000 X 500000: Rs. 166667
*t
360000/400000 X 50000p - 166667: Rs.283333
**t
405000/405000 X 500000 - 166667- 283333 Rs. 50000 :
Notes - (1) The revenue and the cost has been calculated as per discrete view of
revenue and expenses recognition (refer point 24.5-2).
(2) Change in estimate of total cost incum"d
ry each quarler has not been given
retrospective effect qs per the discrete view of income .;d.$;." .iclg"iti""
because there is no change in accounting policy.
Q2. Induga Corporation is dealing in seasonal product sales pattern of the product,
quarter wise is as under:
IstQtr. IInd I
etr: IIIrd etr. tvth etr.
June
ending 30 ending 30 Sept. ending 3l.st Dec. ending3l Marclt
15% t5% 50% 25%
 #
F
:*

{
.::j

; ::
,4.
INTERIM FINANCIAL REPORTING
:ll 446

:
Fo-r the first quarter ending on 30 June, 2002 Induga Ltd. gives you the fo[owing
information:
:

Sales 50 crores
Salary and Other Exps. 30 crores
l
Advertisement Exps. (routine) 2 crores
Administrative and selling Exps. 8 crores
Induga Ltd. while preparing interim financial report for first quarter wants to
defer Rs. I 6 crores expenditure to third quarter on ihe argument tirat third quarter
is having more sales therefore third quarter should be debited by more expendi-
ture. Considering the seasonal nature of business and that the expenditures are
uniform throughout all quarters.
Calculate the result of first quarter as per AS-25 and comment on the company
view.
Solution : Result of the first quarter ending 30th June
(Rs. in crores)
1. Turnover 50
2. Other Income Nit
Total 50
Less : Changes in inventories Nit
Salaries and other cost 30
Administr ative and selling Exps. 10
i
(8-2)
tr
Totai 40
It
Profit 10
Note - As per the AS-25 the income and expense should be recognized when they
are earned and incurred respectively. Seasonal incomes will beiecognized when
thev occur. Therefore the argument of the Induga Corporation if not as per
AS-25.
$
Q3. NIDA Ltd. presents interim financial report (IFR) quarterly, earns Rs. 600lakhs
pre-tax profit in the first quarter ending 30-06-2010 but expect to incur losses of
Rs.200 lakhs in each of the three remaining quarters. Wti.h will result zero
i1c_ome during the financial year effective income-tax rate is expected to be 35%.
Calculate the income-tax expense to be reportecl in each quarter as per AS-25.
Solution:
I Qtr Tax expense to be reported 600X35%: Rs. 210 lakhs
II Qtr Tax expense to be reported 200x35%: Rs. (-) T0lakhs
III Qtr Tax expense to be reported 200X35%: Rs.(-) T0lakhs
IV Qtr Tax expense to be reporred 200X.35%: Rs.(-) T0lakhs
Annual Tax expense
Q4. Induga Ltd. accounting year ends on 30th September, 2010 and reports
quarterly. Horvever for the purpose of tax vear-end o., 3 I rt March every year. For
thc Accounting vear beginning on 1- 10-2009 ancl ends on 30-9-2010, the quarterly
inLromc is as undel:-
I

i
 I
I
1

6 447
ILLUSTRATIONS

Qtr ending 3t-12-2A09

Rs. 400lakhs
Qtr ending 31-3-2010
Rs. 400lakhs
Qtr ending 30-6-2010
Rs. 400lakhs
Qtr ending 30-9-2010
Rs. 400lakhs
Total
Rs. 1,600lakhs
Average actual tax rate for the finalgialrgar
ending on 31-3-2010 is 30% and for
financial year endin g 3t-3-20i ir +oq.
calcuiate tui.*p..r.e for each quarter.
Solution:
Taxexpense for quarter ending on
3l-12-2009 Rs. t20lakhs (400X30%)
31-3-2010 Rs. t20lakhs (400X30%)
30-6-2010 Rs. 160 takhs (400x4A%)
30-9-2010 Rs. l60lakhs (400x40%)
Q5' NDA Ltd' presents interim financialreport
quarterly. on 1-4-2009. NDA Ltd.
has carried forward Ioss of ns. +oo lakhs
deferred tax asset has not u."r.".Lgnized.
ro.'*.o-e-tax purpose for which
The NDA Ltd. ea.ns Rs. 500lakhs in
30_6 20 og,3a s zoa;,11'1;- ;00e and3
ffLtn::T::1X,:gon
ing the loss carried foiward. Income-tax rate
is
t_3_2arcexcrud_
amount of tax expense to be reported "^0..;;;i':;;;;X:XrT:'||[
i, .a.h q,r;.;;;
Solution :
The estimated payment of the annual
tax on Rs. 2,000 lakhs earnings for the
current year.
(2,000lakhs - Rs. 400lakhs) : Rs.
1,600 iakhs
Rs. 1,600X40/100: Rs. 640lakhs.
Average annuai effective tax rare : (64012000)
X 100 : 32%
Tax expense to be shown each quarter
will be 500X32 /fiL:Rs. 160lakhs
Q5. THDC Ltd. shows the net profit of Rs. 5,40,000
rating the following: for
rvr euarter III dllcl
\zu,r Lcl ur after II
incorpo_
- |
l
(z) Bad debt of Rs. 30,000 incurred during
i
the year. 5090 of the bad debrs have
t
J

been deferred to next quarter.

I (iz) Extraordinary loss of Rs. 28,000 incurrecl
I
1

during the quarter has been fully

I recognized in this quarter.
t
I (iz) Additional depreciation of Rs.36,000 r'esulting
I
I from the change of method of
)
I
depreciation.
Do you agree with the treatment
adopted by the company? If not, find out correct
quarterly income as per AS 25?
solution: In the above case, the quarterly income
has not been correctly stated. As
per AS-25, the quarterly income shoulcl
b" .dj;;;; a.,a restated as follows:
Bad debt of Rs' 30,000 has been incurred
<]uring the current quarter. out of this,
lh" :9Tp,uny has deferred 50%, t"., Rs. 15,000 to next quarter. This is not correcr.
Rs. 1.J,ggg therefore, should bcj deducteri
from nr. i,+i,ooO.
The treatment of extraordinar-v ioss
of Rs. 28,000 being recognized in the same
ing rhe ujaitio.rJdepreciation of Rs. 36,000
 #
f
!

INTERIM FINANCIAL REPORTING t

in the same quarter is correct in view of Revised

depreciation is an estimate and not.hu.ge i.r r.r.""ri"g m
policy.
The company should report the quarterrv
incorne as Rs. 5,55,000 (ie., Rs. 5,40,000
- Rs. 15,000).
Q7' Fixed production overheads for trre financiar
expected production.for the year, uft". vear is Rs. 9,600. Normar
..rril;iilg planned maintenance and
normal breakdown, al,so considering the
futur. j"-iria of the product 2,400 MT.
It is considered that there are no q"ru.,".l1,rseasonal
normal expected producrion for ea.h q";;i";l;a; rrariations. Therefore, the
overheads for the quarter are Rs. 2,400.
ilr u.,a the fixed production

Actual production achieved

First quarter
Second quarter
Third quarter
Fourth quarter
Required:
(l) Presuming that there are no quarterly/seasonar
variation, calculate the
;|?:XXT,,T
productio" ori"ir,.uJ;
ft:f r;;;i;;"
ro,,, l,.u;;;
per AS_
(il rn case there are quarterly and seasonal
rrariation horv the estimate ol norr,-ral
capacit-1, to be made as per AS_25
read rvith aS_2.
Solution: (i) If it is considered that the-re
is
therefore normal expected p.oar.tion for no quarterl_v/seasonal variation,
each quarter is 600 MT and fixed
production overheadi for the quarter
are 2,400 MT.
Fixed production overhead to be allocated
per unit of production in every quarter
will be Rs' 4 per MT (Fixed ou"rt
First quarter "ua.7i",:*i;;;,i.tio,).
Actualproduction overheads : Rs. 2,400
I Fixed production overheads based on the allocation rate of Rs.4
to actual production: Rs. 4 X 500: per unit allocated
Rs. 2,A00
Unallocated fixed production overhead,
graph 9 of AS-2 and.onsequently l? be_charged-as expense as per para_
as per AS_ 25 : Rs. 400
Second quarter
Actual fixed production overheads on year-to-date
basis Rs. 4,g00
overheads to be absorbed on year-to-date
f,Tiiffitduction basis 1200 X 4:
Rs' 400 was not allocated to production
in the lst quarter. To give effect to the
entire Rs. 4,800 to be allocut"d i, the
second quu.r".ffier paragra ph29(a)of
AS-
25, Rs. 4aa arereversed by way
quarter.
.f ; .;;;; r;H;ilffi ula to* account oi the 2nd
Third quarter
Actual production overheads on year-to-date
basis : Rs. 7,200
l-
449 ILLUSTRATIONS

Fixed production overheads to be aliocated on year-to-date basis 1,600 x 4 --

Rs.6,400
Under allocated overheads Rs. 800 to be expensed as per paragraph 9 of AS-2 and
consequently as per AS-25.
Fourth quarter/Annual
Actual fixed production overheads on year-to-date basis Rs. 9,600
Fixed production overheads to be allocatecl on year-to-dati: basis 2,300 X 4 :
Rs. 9,200
Rs. 400, L e., 12,80A ( 1 e., Rs. 4 x 7 00) - 2,400lover allocable in thc 4th quartei:,
aye to
be reversed as per paragraph 29(a)of AS-i5 b.r,rvay of a credit to thc- pr.of ir ancl
loss
account.
Unallocated overheads for the 1'ear Rs. 400 are expensecl in the profit and ioss
account as per paragraph 9 of AS-2.
Th e cumulative result of all the quarters r.i,ould also result in unallocatecl overheads
of Rs.400, thus, meeting the iequirements of paragraph 27 of AS-25 tirat the
quarterlv results should not affect the measuremeniof lhe anrlual resr-rlts.
(ii) In a case r,r,,here there are quarterly/seasonal variations, the estirnates of
normal capacity u'ould have to be made on the quarterlv/seasonai basis, the
e-nterprise will have to estimate its normal capacity on the basis of the average of
the relevant quarters/seasons of past few years, say, 3 to 5 years, also consiclJrirrg
the demand of the product during the season. For exampie, r,vhere a company is
having seasonal variations say, in the 3rd qtrarter of the vear, then it shoulC
estimate the normal capacitv for the 3rd quarter based on the capacit.r, Lrtilisatiop
of the 3rd quarter for the past few years, iai, 3 to 5 years, aiso ke eping in r-ierv tl-re
future demand of the product during the quarter. Once the nor-mal'capacitv for
a quarter
4 quar Ler ls
is determined,
u.eLermlneo, as aforesaid, tne
aS aforesald., the quarter should be consid"."d
considered ffo.
or
measuremeltpurpose_s, asperparagraph2T of AS-25 onyear-to-date basis, i.e.,an
cumulative basis, whichwouldthenb-e addedupto determine the normal capacity
for the year on the basis of which the absorption rate will be determined. The
variations between the seasons would thus be considered normal and treated
accordingly.
If there is an abnormal breakdown during a period, as per AS-2, the amount of
fixed production overheads not allocated to units of production is charged to the
profit and loss account. However, the resuit of undei allocation of oveiheads or
over allocation of overheads should not affect the measurement of its annual
results since interim periods are parts of a financial year.
Q8. ABC Ltd. reported a Profit Before Tax (PBT) of Rs. 4 lakhs for the third
quarter ending 30-9-2014. On enquiry you observe the following. Give the treat-
ment required under AS-25:
O Dividend income of Rs. 4lakhs received during the quarter has been recog-
nized to the extent of Rs. I lakh only.
(i) 80%_of salelPromotion expenses Rs. 15 lakhs incurred in the third quarter
has been deferred to the fourth quarter as the sales in the last quarter is high.
UiA Inthe third quarter, the company changed depreciation method from WDV
to SLM, r,rrhich resulted in excess depreciation of Rs. 12 lakhs. The entire
amount has been debited in the third quarter, though the share of the third
quarter is only Rs. 3 lakhs.
 INTERIM FINANCIAL REPORTING

(ry) Rs. 2 lakhs extraordinary gains received rn

t
to the third and fourth quarter.
(u) cumulative loss resulting from change in method
of inventory valuation was
recognized in the third quarter of [s.
3 futf,.. b"t of this loss, Rs. 1 lakh
reiated to previous quarters.
('t) sale of investment in the first quarter resuited in gain
company has apportioned this equally
a of Rs. 20lakhs. The
to the for. q,ru.t".r.
Prepare the adjusted profit before tax
for the third quarter
solution : Adjusted profit before tax for the
third q,-,arte.:
Rs. in lakh
Reported a Profit before Tax (pBT)
Add:Di'idend income not recognized during 4
the quarte r $-r) 3
Less, sales promotion expenses not
recognized in the quarter (15 x g0%)
12
required for change in depreciation method
i* !!:":tm,:nt gain not recognized g
Add:Extraordinary in the quarter (2_1)
)

Add,Adiustment required for change in i

methocl of inr.entory valuation l
Less: Gain on sale of investment in
i st quarter rvronglv
Apportioned in third quarter e
Adjusted profit/(loss) before tax for 5
the third quarter
Q9' saurav Ltd' reported a profit before tax of
i
Rs. g lakhs for the 2nd quarter
cndi.r'r on 30th Scpte,mbe r 2ar4. on
enquiry, f ilo't ing issues were notices:
(., Thc properrr' rar. 60,000 paid cruring rhe quarter for the full year has
bt'r'n r-t,eugni"cd in"!-t: I
l'ull.
(i' i i 5th of Rs' 15 lakhs being marketingpromotional
expenses incurred on 23rd
septenrbe r 20r4has been-recognisejf
in the last quarter of the year. "r";;;;;; experience of higher sares
(iil 50% of the loss of Rs. 2 lakhs incurred on disposal
of a business segment has
been allocated to this quarler.
(iv) cumulative loss of Rs. 3 lakhs resulting
from the change in the method of
valuation of inventory was recognised in
2nd quarter, which included Rs.2
lakhs related to earliei" quarters.
(v) Gain of Rs' 1'5 lakhs from sale of inventories
sold in 1st quarter was appor-
tioned equally over the full year.
You are required to give proper treatment
as per AS-25 on Interim Financial
Reporting and to.".uit ti,f ad;"st"J p.ofit
befo." tarlor the 2nd quarter.
:r ending ;;;;;. 2ot4

Reported a profit before Tax (pBT)

(No adjustment required for property
tax)
Less: Marketing promotion
guarter ( 1 -5X4i 5th ) "*p".rr"rffi
 6f\r.
tr'-^.
<_:. "
*- ", ilJ
'' t'
451 p la 1^ "
PROBLEMS
^)t'

Less: 50% of loss of Rs. 2 lakhs

Add: Loss resulting from change in method of
.rut,ruiio., of
to eartier eylrter, resutt , ,;;.;;arter to
f^"::,.11I::1.,..d
be restated instead of recog"iri"g iir. b* i,;;;r;#;;,
Less: Gain of Rs. 3.75lakhs (15 x t/+) notto be.".ogrri."d
i'z.rd
ouarter' It should be fulry recognised in lst euartJr.
(3.7s)
Adjusted profit/(loss) before tax for the 2nd
euarter ending
30th Sep 2Ol4

I PROBLEMS
l-P I
' AD Softex India Lt4. has Rs. 95,000 net income for the quarter ended
3 l st Dec.,
2009, including the following items_
Rs' 60,000 r,ril,,:_Eiarypain ;, :
'\1:
' Seceived
to the second, third and fourth
on July 3o,2o0g,was ailocated equaily
quarter of financial year 20ag-20rc.
Rs' 16,000 cumulative effect loss
resulting from change in method of inven-
"' torv valuation method rvas recognized "on
Nov. 2, 2009. out of this loss
Rs. 10,000 relates to the previous quarters.
Calcula-ie the profit as per AS-25 for the quarter ended
31st December, 2009 of AD
Soltex India Ltd.
fAns. Rs- 85,000, result of the pre,ious quarter wiil be restated.J
P2' Duc to decline in-market pricc in scconri quarter, Petal
Impex
ilwerltorl.loss' The Market pr:i." is expcctecl to return to previous Ltd. incurred an
levels by the end
crf the 1'ear. At the end of year, the dectine il;;;;;;;;;;i.'wh;;"r;ffi
be rep.rted in interi* p.bfit and loss account of petal the loss
rmpex Ltd. ?
[Ans. In second quarterJ
P3' ACS India Ltd. has Rs. 2,00,000 net income for the quarter
ended September
30,20 i0, including the following:
(.a) R s' -5 0,000 extraordinarv loss occ urrecl on
April 30, 2Al0,was allocated equally
to each quarter for financial year 2010_11
(b) Rs'30,000."l1lilyeexges:depreciationforthequarrerended30thSeptem-
1., i ber, 2010 due.to^change in clepr:eciation method from
straight li"" i; dimin-
ishing method. only Rl. 5,000 excess depreciutr"" ."rui;Jfi;irtr.;;;;;.-'
(c) Provision for bad and doubtful debts is Rs. 20,000. out of this
provision reiates to first quarrer due to wrong eitimate Rs. 15,000
i" *; q-";;.r.
calculate the income for the period ended 30th September,
2010
fAns- (a) Income of quarter ended on 30-9-2011 - Rs. z,JZ,s\L.
(b) Excess depreciation-of preuious quarter of Rs. 2s,000 result
af previoas
quarter will be restated.
(c) It is change in estimate to be accounted in
for the quarter-ended J0-9-2010:J

l-"fivq
*+
*+ /4t- {TW