The Handwritten Notes: New Syllabus May-2021 Onwards Module-4

CA-Final
New Syllabus
May-2021
Onwards
Module-4
The Handwritten Notes

Key Benefits of Handwritten
Notes:-
1) To Complete the Financial
Reporting in a
comprehensive Manner
with short duration
2) At the time of watching
lecture focus only on
Concept
3) Multiple Charts and
summary prepared for
better linkage of the
provision and to facilitate
its proper understanding
4) Boost the confidence to
crack the CA-Final Exam.
.
CA. PARVEEN JINDAL
As Per ICAI Syllabus

Applicable From May
2021 Exam Onwards
Index
Chapter
Particulars Page Range
No.
1 CHAPTER 1 EMPLOYEE BENEFITS IND AS 19
Part -1 1 -4
Part -2 4-7
Part -3 8-10
Part -4 10-14
Part -5 14-17
Part -6 18-22
Part -7 23-28
Part -8 29-31
2 CHAPTER 2A CONSOLIDATION IND AS 110
Part -1 32-34
Part -2 34-36
Part -3 37-38
Part -4 38-39
Part -5 40-41
Part -6 41-44
Part -7 45-47
Part -8 47-49
Part -9 49-53
Part -10 53-56
Part -11 56-62
Part -12 62-65
Part -13 66-74
Part -14 75-80
Part -15 80-82
Part -16 82-86
3 CHAPTER 2B ASSOCIATES IND AS 28
Part -1 87-91
Part -2 91-92
Part -3 92-98
4 CHAPTER 2C JOINT ARRANGMENT IND AS 111
Part -1 99
Part -2 99-102
5 CHAPTER 2D SEPARATE FINANCIAL STATEMENTS IND AS 27
Part -1 103
6 CHAPTER 2E DISCLOUSER IND AS 112
Part -1 104-105
7 CHAPTER 3 FIRST TIME ADOPTION OF IND AS
Part -1 106-109
Part -2 109-111
8 CHAPTER 4 INCOME TAXEX IND AS 12
Part -1 112
Part -2 112-117
Part -3 117-125
Part -4 125-126
Part -5 126-133
9 CHAPTER 5 FAIR VALUE IND AS 113
Part -1 134-136
Part -2 137-139
10 CHAPTER 6 ANLYSIS OF FINANCIAL STAEMENTS
Part -1 140-142
Part -2 142-144
Part -3 144-146
Part -4 146
11 CHAPTER 7 CONCEPTUAL FRAMEWORK FOR FINANCIAL
STATEMENTS
Part-1 147-148
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Chapter 1 - Ind AS 19: Employees Benefits
*Part 1*
Basic Understanding of Some Useful Terms
A. Meaning of Employee: As per the provisions of Ind AS-19, An Employee may be:
i) Temporary, Permanent or Casual Worker
ii) Full Time or Part Time Employee
Management
“An Employee includes worker(factory), staff(office) & Directors also

(management).” It means that Ind AS-19 covers all persons that are providing
their services to company at any level.
B. Meaning of Employee Benefit Expenses: As per the Provisions of Ind AS-19,

Employee Benefit expense is an Expense which is incurred by a company in cash or
kind in lieu of services rendered by the employees [except payment in share based
plans covered under Ind AS-102]. This Expense can be paid directly to employees,
their dependents (i.e., children, spouses etc) or to Insurance Companies.
We can classify the Employees Benefit Expenses under the following 4 headings:-
Employees Benefit Expenses
Unit I: Unit II: Unit III: Unit IV:

Employees Short Post Employment Other Long Term Termination
Term Benefits Benefits Benefits Benefits
Unit I: SHORT TERM BENEFITS (IMP)
As per the provisions of Ind AS-19, Short Term Benefits are the Benefits which are
already settled by Company in Current Financial or Expected to be settled within 12
months after the end of Current Reporting Period in which services are rendered by
the employee. It can also be said that payables (if any) can not be disclosed in 2
consecutive Balance Sheet in relation to Employees Benefits otherwise payables shall
be considered as Long Term Benefits under Unit III. We can classify short term
benefits under the following headings:-
Short Term Benefits
Salaries, Wages, Social Payments for Annual Profit sharing Non-Monetary

Security Contributions & sick leaves (Short Term & Bonus benefits (i.e,
Etc. Absences) (IMP) (IMP) Rent Free house,
Car facility, Foods etc)
1|Page
Other special points to be considered
A. As per the Provisions of Ind AS-19, Short Term Benefits have the following 2
Features:-
i) These Benefits are recognised on Undiscounted Basis (+)
ii) These Benefit are recognised without Actuarial Valuation.
B. These Expenses shall be recognised on Accrual Basis. If there is any difference

between payable amount & Actually paid amount then difference will be considered as
a prepaid exp/ outstanding exp. It means that cash basis in not allowed.
C. If payment period exceeds the limit of 12 months from B/S date then
Re-classification will be required from Short Term to Long Term Benefits.
Additional Concepts to be covered under Unit I
Concept 1: Short Term Absences (Leave Encashment) or (Annual & Sick Leaves)
(Absences may be for any reasons, i.e; Maternity, Paternity, Sick Leaves, Social Work
Leaves, Military Services Leaves etc.)
Short Term Absences
Accumulating Leaves Non Accumulating Leaves

(iii)
Vested Unvested
(i) (ii)
(i) Accumulating Vested Leaves: If cash will be paid by the Company for “Unavailed
Leaves” to employees then it will be considered as a case of Accumulating Vested
Leaves. It can also be said that unavailed leaves shall not be lapsed, but these will
be carried forward & settled in cash. The company will create a liability on B/S date
if cash is not yet paid for unavailed leaves as follows:-
Journal Entries:
Employees Benefit Exp. a/c…………..Dr xxxx
To Accrued Leave Encashment Exp.** xxxx
** Accrued Exp. = No. of Unavailed Leaves x Salary per Day
Q.1
Solution:
I) Calculation of Leave Encashment
i. Avg. Salary per working day = Rs.30,00,000/ 300 days = Rs.10,000 per day
II) Total Employees Benefit Exp.
Total E.B. Exp = Annual Salary + Leave Encashment

= Rs.30,00,000 + Rs.20,000
= Rs.30,20,000
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Journal:
E.B. Exp………………Dr 30,20,000
To Cash 30,20,000
(Being Exp. Paid)
(ii) Accumulating Unvested Leaves: Under this concept, Company allows carry forward
of unavailed leaves in Next year. But there will be no payment in cash for unavailed
leaves as in vested accumulating leaves concept. The Company will allow leaves in
lien of leaves. “It means that company will increase No. of leaves in future in lien
of unavailed leaves in Current year”.
As per the Provisions of Ind AS-19, Company should create a Provision for this
Constructive obligation as follows:-
i) Provision for leave encashment= Leaves to be x Profitability x Salary per day

Carried forward of leaves to
Be availed
ii) Journal: Employees Benefit Exp………..Dr xxxx

(Current Year) To Provision for leave encashment xxxx
(Being Provision created for carried forward leaves)
Notes:
i) If there is discussion on company experience in question then we will create full
provision for unavailed leaves to be carried forward.
ii) If any change takes place in estimated provision in Next year due to high or less
availment of leaves then It will be considered as change in Estimation & will be
adjusted in Next year E.B. Exp.
Journal (Next Year):

Employee Benefit Exp…………….Dr xxxx (Bal.)
Provision for Leaves………………Dr xxxx (P.Y)
To Bank xxxx
Q.2
Solution:
Accounting for 20X0-X1
(i) Salary per day = Rs.30,00,000/300 days = Rs.10,000 per day
(ii) Unavailed Leaves to be carried forward = 10 days – 7 days = 3 days
(iii) Provision Required = 3 days x 100% x 10,000 = 30,000
(iv) Journal: Empl. Benefit Exp…….Dr 30,30,000

To Bank 30,00,000
To Prov. For leave Encashment 30,000
(Being Expenses Recognised)
3|Page

i) There will be No Provision for Leave Encashment because there are no unavailed
leaves in this year.
ii) Journal: Empl. Benefit Exp……………Dr 29,70,0000 (Bal.fig)

Provision for leave………..Dr 30,000
To Bank 30,00,000
Comments: The Accounting Treatment which is suggested by the Accountant of

Company is not correct because Employee Benefit Expenses cannot be recorded on
Cash Basis. As we can see in above entries that Expenses in X0-X1 is high, but in X1-X2,
it is Low.
*Part 2*
Q.3
Solution:
(i) Avg. Salary per Day= Rs.30,00,000/300 days= Rs.10,000 per day
(ii) Prov. For Unavailed Leaves on = 2 days x 10,000 = Rs.20,000
Company’s past experience
(iii) Journal: Employees Benefit Exp………….Dr 30,20,000

To Bank 30,00,000
To Prov. For Leave Encashment 20,000

Journal: Employees Benefit Exp**……… Dr 29,80,000
Prov. For Leave Encashment…Dr 20,000
To Bank 30,00,000
(Being Employee Benefit Exp Recognised)
** It includes the effect of Change in Estimation due to change in Prov. For Leave
Encashment. The Company had created Provision for 2 days in Previous year, but
employee actually availed 3 days which is a change in estimation & It has been adjusted
on prospectively basis by increasing the Employee Benefit Exp. In 20X1-X2.
Q.4
Solution:
In the given case, The Company should create Provision for Accumulating Unvested
leaves on the basis of its experience as follows:-
i) Prov. For Casual Leaves = 30 empl. X 5 days = 150 days

ii) Prov. For Sick Leaves = 10 empl. X 1 day = 10 days
Total Prov. Required = 160 days
4|Page
Q.5 (Imp)
Solution:
Calculation of Expenses for Leave Encashment under Both Assumptions
I. Vested Accumulation (Payment in Cash)

Expense = 100 employees x 2 unused leaves x 2500 per days = Rs.5,00,000
(Accrued Expenses will be booked for Rs.5,00,000)
II. Non Vested Accumulating (Leave for Leave)
Expenses = 100 employees x 20% x 1 day x 2500 = Rs.50,000
(Past experience (Provision for Leave Encashment will be created for Rs.50,000)
Of company)
Q.6 (V.V.Imp)
Solution:
Calculation of Provision for Non Vested Accumulating Leaves
i) Provision for Existing Employees [350-6%=329]

Unused Leaves [Carried forward] 3
Additional Leaves in Current Year 10
Total Allowed Leaves 13
Availed Leaves in Current Year (9)
Unused Leaves 4
Provision (1) = 329 x 4 x 16500 = Rs.21,71,400
ii) Provision for New Employees [350-329=21]

Leaves Allowed in Current Year 10
Leaves Availed in Current Year (9)
Unused Leaves 1
Provision (2) = 21 empl. X 1 leave x 16500 per day salary = Rs.3,46,500
Total Provision (1+2) = 21,71,400 + 3,46,500 = Rs.25,17,900
Journal Entries
A. Empl. Benefit Exp………….Dr 25,17,900
To Prov. For Leave Encashment 25,17,900
(Being Prov. Created for Unused Leaves)
B. Accrued Exp……………..Dr 65,00,000

To Bank 65,00,000
(Being Payment for liabilities relating to Previous Year)
5|Page
Q.7
Solution:
Yes, the Company should create Provision for 12 days as Provision for Leave
Encashment because It is expected that 8 employees will avail 1.5 days of Unused
Leaves.
Q.8 (Nov 2020)

Solution:
Accounting for Short Term Absences
i) Provision for PL = (200 empl. X 5 days) + (800 empl. X 10 days)
= 1000 days + 8000 days
= 9000 days
ii) Provision for SL = (200 empl. X 2 days) + (800 empl. X 5 days)

= 400 days + 4000 days
= 4400 days
Total Provision Required = 9000 + 4400 = 13,400 days
Comment: The Company should create Provision on the Basis of its Past experience
for 13,400 man days
(iii) Non Accumulating Leaves:
Under Non Accumulating Leaves, there will be no Payment in Cash or Leave against
Leave in Next year. It means that Company will pay nothing for unavailed Leaves. It
can also be said that the unavailed leave shall be lapsed in the same year. There will be
no Accounting entry for Non-Accumulating leaves because there will be no Cash
payment or carry forward of Leaves.
Concept 2: Profit Sharing/ Bonus
As per the Provisions of Ind AS-19, the Company should provide for Bonus/ Profit
sharing only if the following conditions are satisfied:-
As per the any act(Bonus Payment Act)

Condition I: There should be some legal or constructive obligation on company for
payment of Bonus/ Profit sharing.
Company clear Company implied

Promise with employees promise on the basis of
Regarding payment of its Past trends of these
Bonus/Profit sharing payments
(+)
6|Page
Condition II: There is a Reliable Estimate for the payment of these liabilities
(1) (2) (3)

There should be a fixed formula which Amt of liab. Has been The liab. Will be
Can used for Computation of Liab. Finalised before approval settled within 2
On Financial Statements months from
B/S Date
Journal: Employees Benefit Exp………..Dr xxxx
To Prov. For Bonus/Profit sharing xxxx
(Being Liab. Created)
Q.9
Solution:
i) Expected Pay out = 200 crores (Profit) x 4.5% (Estimated payout) = 9 crores
ii) Journal: Empl. Benefit Exp……….Dr 9 crore

To Prov. For Bonus 9 crore
(Being Liab. Created on the Basis of Expected Payout)
Q.10
Solution:
i) Company Provision for Bonus = (1,25,000+8.5%) + 329 employees = 4,46,20,625
Bonus per empl.
ii) Journal: 31.03 Empl. Benefit Exp…………Dr 4,46,20,625

To Prov. For Bonus 4,46,20,625
(Being Prov. For Bonus created)
30.06 Prov. For Bonus…………Dr 4,46,20,625
To Bank 4,46,20,625
(Being liab. settled)
Q.8
Solution:
Company Estimated Profit Sharing = 2000 crores x 3.5% = 70 crores
Journal: Empl. Benefit Exp………..Dr 70 crores

To Prov. For Profit Sharing 70 crores
(Being Liab. Created for profit sharing)
7|Page
*Part 3*
Unit II: POST EMPLOYEMENT BENEFITS (RETIREMENT BENEFITS)
As per the Provisions of Ind AS-19, Post-Employment Benefits are the formal or
Informal Arrangement under which an Entity provides Post Employment Benefits to
Its employees. These Benefits can be classified under 2 different headings as
follows:-
Concept 1: Defined Contribution Plans (i.e; Provident Funds, Insurance Funds etc.)
Concept 2: Defined Benefits Plans (i.e; Gratuity, Pension, Lump sum Benefits etc.)
Defined Contribution Plans Defined Benefits Plans

A. Under Defined Contribution Plans, A. Under Defined Benefit Plans,
Entity has constructive or Legal Entity has constructive or legal obligation
obligation to the extent of to the extent of “Agreed amount of
“Contribution to a Plan/fund” which is Benefit” which is payable to Employee at
rd
Managed by 3 party. the time of Retirement i.e; Promised
Examples:- Pensions, Gratuities, Lump sum Payments
i) Contribution Provident fund which is etc.
managed by Ministry of Employment
ii) Payment for Insurance Premium to
Insurance Companies for Life
Insurance/ Medical care etc.
B. Under these Plans, Actuarial Risk & B. Under these Plans, Actuarial &
Investment Risk falls on Employee Investment Risk fall on Entity’s itself
because Entity’s obligation ends after because Fund is managed by the Entity
Contributing to the Plan. Itself.
C. There will be no Increase in liability C. The Entity’s Liability can be Increased

because contributions are made upto a if Investments perform worse than the
Fixed Amt. Expectation.
D. The Employee will get Post D. The Amount of Post-Employment

Employment Benefit According to “the Benefit is “Pre-Decided” between
Amount of Contribution & Period of Employer & Employee.
Service”
These funds are managed by 3rd Parties. These funds are managed by Entity itself
Examples of Defined Contribution Plans:

I. State Plans: These Funds are managed by Central, State or Local Govt.
[P.F. is managed by Ministry of Labour & Employment]
II. Insurance Plans: These Funds are managed by the Insurance Companies
[Premium is paid for Life Insurance & Medical care of Employees]
8|Page
III. Multi-Employers Plans: These Funds are managed by a Trust (3rd Party) which are
created from Contribution made by different Employees
for their Employees in Common Pool.
 If Holding & Subsidiary Pool their funds then It will
not be considered as Multi-Employer Fund
Exceptions to Above:
After making Contributions to above plans, If an Entity still retains any
Constructive obligation then Accounting for Plans will be made as Defined Benefit
Plans.[ i.e; It may be possible that company has promised/ guaranteed a Fixed Amount
to employees from above plans & company has access to significant information
relating to 3rd Party Fund]
Concept 1 : Accounting for Defined Contribution Plans
As per the Provisions of Ind AS-19, Accounting for Defined Contribution Plans is very
Simple. The following points may be considered:-
1. These Plans are accounted for an Undiscounted Basis.
2. These Plans are accounted for without Actuarial Assumptions.
3. The Difference between Contribution Payable & Contribution paid will be considered
as Outstanding or Prepaid Expenses.
4. The Amount of Contribution Payable will be considered as an Expense in P&L a/c /
SOPL as follows:
Prepaid Expenses (Bal.)……Dr xxxxx
Employees Benefit Exp…….Dr xxxx
To Cash/Bank xxxx
To Outstanding Exp(Bal.) xxxx
P&L………Dr xxxx
To Empl. Benefit Exp xxxx
(Being Exp. Written off)
Q.13
Solution:
In the given case, It is clearly specified that there is no further obligation on
Entity except contribution which indicates that funds are managed by 3rd Party &
there is no further involvement of Entity into it. So, it will be Accounted for in the
Books as Defined Contribution Plans as follows:-
Journal: i) Employees Benefit Exp……….Dr 6 [50 x 12%]

To Bank 2.8
To Payables 3.2
(Being Exp. Recognised)
ii) P&L …………………..….Dr 6

To Empl. Benefit Exp 6
9|Page
Q.11 & 12
Solution: Homework
*Part 4*
Concept 2 : Accounting for Defined Benefit Plans [V.V.V.Imp]
As per the Provisions of Ind AS-19, Accounting for Defined Benefit Plans is complex
due to the following reasons:-
I. Use of Acturial Assumptions for measurement of Defined Benefit Obligations

(Accumulated Cost) & Current Service Cost (year’s cost)
II. Use of Discounting Model due to Promised Payments on a Future dare
III. Acturial Gain/ Loss
These Plans can be funded or unfunded in nature. In most of cases, these plans are
usually unfunded.
Plans
Funded Unfunded
3rd Party will manage the funds, but Entity will manage Invts for
Entity has promised employees to for payments of Benefits
Compensate the shortfalls (if any)
(Note: In this case, Defined Contribution
Plans shall be Accounted for Defined
Benefit Plans)
Steps for Accounting under Complex Model
Step I: Recognition & Measurement of Current Service Cost & Present Value of D.B.O
(Liability side of Balance Sheet)
Step I
A. PUCM B. Benefit Period C. Acturial Assumptions
A. Project Unit Credit Method (Acturial Method)
Examples:
i) Company’s Promised Benefit to Employee: 5% of Annual Salary for each yr of service
ii) Annual Salary of Empl.: Rs.50,000
iii) Expected Remaining Time of his service period: 5 years
iv) Discount Rate: 10% p.a
Required: 1) CSC, 2) Interest Cost, 3) PVDBo Statement for all 5 years
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Solution:
Step I: Calculation of P.V. of Current Service Cost

(Annual Benefit= Rs.50,000 x 5% = Rs.2,500 p.a)
Year 1 2 3 4 5
Annual Benefit(At the end 2500 2500 2500 2500 2500
of year)
PVF @ 10% 0.683 0.751 0.826 0.909 1
P.V of CSC 1708 1878 2065 2273 2500
Step II: Statement showing PVDBo Balance at the end of each year
Year 1 2 3 4 5
Opening Bal (PVDBo) Nil 1708 3757 6198 9091
Add: Interest (OB x 10%) Nil 171 376 620 909
Add: P.V. of CSC 1708 1878 2065 2273 2500
Cl. Bal (PVDBo) 1708 3757 6198 9091 12500
Step III: Journal Entries
1St year Current Service Cost………….Dr 1708

To PVDBo 1708
(Being Expense Recognised)
P&L a/c………………Dr 1708
To Current Service Cost 1708
(Being Expense written off)
2nd year Interest Cost………….Dr 171

CSC…………………………Dr 1878
To PVDBo 2049
(Being Expense Recognised)
P&L……………….Dr 2049
To Current Service Cost 1878
To Interest 171
(Being Expense written off)
Under PUCM, Current Service Cost is Booked at Present Value due to Promised
obligation in later years. The following steps should be applied under PUCM:-
Step I: First of all, we should compute Annual Gross Benefits during the Service
period of Employee
Step II: Calculate Present Value of Annual Gross Benefit using an appropriate
discount rate & Recognise it as “Current Service Cost” in each year.
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Step III: Prepare a Statement for PVDBo in the following format:
Opening Obligation xxxx

Add: Interest (OB x %) xxx
Add: CSC xxx
Closing Balance (Obligation) xxxx
The above Statement will be prepared for each year during the Service period of the
employee.
Note: 1) We will Recognise CSC & Interest on PVDBo as Expenses in P&L a/c
2) Balance in PVDBo will be disclosed in Balance sheet under Non-Current
Liabilities.
Step IV: Journal Entries

Accounting Entries for 1st year:
i) Current Service Cost………….Dr xxxx
To PVDBo xxxx
(Being Exp. Recognised)
ii) P&L a/c…………Dr xxxx

To Current Service Cost xxxx
Accounting Entries for 2nd & Subsequent years:

i) Interest Cost a/c………….Dr xxxx
Current Service Cost………….Dr xxxx
To PVDBo xxx
ii) P&L a/c………Dr xxxx

To Interest xxx
To CSC xxxx
(Being Expenses written off)
At the time of Payment to Employees

PVDBo…………….Dr xxxx
To Bank xxxx
(Being payment made)
Q.15 (PUCM)
Solution:
I. Calculation of Final Salary at the end of 5th year
PT 1st year 2nd year 3rd year 4th year 5th year
Basic Salary 10,000 10,000 10,700 11,449 12,250
Increment @7% p.a N.A 700 749 801 858
Final Drawn Salary 10,000 10,700 11,449 12,250 13,107
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II. Calculation of Gross Benefits year to year

Gross Benefits (Annual) = 13,107 x 1% = Rs.131 (Round off)
Gross Benefits (Total) = 131 x 5years = 655 (total)
III. Calculation of Present value of Annual Benefit (CSC)

Gross Annual Benefits 131 131 131 131 131
PVF @10% p.a 0.683 0.751 0.826 0.909 1
P.V. of CSC 89 98 108 119 131
IV. Statement Showing PVDBo

Opening PVDBo - 89 196 324 475
Interest @10% - 9 20 32 48
CSC 89 98 108 119 131
Closing PVDBo 89 196 324 475 654
B.Benefits Period
As per the Provisions of Ind AS-19, Benefit Period is the period over which Current
Service Cost is allocated. The following points should be considered under this
concept:-
i) The Current Service Cost shall be allocated on “SLM” basis over the Benefit period
ii) The Benefit period shall be divided under 2 headings as follows:-
Benefit Period
Higher Benefit Period Nominal Benefit Period
Note: The Amount of Current Service Cost will be different under the specified
periods. The Amount of Current Service Cost will be computed separately for both
periods according to different periods.
iii) If Benefits shall be vested on a Future date after completing conditional service
period then there will be no Impact on Current Service Cost due to Future vesting.
We can consider Probability factor on No. of employees who are expected to complete
the condition.
iv) If vesting of Benefits is made year to year Basis then the vested Amount will be
considered as CSC over the remaining Service Period. [No need to calculate SLM amt in
this case] { Refer below Ques for Above Concepts}
Q.16, 17, 18, 19, 20, 21, 22, 23

Solution: Discussion in Lecture
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C. Acturial Assumptions
As per the Provisions of Ind AS-19, Acturial Assumptions are entity’s Best
Estimates while providing the CSC for Post-Employment Benefits. These Estimates
should be Unbiased & Mutually Compatible. There are 2 types of Assumptions, which are
used under Ind AS-19, as follows:-
Assumptions
Demographic Assumptions Financial Assumptions
i) Mortality Rate i) Discount Rate (Govt Bond rate)

ii) Early Retirement Rate Related with ii) Salary Increment Rate
iii) Turnover Rate No. of Empl. iii) Settlement Exp at the time of
iv) Disability Rate etc. Final payment etc
*Part 5*
Step II: Adjustments in PVDBO (V.V.Imp)
Adjustments
1. Benefits Paid 2. Past Service Cost 3. Settlement 4. Re-measurement
Cash Payment P&L A/c OCI
Adjustment 1: Accounting for Benefit Paid
At the time of Retirement of Employees, Entity will pay the Promised Amount to the
Employee for which it had created PVDBO A/c. The following entry will be passed in the
given case:-
Journal: PVDBO a/c…………Dr xxxx

To Bank xxxx
(Being Benefits paid)
Statement showing Balance in PVDBO for Current Year

PT Rs.
Opening Balance (Obligation) xxxx
Add: Interest Cost (OB x %) xxxx
Add: Current Service Cost xxxx
Less: Benefits Paid (xxxx)
Adjustment 2: Past Service Cost (Imp)

As per the Provisions of Ind AS-19, Past Service Cost is the Amount of Changes in
Existing Balance of PVDBO due to “Amendment in Plan” or “Curtailment in Plan.” The
following points may be considered while making Accounting Entries for Past Service
Cost:-
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1. Under Amendment in Plan, Current Benefits may be Increased or Decreased due to

which existing Balance in PVDBO will be revised. The Amendment in Plan also includes
withdrawal of Existing Plan & Introduction of New Plan. The Difference between
Revised Balance in PVDBO after Amendment & Existing Balance in PVDBO will be
considered as “Past Service Cost.”
2. Under Curtailment, Entity can reduce No. of Employees due to Discontinuation of a

Factory, Plant or Segment.
After Reducing No. of Employees, there will be reduction in Balance of PVDBO a/c &
such reduction will also be treated as Past Service Cost.
3. The following calculation may be considered to compute Past Service Cost due to
Amendment or Curtailment in PVDBO A/c:-
PT Rs.
Revised (New) Balance in PVDBO A/c after Amendment/ Curtailment xxxx
Existing Balance in PVDBO A/c before Amendment/ xxx
Past Service Cost +/- xxxx
Notes:
A. If Balance in PVDBO gets increased after Amendment/ Curtailment then Past
Service Cost will be considered as Positive PSC, but It will be considered as Negative
PSC in Vice versa situation.
B. As per the Rules, PSC will be transferred to P&L a/c on the Date of Amendment or
Curtailment
4. Accounting Entries:-
If PSC is “+” If PSC is “-“
(i) Past Service Cost……Dr xxxx (i) PVDBO………..Dr xxxx
To PVDBO xxxx To Past Service Cost xxxx
(Being Liab. Increased due to Amendment (Being Income Recognised)
in Plan)
5. Statement Showing Balance in PVDBO

PT Rs.
Add: Interest Cost (OB x %) xxxx
Add: Current Service Cost xxxx
Less: Benefits Paid (xxxx)
Add/ Less: Past Service Cost +/- xxxx
Adjustment 3: Profit/ Loss on Settlement of Plan (Imp)
As per the Provisions of Ind AS-19, Settlement means payment in cash as

Compensation in lieu of cancellation of Existing Plan. If payment is made less than
Balance in PVDBO then It will be considered as Gain on settlement, but it will be
treated as Loss on Settlement in vice versa case. The difference between
Curtailment & settlement can be analyzed as follows:-
15 | P a g e
Curtailment V/S Settlement
Cancellation of PVDBO without Cancellation of PVDBO with

Compensation Compensation
It is related with unvested benefits It is related with vested benefits

which are related to vesting on Future which are vested year to year basis
date
It is recognised as past service cost It is recognised as Settlement
Always Profitable Gain/ Loss may take place
Accounting Entries:-
Gain on Settlement Loss on Settlement
PVDBO………….Dr xxxxx PVDBO……………………….Dr xxxxx

To Bank xxxx Loss on Settlement….Dr xxx
To Gain on Settlement xxx To Bank xxxxx
(Being Settlement made) (Being Settlement made)

*Gain or Loss on Settlement will be transferred to P&L a/c.
Special Points
A. If Amendment or Curtailment & settlement are made on same date together then
we consider it as Settlement. We will calculate Gain or Loss on settlement instead
of Recognising Past Service Cost.
B. Interest Cost: If Amendment or Curtailment & settlement has been made during
the year then calculation of Interest Cost will be made separately for the Rest of
year on Revised liability after Amendment/ Curtailment or Settlement.
Statement Showing Balance in PVDBO

PT Rs.
Add: Interest Cost (OB x %) [P&L a/c] xxxx
Add: Current Service Cost [P&L a/c] xxxx
Less: Benefits Paid (it can be added to benefit paid) [Cash a/c] (xxxx)
Add/ Less: Past Service Cost [P&L a/c] +/- xxxx
Less: Amount paid on Settlement [Cash a/c] (xxxx)
Add/Less: Gain/ Loss on Settlement [P&L a/c] +/- xxxx
Closing Balance (Obligation) [ B/s: NCL] xxxx
16 | P a g e
Adjustment 4: Re-measurement of PVDBO
As per the Provisions of Ind AS-19, Changes in PVDBO due to change in Acturial
Assumption (Demographic or Financial) will be considered as Re-measurement of
PVDBO. The Gain or Loss due to Increase or Decrease in PVDBO will be considered as
Acturial Gain or Loss.
The Amount of Acturial Gain or Loss will be transferred to “OCI” instead of P&L a/c.
This Balance of OCI will be considered as Non-Recycling to P&L & It will be held under
other Equity only. The calculation of Acturial Gain/ Acturial Loss can be made as
follows:-
Calculation of Actuarial Gain/ Loss

PVDBO A/c
PT Rs. PT Rs.
To Past Service Cost (-) xxxx By Bal b/d (Opening) xxxx
To Bank (Benefits paid) xxxx By Interest (OB x Rate) xxxx
To Bank (Settlement) xxxx By Current Service Cost xxxx
To Gain on Settlement xxxx By Past Service Cost (+) xxxx
To Actuarial Gain (Bal.fig) Xxxx* By Loss on Settlement xxxx
By Actuarial Loss (Bal.fig) xxxx*
To Bal c/d (given) xxxx
xxxx xxxx
Journal: i) Actuarial Loss: a) Actuarial Loss……..Dr xxxx

To PVDBO xxxxx
b) OCI………………Dr xxxx
To Actuarial Loss xxxx
ii) Actuarial Gain: a) PVDBO………………Dr xxxx
To Actuarial Gain xxxx
b) Actuarial Gain………Dr xxxx
To OCI xxxx
17 | P a g e
*Part 6*
e.g. Calculate closing balance in PVDBO at the end of year with the help of following
information:-(X1 –X2 )
i) Opening Balance in PVDBO : Rs.10,00,000

ii) Current Service cost : Rs.2,00,000
iii) Interest to be computed @10% p.a.
iv) Amendment in plan made on 1.7.X1 due to which there will be an increase in
PVDBO by Rs. 2,00,000
v) Settlement made with some employees on 31.3.X2 and a payment was made
of Rs.2,00,000 in settlement of PVDBO of Rs.25,000
Solution:
PVDBO A/c
31.3.X2 1.4.X1
To Bank (settlement) 2,00,000 By Bal b/d 10,00,000
To Gain in Settlement 50,000 1.7.X1

(2,50,000-2,00,000) By Past service cost 2,00,000
To Bal C/d (Bal fig) 12,65,000 31.3.X2

By Interest Cost:
i) 10L *10%*3/12=25,000
ii) 12L *10%*9/12=90,000 1,15,000
By Current Service cost 2,00,000
15,15,000 15,15,000
Alternative Presentation
Opening Balance =10,00,000
Add: Past Service Cost =2,00,000
Add: Interest Cost =1,15,000
Add: Current Service e Cost = 2,00,000
Less: Benefits paid on settlement = 2,00,000
Less: Gain on Settlement =50,000
Closing Balance 12,65,000
Journal: 1) Past service cost---------Dr 2,00,000

Current Service cost----Dr 2,00,000
Interest------------------Dr 1,1,5,000
To PVDBO 5,15,000
( Being Exp. Recognised)
18 | P a g e
ii) PVDBO A/c---------------Dr 2,5,0,000

To Bank 2,00,000
To Gain on settlement 50,000
(Being settlement made)
iii) P&L A/c----------------Dr 5,15,000

To PSC 2,00,000
To CSC 2,00,000
To Interest 1,15,000
(Being expenses written off)
iv) Gain on settlement A/c……..Dr 50,000

To P& L 50,000
(Being Gain Recognised)
e.g. Calculate actuarial Gain or Loss in PVDBO with the help of given information as
below:-
i) Opening Balance in PVDBO : Rs.10,00,000

ii) Closing Balance in PVDBO : Rs.10,00,000
iii) Current service cost : Rs.40,000
iv) Interest @10% p.a.
At the end of year the following additional information is also available:-

a) Past service cost of Rs.10,000 due to increase in PVDBO
b) Reduction in PVDBO due to curtailment of Rs.50,000
Solution:
PVDBO A/c
To P.S. Cost (Curtailment) 50,000 By Bal b/d 2,00,000

By Interest 10% 20,000
By C.S. Cost 40,000
To Bal c/d 2,50,000 By P.S.C. (Amendment) 10,000
By Actuarial Loss (Bal. fig) 30,000
3,00,000 3,00,000
Journal: 1) Current service cost---------Dr 40,000

Interest cost------------Dr 20,000
P.S. Cost (Amend.)------------Dr 10,000
To PVDBO 70,000
ii) PVDBO A/c---------------Dr 50,000

To Past service cost (Curtailment) 50,000
(Being Curtailment made)
19 | P a g e
iii) Actuarial loss A/c--------Dr 30,000

To PVDBO 30,000
(Being loss due to remeasurement recognised)
iv)P&L A/c------------------.Dr 20,000 (bal)

PSC A/c------------------Dr 50,000
To CSC 40,000
To PSC 10,000
To Interest 20,000
(Being Expenses written off)
v) OCI A/c------------------Dr 30,000

To A. Loss 30,000
(Being Re-measurement loss transferred to OCI)
Step III: Accounting for Plan Assets

(Investment Held for Retirements benefits)
As per the provisions of Ind AS 19, the following steps should be applied while
making Accounting for plan Assets:-
1. Accounting Entries for 1st year of Investments made:-
At the end of Year

Plan Assets A/c-------------------Dr XXXX
To Bank XXXX
(Being Investments acquired)
2. Accounting entries for 2nd year & Subsequent year
At the end of Year

i) Plan Assets A/c---------Dr [O.B. *%] XXXX
To Interest Income XXXX
(Being returns on Assets recorded)
ii) Plan Assets A/c-------------Dr XXXX

To Bank XXXX
(Being New contribution made)
iii) Interest Income A/c--------Dr XXXX

To P& L A/c XXXX
(Being Income recognized)
20 | P a g e
Statement of Plan Assets

Opening Balance (Assets) XXX
Add: Actual Return on Balance (OB*%) XXX
Add: New contribution XXX
Closing Balance XXX
OR
Plan Assets A/c
To Bal b/d XXX By Bal c/d XXX

To Income XXX
To Bank XXX
XXX XXX
3. At the time of Benefit paid to employees:-
At the time of benefits to be paid to the employees, we need to sell investments

for the arrangements of cash. The following entry will be recorded:-
Bank a/c………….Dr XXX

To Plan Assets XXX
(Being Investments sold)
Plan Assets A/c
To Bal b/d XXX By Bank (Sold) XXX

To Bank XXX
To Income XXX By Bal c/d XXX
XXX XXX
4. Gain/Loss on Re-measurement:-
(Actuarial Gain/Loss)
At the end of year, plan Assets are required to be valued at “fair value” due to
Which there will be re-measurement gain or loss in plan Assets a/c and it will be
recognised at actuarial gain or actuarial Loss. As per provision of Ind AS 19 Actuarial
Gain/loss will be transferred to “OCI” and it will be non-transferable to P&L in
Nature.
21 | P a g e
If fair value of If fair value of

Investments get Investments get decreased
increased
i) Plan Assets A/c…Dr XXX i) A. Loss A/c…………….Dr XXX

To A. Gain XXX To Plan Assets XXX
(Being Gain Recognized) (Being Loss Recognized)
ii) A. Gain A/c…………Dr XXX ii) OCI A/c…………………Dr XXX

To OCI XXX To A. Loss XXX
(Being Gain transferred to OCI) (Being Loss transferred)
Plan Assets A/c
To Bal b/d XXX By Bank (Benefit paid)/ XXX

To Bank (Cont) XXX Sale of investments
To Income (OB*%) XXX By Actuarial loss (Bal.fg) XXX
By Actuarial Gain (Bal.fg) XXX By Bal c/d (Fair Value) XXX
XXX XXX
e.g. Calculate actuarial gain/Loss on Plan Assets with the help of given information
as follows:-
i) OB (Fair value) : 10,00,000

ii) CB (Fair value) : 16,00,000
iii) Contribution : 2,00,000
iv) Income on Assets @8% p.a.
v) Benefits paid to employees : 4,00,000
Plan Assets A/c
To Bal b/d 10,00,000 By Bank (Benefit paid)/ 4,00,000

To Bank (Cont) 2,00,000
To Income (10L *8%)= PL 80,000
By Actuarial Gain (Bal.fg) 7,20,000 By Bal c/d (Fair Value) 16,00,000
“OCI”
20,00,000 20,00,000
*Plan Assets: There are investments which are held for payment of retirement
Benefits. It includes all investments which are held for employees
retirement benefits including qualifying insurance policies as well.
Risk Free
Investments Other than Insurance plans
Which are covered under contribution plans
“Q.I.P.”: If it is held by en entity for payment of retirements benefits.
22 | P a g e
*Part 7*
Step IV: Presentation in financial statements

(excluding Asset ceiling)
As per the provisions of Ind AS 19, the presentation Rules regarding Defined
Benefit plans can be understood under the 3 different headings:-
Rule 1: Presentation in Balance sheet
In B/S, we will disclose Defined Benefit obligation liability or Asset on net

Basis as follows:-
Closing Balance in PVDBO XXXX

Closing Balance in Plan assets (XXXX)
Net Defined Benefit XXXX +
Liability (Asset)
“Subject to Asset ceiling”
Rule 2: Presentation in P& L statement & OCI Statement
i) Interest cost on PVDBO & Interest income on Plan Assets will be disclosed
On net basis [Interest cost-Interest Income =Net Interest]
ii) Actuarial gain/loss in PVDBO & plans Assets will also be disclosed in OCI on net
Basis [actuarial Gain/loss in PVDBO + actuarial Gain/loss in plan Assets= Total]
iii) All other items such as CSC,PSC & Gain or Loss on settlement shall be traeted
Separately.
Rule 3: Presentation in Notes to A/c’s
In notes to A/c’s, reconciliation statements for PVDBO, plan Assets & Net
Asset/Liability will be given between opening balance & closing balance as follows:-
Particulars PVDBO Plan Assets Net Balance

Opening Balance XXXX XXXX XXXX
(PVDBO-Plan Assets)
Interest Cost/Income XXXX XXXX XXXX (Cost-Incomes)

Current Service cost XXXX - XXXX
Cost Service cost + XXXX - + XXXX
Settlement Gain/Loss + XXXX - + XXXX
Benefits Paid (XXXX) (XXXX) Zero
Contribution Paid - XXXX XXXX
Actuarial Gain/Loss + XXXX + XXXX + XXXX
Closing Balance XXXX XXXX XXXX
23 | P a g e
Note: In practical questions, we will present the solution as per requirements.

We will show net reconciliation statement only if financial statements are
required in questions.
In notes to A/c’s, entitles are required to prepare one more statement showing
Investments (plans Assets) as follows:-
i) Investments in equity instruments

ii) Investments in debt instruments
iii) Investments in Derivatives
iv) Investments in Govt. Securities
v) Investments in Real estate
vi) Investments in fixed deposit/ Insurance plans etc.
Question-28
Solution
(i) Presentation in B/S (31.3.X2)
Closing Balance in PVDBO A/c 1580

Closing Balance in Plan Assets A/c (1275)
Net D.B. Liability 305
(ii) Presentation in P&L & OCI
In P&L A/c : i) C.S. Cost 55

ii) Net Int. Cost (112-91) 21
Total Expenses 76
In OCI : i) A. Loss on PVDBO 13

ii) A. Loss on P. Assets 67
Total Loss 80
(iii) Journal Entries
a) C.S. Cost Dr--------55 b) A. Loss A/c……Dr 13

Interest cost Dr---112 To PVDBO 13
To PVDBO 167 (Being loss on re-measurement recognised)
(Being exp recognised)
c) Plan Assets A/c------Dr 202 d) A. Loss A/c---------Dr 67

To Int, Income 91 To Plans Assets 67
To Bank 111 (Being re-measurement losses booked)
(Being Plan Assets increased)
e) P&L A/c-------------Dr 202 f) Interest Income A/c----Dr 91

To Int, Income 112 To PL 91
To Bank 55 (Being Income transferred )
(Being exp. Written off)
24 | P a g e
g) OCI A/c----------Dr 80
To A. Loss on PVDBO 13
To A. Loss on Plan Assets 67
(Being A. Losses written off)
OR
Net entry: Given in study Mat
PL-----Dr 76
OCI----Dr 80
To PVDBO 45
To Bank 111
w.n. #1
PVDBO A/c
By Bal B/d 1400

By C.S. Cost 55 1567
By Int. Cost (1400*8%) 112
To Bal C/d 1580 By A. Loss (Bal Fig) 13
1580 1580
W.N. # 2 Plans Assets A/c

To Bal b/d 1140 By A. Loss ( Bal, fig) 67
To Int. Income 91
(1140*8%) By Bal c/d 1275
To Bank 111
1342 1342
Question-30
Solution
Calculation of Gain/Loss to be transferred to OCI
Actuarial Gain in plan assets 1000

Actuarial Loss in PVDBO 100
Net Gain to be transferred to OCI 900
Calculation of Net Interest cost in P&L
Interest cost on PVDBO 1200

Interest Income in Plan Assets (1000)
Net Interest cost 200
25 | P a g e
W.N. #1
Plan Assets A/c
To Bal b/d 10,00 By Bank 300

To Interest Income 1,000
(10,000*10%)
To Bank (Contribution) 3,000 By Bal C/d 14700
To A. Gain (Bal.fig) 1000
15,000 15,000
W.N. # 2
PVDBO A/c
To Bank 3,00 By Bal B/d 12,000
By Int. Cost (10%) 12,00
By C.S. Cost 2,500
To Bal C/d 15,500 By A. Loss (Bal Fig) 100
15800 15800
Question-31 (Imp)
Solution
i) Presentation in B/S (31.03)
Closing Balance in PVDBO A/c 6,80,00,000

Closing Balance in Plan Assets A/c (5,60,00,000)
Net Defined benefit Liability 1,20,00,000
ii) Presentation in P&L & OCI
P&L Statement : i) C.S. Cost 62,00,000

ii) Net Int. Cost 4,06,250
(30,06,250-26,00,000)
iii) Past service cost 15,00,000
Gain on settlement (5,00,000)
In OCI : Net Actuarial loss due to 33,93,750

Re-measurement
(94,93,750-61,00,000)
Loss Gain
iii) Presentation in notes to A/c’s
PVDBO A/c Plan Assets Net Liability

Opening Balance 6,00,00,000 5,20,00,000 80,00,000
Add: Interest 30,06,250 26,00,000 4,06,250
Add: C.S. Cost 62,00,000 - 62,00,000
26 | P a g e
Add: P.S. Cost 15,00,000 - 15,00,000

Less: benefits Paid (42,00,000) (42,00,000) 0
Less: Settlement payment (75,00,000) (75,00,000) 0
Less: Gain on settlement (5,00,000) - (5,00,000)
Add: Contribution made - 70,00,000 (70,00,000)
Actuarial Gain /Loss 94,93,750 61,00,000 33,93,750
(Loss) (Gain) (Net)
Closing Balance 6,80,00,000 5,60,00,000 1,20,00,000
W.N. #1
Plan Assets A/c
To Bal b/d 5,20,00,000 By Bank:

To Interest Income 26,00,000 Benefit Paid 42,00,000
(5,20,00,000*5%) Settlement 75,00,000
To Bank 70,00,000
To A. Gain (bal) 61,00,000 BY Bal C/d 56,00,000
6,77,00,000 6,77,00,000
W.N. # 2
PVDBO A/c
To Bank (Benefits) 42,00,000 By Bal b/d 6,00,00,000
To Bank (settlement) 75,00,000 By Interest:
To Gain on settlement 5,00,000 1.4.-28.02 [6 crores*5%*11/12] 30,06,250
1.3- 31.3 [6 crores*5%*1/12]
By C.S. Cost 62,00,000
To Bal c/d 6,80,00,000 By P.S. Cost 15,00,000
By A. Loss (Bal. fig) 94,93,750
8,02,00,000 8,02,00,000
Question-32
Solution
Statement showing Reconciliation of Plan Assets
Opening Balance( Fair Value) 20,40,000

Interest Income (20,40,000*5%) 1,02,000
Contributions 4,25,000
Benefits Paid (2,55,000)
Actuarial Gain (Bal. fig) 68000
Closing Balance (fair Value) 23,80,0000
27 | P a g e
Statement showing Reconciliation of PVDBO
Opening Balance in PVDBO A/c 21,25,000

Interest cost (21,25,000*5%) 1,06,250
Current service cost 5,10,000
Benefits Paid (2,55,000)
Actuarial Loss (bal. fig) 233750
Closing Balance in PVDBO 27,20,000
Presentation in B/S
Net Defined benefit Liability (27,20,000-23,80,000) 3,40,000
Presentation in P&L
P&L : 1) CSC 5,10,000

2) Net Int. Cost(106250-102000) 4250
OCI: Net A. Loss on Re-measurement 1,65,750

(233750-68000)
Question-27 &29
Solution discussed at class
28 | P a g e
*Part 8*
Step V: Asset Ceiling
As per the provisions of Ind As-19, the concept of Asset ceiling will be applicable
only if these are Net Defined Benefits Assets. The following steps should be applied:-
Step I: Calculate Net defined Benefit Assets as follows:-
PVDBO (Closing Balance ) XXXX

Plan Assets (Closing Balance ) (XXXX)
Net Defined Benefit Assets XXXX
If the plan Assets become

Higher than Balance in PVDBP
It also indicates that plan Assets are

Overfunded due to high contributions
Or there is Re-measurement
Gain due to increase in
Fair value of Assets
Step II: Calculate Present value of expected Refunds or Reduction in future

Contributions due to increase in plan Assets settlement of PVDBO
It is called Amt of “Asset ceiling”
Step III: We will disclose Net Defined Benefit Assets in B/S to the extent of Asset
Ceiling “if step I value exceeds Step II value then Difference will be
reversed in OCI and it will also be considered as Re-measurement.”
Step I : N.D.B. Asset or step II : Asset ceiling
Whichever is lower will

be carried in B/S
Journal : If Step I exceeds Step II
OCI A/c…..Dr XXX

To Plan Assets XXX
(Being Re-measurement made due to Asset ceiling)
Example:
i) PVDBO= Rs.20,00,000
ii) Plan Assets= Rs.24,00,000
iii) Asset Ceiling= Rs.2,50,000
29 | P a g e
Show B/S Assets & Re-Measurement.
I) Net Defined Benefit Assets:

PVDBO Balance 20,00,000
Plan Assets Balance 24,00,000
Net Defined Benefit 4,00,000
II) Application of Asset Ceiling:

Net Defined Benefit Assets 4,00,000
Asset Ceiling 2,50,000
Whichever is Lower 2,50,000
Comments: It means that we will disclose Rs.2,50,000 in B/S as Net Defined Benefit
Assets. These will be reversal of Rs.1,50,000 in OCI as follows:-
OCI a/c…………….Dr 1,50,0000
To Plan Assets 1,50,000
(Being Re-measurement made)
Unit III: ACCOUNTING FOR “OTHER LONG TERM BENEFITS”
As per the Provisions of Ind-AS 19, Long Term Benefits are the retirement benefits
which are payable after 12 months from B/S date. These Benefits are not Retirement
Benefits such as Provident Fund, Gratuity, Pension etc., but these are other
payments which are to be paid after 12 months from B/S date. These Benefits may
include Long Term Absences, Long Term Payments of Bonus & Profit sharing etc.
The Accounting for these Benefits shall include:
i) Service Cost
ii) Interest Cost
iii) Re-measurement
Note: Due to Lower level of uncertainties, there is no concept of OCI, but all Items
shall be written off in P&L A/c.
30 | P a g e
Unit IV: ACCOUNTING FOR TERMINATION BENEFITS
As per the Provisions of Ind AS-19, Termination Benefits are paid by an Entity if:-
i) It wants an Employee to leave the Entity
OR
ii) It wants the Employee to take VRS
In the above cases, Compensation is required to be paid by the Entity for early
Termination of Employees service. As per the Provisions, the Amt of Compensation
will be written off in P&L a/c as an Expense.
Note: If payment of Compensation is expected within 12 months from Balance Sheet

date then A liability can be created. In case, payment will be made after 12 months
from Reporting date then we will Account for it as other Long Term Benefits.
Thank You
CA. Parveen Jindal
31 | P a g e
Chapter 2 – Ind AS 110 Consolidation of Financial Statements
*Part 1*
Coverage
Consolidated Separate
Financial Statements Financial Statements
of “Investors” of “Investors”
“Accounting for
Investments in
CFS with CFS with CFS with subsidiary, Associates,
Subsidiary Associates Joint Arrangements Joint arrangements in
SFS”
Ind AS 110 Ind As 28 Ind AS 111/28
Ind –AS 27
Disclosures
Of CFS
(Ind AS 112)
Unit I : Consolidation with subsidiary (Ind AS 110)
Sub- Division of Unit I
Simple Imp Imp Simple

Part 1 Part II Part III Part IV
Exemption Evaluation Accounting for Investment

of “Control” subsidiaries in Entities
From CFS
CFS
Practical
Portion
Part I : Exemptions from CFS
As per the provisions of Ind AS 110, each parent company will consolidate all of its
Subsidiaries whether subsidiary is a Indian company or foreign company.
32 | P a g e
“ A parent company can avail exemption from consolidation if all the following
Conditions are satisfied”.
Conditions I : It should be a wholly owned or partly owned subsidiary of another

Company [Note: it means that it should be an intermediate parent
which is itself a subsidiary company if Another company]
and it has informed to all of its members that it is not preparing
CFS and no member has raised any objection.
Condition II: It Equity or dent instruments are not traded in public on any
exchange
( Note : it should not be a listed company)
Condition III: It should not be in listing process with SEBI

(Note: It will not be listed in future)
Condition IV: Its ultimate Holding or any other intermediate Holding is preparing
as per Ind AS and report is available for public.
Question 2:
Solution:
(i) In the given case, A Limited can avail exemption from preparing CFS because
all the conditions are satisfied as follows:-
a) It is subsidiary of X Ltd and its members don’t have any objection if it

does not prefer CFS.
b) It is not a listed company as well as it is not in listing process
c) Its ultimate Holding Company (X Ltd) is preparing CFS as per Ind AS
(ii) In case B, A Ltd can not avail exemption because its ultimate Holding (X Ltd)
Is a foreign Co. and it will not prepare CFS as per Ind AS.
(iii) In case C, A Ltd can not avail exemption because its ultimate parent is an
individual and Mr X will not prepare CFS as per Ind AS.
Question 3:
Solution:
(i) Yes, Company C can avail exemption from CFS only if its outside members
Holding 40% equity do not raise any objection on it. All other conditions are
already satisfied.
33 | P a g e
(ii) In case B, B Limited is also a subsidiary of A Ltd. which is ultimate parent of

C as well. When A Ltd does not have any objection then company B cannot raise
objection. So there is no need to inform company B about its intention of Not
preparing CFS.
Question 1:
Solution:
(i) Company Y can not avail exemption because its ultimate Holding (X Ltd.) does
Not have any objection if company M does not prepare CFS which indicates
that it has objection if Y does not prepare CFS.
(ii) Company M can avail exemption from CFS if its outside shareholders holding
20% equity in company don’t raise any objection.
“Further Explanation on Exemption”

From CFS
Exemption can be availed by

Following entities as well
If an entity is If Investor is an investment

Formed to manage plan Assets Entity
Under Ind AS 19 and its control (Refer Part IV : Unit I)
is with the reporting entity
No CFS are required in this case
*Part 2*
Unit II: Evaluation of Control (*V.V. Imp)
As per the provisions, subsidiary company is a company which is controlled by other

Company/its parent company. ( It can also be said that Holding/Subsidiary
relationship will exist only if an investor has control over its investor)
As per the provisions of Ind AS 110, evaluation of control is mandatory in a

relationship before the Application of Ind AS 110. There are 3 elements in control
evaluation as follows which are required to prove the existence of control:-
Investor Investor’s Ability to

power over exposure/Rights use power =Investor has control
the to the variable to Affect Over Investee
Investee returns of Investor
Investee Return
Yes Yes Yes Yes
34 | P a g e
Element 1: Explanation on Power
There are 3 elements which are required to be Assessed that whether An investor
Has power in Investee or not. All 3 elements should exist in a relationship to prove
existence of power which are as follows:-
Elements in power
An Investor Existing Rights Ability to

Should have Provide ability Direct Relevant
“Existing Rights” to investor activities of
Investee
 Existing Right
 Ability All elements Investor has “Power”
 Relevant Activities if existed
Concept 1: Relevant Activities (* Imp)
As per the provisions of Ind AS 110, Relevant activities are the activities of an
Entity that “significantly affect” the returns of Investee entity. There may be a
Range of operating and financing Activities that affect returns of the company.
The following examples may be understood for the meaning of Relevant activities:-
Example :i) Selling/ Purchasing of Goods/services

ii) Management of financial Assets (Investments) over the maturity period
iii) R & D of New products
iv) Arrangement of funds
v) Capital decisions
vi) Appointment/Removal/Remuneration of Key management personnel
vii) selection, Acquisition, Disposal of Investments by Mutual funds/venture
Capital funds etc..
Key Note: Out of Range of Relevant activities Ind As 110 considers only that Relevant
activity that has most significant affect on returns.
It’s a matter of Judgement
Concept 2: Explanation on Rights
As per the provisions of Ind AS 110, an investor must have existing Rights that
Give ability to direct the relevant activities of an Investee. As per the provisions
Different investors may have different Rights, but we will consider only those
rights that give ability to direct Relevant Activities those have most significant
Affect on returns of Investee.
35 | P a g e
There may be different kind of example of Rights (Contractual/Non-contractual) of

Follows:-
i) An investor can have majority in “Voting Rights” of an Investee
ii) An investor can have the rights to form Board of directors of an Investee
(i.e It can appoint or remove majority of Directors in BOD of Investee)
iii) An Investor can have the rights to Appoint/ Remove another entity which
Has ability to direct relevant activities of investee company
iv) An investor can have rights to direct an investee to sell its output to
Investor at a price which also decided by investor.
Note: The above specified example are not a complete list. There may be other types
of Rights as well. We need to Assess most powerful rights.
Concept 3: Explanation on Ability to exercise to Rights
As per the provisions of Ind AS 110, An investor should have practical ability to
Exercise rights to direct the relevant activities. It means that Right should be
“Substantive”. As per the provisions, we can classify the ability if Rights under 2
Heading as follows:-
Rights Ability
(1) Substantive (2) Protective

Rights Rights
I) Substantive Rights:
As per the provisions of Ind As 110, only substantive Rights provide practical
Ability to exercise rights to direct relevant activities . The Rights can classified as
Substantive Rights only if investor can exercise those Rights when there are needed.
It means that there should not be any barrier in exercise of substantive rights.
If there is any barrier in exercise of rights then it will be considered that “Rights
Are not substantive”.
The following examples may be considered as barrier in exercise of Rights:-

i) Financial Barrier (Huge Penalties may prevent the investor from
Exercising the power)
ii) Operational Barrier: (There may be no substitute of present management)
iii) Legal Barrier:- (Foreign Investor can be restricted from voting power
by Govt.)
iv) Potential voting Rights (If current becomes less than CMP then
Conversion may not be considered as substantive)
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*Part 3*
II. Protective Rights:

As per the Provisions of Ind AS-110, Protective Right does not give power to
investors to Direct relevant Activities of Investee. These Rights are exercised in
rare situations only. These Rights are given to Investors to Protect their
Interest in Adverse Situations. These rights are also given by a franchisee to its
franchisor to protect franchisor Brand name. The Protective Rights are never
considered for Evaluation of control. The following examples may be considered for
understanding of Protective Rights:-
(i) A Lender’s Right to claim on Assets of Borrower if it makes default in the
payment of Interest or Installments etc.
(ii) An Investor’s right if Investee makes any fraud or misappropriation of
Investor’s fund.
(iii) An Appointment of a nominee director in BOD of Investee by a Lender to get
Regular updated about working in Investee.
(iv) A franchisor’s right to bound franchisee to protect Brand Name i.e; Uniform of
Employees, Interior, Logos etc.
Exceptions to Substantive Rights
It may be possible that an Investor does not have substantive right at present, but
Rights shall become substantive at the time of their Exercise. “It may be possible
that potential shares become Actual Shares before AGM in a Company AND Investor
will be exercising its voting power in AGM. These Potential Rights shall be considered
substantive because Rights are exercisable when they are needed.”
Summary of Rights
Investor Other = Result
Investors
i) Substantive Right i) Protective “Investor has power over the

Rights Investee”
ii) Protective Rights ii)Substantive “Other Investor have power

Rights over the Investee”
iii) Substantive Rights iii)Substantve “Further Assessment Required”

Rights
37 | P a g e
Q.7
Q.8 (V.V. Imp)

Q.9 (Imp)
Q.10 & 11
Q.5, 4 & 6
*Part 4*
“Further Explanation on Voting Rights”
Voting Rights
Rule 1: Majority in Rule 2: Voting Power Rule 3: Voting Power

Voting Power Less than Majority in not Relevant
Rule 1 : Majority in Voting Rights
As per the Provisions of Ind AS-110, It is a General Assumption in Trade that An

Investor, who has majority in Voting Power of an Investee Company, has power over
the Investee. It is assumed because Relevant Activities are normally directed
through voting power. If it is proved that Direction of Relevant Activities comes
from BOD of the Company then such majority Investor will be assumed to have power
on Investee only if formation of BOD is controlled through voting power which is
true in Practical world.
Rule 2 : Investor has power over Investee “without” majority voting rights (Imp)
(Exception to Rule 1: Exceptional Cases)
As per the Provisions of Ind AS-110, there may be some cases where “An Investor
does not have” majority in the voting power, but even though, It will be assumed
that the Investor has Power over the Investee. The following examples may be
relevant:-
Case I : If Investor has contract with other Investor

If other Investor appoints the Investor to take decision on its behalf to direct
the relevant Activities of the Investee Company and after getting such power from
other Investors, the Investor gets majority in Voting Power then It will be
assumed that Investor has power over Investee.
38 | P a g e
Example:
Y Ltd. (Investee)
Mr.Ram X Ltd. A Ltd. B Ltd. Other (not significant

(7%) (45%) (8%) (5%) Individually)
(35%)
It will be 52%
If Mr. Ram contracts with X Ltd to take decision on his behalf.
Solution:
In the given case, X Ltd. Has contracted with other Investor to obtain power to
Direct Relevant Activities of Y Ltd. After such contract, X Ltd. Has 52% of voting
Power of Y Ltd. It indicates that X Ltd. Has power over Y Ltd.
Case II : If Investor’s own voting power seems significant practically in Total

Voting Power even if such voting power is not in majority. It can be possible only if
there is no significant shareholder in the company because all other shares are held
by small Investors.
BUT
We will test the voting pattern in Last meeting before arriving on any conclusion. If
small shareholders voted in Last meeting at large level due to which Investors could
not exercise its power then we will not apply Rule 2.
Exception to Rule 2:
If other shares are held by few members then Rule 2 will not work.
Case III: It may be possible that an Investor does not have majority in voting
power at present, but Investor has a substantive potential power then we will
consider such Substantive potential power to test his majority in voting power.
Q.12, 13, 14, 15

Rule 3 : Voting Power “if” not Relevant for Direction of Relevant Activities (Imp)
It may be possible that Design of Business of an Investee does not require

direction from shareholders because its function is Pre-Determined. In the given
case, Power of Voting Power will not work. So, we need to identify Relevant Activities
in such Business. We also need to understand that who is directing such Relevant
Activities. At the end, we will come to know that who is taking benefits from such
company.
Q.18, 16, 17
39 | P a g e
*Part 5*
Element 2 : Explanation on “Variable Returns of Investee”
As per the Provisions of Ind AS—110, “An Investor should have exposure in Variable
Returns of an Investee in addition to having power over the Investee.”
As per the Provisions, Variable Returns are the Returns which are not fixed. These
returns may be positive or negative or zero. There are many examples under Variable
Returns:-
I. Interest on Bonds cannot be taken as Fixed Return for Bondholders because

Payment of Interest can be varied if company does not earn adequate profits. It
is variable due to performance Risk.
II. Dividends Distribution to Shareholders is also depend upon availability of surplus.
III. Returns from Changes in Value of Investment in Company is also Variable.
IV. Providing Credit/ Liquidity to a Company is subject to Credit Risk.
V. Remuneration of Management is also related with performance of Entity etc.
Note: As per the Provisions, Exposure to Variable Returns is not the Key Element
for the Establishment of Control. Such Exposure should be in line with having power
over the Investee. It means that power & Variable Returns (Both) are linked to each
other.
Ex:- Bondholders are associated with Variable Returns, but they don’t exercise power
due to which control of Bondholders cannot be established over the Entity.
Further Explanation on Link between Power & Returns (Imp)
As per the Provisions of Ind AS-110, An Investor should assess whether it is working
as a Principal or Agent of Investee. If it is working as a Principal then It will be
assumed that It has control over the Investee. In case it is working as an Agent
then we will say that there is no Control relationship between Investor & Investee.
We have to Test Power & Returns as follows:-
“of Relevant Activities”
I. Test of Power: Can Decision Maker be removed by Single Investor* or BOD “without
any cause”
Yes No
Decision Maker is an Agent Decision Maker is a Principal
*If Removal is possible by Multiple Investors by taking Decision together then It

seems impractical that Decision Maker can be removed.
Note: Protective Rights are not considerable for Testing Removal Rights
40 | P a g e
II. Test of Returns: Does Decision Maker has “Significant”* + exposure to Variable
Returns in Investee due to “Remuneration** & other Interests”
“Total Exposure to Variable Returns”
Yes No
Decision Maker is a Principal Decision Maker in an Agent
*Note 1: The Meaning of Significant Exposure is nowhere mentioned. Practically, 20%

or more stake in a Company with Exercise of Power is considered as a Substantial
Interest/ Significant Interest.
 Without Power, 20% or more Investment is considered as Investment in
Associates.
**Note 2: The Remuneration itself is not considerable. It may be charged at Market

Rate (i.e; It may commensurate with Market). We will Test it with other Interest on
Total Basis.
Q.19, 21
Q.20 (Imp)
*Part 6*
Part III : Accounting for Subsidiaries

(Full Consolidation Required)
i. Consolidated financial Statement = Holding Co. + Subsidiary Co. = Group

Financial statements
ii. Requirements in CFS : a) Consolidated B/s (H + S)
b) Consolidated P&L (H + S)
c) Consolidated Cash Flow statement
d) Consolidated SOCE
e) Consolidated Notes to A/cs
Part B : Business Combination by way of “Significant Equity Interest”
As per the Provisions of Ind AS 103, Acquisition of Controlling Interest by one

Company into other company is also a type of Business combination. The following
Flow chart should be understood carefully before learning Accounting Aspects in this
case :-
41 | P a g e
Acquirer
(if Acquires controlling Interest in other Entity)
Acquirer Stand Alone Acquirer Consolidated

Financial Statements financial Statements
(Separate financial Statements) (Holding + Sub = CFS)
(Ind AS 109)
CFS on Date of Acquisition CFS in Post Acquisition
Period
Ind AS 103
Ind AS 110
A. Accounting in Separate financial Statements of Acquirer
Step I : On the date of Acquisition of Shares
The Acquirer will debit Investment in Equity Investments as we record Normal

Purchase of Investments. These Investments shall be recorded as per Ind AS 109 as
Follows :-
Investment in Shares a/c Dr xxxx

To Bank xxxx
(Being Investments Acquired)
Step II : At each B/s, fair value measurement will be made as per Given Choices in Ind
AS 109 :-
i. FVPL
ii. FVOCI (Irrevocable)
Comments : At each B/s date, Changes in fair value of Investments shall be
Transferred to PL or OCI as per Opted model.
Ind AS 103 has No Guidance for Accounting in SFS of Acquirer in this Regard
B. Accounting Treatment in CFS of Acquirer

(we will Discuss Accounting on D.O.A only)
 Refer Ind AS 110 for Accounting in CFS for Post acquisition Period
 Refer Ind AS 110 for detailed discussion on meaning of “controlling Interest”
“Acquisition Method in CFS on D.O.A”
Aspect I: Identify fair value of Assets & Liab. of Subsidiary on date of Acquisition of
Shares which are to be incorporated in CFS in the books of Acquirer.
Aspect II : Identify the value of Non Controlling Interest which is held by Outside
Shareholders in Subsidiary Company.
42 | P a g e
NCI
Method I : Proportionate Method Method II : Fair Value Method
“NCI = N. Asset in x % of shares he “NCI = No. of Shares x fair value Per

Subsidiary Co. held by outside held by outsiders share in Subsidiary co.
Shareholders
Note : In Study material of ICAI, All Questions have been solved by Proportionate
Method due to which we will Prefer it in the absence of any Specific Information.
Aspect 3 : Identify Goodwill/ Capital Reserve on D.O.A of shares by the following

Entry :-
Journal
Proportionate GW
Assets a/c Dr xxxx (fair value)
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed by
To Liabilities xxxx (Fair value) Proportionate method then GW
To NCI xxxx (Method I) will belong to Holding only.
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. acquired on Acquisition Date)
Full GW
Goodwill a/c Dr xxxx (Bal fig.) If NCI is Computed at fair
To Liabilities xxxx (Fair value) value then It will belong to
To NCI xxxx (Method I) Holding & NCI.
To Investments xxxx (PC)
To Capital Res. xxxx (Bal fig.)
(Being Assets/ Liab. taken over on Acquisition Date)
Statement Showing Calculation of Goodwill/ Capital Reserve
Cost of Investments made in Acquiree (PC) xxxx

NCI xxxx
Total xxxx
Net Assets (xxxx)
Goodwill/ C Res. xxxx
Solution of Q.55
Journal Entry
Assets a/c Dr 130 Crores

Goodwill a/c Dr 16 Crores (Proportionate GW)
To Investments 130 Crores
To NCI (130 x 20%) 26 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)
43 | P a g e
Solution of Q.56
Journal Entry
Assets a/c Dr 130 Crores

To Investments 90 Crores (PC)
To NCI (130 x 20%) 26 Crores (130 x 20%)
To Capital Res. (Bal fig.) 14 Crores
(Being Acquisition made of B Ltd. on Acquisition Date)
Solution of Q.57
Calculation of Goodwill/ Capital Res.
Method I Method I
Purchase Consideration 150,000 Purchase Consideration 150,000

NCI (500,000 x 40%) 200,000 NCI (500,000 x 40%) 100,000
Total 170,000 Total 250,000
Net Asset (500,000) Net Asset (500,000)
Goodwill 120,000 Goodwill 200,000
Solution of Q.61
Calculation of Goodwill
Purchase Consideration 525

NCI (100000 Shares x 40% x 775) 310 fair Value
Total 835
N. Assets (640 – 50) (590)
GW 245 (Full)
Solution 62
Method I : NCI by Proportionate Method
NCI = N. Assets (Fair Value) x % of Shares held by NCI in Subsidiary

= 100 Crores x 10%
= 10 Crores
Method II : NCI by fair Value Method
It is already Given in question at 15 Crores
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*Part 7*
Additional Concepts under PART B : Significant Equity Interest
Concept 1 : Step by Step Acquisition *V.Imp
Step by Step Acquisition
Case I : If Previous Equity Interest Case II : If Previous Equity Interest

Was 20% or more in Acquiree was Less than 20% in Acquiree
Case I : If Previous Equity Interest was 20% or more in Acquiree *Imp
If Acquirer Obtains control over Acquiree through multiple Acquisitions then It

Will be considered as Step by Step Acquisition. In this case, % of Earlier Investment
is very Important which were held by Acquirer before the Establishment of Holding/
Subsidiary Relationships.
If Earlier Investments in Equity Shares were for 20% or more then consolidated
Financial statements would have been Prepared by the Acquirer with its Acquiree as
Per Ind AS 28 (Associates).
On Acquisition date, the Acquirer will have to De-Recognise Investment in
Associate. The following Points should be considered :-
I. Investment in Associates in CFS shall be de-Recognised at “Fair value” which

Prevails on “Acquisition Date”
II. Gain/ Loss on De-Recognition will also be computed as follows :-
Gain/ Loss = Fair value of Investment – Carrying Amount of Investment
in Associate in Associate in CFS
Journal Entry
Assets a/c Dr xxxx (Fair value)

Goodwill a/c Dr xxxx (Bal fig)
To Liabilities xxxx (fair value)
To NCI xxxx
To PC xxxx (Current Acquisition)
To Investments in
Associates xxxx (Carrying Amount) Fair Value
To *Gain on De-Recog. xxxx (Fv – C. Amount)
To Bargain Purchase xxxx (Bal Fig)
(Being De- Recognition of Associate but Recognition of Subsidiary made at fair value)
Notes:
1. If fair value becomes Less than Carrying Amount of Associates then Loss on De-
Recognition will be debited before Computing Goodwill/C Res.
2. Gain or Loss on De-Recognition of Associate will be transferred to Consolidated
P&L A/c .
45 | P a g e
Observation on Concept
If An Associate becomes Subsidiary due to increase in Investment of Equity

Interest of company then we will De-Recognise Investment in Associate in CFS at
Fair value before computing GW/CR on Acquisition of Subsidiary.
Solution of Q.69
Journal Entry
i. Net Assets a/c Dr 880 Lacs

Goodwill a/c Dr 120 Lacs (Bal fig)
To Cash 600 Lacs (60%)
To Invest. in E (Associate) 40 Lacs (Carrying Amount in CFS)
To Gain on De-Recog. (400 – 40) 360 Lacs
(Being Acquisition of Subsidiary & De-Recognition of Associate made)
ii. Gain on De-Recognition of Associate a/c Dr 360
To P&L A/c 360
(Being Gain Recognised)
Solution of Q.70
Accounting in the books of A ltd.
i. Net Assets a/c Dr 60,00,000

Goodwill (Bal fig.) a/c Dr 3950,000
To NCI 750,000
PC To Cash (PC) 59,00,000
(65%) To E.S Capital (1L x 10) 10,00,000
To Contingent Consideration 300,000
(25%) To Investments 600,000
To Gain on Invest. 14,00,000
(Being Recognition of Subsidiary made)
ii. Gain on Investments a/c Dr 14,00,000

To P&L 14,00,000
(Being Gain on De-Recognition recognised)
Note: Acquisition Cost will be written off in P&L A/c as per Ind AS 103.
Case II: If % of Investments (Earlier) are below 20% in Acquiree
In the Given Case, Accounting Entries shall be quite similar as we passed in

Case I Except De-Recognition of Investments. We will De-recognise the carrying
Amount of Earlier Investments which is disclosed in Separate financial Statements
Of Acquirer on Acquisition Date as per Ind AS 109. The Difference between the
Carrying Amount of De-recognised Investments & fair value on these Investments
On Acquisition date will be considered as “Gain/ Loss on De-Recognition of
Investments.”
46 | P a g e
We will Transfer the above Gain/Loss De-Recognition to P&L/ OCI as per opted
Model of Accounting under Ind AS 109.

Goodwill a/c Dr xxxx (Bal fig.)
To Liabilities xxxx (fair value)
To PC xxxx (Current Payment)
To NCI xxxx
To Investment (109) xxxx
To Gain xxxx (Fv- C. Amount)
PL or OCI
Opted Model
Solution of Q.84 *imp

(Discussed in Class)
*Part 8*
Concept 2 : Investments in Associates with “OCI”

(Extra Concept in Step by Step)
In Case An Acquirer has share in OCI Reserves of an Associate in CFS (Ind AS

28 : Equity Method) then the share of Acquirer in OCI Reserves of the Associate will
Also be De-Recognised by transferring it to P&L or Retained Earning according to
Nature of OCI Reserve on Acquisition Date (i.e., Revaluation Res. to R.E / FCTR to P&L
Etc.)
There will be no change in Rest of Accounting as we discussed in Concept I
Journal :
1. Assets a/c Dr xxxx (F.V)

To Liabilities xxxx
To NCI xxxx
To PC xxxx
To Invest. in Associates xxxx (Carrying Amount)
To Gain on Invest. xxxx
(Fair value – Carrying Amount)
(Being Acquisition of Subsidiary Recognised)
2. Gain on Investments a/c Dr xxxx

OCI Reserves a/c Dr xxxx De-Recognition of share in OCI
To P&L xxxx res. of Associates on Acq. Date
To R.E xxxx
(Being Profits recognised)
47 | P a g e
Solution of Q.71 *V.V.Imp

Journal Entry
i. N. Assets a/c Dr 30,000 Crores

Goodwill a/c Dr 4000 Crores (Bal fig)
To Cash 25000 Crores (PC : 70%)
To Investment in Associates 8850 Crores (Carrying Amount)
To Gain on Invest. 150 (9000 – 8850)
(Being Acquisition of Subsidiary made)
ii. Gain on Investment a/c Dr 150 Crores

OCI Reserves : FCTR a/c Dr 100 Crores
R. Res a/c Dr 50 Crores
To P&L (150 + 100) 250
To R.E (Rev. Res) 50
(Being OCI Res. & Gain on Invest. Recognised)
Solution of Q.72
Journal Entry
i. Assets a/c Dr 1200

Goodwill a/c Dr 104 (Bal fig)
To Liabilities 200
To D.T Liab 40
To NCI (960 x 40%) 384
To Cash (30% : New) 350
To Invest. in Associate 300 (Carrying Amount)
To Gain on Invest. 30 (330 – 300)
ii. Gain on Invest. a/c Dr 30

OCI Res. a/c Dr 100 (CFS : FVOCI)
To P&L 130
(Being Profit recognised on De-Recognition)
Concept 3 : Acquiring Control Over an Enterprise “without acquisition of

Shares” *Imp
It may be Possible that An Acquirer obtains control over the other Enterprise due
to Buy Back of shares by other Enterprise. If an Acquirer has significant influence
Before Buy Back of shares by that Entity, but after Buy Back of shares, Significant
Influence converts into Controlling Interest then Acquisition method will be
Applicable even if Acquirer has not made any further Investment for Acquisition of
Controlling Interest.
All Entries shall remain same as we recorded in case of Step by Step method as
Follows :-
48 | P a g e
Assets a/c Dr xxxx (fV)

To Liab. xxxx
To NCI xxxx
To Invest in Asso. xxxx (carrying)
To Gain on Inv. Xxxx (FV- CA)
Solution of Q.73
1. Calculation of % of Controlling Interest after Buy Back
Total No. of Issued shares by Y ltd 100 million

Buy Back of shares (10 million)
No. of shares issued after Buy Back 90 million
No. of shares held by X Ltd in y ltd 46 million
% of Controlling Int. = 46 x 100 = 51.11%
90
% of NCI = 100 – 51.11 % = 48.89%
2. Accounting under Acquisition Method
Assets a/c Dr 14,000

Cash a/c Dr 1800
To Liab. 2000
To NCI (13800 x 48.89%) 6747
To Invest. in Asso. 6900
To Bargain Purchase (Bal) 153
Note : In the Given question fair value of Associate is not given due to which we have
Not computed Gain/ Loss on De-Recognition of Associate. We cannot use 110
Per share value for fair valuation of Associate because its Buy Back Price which
is normally offered at higher value than fair value to make the offer attractive.
Solution of Q.66
(Discussed in Class)
*Part 9*
Concept 4 : Accounting for Post-Acquisition Profits in Subsidiary *Imp
After Initial Recognition on DOA as per Ind AS 103, Post acquisition Results of
Subsidiary Company shall be adjusted in Consolidated financial Statements with the
Help of the following Points :-
1. The Post acquisition Profits/ Losses in Subsidiary Co. Should be distributed

Between Holding and NCI in the Proportion of their Holdings.
(i.e., Profits/ Loss is the Post acquisition change in the Reserve & Surplus of
Subsidiary company. It may be a change in P&L, GR, Capital Res., OCI etc.)
49 | P a g e
2. The holding co. will maintain the nature of Post-acquisition Profit. It means that
Share in Post-acquisition P&L will be added to PL of Holding, share in Post acq. GR will
be added to GR of Holding.
(Note : This Point is not Valid for NCI because we have to show NCI as a consolidated
Figure)
Solution of Q.44 *Imp
Case I
Assumption : SC + Res. = N. Assets
i. Post acq. Profits : Closing Balance in R.E - Opening Balance in R.E

(1.4.x1 – 31.3.x2)
= 70,000 – 50,000
= 20,000
ii. NCI (Proportionate Method) :
Net Assets on DOA (SC + Res) 150000

(100,000 + 50,000)
% of NCI 10%
NCI on 1.4.x1 (150,000 x 10%) 15000
Add : Share of NCI in Post acq
Profits (20,000 x 10%) 2000
NCI on 31.3.x2 17000
iii. GW/ C. Res (DOA) : Purchase Consideration (90%) 140,000

NCI on DOA (10%) 15000
155,000
N. Assets on DOA (SC + Res) 150,000
Goodwill 5000
iv. R.E of Holding : Stand Alone R.E of Holding 200,000

Add : Share in Post Acq. R.E of Sub (20000 x 90%) 18000
C Balance (Consolidated) 218000
Case II
1. Post acq. Profit (Loss) = Closing Balance in R.E – Opening Balance in R.E
= 20,000 – 30,000
= 10,000 Losses (decline in R.E)
2. NCI : DOA (100,000 + 30,000) x 15% 19500

Post acq. Losses (10,000) x 15% (1500)
NCI on 31.3.x2 18,000
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3. GW/ C. Res (DOA) = (Purchase Consideration + NCI) – N. Assets

= (104000 + 19500) – 130,000
= 6500 (Bargain Purcahse)
4. Holding R.E (Consolidated) = Own R.E 200,000

share in Post acq Loss (8500)
(10000) x 85%
191500
Case III
i. Post acq. Profit/ Loss (Subsidiary) = Closing Bal. in R.E – opening Bal. in R.E
= 20,000 – 20,000
=0
ii. NCI : Net Assets on DOA (SC + Res) 70,000
% of NCI 20%
NCI on DOA 14,000
Post acq. Results -
NCI on 31.3.x2 14,000
iii. GW/ CR (DOA : 103) : (PC + NCI) – N. Assets

= (56000 – 14000) – 70,000
=0
iv. Holding R.E will be 200,000 because there is no Profit or Loss in Post acq
Period.
Case IV
i. Post acq. Profits in Subsidiary = 56,000 – 40,000 = 16,000

(CB) (OB)
ii. GW = 100,000 – 90,000 = 10,000
(PC) - (NA)
iii. Holding R.E = 200,000 + (16,000 x 100%) = 216,000
 There will be no NCI because 100% shares are held by Holding.
Concept 5 : “Negative NCI”
As per the Provisions of Ind AS 110, Non Controlling Interest can be shown at
“Negative Value” if share of NCI in Post acquisition Losses is more than its Earlier
share in n. Assets of Subsidiary. The disclosure of Negative NCI is not allowed under
AS-21, but It is allowed under 110.
Conclusion : Under Ind AS 110, NCI may be +, - or 0 as per Position of Net Assets on
B/s date.
51 | P a g e
Solution of Q.45
i. Calculation of Goodwill :
Purchase Consideration (70%) 10,00,000
NCI on DOA (1.4.x1) 324,000
(SC + Res. = N. Assets) (1080000 x 30%)
1324,000
N. Assets on 1.4.x1 (1080,000)
GW 244,000
ii. Calculation of NCI :

NCI on 1.4.x1 (1080000 x 30%) 324,000
Losses in X1 – X2 (250,000) x 30% (75,000)
NCI on 31.3.x2 249,000
Losses in x2 – x3 (400,000) x 30% (120,000)
NCI on 31.3.x3 129,000
Losses in x3-x4 (500,000) x 30% (150,000)
NCI on 31.3.x4 (21,000)
Losses in x4 – x5 (120,000) x 30% (36,000)
NCI on 31.3x5 (57,000)
Profit in x5 – x6 (50,000 x 30%) 15,000
NCI on 31.3.x6 (42,000)
Profit in x6 – x7 (100,000 x 30%) 30,000
NCI on 31.3.x7 (12,000)
Profit in x7 – x8 (150,000 x 30%) 45,000
NCI on 31.3.x8 33,000
Concept 6 : Uniform Accounting Policies *Imp
As per the Provisions of Ind AS 110, Consolidated financial statements should

be Prepared on the basis of same Accounting Policies. As per the Provisions,
Accounting Policies of Holding co. and its subsidiary company should be same if “Both
have similar Transactions and similar Events in similar circumstances.” If Accounting
Policies are different in Separate statements of Both companies then It will be the
Responsibility of subsidiary co. to adjust its financial statements as per the
Requirements of Holding company.
Exception
If Nature of Business is not same of Both the Entities then Both will not have
Similar Transactions due to which Different Policies are allowed for consolidation
Financial statements.
Solution of Q.46
As per the Provisions of Ind AS 16, Change in method of Depreciation is not a
Change in Policy, but It will be considered as change in Estimation. In the Given case,
MNC is Applying WDV, but PQR is applying SLM which is allowed in CFS because Both
Have different Estimations regarding life of Assets. There will be No requirement of
Any adjustment in financial statement for the Given difference.
52 | P a g e
Solution of Q.47
As per the Provisions of Ind AS 110, Uniform Accounting Policies are mandatory in
CFS if Holding company & Subsidiary Company (Both) have similar nature of
Transactions and Events in similar circumstances. In the Given case, Nature of
Business is different for all Entities due to which the Given Entities shall not have
Similar Transactions.
On the basis of above discussion, it can be said that different costing formulas
Can be applied for valuation of stock by all Entities.
*Part 10*
Concept 7 : Uniform Reporting Periods
As per the Provisions of Ind AS 110, Reporting Periods of Holding company and
Subsidiary company shall be same usually, Reporting Periods are same if Holding &
Subsidiary (Both) are Indian Entities. The reporting Periods may be different only if
Subsidiary company is a foreign company. In such case, It will be the responsibility of
Subsidiary company to Prepare/ adjust its financial statements according to the
Reporting date of Holding company. If it is impracticable for subsidiary to do so
Then difference between Reporting Periods cannot be for more than 3 months. The
Following Additional Points may also be considered in the Given case :-
i. The classification of Current and Non Current Items of Subsidiary company

Will be changed/Adjusted from the Point of view of date of consolidation if
Different Reporting Period is taken from Subsidiary Statements. It means that
An item which is non Current for subsidiary according to its reporting date, may
Be considered as a current Item from the Point of view of Reporting date of CFS.
ii. If Subsidiary company is a foreign company then Its financial statements

Would have been Prepared according to Local GAAP, but local GAAP may be different
From Ind AS. So financial statements of subsidiary shall be adjusted from the
Point of view of Ind AS in CFS.
Solution of Q.48
If Reporting Periods are different of Holding & subsidiary then the Gap between
Reporting Periods cannot be mare than 3 months. In addition, Classification of
Current and Non Current Items will be made from the Point of view of “Reporting
Date of CFS.”
Solution of Q.49
In the Given case, Adjustment in financial statements of subsidiary company will be

Required for this disclosure of Long Term Loans. As per Indian GAAP, the Specified
Loan will still be considered as Non Current Liability, because all the terms &
Conditions have been fixed Approval on financial statements. If consideration is
done in India, we should apply Accounting rules as per Indian standards.
53 | P a g e
Concept 8 : Elimination of Profits/ Loss on Inter Group Transactions *Imp

(we will discuss this concept to the Extent it related with B/s)
Stock/Goods
Case I : Sale/ Purchase of Inventory” between Holding & Subsidiary
Transactions
Down Stream Transactions Upstream Transactions
If holding co. Sells Goods to If Subsidiary co. Sells Goods to

Subsidiary co. its Parent co.
Elimination of Unrealised Profit on Elimination of Unrealised Profit on

Closing stock held by Subsidiary will Closing Stock held by Holding company
be made in Holding company PL as follows : will be made Proportionately against
Holding co. consolidated P&L and NCI as
Consolidated PL a/c Dr xxxx follows :
To Inventory xxxx Cons. P&L a/c Dr xxxx
(Being Unrealised Profit cancelled or Eliminated) NCI a/c Dr xxxx
To Inventory xxxx
(Being Unrealised Profit Eliminated)
Note : In Study material of ICAI, the Entries are Given from the Point of view of
Cons. P&L A/c which is Pending for discussion we are covering B/s concepts here.
Case II : Sale/ Purchase of PPE or Intangibles between Holding & Subsidiary
The Entire concept will be same as we have discussed in case “Case I” in above Except
the calculation of Unrealised Profits. It may be Possible that Buyer of Asset has
Calculated Depreciation on it due to which carrying Amount of the sold Assets
Becomes Lower than Original Transaction value. So, the following formula should be
Applied for calculating unrealised Profit in such Transaction :-
Unrealised Profit = Total Profit x Carrying Amount of Assets

Total Value
Down Stream Up Stream
Cons. P&L a/c Dr xxxx Cons. P&L a/c Dr

xxxx
To PPE xxxx NCI a/c Dr
xxxx
(Being Unrealised Profits Eliminated) To PPE
xxxx
(Being Unrealised Profits
Eliminated)
54 | P a g e
Solution of Q.54
In the Given case, Subsidiary co. is Selling Goods to Holding co. So, the Given
Transaction is an Upstream Transaction. We will Eliminate Unrealised Profit of
Rs.15,000 as follows :-
Cons. P&L a/c Dr (15000 x 60%) 9000

NCI a/c Dr (15000 x 40%) 6000
To Inventory 15000
(Being Unrealised Profits Eliminated in B/s)
Solution of Q.55
In the Given case, Holding co. has sold Goods to Subsidiary company which indicates
that the Given Transaction is down stream and Holding co. will Eliminate in full as
Follow :
Cons. P&L a/c Dr 15000

To Inventory 15000
(Being Unrealised Profits Eliminated)
Solution of Q.56
In the Given case, Transaction is downstream due to which Holding co. will bear full
Elimination. In the Given case, 50% of sold Goods are lying with subsidiary due to
Which unrealised Profit will be computed as follows :
Unrealised Profit = 40 x 120 = 20 Lacs

240
Journal : Cons. P&L a/c Dr 20

To Inventory 20
(Being Unrealised Profit Eliminated)
Note : A DTA of 6 lac should be created for difference in Tax Base and A/cs base in CFS
After Elimination of Profit [(120 – 100) x 30%]
Solution of Q.57
The Given Transaction is an Upstream Transaction due to which the following

Calculations are required to be made :
I. Unrealised Profit = 20 x 60 = 10 Lacs

120
II. Journal : Cons. P&L a/c Dr (80%) 8
NCI a/c Dr (20%) 2
To Inventory 10
III. DTA = (60 – 50) x 30% = 3
55 | P a g e
Solution of Q.58
I. Calculation of Carrying Amount of PPE in the books of Buyer
Purchase Cost for Subsidiary 120

Depreciation 120 (12)
10 y
Carrying Amount at B/s date 108
II. Unrealised Profit = 20 x 108 = 18 Lacs

120
III. Journal : Cons. P&L a/c Dr 18
To PPE 18
(Being Unrealised Profits Eliminated)
*Part 11*
Concept 9 : Changes in Interest without Losing Control in Subsidiary Co.

*V.Imp
Cases
I II
If Holding co. acquires further shares If Holding Company Sells a small
In Subsidiary co. Portion of its Holding in
Subsidiary co.
Case I : If Holding Buys shares in Subsidiary in addition to Existing Holdings
A. In Stand Alone financial statements : Investments in Shares a/c Dr xxxx

Of Parent co. To Bank xxxx
(Being Investments made in Equity Instruments)
“We will Apply rules Specified in Ind AS 109”
FVPL or FVOCI
Proportionate
B. In Consolidated Financial Statements : NCI a/c Dr xxxx (Carrying Amt)
Of Parent co. *Imp To Bank xxxx (Payment)
(Being Payment made to NCI for Further
Acquisition of shares)
 The Difference between carrying Amount of NCI and Payment made to NCI will be
Transferred to “Other Equity: R.E.” Such Profit or Loss will not be routed through
P&L A/c , but It will be transferred to other Equity Directly.
Retained Earnings
56 | P a g e
Solution of Q.60
Journal Entries
In SFS of A ltd.: Investments in B Ltd. a/c Dr 4000 (200000 x 20%)

To Bank 4000
(Being Investment in Equity of B ltd. made)
In CFS of A ltd. : Non Controlling Interest a/c Dr 2000 (4000/40% x 20%)

Other Equity (Bal fig.) a/c Dr 2000
To Bank 4000
Solution of Q.61
Statement showing Changes in NCI
Payment made for Additional 10% shares 2600

Carrying Amount of NCI (6600/30% x 10%) (2200)
Loss on Acquisition 400
Note 1: The Amount of Loss on Acquisition will be transferred to other Equity

Directly without routing it through P&L A/c.
Note 2 : There will be no impact on Goodwill due to change in NCI because we are
Considering change in NCI at carrying Amount.
In SFS of A ltd.
Journal Entry : Investments in B Ltd a/c Dr 32

To Bank 32
(Being further Investments made in B ltd.)
B/s of A ltd. (after further Invest.)
Non Current Assets :

PPE 627
Financial Statements : (150 + 32) 182
Investments in B ltd.
Current Assets :
Cash (200 – 32) 168
Other C. Assets 23
Total 1000
57 | P a g e
Equity :
S. Capital 200
Other Equity 800
Total 1000
In Consolidated financial Statements of A ltd.
Journal: NCI a/c Dr 30 (90/30% x 10%)

Other Equity a/c Dr 2
To Bank 32
(Being NCI reduced from 30% to 20%)
Consolidated B/s
PPE 827
GW 10
Current Assets :
Cash (230 – 32) 198
Other C. Assets 93
Total 1128
Equity :
S. Capital 200
Other Equity (870 – 2) 868
NCI (90 – 30) 60
Total 1128
Case II : If Holding co. Sells stake in Subsidiary, but It retains the control
A. In SFS of Holding co. : *Bank a/c Dr xxxx (SP)

*To Investments xxxx (Carrying Amount in B/s)
(Being Investments Sold)
 Profit or Loss on sale of Investment will be transferred to P&L (FVPL) or OCI

(FVOCI) as per Opted model under Ind AS 109.
B. In CFS of Holding co. : Bank a/c Dr xxxx (SP)

To NCI xxxx
i. N. Assets (Excluding GW) x % *
ii. N. Assets (Including GW) x %*
(Being A Portion of Investments sold to NCI)
*Note 1 : While Computing changes in NCI, we will consider carrying Amount of N.

Assets on the date of sale of stake. We can calculate N. Assets including GW
As well as Excluding GW assuming method of Initial Recognition of GW. “If
We assume that GW was recorded initially by Proportionate method then we will
not consider it in change in NCI, but if we assume that It was recorded at full
Value on DoA then we can consider it while making changes in NCI.”
58 | P a g e
Note 2 : Difference between Selling Price of sold stocks and changes in NCI will be
Transferred to “ other Equity : R.E” as we did in Case I.
Solution of Q.63
In the Given case, we cannot assume Proportionate Goodwill because 100% stake was
With Holding company due to which GW was recorded at its full value on DoA. So, we
Will consider Goodwill in N. Assets while making changes in NCI as follows :-
In CFS of Holding co. : Bank a/c Dr 900,000

To NCI (18L x 40%) 720,000
To other Equity (Bal) 180,000
(Being NCI recorded due to sale of 40% stake)
In SFS of Holding : Bank a/c Dr 900,000

To Investments 400,000
(10,00,000/100% x 40%)
To Gain on Disposal 500,000
FVPL or FVOCI
109
(Being Investments sold)
Solution of Q.64
Statement Showing Changes in NCI
Selling Price for 30% sold Portion 500

NCI Share in Existing N. Assets including GW (450)
(1300 + 200) x 30%
*Gain on Sale 50
*It will be transferred to other Equity : R.E.
Note : We have included GW in Net Assets for Changes in NCI because 100% shares
Were held by Holding co. at initial Recognition which indicates that full Goodwill
Was recorded at that time. Additionally, It is also mentioned that valuation of
NCI is required at fair value method due to which full GW method has adopted.
Solution of Q.59
Journal Entry
Bank a/c Dr 100

To NCI (*300 x 20%) 60
To Other Equity (Bal) 40
(Being 20% stake sold by Holding to Outsiders)

Note = same Note will be Given as in Earlier 2 Questions on Wholly Owned Subsidiaries.
59 | P a g e
Concept 10 : Accounting for “Loss of Control” *V.V.Imp
In SFS of Investor : *Bank a/c Dr xxxx (SP)

*To Investment xxxx (Carrying Amount)
*Profit or Loss will be transferred to PL/ OCI as per Opted Model in Ind AS 109
In CFS of Investor : We will De-Recognise Subsidiary from CFS as follows :
Cash a/c Dr xxxx (SP)

NCI a/c Dr xxxx (Carrying Amount)
Investments a/c Dr xxxx (Fair value : Present) If some shares are retained
To N. Assets xxxx (Carrying Amount)
To GW xxxx (Carrying Amount)
(Being Subsidiary De- Recognised)
*Difference in above Entry will be taken as Profit or Loss on De- Recognition of

Subsidiary and It will be transferred to “P&L A/c.”
It will be routed through Other Equity : R.E (Not allowed)
Solution of Q.65
Calculation of % of Shares held by Holding co. (Prior and after Exercise of Option)
i. Prior to Exercise of Option :-
% of Holding = 30,000 Shares x 100 = 60%

50,000 Shares
ii. After Exercise of Option

% of Holding = 30,000 Shares x 100 = 40%
75,000 Shares
Comments : After Exercise option, It is Clearly indicated that Holding co. has Lost
its Control over its Subsidiary due to increase in No. of shares held by NCI.
We will have to De- Recognise Subsidiary in this case.
Journal Entry for De- Recognition
*NCI (450,000 x 40%) a/c Dr 180,000

Investments (Retained) a/c Dr 360,000 (30,000 x 12%) – F.V
To N. Assets 450,000
To GW (Partial) 20,000
To P&L (Bal fig.) 70,000
(Being Subsidiary De-Recognised)
*We will not include GW because It was calculated under Partial Method.
60 | P a g e
Solution of Q.66
In Separate financial Statements
Bank a/c Dr 200,000 (SP)

To Investments in
Subsidiary 160,000
To Gain on Disposal (Bal fig) 40,000
In Consolidated financial Statements
*NCI (225,000 x 20%) a/c Dr 45,000

Cash a/c Dr 200,000
To GW (Partial) 12,000
To P&L (Bal fig.) 12,000 (Gain on De-recognition)
(Being Subsidiary De-Recognised)
Solution of Q.67
In Separate financial Statements of Investor
Bank a/c Dr 67,50,000 (SP)

To Investments 30,00,000 (50,00,000/100% x 60%)
To Gain on Sale 37,50,000
In Consolidated financial Statements of Investor
Bank a/c Dr 67,50,000

Investment a/c Dr 45,00,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 22,50,000 (Bal)
(Being De-Recognised of Subsidiary made)
Solution of Q.68
In Separate financial Statements of Investor
Bank a/c Dr 85,50,000 (SP)

To Investments 45,00,000 (50,00,000/100% x 90%)
To Gain on Sale 40,50,000 PL 109
(Being Investments Sold) OCI
61 | P a g e
In Consolidated financial Statements of Investor
Bank a/c Dr 85,50,000

Investment a/c Dr 950,000 (F.V : Given)
To N. Assets 80,00,000
To GW 10,00,000
To P&L (Gain) 500,000 (Bal)
(Being De-Recognised of Subsidiary made)
Exception to Concept 9 & 10 *Imp
If Loss of control takes place due to Multiple sale of shares then It may affect
Other Equity in Place of PL. If it is Proved that Multiple Disposals are related to
Each other then we will consolidate all disposals and we will take it as De-recognition
Of Subsidiary.
Solution of Q.69
In the Given case, shares have been sold in 2 transactions within one month due to
Which we will not account for these transactions Separately, but we will take it as a
Single Transaction of De-Recognition of Subsidiary as follows :-
Bank a/c Dr 800,000 (Total)

NCI a/c Dr 180,000
To P&L (gain) 80,000
(Being De-Recognition of Sub made)
*Part 12*
Concept 11 : Accounting for Dividends Received from Subsidiary Company
Accounting
Unit I Unit II
In SFS of Holding co. In CFS of Holding co.
Unit I : Stand Alone financial Statements
As per the Provisions of Ind AS 109, the Parent co. will credit its P&L A/c for
Received Dividend from its Subsidiary. There is no concept of Pre- acq. Dividend or
Post acq. Dividend in Ind AS 109. Whenever an Interest or receives Dividend from its
Subsidiary from its Subsidiary then Dividend Income will be credited to P&L A/c. The
Following Entries may be considered :-
62 | P a g e
Step I : At the time of “Declaration of Dividends in AM”
i. Dividend Receivable a/c Dr xxxx

To Dividend Income xxxx
(Being Income Recognised)
ii. Dividend Income a/c Dr xxxx
To SOPL xxxx
(Being Income transferred to P&L)
Step II : At the time of Collection of Dividend
Bank a/c Dr xxxx

To Dividend Receivable xxxx
(Being Dividend Received)
*As per the rules, there will be no Accounting in the books of Investor if Dividend is
Proposed by BoD and It is Pending for Approval in AGM.
Unit II : Adjustment of Dividends in CFS
E.g.
i. Holding co. acquired 90% shares in Subsidiary on 1.4.20 for Rs. 160,000
ii. Position of Subsidiary on 1.4.20 : Share Capital : 100,000
PL : 20,000
iii. Position of Subsidiary on 31.3.21 : Share capital : 100,000
PL : 30,000
iv. Sub. Paid Dividend of Rs. 10,000 during 20-21
v. Holding co. Own Balance in P&L : Rs.200,000
Show Balance in Consolidated P&L of Holding Company
Solution
I. Calculation of Post acq. Profits Earned by Subsidiary before Dividends
Closing Balance in PL of Subsidiary 30,000

Add : Paid Dividends during 20-21 10,000
Closing Balance before Dividends 40,000
Balance in PL on DoA (20,000)
Profits earned by Subsidiary after DoA
But before Dividends 20,000
II. Calculation of Consolidated Balance in PL of Holding co.
Balance in Holding co. 200,000

Share of Holding in Post acq Profits 18,000
Of Subsidiary (20000 x 90%)
Elimination of Received Dividend (10,000 x 90%) (9000)
Closing Balance 209000
63 | P a g e
Step I : Calculate Post acq. Profits Earned by Subsidiary after DOA as follows :-
Closing Balance in P&L of Subsidiary co. xxxx

Add Back : Paid Amount of Dividends during the year xxxx
Closing Balance before Dividends xxxx
Balance in PL on DOA (xxxx)
Post acq changes in PL xxxx
Step II : Calculate Consolidated Balance in PL of Holding co. as follows :-
Own Balance of Holding co. in PL xxxx

Add : Share in Post acq changes xxxx
Elimination of Received Dividends from Sub. (xxxx)
Consolidated Balance in PL xxxx
*Concept of DDT/ CDT has not been discussed Now because It has been withdrawn by
Govt. “If there is any discussion in old RTP/MTP on DDT then Please skip that
Question.”
Solution of Q.50
I. Accounting for Dividends in the books of XYZ ltd.
At the time of Collection in Next year (X2- X3) :
1. Bank a/c Dr 24,000 30,000 x .8

To Dividends 24000
(Being Dividends Received)
2. Dividends a/c Dr 24,000
To P&L a/c 24,000
(Being Income recognised)
II. Acquisition Entry (DOA : 1.4.x1)
N. Assets a/c Dr 150,000 (fair value)

Goodwill a/c Dr 25,000 (Bal fig)
To NCI (140,000/80 x 20) 35,000
To Cash 140,000
(Being Controlling Int. initially Recog.)
III. Calculation of NCI
NCI on 1.4.x1 35000

Post acq Profits (20000 x 20%) 4000
NCI 39,000 (31.3.x2)
64 | P a g e
Solution of Q.51
Acquisition Date (1.4.x1)
N. Assets a/c Dr 150,000

GW a/c Dr 20000 (Bal)
To NCI (150,000 x 20%) 30,000
To Cash 140,000
(Being Acq. Date Accounting made)
NCI = DOA 30,000

Post 4000 (20,000 x 20%)
34,000
Solution of Q.52

GW a/c Dr 15000 (Bal)
To NCI (140,000/80 x 20%) 35,000
To Cash 140,000
NCI = DOA 35,000

Post 8000
43,000
Solution of Q.53
Net Asset a/c Dr 160,000

GW a/c Dr 12,000 (Bal)
To NCI (160000 x 20%) 32000
To Cash 140,000
NCI = 32000 + 4000 = 360000
Concept 12 : Treatment of Cumulative PSC held by NCI *Imp
If cumulative Pref. Shares (Held by NCI) which are classified as Equity Instrument
(Refer 109) are Given in Subsidiary B/s then Post acq Profits will be distributed
between Holding & NCI only after Providing Dividend on Such Cumulative Capital.
Solution of Q.72
Profits Earned by Subsidiary 500,000

Cumulative Dividend (10,00,000 x 10%) (100,000)
Free Profit 400,000
Holding - .8 NCI .2
320,000 80,000
65 | P a g e
*Part 13*
Solution of Q.3 (8 marks)
Application of Ind AS 103

(DOA) (In CFS)
Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
To T.P 150
To Cash/ Invest. 6000 (100%)
(Being Initial Recognition made)
Consolidated B/s for Blue heaven ltd. with its Subsidiary Orange country limited
Particulars Rs.
Assets :
NCA : Goodwill (103) 1300

P.P.E (7000 + 3300) 10300
C.A : Inventories (700 + 600) 1300

T.R. (300 + 250) 550
Cash (1500 + 700) 2200
Total 15,650
Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200
Current Liab :
T. Payables (300 + 150) 450
Total 15650
Solution of Q.4
Application of Ind AS 103

(DOA) (In CFS)
Building a/c Dr 3300

Stock a/c Dr 600
T.R a/c Dr 250
Cash a/c Dr 700
66 | P a g e

To T.P 150
To Cash/ Invest. 4500 (75%)
To NCI (4700 x 25%) 1175 (25%)
(Being Initial Recognition made in CFS)
Cons. B/s as at 31.3.2012
NCA : Goodwill (103) 975

P.P.E (7000 + 3300) 10300
C.A : Inventories 1300

T.R. 550
Cash 2200
Total
Shareholders funds :-
Share Capital 5000
Other Equity : R.E. 10200
NCI 1175
Current Liab :
T. Payables 450
Total
Solution of Q.6
De-recognition of Subsidiary
Trade Payable a/c Dr 900

Cash a/c Dr 3000
(Bal fig.) To P&L 440 (Profit on sale)
To GW 180
To PPE 1340
To Inventory 40
To T.R 900
To Cash 1000
(Being Investments De-Recognised)
B/S after De- Recognition
Not Current Assets :

1. GW (380 – 180 ) 200
2. Building (3240 – 1340) 1900
Current Assets :
1. Stock (140 – 40) 100
2. TR (1700 – 900) 800
3. Cash (3100 – 1000 + 3000) 5100
8100
67 | P a g e
Shareholders fund :
S. Capital 1600
R.E (4260 + 440) 4700
Current Liab. : T.P (2700 – 900) 1800

8100
Solution of Q.7
De-recognition
Trade Payable a/c Dr 450

Cash a/c Dr 1000 (90%)
Investment a/c Dr 128 (1730 – 450) 10%
(Bal: Loss) To P&L 152
To GW 90
To PPE 670
To Inventory 20
To T.R 450
To Cash 500
Balance sheet
Not Current Assets :

GW (190 - 90) 100
Building (3240 – 1340) 950
Invest. 128
Current Assets :
Stock (70 - 20) 50
TR (850 - 450) 400
Cash (1550 – 500 + 1000) 2050
3678
Share capital 800

RE (2130 – 152) 1978
TP (1350 – 450) 900
3678
Extra Questions
Solution of Q.1
W.N # 1 Calculation of F.V Adjust & Dep. Adj. in P&M (1.10.11) – DOA
I. F.V Adjust.
Carrying Amount of P&M (1.4.2011) (1350,000/90% x 100%) 15,00,000
Depreciation for 6 months (75000)
(1.4.11 – 1.10.11) (15L x 10% x 6/12)
Carrying Amount of P&M (1.10.11) 14,25,000
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Fair value of P&M (1.10.11) 20,00,000

F.V Adj. + 575000
II. Dep. Adj.

Dep. On P&M in CFS 175,000
(15L x 10% x 6/12) + (20L x 10% x 6/12)
Dep. On P&M in SFS (150,000)
Dep 25,000
W.N #2 Calculation of Post acq. Profits

(1.10.11 – 31.3.2012)
Closing Balance in R.E 820,000

Dividend Paid (20L x 10%) 200,000
Closing Balance before Dividends 1020,000
Opening Balance (1.4.11) (300,000)
Current year Profit (11-12) 720,000
Profits upto DOA (1.4. – 1.10) 6/12 (360,000)
Post acq Profits 360,000
Dep. Adjust on F.V Adj. (25000)
335,000
W.N #3 Calculation of Equity on DOA : 103
Share Capital 20,00,000

Reserves 10,00,000
R.E. : 1.4.11 300,000
1.4.11 – 1.10.11 360,000
F.V. Adjust : P&M 575000

L&B 10,00,000
Inventory 150,000
T. Payables (100,000)
Equity (DOA) 52,85,000
W.N # 4 Calculation of GW/ CR (103)
Investments made by DEF 3400,000

Share in N. Assets on DOA (52,85,000)
C Res 18,85,000
W.N # 5 Other Equity (Cons.)

Reserves R.E Cap Res Total
Balance with DEF 24,00,000 572,000 - 29,72,000
Post acq. Adj. - 335,000 - 335000
Distributed Profits - (200,000 - (200,000)
)
By XYZ lltd.
Bargain Purchase - - 18,85,000 18,85,000
Total 24,00,000 707,000 18,85,000 49,92,000
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W.N #6 PPE :
A. L&B
DEF 15,00,000
XYZ 18,00,000
F.V Adj. 10,00,000 43,00,000
B. P&M
DEF 24,00,000
XYZ 13,50,000
F.V Adj. 575,000
Dep. (25,000) 43,00,000
Total 86,00,000
W.N # 7 Inventory
DEF 12,00,000
XYZ 364,000
F.V Adj. 150,000 17,14,000
W.N. # 8 Trade Receivables

DEF 598000
XYZ 400,00 998,000
W.N # 9 C & CE
DEF 145,000
XYZ 80,000 225,000
W.N # 10 Trade Payables

DEF 471,000
XYZ 174,000
F.V Adj. 100,000 745,000
Cons. B/s of DEF with its Subsidiary XYZ as on 31.3.12

A. PPE 6 86,00,000
Current Assets :
A. Inventories 7 17,14,000
B. Financial Assets :
T. Receivable 8 998,000
C & C.E 9 225,000
Total 115,37,000
Equity :
A. Share Capital - 50,00,000
70 | P a g e
B. Other Equity 5 49,92,000
Current Liab :
A. Financial Liab :
Trade Payables 10 745,000
BOD - 800,000
Total 11,53,7000
W.N # 1 Calculation of F.V Charges in P&M (1.10.11)
I. P&M :
Carrying Amount of P&M (1.4.2011) (270,000/90 x 100) 3,00,000
Depreciation @ 10% p.a (15000)
(1.4.11 – 1.10.11)
Carrying Amount of P&M (1.10.11) 285,000
Fair value of P&M 400,000
Appreciation 115000
II. Dep. Adj.

In CFS : (3L x 10% x 6/12) 15,000
(4L x 10% x 6/12) 20,000
35,000
In SFS : 3L x 10% x 12/12 (150,000)
Dep 5,000
W.N #2 Calculation of Post acq Profits in Krishna ltd.

(1.10.11 – 31.3.12)
Closing Balance in R.E 164,000

Dividend Paid to be added back 40,000
(400,000 x 10%) 204000
Opening Balance in R.E (1.4.11) (60,000)
C.Y Profits 144,000
R.E Upto DOA (1.4 – 1.10) 6/12 (72,000)
Post acq. Profit 72,000
Dep Adj. (5000)
Net Post Profit 67,000
W.N # 3 Calculation of Equity on DOA in Krishna ltd.
Share Capital 4,00,000

Reserves 2,00,000
R.E. : 1.4.11 60,000
1.4.11 – 1.10.11 72,000
71 | P a g e
F.V. Adjust : P&M (W.N #1) 115000

L&B 2,00,000
Inventory 30,000
T. Payables (20,000)
Equity (1.10.11) 10,57,000
i) Ram Ltd (.60) 634200
ii)NCI (.40) 422,800
W.N #4 Calculation of NCI
Share in Equity (1.10.11) 422,800

Share in Post acq Profits (67000 x .4) 26800
Distributed Profits (40000 x .4) (16000)
433,600
W.N #5 Calculation of GW/ CR (DOA)
Investment made 800,000

Share in Equity on DOA (634,200)
GW 165,800
W.N #6 Other Equity (Consolidated)
Reserves R.E Total

Balance in Ram ltd. 600,000 114,400 714,400
Post acq Profits - 40200 40200
(67000 x .6)
Distributed Profits - (24000) (24000)
(40000 x .6) 600,000 130,600 730,600
W.N # 7 PPE
L&B
R 3,00,000
K 3,60,000
F.V Adj. 2,00,000 8,60,000
P&M
R 4,80,000
K 2,70,000
F.V Adj. 115,000
Dep. (5,000) 8,60,000
Total 17,20,000
W.N # 8 Inventory
R 2,40,000
K 72,800
F.V Adj. 30,000 342,800
72 | P a g e
W.N. # 9 Trade Receivables

R 598000
K 80000 199600
W.N # 10 C & CE
R 29,000
K 16,000 45,000
W.N # 11 Trade Payables

R 94,200
K 34,800
F.V Adj. 20,000 149,000
Cons. B/s

PPE 7 17,20,000
GW 5 165,800
CA: Inventory 8 342800

Financial Assets :
TR 9 199600
Cash & Cash Equ. 10 45000
24,73,200
Equity :
Share Capital - 10,00,000
Other Equity 6 730,600
NCI 4 433600
Current Liab :
Financial Liab :
TP 11 149,000
BOD - 160,000
24,73,200
W.N #1 Calculation of Post acq Profits
C.Y Profits (1.4.2012 – 31.3.2013) 550

Dep. On F.V. Adj (300/20Y) (15)
Inventory Sold with higher value in CFS (100)

435
W.N # 2 NCI :
DOA (4700 x .25) 1175
Post (435 x .25) 108.75
1283.75
73 | P a g e
W.N # 3 Other Equity (Consolidated)

R.E (Blue heaven) 11000
Share in Post acq Profits 326.25
(435 x .75)
Amort. Of GW (975/10Y) (97.5)
11228.75
W.N # 4 PPE : B 6500

O 2750
FV Adj 300
Dep. (15) 9535
W.N # 5 GW : DOA 975

Amort. (97.5) 877.5
W.N # 6 Inventory
B 800
O 550 1350
W.N # 7 Trade Receivable

B 380
O 300 680
W.N # 8 C and CE
B 4170
O 1420 5590
W.N # 9 Trade Payable :

B 350
O 170 520
Cons B/s (31.3.13)
NCA : A. PPE 4 9535

B. GW 5 877.5
CA : Inventories 6 1350
Financial Assets :
TR 7 680
CCE 8 5590
18032.5
Equity :
Share Capital - 5000
Other Equity 3 11228.75
NCI 2 1283.75
Current Liab : T.P 9 520
18032.5
74 | P a g e
*Part 14*
Solution of Q.8 *Imp (Elimination of Intra Group Transactions)
In the books of Airtel Infrastructure Pvt. Limited
1.4.x0 Building (PPE) a/c Dr 10,25,000

To Bank 10,25,000
(Being Building Purchased)
31.3.x1 Depreciation a/c Dr 25000 1025000 – 500000

21 years
To Building 25000
(Being Depreciation Charged)
1.4.x1 Bank a/c Dr 11,00,000

To Building (PPE) 10,00,000
To Gain on Disposal 100,000 (Bal)
(Being Building Sold to its Holding co.)
In the books of Airtel Telecom
1.4.x1 Building a/c Dr 11,00,000

To Bank 11,00,000
(Being Building Purchased)
31.3.x2 Depreciation a/c Dr 37500 11,00,000 – 350,000

20Y
To Building 37500
(Being Depreciation Charged)
In consolidated financial Statements
i. Cons. P&L a/c Dr 100,000

To PPE 100,000
(Being Unrealised Profit fully Eliminated)
ii. PPE a/c Dr 5000*
To Cons. P&L 5000*
(Being Reversal of Dep made)
11,00,000 – 350,000 - 10,00,000 – 350,000

20Y 20Y
75 | P a g e
Solution of Q.9
In CFS of AB Ltd.
i. De- Recognised of Subsidiary :
Bank a/c Dr 56 (Sold)

Investment a/c Dr 16 (Fair value)
NCI a/c Dr 6 (60 x 10%)
To N. Assets 60
To Gain (PL) on De-recognition 18 (Bal fig)
(Being De- Recognition of Subsidiary made)
ii. De- Recognition of OCI (Re- Cyclable in P&L) :
FVOCI Reserve (Deb Inst.) a/c Dr 5.4

FVOCI Reserve (FCTR) a/c Dr 7.2
To P&L 12.60
(Being OCI Recycled in P&L)
iii. De- Recognised of OCI (Non Recycable in P&L) :
FVOCI Res. (Equity Instrument) a/c Dr 3.6

To FVOCI (Loss) 2.70
To R.E Bal fig.) .90
(Being OCI de-recognised in R.E)
Unit II : Consolidated Cash flow statements
As per the Provisions of Ind AS 110, Preparation of consolidated CFS is very Simple.
We will consolidate all cash flows of Holding & Subsidiary on line by line and on Item by
Item basis. The following Points should be considered additionally :-
i. We will Eliminate Intra Group Transactions while Preparing Consolidated CFS.

ii. On Date of Acquisition of Shares (Initial Consolidation)
 Purchase of Controlling Interest will be reported by Holding under Investing
Activities.
 Purchase of Additional shares in Subsidiary after Buying controlling Int. will
Be reported under financing Activities
 On DOA, Cash Outflow will be reported under Investing Activities as follows :
[Payment made for controlling Int. – Cash received from Subsidiary in Net Assets on
DOA]
Solution of Q.10
i. The Acquisition of Initial Control will be reported under Investing Activities

On Net Basis. The Holding co. has paid ISL in Cash for acquisition of 70% controlling
Interest in Subsidiary co. , but Subsidiary cash Rs.250,000 in Cash Balance which will
Be debited on Initial consolidation. So, Net cash outflow of Rs.1250,000 will be
76 | P a g e
Reported under Investing Activities.

ii. The company has acquired further shares after buying controlling Int. for
Rs.800,000 and this Payment will be reported under financing Activities.
Solution of Q.73
Consolidated Cash flow Statement of P ltd. with its Subsidiary Q ltd.
Cash from Operating Activities

Profit after Tax (30950 + 8960) 39,910
Add back :
Current Tax (15000 + 4000) 19,000
Deferred Tax (2000 + 1000) 3000
Depreciation (7000 + 1000) 8000
Finance Cost (2700 + 1000 – 1000) 2700
Changes in Provision (1350 + 1960) (3310)
Reversal of Interest Income (1000) - 1000 0
Working Capital Adjustments :

Inventories [(15000) + (5000)] (20000)
Debtors (Decrease)* 18000 – 15000 3000
Payable (Increase)* 8000 – 9000 1000
Advance Tax (15000 + 4000) (19000)
Cash from OA (Total A) 34,300
Cash from Investing Activities :-

Purchase of PPE (17000 + 5000) (22000)
Acquisition of Subsidiary (36000 – 1000) (35000)
Interest Income (1000 – 1000) 0
Dividend Income (1680 – 1680) 0
Cash from IA (Total B) (57000)
Cash from financing Activities :

Dividend Paid (8000 + 2400 – 1680) (8720)
DDT Paid (1350 + 400) (1750)
Interest Paid (2700 + 1000 – 1000) (2700)
Cash from FA (Total C) (13170)
DA + IA + FA (Changes) (32870)
Add : Opening Balance 38000
Closing Balance 5130
Note :
1. We have Eliminated Interest Paid/ Int. Received between P&Q (Rs.1000)
2. We have also Eliminated Dividend Paid/ Dividend Received between P&Q (Rs.1680)
3. *We have calculated Increase or Decrease in Trade Receivables and Payables after
Eliminating Inter company Balance of Rs.3000
77 | P a g e
Consolidated P&L
As per the Provisions of Ind AS 110, Consolidated P&L is Prepared by Aggregating
All incomes and Expenses of Holding & Its Subsidiary on Line by Line and Item by
Item basis but Subject to Elimination of Inter Company Transactions.
Sale/ Purchase Int Exp./Int Income etc.
Note : we will also consolidate “OCI” Portion of Holding & Subsidiary but subject to
Elimination of Inter company Transactions.
Consolidated statement of P&L of P ltd with its Subsidiary Q ltd.
Revenues :
A. Sales (200000 + 80000 – 20000) 260,000
B. Other Income (3000 – 3000) 0
260,000
Expenses :
A. Raw Material consumed (110,000 + 48000 – 20000) 138,000
B. Changes in Stock (5000 + 3000) (8000)
C. Employees Benefit Exp. (30000 + 10000) 40,000
D. Finance Cost (2700 + 1000 – 1000) 2700
E. Depreciation (7000 + 4000) 11000
F. Other Expenses (10350 + 6040 – 2000) 14390
Total B 198090
PBT (A-B) 61910
Current Tax (15000 + 4000) (19000)
D Tax (2000 + 1000) (3000)
PAT 39910
Share of P ltd (39910 – 2688) 37222

Share of NCI (8960 x 30%) 2688
Other Comprehensive Income :

i. Fair value Gain from Investments in
Subsidiary (1000 – 1000) 0
ii. Fair value Gain on other (500 + 250) 750
Investments
750
Share of P ltd. (750 – 75) 675
Share of NCI (250 x 30%) 75
Consolidated SOCE *Imp

While Preparing consolidated SOCE, the following points should be considered :-
A. We can Prepare it under 3 headings :
i. Share capital
ii. R & S (other Equity)
iii. NCI*
*NCI can be calculated in a separate Note also
78 | P a g e
B. Take Share capital & Opening Balance in other Equity of Holding Company only.
(Note : we will ignore Capital & other Equity on DOA of Subsidiary co. because these
Balances Got Eliminated against Investments made by Holding in Subsidiary
Under 103 Acquisition method resulting GW/ C. Res.
C. We will consider holding company Own Profits during the Period and its share in
Post acq Profits of Subsidiary company including OCI.
D. NCI Share in Profits and OCI will be added to NCI Column
E. Eliminate Unrealised Profits on Inventory and PPE (if any) out of Holding PL and
NCI according to Nature of Transaction (upstream/ Down stream)
F. Holding co. will Eliminate its share in Dividend in Subsidiary which has been received
By it during the year because we take Profit in subsidiary before dividends.
G. DDT on Dividend Paid by Subsidiary will be deducted before it is paid after
Distribution of Profits.
Consolidated statement of changes in Equity of P ltd. with its Subsidiary Q ltd.
Share G Res. P&L Fair Total NCI

value
Capital (B) (RE) Res. Other
OCI
(A) (C) (D) Equity (B
+ C + D)
Opening Balance
(1.4.x1) 20,000 100,000 20,000 - 140,000 16500
Profits during (300 x 55)
the year X1-x2 - - 37222 - 37222 2688
Share in OCI :
X1 – x2 - - - 675 675 75
Elimination of
Dividend Rec. - - (1680) - - (720)
Dividend Paid
By P including
CDT - - (9350) - - -
Transfer to
Reserve - 20000 (20000) - - -
DDT Paid by
Subsidiary - - (280) - - (120)
Dividend
Income not
Yet Recorded in
PL of P - - 1680 - - -
20000 120,000 27592 675 148267 18423
Consolidated B/S
79 | P a g e
I. Accounting on DOA

To Cash 36000
To NCI 16500
(Being Initial Recognition made)
II. Consolidated B/s of P ltd. with its Subsidiary Q ltd.

i. PPE (17000 + 45000) 162,000
ii. Goodwill (DOA) 2500
iii. Financial Assets :
Non Current Invest. (42500 + 1250 – 37000) 6750
Long Term Loan 10000 – 10000) 0
Current Assets :
1. Stock (35000 + 15000) 50,000
2. Financial Assets :
Receivables (10000 + 8000 – 3000) 15000
Cash (900 + 4230) 5130
Total 241380
Equity :
Share Capital SOCE 20000
Other Equity SOCE 148267
NCI SOCE 18423
Non Current Liab. :

Borrowings (30000 + 10000 – 10000) 30000
DTL (7000 + 2000) 9000
Long Provisions (4600 + 930) 5530
Current Liab. :
Trade Payable (8000 + 4000 – 3000) 9000
S.T Prov. (1050 + 110) 1160
241380
*Part 15*
Part IV : Investment Entities
As per the Provisions of Ind AS 110, “Consolidated financial statements are Exempted
to An Investment Entity Even if It has a Subsidiary.” An Investment Entity will
measure its Investments in Subsidiary as per Ind AS 109 at FVPL Model (FVOCI is not
Allowed). The Understanding about Investment Entities can be made only with the
Help of following Additional Concepts :-
80 | P a g e
Concept 1 : Meaning of Investments Entity
As per the provisions of Ind AS 110, An Entity can be classified as an i\Investment

Entity if It fulfil the following 3 conditions :-
Condition I: It takes funds from one or more Investors and It Provides

Investment Management services to its investors.
+
Condition II: It will Invest the raised funds from Investors in Investments (e.g.
Equity, debt etc) for “Capital Appreciation & Investment Income”.
+
Condition III: It will measure its investments at fair value.
Concept 2 : Exit Strategy
As per the provisions of Ind AS 110, An Investment Entity does not held its
Investments for indefinite period. So, It should have Exit Strategy from perpetual
Investments otherwise It cannot be considered as an Investment Entity. If
Investments have a maturity date then Investment Entity will not require any
Exit Strategy.
Concept 3 : Earning on Investments
As per the provisions of Ind AS 110, the main objective of an investment Entity
For buying investments should be Earning on Investments “through Appreciation or
Investment Income” but there should not be Existence of any other Benefit. “It
Means that Investment Entity cannot take any other Benefit from Investments
For itself or for any other member in Group.” If it is so then there will be no
Exemption from consolidation.
Concept 3 : Rule for Parent of Investment Entity
If an Investment Entity has a Parent company which is not an investment

Entity itself then such Parent company will “consolidate Investment Entity and all
Subsidiaries of Such Investment Entity.” It can also be said that Exemption is
Available to an Investment co. but not to its Parent co. which is non investment co.
E.g. A Ltd (Non Investment co.)
B ltd (Investment co.)
X Ltd ( .60) y Ltd ( .70)
Solution :
1. B ltd. is Exempted from consolidation
2. A ltd will consolidate B, X & Y call
Solution of Q.2, Q.3, Q.4 (Discussed in Class)
81 | P a g e
Solution of Q.1
All the conditions are satisfied in the Given case, So, It can be classified as an
Invest. Entity.
Concept 4 : If An Entity becomes An Investment Entity *Imp
If a Parent company which is already preparing consolidated financial statements

With its Subsidiary and Such Parent company becomes an Investment Entity then It
Will Stop Preparing CFS from Such date. It will derecognise its subsidiary as follows :
NCI a/c Dr xxxx (Carrying Amount)

*Investments a/c Dr xxxx (Fair value : Existing)
To N. Assets xxxx (Carrying Amount)
To GW xxxx (carrying Amount)
(Being Subsidiary de-recognised because Holding becomes An Invest. Entity)
*Loss/ Gain in above Entry will be transferred to P&L A/c.
Concept 5 : If an Entity ceases to be an Investment Entity
If an Investment Entity ceases to be an Investment Entity then All Exemptions

From CFS will stand withdrawn. The date of change in Status will be considered as
Deemed date of Acquisition and the following Entry will be Passed :-
Apply 103 on Such Date : N. Assets a/c Dr xxxx (Fair value)

GW (Res) a/c Dr xxxx
To NCI xxxx (I or II)
To Invest. xxxx (Fair value)
*Part 16*
“Accounting for chain Holding”
E.g. A Ltd.
(A holds 80% Investment in B)
B Ltd
(B holds 70% Investment in c)
C Ltd
Calculate % of NCI in C ltd for consolidation in chain holding.
Solution
Calculation of NCI in C ltd.
Direct NCI (100% - 70%) 30%

Indirect NCI (70% x 20%) 14%
Total 44%
82 | P a g e
*The Remaining 56% will be given directly to A ltd.
Note : Now, we will not Give any share in C to B because we have directly made
Distribution of C to A & A’ NCI.
E.g. A Ltd. (80% in B ltd)
B Ltd (80% in c ltd)
C Ltd
Information relating to C : 1) DOA : SC + Res = 500,000
2) Post acq Profits : PL = 200,000
Information relating to B: 1) DOA : SC + Res = 800,000
2) Post acq Profit : PL = 400,000
Cost of Investments : A made in B = 10,00,000

B made in C = 10,00,000
Calculate GW/CR on DOA, Also calculate Holding company share in Post Profits
Assuming A’ R&S is having Balance of 15,00,000 and NCI on closing Date.
Solution
Calculation of % of NCI in C ltd. & % of A ltd. in C ltd
Direct NCI in C ltd from B Point of view 20%

Indirect NCI in C ltd from A Point of view 16%
(80% from B in C x 20%) 36%
A share in C ltd (100 -36) 64%
Calculation of Required values in C limited
1. DOA (103) : N. Assets a/c Dr 500,000

To NCI (36%) 180000
To Invest/ Cash (64%) 800,000
(10,00,000 x 80%)
Note : A NCI will sacrifice their share in B Investment in C because they have taken
Direct share in C
2. Calculation of NCI : initial DOA (36%) 180,000

Share in Post Profits 72000
(200000 x 36%) 252000
3. Holding PL : Own Balance of A 150,000

Share in C (200000 x 64%) 128000
1628000
83 | P a g e
Calculation of Required values in B ltd

DOA (103) : N. Assets a/c Dr 1800,000
To NCI x 20% 160000
(18L – 10L)
To Investments 10,00,000
To C. Res 640,000
(Being Initial Recog. Made)
NCI = Initial 160,000
Share in Post (400,000 x 20%) 80,000
240,000
Holding PL = After Consolidation with C 1628000

Share in B (400000 x 80%) 320,000
19,58,000
DOA : bottom co. DOA : NCI of middle co.
Investment cost will be reduced (reduced by share in Investments of

Middle co. in Bottom co.)
From point of TOP Co.
Solution of Q.70*Imp
W.N # 1 Calculation of % of NCI in SS and share of P in SS
Direct NCI in SS ltd form Point of view of 25%

Indirect NCI in SS ltd from Point of view of P 15%
(75% of S in SS x 20% NCI in P)
Total NCI 40%
Share of P in SS ltd = 100% - 40% = 60%
Accounting Procedure for SS ltd.
i. Calculation of Post acq Profits
a) Reserves = Closing Balance 80 (31.3.x2)

Opening Balance 60 (1.4.x1)
Increase in x1 – x2 20 (12m)
Increase upto DOA (10) (20 x 6/12) 30.9.x1
Increase in Post acq Period 10
b) P&L = Closing Balance 60 (31.3.x2)

Opening Balance (30) (1.4.x1)
Increase in X1- X2 30
Increase upto DOA (15) (30 x 6/12) (30.9.x1)
Increase in Post acq Period 15
Unrealised Profit (10L x 25/125) (2)
13
84 | P a g e
ii. Calculation of NCI in ss ltd
NCI on DOA (320 x 40%) 128

Share in Post acq Profits :
Res 10 x 40% 4
PL 13 x 40% 5.2
137.2
iii. Calculation of GW/ Cap Res. On DOA in SS
N. Assets a/c Dr 435

To Cap Res. 83 (Bal fig)
To NCI 128
To Investments 224 (280 x 80%)
(Being initial Recognition made)
iv. P’ Share in Post acq Profits of SS

1. Reserves : 10L x 60% = 6
2. P&L : 13L x 60% = 7.80
Accounting Procedure for S ltd.
1. Calculation of Post acq Profits (30.9.x1 – 31.3.x2)
Res PL
Closing Balance (31.3.x2) 100 50
Opening Bal (1.4.x1) (80) (20)
Increase (X1-X2) 20 30
Increase upto 30.9.x1 (6/12) (01) (15)
Increasing in Post acq 10 15
2. Calculation of NCI
NCI on DOA (400 x 20%) 80

Share in Post acq. : Res 10 x 20% 2
PL 15 x 20% 3
Share of NCI in Investment of S ltd. (56)
(280 x 20%)
NCI 29
3. Calculation of GW/ CR on DOA

To NCI 80
To Investment 340
To C. Res (Bal) 105
(Being initial Recog made)
85 | P a g e
4. P share in Post acq Profit :

Res 10 x 80% = 8
Pl 15 x 80% = 12
Calculation of consolidated Balances
1. P Res = 180 + share in SS : 6 + share in S : 8 = 194

2. P PL = 160 + 7.8 + 12 = 179.8
3. Total NCI = 137.2 (55) + 29 (5) = 166.20
4. Total C. Res = 83 + 105 = 188
5. Total Other Equity of P = 194 + 179.8 + 188 = 561.8
6. Trade Payable = 470 + 230 + 180 = 880
7. B/R – B/P (Net = 72 + 30 – 70 – 30 = 2
8. Cash = 228 + 40 + 40 = 308
9. Receivable = 260 + 100 + 220 = 580
10. Stock = 220 + 70 + 50 -2
11. PPE = 320 + 360 + 300 = 980
12. Sc = P = 600
86 | P a g e
ASSOCIATES IND AS 28
*Part 1*
Ind AS : 28
Accounting for Associates & Joint Ventures in consolidated financial
statements
Concept 1 : Coverage of Ind AS 28
Coverage
Unit I : Associates Unit II : Joint Ventures
Concept 2 : Accounting for Associates in CFS
A. Legal Understanding
As per the Provisions companies Accounting Rules 2014, consolidated financial

Statements are mandatory whether the Investor has subsidiary or Associates or
Joint ventures.
Note : It can also be said that CFS Should be prepared even if Subsidiary company do
Not Exist in the relationship. If any Investor has an Associate or JV then
CFS should be prepared under the Guidance of relevant Ind AS.
CFS H + S = 110
Investor + Associate = 28 = Situations under which CFS can be
Investor + JV = 28,111 Prepared
H+S+A+JV = 110,28,111
B. Meaning of Associate *Imp
As per the Provisions of Ind AS-28, An Associate is a company in which an Investor

Can Exercise “Significant Influence.”
Significance Influence means Power to Participate in Operating & financial Decisions.
C. Identification of Significant Influence
In Normal Situations, S.I can be proved if An Investor has 20% - 50% Voting Power
of an Entity. These shares can be acquired directly or Indirectly through
Subsidiaries.
87 | P a g e
a) A ltd. b) A ltd
23% 60%
B ltd. B ltd.
Comments : B ltd. is an Associate for 40%
A ltd. C ltd
Comments : B ltd is a Subsidiary, but C ltd
is
As Associate.
There are some Special cases in which we can identify the relationship of Associate
Company without acquiring 20% to 50% voting Power. These cases may be considered
as follows :-
1. Representation on BOD of other Entity
2. Material Transactions with other Entity
3. Technical Knowledge Assistance from other Entity
4. Interchange of Managerial Personnel.
Solution of Q.1, Q.2, Q.3, Q.4, Q.5, Q.6
D. Accounting under Equity Method *Imp
In consolidated financial statements, we should apply Equity method to disclose the

Value of Investment in Associates. The following Steps should be applied under Equity
Method in CFS :-
Step I : Initial Recognition should be made at cost identifying GW/CR.

(full consideration is not allowed as in case of Subsidiary)
Journal (CFS) : Investment in Associates a/c Dr xxxx at Cost

To Bank xxxx
(Being Initial Recognition is made at cost)
E.g.
i. D.O.A : 1.4.2018
ii. % of shares acquired : 40%
iii. Amount paid by X ltd for 40% = 200,000
iv. N. Assets of Associate as at 1.4.18 = 400,000
Pass initial Entry in the books of X ltd while Preparing CFS.
Solution
a) GW/CR = 200,000 – (400,000 x 40%) = (40,000)
(Cost) (N. Assets) (GW)
b) Journal: Invest. in Associate a/c Dr 200,000
To Bank 200,000
(Being initial Recognition made identifying GW of Rs.40,000)
88 | P a g e
Cons. B/s (Extracts)
NCA: Financial Assets : Invest in Associate (GW 40,000) 200,000
Step II: Post Acquisition Adjustments after Initial Recognition *Imp
a) If Associate Earns Profits after Acquisition of Shares

In the Given case, we should increase the value of Investment in Associate by
Share in Profits of Associates as follows :-
Investment in Associates a/c Dr xxxx

To Cons. P&L xxxx
(Being Investment Appreciated)
Post Acq. X % Share in
Profits Associates
b) If Associate incurs Losses after Acquisition of Shares
- Vice Versa as in above -

(It means that value of Investment will be decreased by Share in Losses)
c) If Dividends are Paid by Associates

If Associate Company distributes dividends then It will be reduced from
Investment and Cons. P&L. It means that value of Investment will be increased by
Profits Earned by Associate, but It will be reduced by Losses incurred or Profits
Distribution.
Statement showing value of Investment in Associates
Initial Recognition at Cost xxxx

(+) Share in Post Acq. Profits xxxx
(-) Share in Post Acq. Losses xxxx
(-) Share in Distributed Dividend xxxx
Closing Value of Invest. xxxx
Solution of Q.7
In CFS of Amar ltd.
i. Investment in Ram ltd. a/c Dr 10,00,000

To Bank 10,00,000
(Being initial Recognition made)
ii. Investment in Ram ltd. a/c Dr 40,000
To Cons. P&L a/c 40,000
(2L – 1L) 40%
(Being Investments Appreciated by Profits Earned in Post Acq. Period)
89 | P a g e
E. Other Additional Adjustments
Adjustment 1 : Other Comprehensive Income of Associates
If any “OCI” is Earned by Associate Company after Acquisition of Shares then

Investment in Associate will be increased by share in OCI as well, but It will be
Credited by investor to Cons. OCI A/c instead of Cons. P&L A/c.
Journal: Invest. in Associate a/c Dr xxxx

To Cons. OCI xxxx
(Being Invest. Appreciated)
Solution of Q.10
Statement Showing value of Invest. in Associate in CFS
Initial Recognition as at 1.4.2015 200 Lacs

[200L – (900 x 20%) = 20L = GW]
Post Acq. Adjustments :-
a) 2015-16 :- Profits (100 x 20%) 20L
OCI (10 x 20%) 2L
Dividends (100 x 20%) (20L)
b) 2016 -17 :- Losses (40L x 20%) (8L)

OCI (10L x 20%) 2L
Dividends (100 L x 20%) (20L)
Value of Investments 176
Decline in Value = 200L - 176L = 24L

Cost Value Decline
Adjustment 2 : Intra Group Transactions
If any Sale or Purchase (Goods/Assets) is made by Investor Party to Associate or

Vice Versa then Unrealised Profits should be Eliminated Subject to following Points :-
i. There will be no different treatment whether it is a down stream transaction

Or upstream Transaction.
ii. The calculation of Unrealised Profit will be made on Closing Stock
iii. The Elimination of Unrealised Profit will be made to the Extent of share of
Investor in Associates.
iv. The value of Investment will be reduced by Unrealised Profits.
Solution of Q.8
Calculation of Amount to be Eliminated as Unrealised Profits
Unrealised Profit = Unsold Inventory x GP Ratio x % Share in Associate
= (10,000 x 30%) x 40%
= 1200
*Rs.1200 Should be reduced from value of Investments.
90 | P a g e
Statement Showing value of Investments
Initial Recognition at Cost 210 Lacs

(GW = 210 – (1000 x 20%) = 10)
Post acq. Profits (80L x 20%) 16 Lacs
Dep. Diff on fair value (3.5)
(35/400 x 600 = (52.5 – 35) 20%)
Value of Invest. 222.5
Solution of Q.9
Value of Investments
Initial Cost 250,000

(GW = 250000 – (600000 x 30%) = 70000)
Post acq. Profit (100,000 x 30%) 30,000
Dividend Paid (9000 x 30%) (2700)
OCI (20000 x 30%) (6000)

Extra Dep. (100,000/10 x 30%) (3000)
Value of Invest. 268,300
Notes : If fair value is different from carrying Amount of Assets held by Associate
On the date of Acquisition of Shares then Dep. Will also be adjusted for the
Difference between fair values/
Dep adj. = (fair value – carrying Amount) x Dep. Rate x % in Associates
 If fair value Exceeds = Extra Dep. Will be reduced from value of Invest.
 If fair value Decrease : Reverse the Dep. to increase the value of Invest.
*Part 2*
Solution of Q.12
Calculation of Closing Value of Associates
A ltd. B ltd.
Cost of Investments 200 650
(GW : A ltd = 20, B ltd = 20)
Current year Profits 16 36
(80 x .20) (120 x .3)
Unrealised Profits (8) (3)
100 x 200 x 20% 30 x 100 x 30%
500 300
Closing Value 208 683
91 | P a g e
Solution of Q.13
Calculation of Closing Value of Investment in Associates
Cost of Investments 150

(GW = 150 – 130 = 20)
Share in Profit (100 x 20%) 20
Unrealised Profit in Plant & Equipment (10)
(150 – 100 = 50 x 20%) 160
FV Cost Profit
Important Points
1. Exemption from Equity Method :-

If any company is Exempted from consolidation of a subsidiary under Ind AS 110
then Such Enterprise is also Exempted from Application of Ind AS 28.
(Refer Ind AS 110 for detailed Discussion)
2. Discontinuation of Equity Method :-

As per the provisions, Equity method can be discontinued if Investor party
Ceases to Exercise significant Influence.
*Part 3*
New Questions
Solution of Q.3, Q.4, Q.2, Q.1 *Imp (Discussed in Class)
Solution of Q.6
Journal Entries in the books of A limited (Equity Method)
i. Investment in B limited a/c Dr 100,000

To Bank 100,000
(Being initial Recognition made at Cost)
ii. Investment in B limited a/c Dr 500 (2000 x 25%)
To Share in OCI income 500
(Being Post acquisition changes recorded in OCI of Associates)
iii. Investment in B ltd. a/c Dr 1500 (10000 – 4000) 25%
To P&L 1500
(Being Post acq. Changes recorded in Retained Earnings of Associate)
Carrying Amount of Investment in B under = 100,000 + 500 + 1500 = 102,000

Equity method
92 | P a g e
Solution of Q.8
Calculation of GW/ C Res. on DOA
Cost of Investments 125,000

Share in Net Assets of Associate (100,000)
(400,000 x 25%) GW 25000
Journal : Investment in Associate a/c Dr 125,000

To Bank 125,000
(Being initial Recognition made at/ Cost identifying GW of 25,000)
Calculation of Investor share in Post acq. Profits of Associates
i. P&L : Profit Earned by Associate after DOA 40,000

Dep. on Increase in value of Assets (5000)
400,000 – 300,000
2Y
NP 35,000
Investor share (25%) 8750
ii. OCI : 10,000 x 25% = 2500
Calculation of Carrying Amount of Investments
Initial Recognition 125000

Share in P&L 8750
Share in OCI 2500
Carrying Amount 136,250
Solution of Q.9
Calculation of KL Ltd share in Post Profits of MN Ltd.
Profits Earned by MN ltd. 400,000

Dividend on Cumulative PSC (to be provided co. Act) (100,000)
Profits available for Equity holders 300,000
KL Ltd share (50%) 150,000
Solution of Q.10
As per the Provisions of Ind AS 28, the changes in Post acquisition Profits of an
Associate are recorded by Investor in Cons. P&L in CFS under under Equity method.
The share of A in Profit on sale of Investment (Rs.20) will be transferred to cons.
P&L assuming Post acq. Change in Equity. The following Entry will be recorded.
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Investment in B ltd a/c Dr 20 (100 x 20%)

To Cons. P&L 20
(Being Share in Post acq Profit recorded)
Carrying Amount of Invest. = 200 + 20 = 220
New Points to be Discussed under Equity Method
A. If shares in Associate is held by an Investment Entity
As per the Provisions of Ind AS 28, Investment Entities are Exempted from
Applying Equity method if An Investment Entity has significant influence in other
Entity because Consolidated financial statements are Exempted to an Investment
Entity. Such an Entity Shall value investment in Associate at fair value under Ind AS
109 : FVPL.
Exemption
Non Investment Company
If an Investment Entity and its Parent or other member in Group acquire
Investment in Associates together then we will apply Ind AS 109. FVPL on
Investments held by Investment company but Ind AS 28 will be applied on
Investments held by Non Investment company.
Solution of Q.7 (Discussed in Class)
B. If Investments in Associates are classified as Held for Sale
If An Investor Plans to Sell its investment in Associate and classify it as Held

For sale then Investor Party should cease Application of Ind AS 28 for Such
Investment because Application of Ind AS 105 will be made from Such date.
Exemption
If Investor still retains some share in Investment in investee after classifying

A portion of Investment as Held for sale then the following 2 cases may be Existed :-
If Retained Portion of Investments
Less than 20% 20% - 50% Range
Apply 109 on Retained Invest. Continue Application of Ind AS

28 Equity Method on Retained
Portion
94 | P a g e
Solution of Q.15
Ram ltd. will continue Application of Equity method for 40% shares in Shyam.
C. Entry for De-Recognition of Associates in CFS :-
Bank a/c Dr xxxx (Consideration for Sold Portion)

Investments a/c Dr xxxx (Fair value : Retained Portion)
To Invest. in Assoc xxxx (carrying Amount in CFS)
(Being Invest. in Associated de-recognised)
*Gain or Loss in above Entry will be transferred to P&L A/c
Solution Q.14
De-Recognition of Associate
Bank a/c Dr 80,000 (Sold Portion)

Investment a/c Dr 120,000 (fair value)
To Investment in Associate 100,000 (C. Amount)
To Gain on De-Recog. 100,000 (Bal fig.)
(Being De-Recognition of Associate made)
Solution of Q.11
In the Given case, Unrealised Profit will be computed on unsold inventory only which
Is Rs.400,000.
1. Unrealised Profit = 400,000 x 10% x 40% = 16000

2. Investor will record the following Entry to Eliminate the unrealised Profit :-
C P&L a/c Dr 16000
To Invest in Associate 16000
(Being Unrealised Profit Reversed)
Case B : There will be no Change in above Solution even if Transaction is downstream

Instead of Upstream because there is no Concept of Down Stream or Upstream
Under Ind AS 28.
Solution of Q.12
1. In the books of X ltd.
Bank a/c Dr 800,000

PL a/c Dr 200,000
To Assets 10,00,000
(Being Asset sold at market Price)
2. If the said Transaction would have taken Place in the books of Y ltd. then there
would have been a Loss of Rs.200,000 in the books of y in which Investor (x) would
Have computed its share as follows :-
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Cons. P&L a/c Dr 100,000 (2L x 50%)

To Invest. in Assoc. 100,000
(Being Share in Loss Computed of Asso)
D. Potential Shares held by Investor
If An Investor has Potential Shares (i.e. Warrants options, Convertible

Instruments etc) then Potential shares can be included in Assessment of Associate
Relationship only if these Potential shares are currently Excercisable. If these
Shares are Excercisable on a future date then we will not consider these shares in
Assessment.
Note on Currently Excercisable
In the Provisions of Ind AS 28, there is no Explanation on meaning of currently

Excercisable as in Ind AS 110. It means that It is not Necessary for Excercisable
Potential shares to be Substantive. We will not check liquidity Problems or.
management Intention about Practical Exercise of conversions
E. Accounting for Losses in Associate in CFS *Imp
Case I : If Share in Losses incurred by Associate Exceeds Carrying Amount of

Investments then Investor will disclose Investment in Associate at “Nil
Value”. Some Losses shall remain Unrecognised.
In future, if Associate Earns Profits then Investor will write off Unrecognised
Losses against share in Profits. If Share in Profit Exceeds Un-Recognised Losses
then value of Investment will be raised in the CFS.
E.g.
i. 1.4.20 : Carrying Value of Investments in CFS in Associate = Rs.20,00,000
ii. 31.3.21 : Share in Losses of Associate = Rs.2500,000
iii. 31.3.22 : Share in Profits of Associate : Rs.600,000
Show Carrying Amount of Investment in CFS at the end of each year.
Solution
Calculation of Carrying Amount
Opening Balance (1.4.20) 20,00,000

Share in Losses (20 -21) (25,00,000)
Carrying Amount (31.3.21 :*Unrecog. Loss *Nil
Share in Profits (21-22) (600,000 – 500,000) 100,000
Carrying Amount 100,000
Case II : Adjustment of Unrecognised Losses against other Investments
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*Imp
If Investor has other Investments in Associate (Pref. Shares, Deb etc) then
Unrecognised Loss will be adjusted against carrying Amount of other Investments
Also. If Loss Exceeds carrying Amount of other Investments as well then remaining
Loss will be considered as Unrecognised.
If Associate Earns Profits in Future then It will recover unrecognised Losses
First then Investments shall be reversed as per Sequence of Solvency.
E.g.
i. Carrying Amount of Investments :
Equity 10,00,000
Pref. Shares 400,000
Debenture 200,000
ii. Share in Loss of Associate : 20,00,000
iii. Share in Profit (Next year) : 24,00,000
Show carrying Amounts.
Solution :
Equity Pref. Deb

Carrying Amount 10,00,000 400,000 200,000
Share in Loss (20,00,000) - -
Carrying Amount (Unrecog. : 10L) Nil 400,000 200,000
Adjust of Unrecog. (10L – 6L) - (400,000) (200,000)
Recovery Carry Amount Nil Nil Nil
(Unrecog. Loss : 4L)
Share in Profit : 24L

Unrecog. Loss (4)
20
Recovery of Deb (2) - - 20000
Recovery of PSC (4) - 40000 -
Recovery of Equi 14 1400,000 - -
Carrying Amount 1400,000 400,000 200,000
Case III* :
i. Carrying Amount of other Investments will be taken as per Ind AS 109 (fair
Value measurement).
ii. We will reverse other Investments according to 109 valuation.
Calculation of Carrying Amount of Invest. & Unrecog. Losses at the end of Each year
Year I
Debent. Pref. Equity
Opening Balance 300,000 500,000 10,00,000
Changes in Value in SFS under 109 (50,000) (50,000) -
97 | P a g e
Adjusted Carrying value 250,000 450,000 10,00,000

Share in Losses : 16L (150,000) (450,000) (10,00,000)
Carrying Amount at the end of year I 100,000 Nil Nil
Year II
Opening Balances 100,000 Nil Nil

Share in Losses : 2L (100,000) - -
Carrying Amount at the
End of Y2 Nil Nil Nil
Unrecognised Losses = Pref Shares 50,000

Shares in Losses 100,000
(2L – 1L) 150,000
Year III
Opening Balance Nil Nil Nil
Increase in fair Value Nil* *Nil Nil
Carrying Amount Closing Nil Nil Nil
*U.R Losses 150,000

Fair value Gain 150,000
Nil
Year IV
Opening Balance Nil Nil Nil
Share in Profits : 10L 300,000 500,000 200,000 (Bal)
Fair value Gain - 50,000 -
Carrying Amount Closing 300,000 550,000 200,000
Year V
Opening Balance 300,000 550,000 200,000
Share in Profit - 30,000 10,00,000
Closing 300,000 580,000 12,00,000
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JOINT ARRANGMENT IND AS 111
*Part 1*
Ind AS 111 : Joint Arrangements
Coverage
Joint Arrangements
Joint Operations Joint Ventures

(Ind AS 111) (Ind AS 28)
Concept 1 : Meaning of Joint Arrangement
As per the Provisions of Ind AS 111,“Joint Arrangement is a contractual Arrangement

Whereby TWO or more Parties obtain Joint Control over relevant Activities of an
Entity.” The following Additional Definitions should also be understood :-
A. Meaning of Contractual Arrangement : As per the Provisions of Ind AS 111, Two or

More Parties must be bound by a contractual Arrangement. The contract may be in
Written form between the Parties or Evidenced by Articles of Association or
Voting pattern Agreement as per Recent meetings etc.
B. Meaning of Joint Control : As per the Provisions of Ind AS 111, Joint control
Means TWO or more Parties will take decisions about “Relevant Activities” of an
Entity with Unanimous Consent. It can also be said that No Investor can take
Decisions in his own capacity. It means that one Investor can block other Investor
From taking decisions. So, Two or more Investors are required to Exercise control.
C. Meaning of Relevant Activities :
- We have already discussed it in Ind AS 110 -
“Refer Q.1 – Q.13 for Understanding of Joint Control”
Solution of Q.1, Q.2, Q.3, Q.4, Q.5, Q.6, Q.7, Q.8, Q.9, Q.10, Q.11, Q.12, Q.13
*Part 2*
Concept 2 : Types of Joint Arrangement
Types
Joint Operation Joint Venture

(Ind AS 111) (Ind AS 28)
99 | P a g e
How to Identify Joint Operation & Joint Venture in a Joint Arrangement
Joint Arrangement
If Joint Arrangement is not If Joint Arrangement is a

a Separate Vehicle/Entity Separate Vehicle/ Entity
It means that Joint Arrangement

Cannot hold Assets & Liab in its Name it’s a corporate it’s a non
Entity corporate
Joint Arrangement is a “Joint Entity
Operation” & Investors shall be called as It can hold Assets (i.e., Partnership
“Joint Operators” & Liab. in its Name firms)
Because company is a
Separate Legal Entity It cannot hold
Assets & Liab.
It’s a “Joint Venture” in its Name &
And Investors are Partners are
“Venturers” Directly
Responsible for
All Activities due
To unlimited Liab.
It’s a “Joint Operation”
Solution of Q.14, Q.15, Q.16, Q.17 (Discussed in Class)
Solution of Q.18
The Given Case is a Joint Operation because Investors have direct share in Assets &
Liab.
Exception to Corporate Entities *Imp
If the following 2 conditions are satisfied then we will assume a Joint venture in the
Form of Joint Operation even if Separate vehicle is a company :-
I. If Output of company is directly shared by Investors (i.e., It means that

Investors have direct Involvement in Economic Benefit of Company)
II. If Company is Economically dependent on Investors (i.e., Price of output is
Also Controlled by the Investors)
Solution of Q.19, Q.20 (Discussed in Class)
100 | P a g e
Concept 3 : Accounting for Joint Operations

(In SFS and CFS of Operators)
There is no Separate vehicle in case of Joint Operations due to which we cannot show
Investment in Shares in SFS as we show in case of Investment in Subsidiaries,
Associates or J.V. The Accounting will be same in the books of Joint Operator
Whether these are SFS or CFS. We will Apply “Proportionate Consolidation method”
For calculating Proportionate share of Operator in Joint Operation.
 Calculate Proportionate share in Assets of J.O

 Calculate Proportionate share in Liab of J.O
 Calculate Proportionate share in Incomes of J.O
 Calculate Proportionate share in Expenses of J.O
Solution of Q.21
Statement Showing P Share in Assets & Liab of PQ
Machinery (100%) 250,000

Cash (50000 x 50%) 25000
Bank Loan (75000 x 100%) 75000
Other Loan (75000 x 50%) 37500
Capital (As per Study Mat : 150000 x 50%) 75000
Solution of Q.22
Statement Showing AB ltd. Share in Assets & Liab of PQR
Building 1 (240 x 100%) 240

Building 2 (200 x 50%) 100
Cash (40 x 50%) 20
Employees Benefit Plan (100 x 50%) 50
Loan (XYZ) 1240 x 100%) 240
Equity (140 x 50%) 70
Concept 3 A : Accounting for Transactions between Operator & Joint Operation *Imp
If A Joint Operator Sells or Purchase an Asset to/by Joint Operation then Operator
Will record the transaction to the Extent of other Operator share in Joint
Operation.
Solution of Q.23
In the books of A
Bank/ other Operator a/c Dr 32 (80 x 40%)

Loss on sale a/c Dr 8 (20 x 40%)
To Asset 40 (100 x 40%)
(Being Asset Sold to other Operator)
101 | P a g e
Solution of Q.24
In the books of A
Asset a/c Dr 32 (80 x 40%)

To Bank 32 (80 x 40%)
Loss of 20 will be shared by Both Operators in ration of 60:40
Concept 4 : Accounting for Joint Venture
i. In SFS of Investor : Ind AS 109 FVPL or

FVOCI
ii. In CFS of Investor : Ind AS 28 (Equity Method)
(Refer all questions done for Associates)
102 | P a g e
SEPARATE FINANCIAL STATEMENTS IND AS 27
*Part 1*
Ind AS 27 : Accounting for Investments in Subsidiary, Associate or J.V in SFS

of Investor
Investor
Separate financial Statements Consolidated financial Statements
For Accounting of Investments 1 If Investor has Subsidiary :

In SFS of Investor Apply 110
Whether it is a Subsidiary 2 If Investor has an Associate :
Associate or J.V : Apply 27 Apply 28
3 If Investor has a J.V :
Apply 28
Accounting Rule
Rule : An Investor will Apply Ind AS 109 for Accounting for Investments in SFS for
S/A/JV “On fair value basis”
Exception
If any Investment is held for sale under Ind AS 105 then carrying Amount will be
taken as value
Accounting for Dividends from Investee
Investor will Transfer the Dividends to P&L as an Income whenever it has certainity
To collect the Dividends
Accounting for Investments held by Investment Entity
- Please watch video No. 15 Given in 110 -
103 | P a g e
DISCLOUSER IND AS 112

*Part 1*
Ind AS 112 : Disclosures
(Note to A/c)
Disclosures (additional)
Separate financial statements Consolidated Financial Statements
I. Additional Disclosures in Notes to A/cs in SFS
a) If an Entity avails Exemption from consolidation then Disclosures should be

Given about such Exemptions.
b) List of Significant investment in :-
i. Subsidiaries
ii. Associates
iii. JV
iv. JO
c) Basic Information regarding Subsidiaries, Associates or Joint Arrangements as

Follows :-
i. Name
ii. Principal Place of Business
iii. Proportion of Ownership
d) Method of Accounting
II. Additional Disclosures in CFS to be made
a) Regarding Subsidiary
b) Regarding Associate & J.V
a. Subsidiary
i. Name of Subsidiaries
ii. Principal Place of Business
iii. % of Ownwership
iv. Method used to determine control
v. NCI (Method)
vi. Dividend Paid
vii. Inter Company Eliminations
b. J.V & Associate

i. Name
ii. Nature of Relationship
iii. Principal Place of Business
iv. % of Onership
v. Equity Method or FV
104 | P a g e
Thank You
CA. Parveen Jindal
105 | P a g e
Chapter 3- Ind AS 101: First Time Adoption of Ind AS (Imp)
*Part 1*
Concept 1 : Basic Knowledge about 101
As per the Provisions of Ind AS 101, First time adoption of Ind AS means Preparation
Of first time financial Statements as per Ind AS by Giving an Explicit and Unreserved
Statement about adoption of all Ind AS. In Case the Entity applies Ind AS without
Giving statement then It will be assumed that Entity has not applied Ind AS. The
Following further Points should also be considered :-
I. First Ind AS statements should be presented with full comparative

Statements.
II. While Preparing Comparative statements, It is mandatory to Prepare Opening
B/s at “Transaction date” as per Ind AS.
 Transition date :- The beginning of Comparative Period.
Concept 2 : Transition Rules *Imp
As per the Provisions of Ind AS 101, Changes in Assets & liabilities during Transitional
Phase should not be considered as Change in Policy. The Following Challenges can be
Faced by an Entity during the Transition Phase :-
Transition Phase :-
Measurement of Assets Recognition of New Assets
& Liab or Liab. as per Ind AS
Challenges at Transition date
Reclassification of De- Recognition of Assets
Headings & Liab. which are not
Required as per Ind AS
Concept 3 : Exceptions/ Exemptions *Imp
As per the transitional rules of various other Ind AS, It is mandatory to Apply
Retrospective changes at Transition date, but Ind AS 101 Provides Exemptions from
Retrospective Adjustments. The following 2 types of Exemptions can be availed :-
I. Mandatory Exceptions (Entity is not allowed to apply retrospective changes)

II. Optional Exemptions (Entity can choose either Prospective or retrospective
Changes)
106 | P a g e
Concept 4 Mandatory Exceptions

(Retrospective Adjustments Not Allowed)
Case I : Estimates
As per the Provisions of Ind AS 101, we can continue with the Estimates which were
Made as per Previous GAAP until unless there are Errors in those Estimates.
(e.g. Provisions can be continued under Ind AS 37 which were created on the basis of
Estimates in AS-29)
Case II : Negative Non Controlling Interest
As per the Provisions of 101, NCI cannot be shown at negative Amount at

Transition date. It can aslo be said that value of minority Interest under AS-21 will
be shown as it is in B/S as per Ind AS 110 at Transition date. The Entity can show
Minority Int/ NCI at Negative Amount under 110 only for future Losses on
Prospectively Basis.
Case III : Derivatives
As per the Provisions of Ind AS 101, all derivatives should be disclosed in

New B/s at “Fair value”.
Case IV : Government Loan at concessional Rates
As per the Provisions of 101, Govt. Loan at concessional Rate at transition

Date should be divided into 2 headings as follows:-
Govt. Loan
Fair value of Loan Balancing figure
Financial Liab. Govt. Grant due to

(Ind AS 109) concession in Rate (Ind AS- 20)
Concept 5 : Optional Exemptions *V.V.Imp
Case I : Share Based Payment Reserve (ESOP’ o/s)
ESOP’ O/s A/c
Vested Options Unvested Options
Consider fair value at

Option I Option II : Transition date
We can continue we can also consider
With same consider its fair value
Balance (It will be Encouraged by 102)
107 | P a g e
Case II : PPE & Intangible Assets
As per the Provisions of 101, PPE & I. Assets can be considered at fair value
Or Deemed Cost at transition date.
Carrying Amount
Case III : Investment in Subsidiary/ Associate/ Joint Venture
 Transition can be at fair value or Carrying Amount
Case IV : Foreign Operation
Option I : Foreign Currency Translation Reserve can be carried at carrying Amount

From AS-11 to Ind AS-21
OR
Option II: We can transfer FCTR to retained Earnings for making it Zero Balance.
Now future differences shall be accumulated as per Ind AS 21.
Case V : Long Term foreign Currency Loans (Para 46/ 46A AS-11)
Option I : We can continue with the Existing Policy under 46/46A in Ind AS B/s.
OR
Option II: we can discontinue this Policy and Start applying Ind AS-21
Case VI : Business Combination *V.V.Imp
Business Combination
Prior Transition date After Transition date
Option I : Option II : Apply 103

No Re-measurement If Re-measurement is made
is required is made for any Post Business
Combination as per 103 then
Carrying Amount as all subsequent Business
Per AS-14 is combination shall also
Relevant be Re- Measured
Solution of Q.4
No, Negative NCI can be shown only Prospectively.
108 | P a g e
Solution of Q.5
1. SFS of A ltd. : At transition date, A ltd can show investment in Subsidiary in Ind
AS B/s at Cost or fair value at its option.
2. CFS of Al ltd. : Opening Consolidated B/s will be Prepared at carrying Amount of
Assets & Liab of Subsidiary.
GW = N. Assets in Subsidiary – Investment Cost - NCI
Solution of Q.6
Case I : for the Purpose of CFS, It will be the responsibility of Subsidiary company to
Adjust its values as per the requirements of A ltd.
Case II : There will be no adjustment by B ltd because Its B/s is already as per Ind
AS.
Solution of Q.9, Q.11 *Imp , Q.12, Q.15 *V.V.Imp (Discussed in Class)
*Part 2*
Test Your Knowledge
Solution of Q.1
If Past Business combinations are re-stated then we will Apply Ind AS 103 :
Acquisition method retrospectively for the measurement of Goodwill or Bargain
Purchase on Such date. So, we cannot take Exemption of deemed cost for Past
Business combination due to incorrect measurement of GW/C Res. On Acquisition date
It can also be said that we can take Exemption only for those PPE which are not
Related or Acquired under Business combination.
Solution of Q.2
As per the Provisions of Ind AS 101, Adjustments in value of Assets & Liabilities
During transition Phase from Accounting standards into Ind AS shall not be
Reported as change in Policy, but these Adjustments shall be considered as
Transition adjustments.
In the Given case, company has adopted “fair value” for PPE as deemed cost
Which indicates that company has opted for revaluation model on Transition date.
On the basis of above discussion, It can be said that No disclosure will be required
Because changes have been made during Transition Phase. It should not be Treated as
Change in Accounting Policy.
Solution of Q.3
As per the Provisions of Ind AS 101, Company can continue with Existing Policy
defined in AS-11 and company can also discontinue Existing Policy under AS-11 by
Replacing with new Policy defined in Ind AS 21.
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In the Given case, Company wants to Go with Ind AS 21 for which It has to
Transfer its Unamortised Balance in FCMITDA to Retained Earnings to close this
A/c. In Future, all Exchange Fluctuations in Value of Foreign Currency Loan to P&L
A/c as per Ind AS 21.
As per the Provisions of Ind AS 101, Carrying Amount of PPE can be considered as
Deemed cost on Transition date. It means that there will be no need to adjust
Exchange fluctuations which were capitalised Earlier in the carrying Amount of PPE
Under AS-11. If company wants to apply Ind AS 21 on Its foreign Currency Loan after
Transaction date then All subsequent fluctuations shall be transferred to P&L A/c
But there will be no reversal of Earlier capitalised fluctuations.
Newly Added Questions
Solution of Q.5
As per the Provisions of Ind AS 20, Grants in the nature of Promoter

Contribution shall be transferred to P&L A/c instead of Capital Res. As in AS-12. So,
The balance created in Capital Reserve will be transferred to Retained Earnings on
Transaction date under Ind AS 20.
Note : If Govt. Company Receives funds from Govt. as Capital contribution as an

Owner then this concept is not covered in Ind AS-20
Solution of Q. 6 (Discussed in Class)
Solution of Q.7
In the Given case, Previous GAAP for Foreign Subsidiary will be considered AS-11
According to which Translation was done from Foreign Currency into RS. So, the
Foreign Subsidiary statements shall be considered under Transition Phase from AS-11
to Ind AS 21. We cannot consider IFRS as Previous GAAP because Application of IFRS
is allowed in foreign country only.
110 | P a g e
Thank You 😊
CA. Parveen Jindal
111 | P a g e
Chapter 4- Ind AS 12: Taxes on Income(V.V.Imp)
*Part 1*
Message Given
*Part 2*
E.g. (Depreciable Assets)
i. Cost of Assets = 300,000

ii. Estimated useful life :-
a) Ind AS 16 = 3 years
b) Tax Rules = 2 years
iii. Tax Rate = 30%
Explain the calculation of Deferred Tax.
Solution
a) Calculation of Carrying Amount of Assets
1 2 3
Opening Balance 300,000 200,000 100,000
Dep. (1/3) (100,000) (100,000) (100,000)
Closing Balance 200,000 100,000 0
b) Calculation of Tax Base of Assets
1 2
Opening Balance 300,000 150,000
Dep. (150,000) (150,000)
Closing Balance 150,000 0
c) Calculation of Diff. between B/s value under Ind AS & Tax Rules
1 2 3
Carrying Amount (B/s) 200,000 100,000 0
Tax Base 150,000 0 0
Diff (cumulative) 50,000 100,000 0
Deferred Tax @ 30% 15000 30,000 0
D.T. Liab. 15,000 15,000 (30000)
(30,000 – (0 – 30,000)
15,000)
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Journal Entries
Year1 Deferred Tax Exp. a/c Dr 15,000

To Deferred Tax Liab. 15,000
(Being D.T. Liab created)
Year2 Deferred Tax Exp. a/c Dr 15000

To Deferred Tax Liab. 15000
(Being DTL Created)
Year3 Deferred Tax Liab. a/c Dr 30,000

To Deferred Tax Income 30,000
(Being DTL Reversed)
E.g. with the help of Previous Example, Calculate Tax Expense assuming Profits before
Depreciation & Tax as per Ind AS & Tax Laws are Rs. 5 L.
Calculation of Current Tax
Y1 Y2 Y3
Profits 500,000 500,000 500,000

Dep. (150,000) (150,000) -
Taxable Income 350,000 350,000 500,000
Tax @ 30% 105000 105000 150000
(Actual Tax)
Calculation of Tax Exp.

(Tax Exp. = Current Tax – deferred Tax)
Y1 Y2 Y3
Current Tax 105000 105000 150000

Deferred Tax Exp. 15000 15000 -
Deferred Tax Income - - (300000)
Tax Exp 120,000 120,000 120,000
E.g. As per the Provisions of Ind AS 37, Company has created Provision for Pending
Court case of Rs.20 lakhs in 1 year & Rs.5 Lacs in Second year, but under Tax Laws
Provisions are not allowed as allowed Exp until It is paid on Actual basis. Tax 30%
Calculate Deferred Tax.
Solution
Step I : Carrying Amount as per A/c Records
Y1 Y2
Provision for Court case (Cumulative) 10 15
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Step II : Tax Base as per Tax Laws
Y1 Y2
Provisions for Court Case 0 0
Step III : Difference between Carrying Amount & Tax Base
Y1 Y2
A/c Value 10 15
Tax Base 0 0
Diff 10 15
Deferred Tax @ 30% 3 4.5
Deferred Tax Income/ Assets 3 1.5
Y1
Deferred Tax Assets a/c Dr 3

To Deferred Tax Income 3
Deferred Tax Income a/c Dr 3

To P&L 3
Y2
Deferred Tax Assets a/c Dr 1.5

To Deferred Tax Income 1.5
Deferred Tax Income a/c Dr 1.5

To P&L 1.5
E.g. with the help of given information in previous Example, calculate Tax Exp.
Assuming Profits before Prov. For Court case is 20Lacs under A/c & Tax.
Solution
Accounting Income Tax Income

Y1 = 20L – 10L = 10L Y1 = 20L – 0 = 20L
Y2 = 20L – 5L = 15L Y2 = 20L – 0 = 20L
Current Tax = Y1 = 20L x 30% = 6L

(T.I x T.R) Y2 = 20L x 30% = 6L
Tax Exp. = Y1 = 6L – 3L = 3L
Y2 = 6L – 1.4L = 4.5L
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E.g.
Carrying Amount Tax Base
Warranty Liab. (Prov.) 20,00,000 0
Tax Rate 30%
Calculate Deferred Tax
Solution
D.T Assets/ Income = 20,00,000 – 0 = 20,00,000 x 30%

= 600,000
D.T Assets a/c Dr 600,000

To D.T Income 600,000
D.T Income a/c Dr 600,000

To P&L 600,000
E.g. An Entity Purchased an Asset for Rs.30,00,000. Its Estimated Accounting life is
3 years, but It can be written off 100% in first year under Tax Laws. Tax Rate
30% calculate Deferred Tax.
Solution
Step I : Carrying Amount
Y1 Y2 Y3
Opening Balance 30L 20L 10L
Dep. (10L) (10L) (10L)
Closing Balance 20L 10L 0
Step II : Tax Base
Y1 Y2 Y3
Opening Balance 30L 0 0
Dep. (30L) 0 0
Closing Balance 0 0 0
Step III : Diff between Tax Base & Carrying Amount
Y1 Y2 Y3
C.Amount 20L 10L 0
Tax Base 0 0 0
Diff 20L 10L 0
D.T @ 30% 6L 3L 0
6L (3L) (3L)
Create Reverse Reverse
1) Deferred Tax Exp. a/c Dr 6 2) D.T Liab a/c Dr 3 3)

To D.T Liab 6 To D.T Income 3 - Do -
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P&L a/c Dr 6 D.T Income a/c Dr 3

To D.T Exp 6 To P&L 3
Concept 1 : Objective of Ind AS-12
As per the Provisions of Ind AS-12, the main objective of the statement is to
Compute Taxes on Accounting Income instead of Taxable Income. Normally, we
Calculate Income Tax on Taxable Income, but this statement requires calculation of
Deferred Tax to bridge the differences between Accounting Income & Taxable Income.
Concept 2 : Definitions
a) Meaning of Taxable Income : T.I is the income which is calculated as per Tax Laws
b) Meaning of Accounting Income : A/ I is the Income is the Income which is shown
In P&L statement, but before Tax.
c) Meaning of Carrying Amount of Asset & Liab : - B/s Value as per Accounting Rules
d) Tax base of Assets/ Liab :- Value as per Income Tax Act
e) Meaning of tax Expense :-
Tax Expense = Current Tax + Deferred Tax
f) Meaning of Current Tax :-
Current tax = Taxable Income x Tax Rate
g) Meaning of Deferred Tax :-
Deferred Tax = Temporary Diff. x Tax Rate
h) Meaning of Temporary Diff :-
Temporary Diff = (Carrying Amount – Tax Base) of Assets & Liab.
i. Types of Temporary Diff :-

Types
Taxable Temporary Diff Deductible Temporary Diff.
Create DTL Create DTA
Deferred Tax Exp. a/c Dr DTA a/c Dr

To DTL To Deferred Tax Income
PL a/c Dr xxxx PL a/c Dr xxxx

To C.T xxxx To CT xxxx
To D.T Exp xxxx DTI a/c Dr xxxx
To P&L xxxx
(Tax Exp = C.T + DTE – DTI)
Concept 3 : Steps for Calculation of deferred Tax
Step I : Find Carrying Amount of Asset/ Liab

Step II : Find Tax Base for Assets/ Liab
Step III : Find Temporary Diff. (Step I – Step II)
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Step IV : Calculate Deferred Tax

Step III x TR
(T.D) Deductible (DTA)
Taxable (DTL)
*Part 3*
Solution of Q.3
Calculation of Deferred Tax
a. Carrying Amount = 100 (Given)

b. Tax Base = 150 – 90
= 60
c. Temporary Diff. = C. A T.B
Assets 100 60
T.D 40
d. Deferred Tax Liab = (100 – 60) 25% = 10
D.T Exp a/c Dr 10

To D>TL 10
Solution of Q.4
Step I : Calculation of Carrying Amount
1 2 3 4 5
Opening Balance 100,000 80,000 60,000 40,000 20,000
Depreciation (20,000) (20,000) (20,000) (20,000) (20,000)
Closing Balance 80,000 60,000 40,000 20,000 0
Step II : Calculation of Tax Base
1 2 3 4 5
Opening Balance 100,000 75,000 50,000 25,000 0
Depreciation (25,000) (25,000) (25,000) (25,000) 0
Closing Balance 75,000 50,000 25,000 0 0
Step III : Calculation of Temporary Diff & Deferred Tax
1 2 3 4 5
Carrying Amount 80,000 60,000 40,000 20,000 0
Tax Base 75,000 50,000 25,000 0 0
Diff. (Cumulative) 5000 10000 15000 20000 (20000)
Deferred Tax @30% 1500 3000 4500 6000 (6000)
DTL 1500 1500 1500 1500 -
Reversal of DTL - - - - (6000)
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Solution of Q.8
Step I : Calculation of Carrying Amount
Y1 Y2 Y3
Opening Balance 150,000 100,000 50,000
Depreciation (50,000) (50,000) (50,000)
Closing Balance 100,000 50,000 0
Step II : Calculation of Tax Base
Y1 Y2 Y3
Opening Balance 150,000 0 0
Depreciation (150,000) 0 0
Closing Balance 0 0 0
Step III : Calculation of Temporary Diff & Deferred Tax
Y1 Y2 Y3
Carrying Amount 100,000 50,000 0
Tax Base 0 0 0
Diff. 5000 10000 15000
D.T.L @ 40% (Cumulative) 40,000 20,000 0
D.T.L (Year wise) 40,000 (20000) (20000)
(40000 – 20000) (20000 – 0)
Step IV : Calculation of Tax Exp.
Y1 Y2 Y3
PBDBT 200,000 200,000 200,000
Dep. (150000) - -
Tax Income 50000 200000 200000
Tax @ 40% 20000 80000 80000
D.T.L 40000 (20000) (20000)
Tax Exp. 60000 60000 60000
Solution of Q.11
Assets Prepaid Exp. Warranty Liab.

Carrying Amount 200000 75000 50000
Tax Base 120000 0 0
Diff 80000 75000 50000
Deferred Tax @ 40% 32000 30000 20000
DTL DTL DTA
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Asset CA > TB = DTL

CA < TB = DTA
Liab CA > TB = DTA

CA < TB = DTL
Concept 4 : Changes in Tax Rate
As per the Provisions of Ind AS-12, Calculation of Deferred Tax for Current year
Temporary Diff will be made at “Current Rate” which Prevails at “B/s date” as per Tax
Laws.
Solution of Q.9
Calculation of Deferred Tax Laib.
Y1 Y2 Y3
Carrying Amount 100,000 50000 0
Tax Base 0 0 0
Diff 100,000 50000 0
T.R 40% 35% 38%
DTL (Cumulative) 40000 17500 0
DTL (Actual) 40000 (22500) (17500)
(Reversal) (Reversal)
Y1
D.T Exp a/c Dr 40000

To DTL 40000
PL a/c Dr 40000
To D.T Exp 40000
Y2
DTL a/c Dr 22500
To DTI 22500
DTI a/c Dr 22500

To PL 22500
Y3
DTL a/c Dr 17500
To DTI 17500
DTI a/c Dr 17500

To PL 17500
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Concept 5 : If Entity has incurred “Taxable Losses”
If any company has incurred Taxable Losses which can be carried forward & Set off
Against future Income then DTA should be created on Such Taxable Loss. If a
company does not Estimation of future Income then Such an Entity should not
create DTA on Losses. There should be some Estimation regarding future Income.
Solution of Q.11
Y1 Y2 Y3
Taxable Loss 100,000 50000 0
(Cumulative) (100000 – 50000) (50000 – 60000)
DTA @ 40% 40000 20000 0
(Cumulative)
Current year DTA 40000 (20000) (20000)
(Reversal) (Reversal)
Y1 = D.T Assets a/c Dr 40000

To DTI 40000
Y2 = D.T Exp a/c Dr 20000

To DTA 20000
Y3 = D.T Exp a/c Dr 20000

To DTA 20000
Calculation of T. Exp
Y1 Y2 Y3
Current Tax 0 0 4000

(10000 x 40%)
D.T.I/ E (40000) 20000 20000
T. Exp (40000) 20000 24000
Concept 6 : Deferred Tax in Case of “Business Combination”

Ind AS 103
If any Business is acquired by an acquirer from acquire at fair value then there may
be difference between fair value & Tax base of Assets & liabilities taken over because
Tax Base of Assets & liab do not change Generally. As per the Provisions of Ind AS-12,
the acquirer should calculate Deferred Tax at the time of Business combination prior
to Computation of Goodwill.
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E.g.
X ltd acquires y ltd the following information is available with regard to this :-
Fair value Tax Base

P&M 200,000 180,000
Stock 100,000 110,000
Debtors 90,000 100,000
Furniture 400,000 220,000
Payables (100,000) 100,000
N. Assets 690,000
PC 700,000
Assuming Tax Rate @ 30% calculate D. Tax at the time of Business combination & also
Compute Goodwill.
Solution
a) DTL on P&M 6000 (L)

(200,000 – 180000) 30%
b) DTA on Stock 3000 (A)
(100,000 – 110,000) 30%
c) DTA on Debtors 3000(A)
(90000 – 100000) 30%
d) DTL on Furniture 54000 (L)
(400000 – 220000) 30%
Net 54000 L
Journal Entry
P&M a/c Dr 200,000

Furniture a/c Dr 400,000
Debtors a/c Dr 90,000
Stock a/c Dr 100,000
GW a/c Dr 64000 (bal fig)
To Payables 60000
To DTL (Net) 54,000
To PL/ Cash 700,000
(being Business taken over)
Solution of Q.5
Journal Entry (103)
P&M a/c Dr 250

Inventory a/c Dr 120
Debtors a/c Dr 200
DTA a/c Dr 7.50 (25 x 30%)
GW a/c Dr 22.50 (Bal fig.)
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To Deb. 100
To Cash (PL) 500
(Being Business acquired)
Concept 7 : Treatment of Issue Exp. (Preliminary Exp.)
If any Preliminary Exp. is Given in question then It may be written off

Immediately in P&L A/c in same year, but Under Tax Laws, It will be written off
Over the Period of 5 years. So, we should create DTA on this difference.
E.g. A company issues Debentures having face value of Rs. 10,00,000, but floatation
Cost is Rs.100,000. While Computing Effective Rate of Interest, Floatation Cost
Was adjusted. But as per Tax Laws, floatation Cost will be written off over the
Period of 5 years. Tax Rate 30% calculate Deferred Tax.
Solution :
Calculation of D. Tax
1 2 3 4 5
Carrying Amount 0 0 0 0 0
Tax Base 80,000 60,000 40,000 20,000 0
Diff. 80,000 60,000 40,000 20,000 0
Tax Rate 30% 24000 18000 12000 6000 0
D.T Asset 24000 (6000) (6000) (6000) (6000)
(DTA)
1) DTA a/c Dr 24000 1) D.T Exp a/c Dr 6000

To DTI 24000 To DTA 6000
2) DTI a/c Dr 24000 2) P&L a/c Dr 6000
To PL 24000 To D.T Exp 6000
Concept 8 : R & D Exp.
As per the Provisions of Ind AS-12, DTL should be created on R&D Exp. due to zero
Tax Base under Tax Laws.
E.g.
i. Cost of P&M : 600000
ii. 100% Deduction under Tax Laws in Ist year
iii. Accounting Life : 3 years
iv. Tax Rate : 30%
Show Deferred Tax.
Solution
1 2 3
(Closing) Carrying Amount 400,000 200,000 0
Tax Base 0 0 0
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Diff 400,000 200,000 0

DTL (Cumulative @ 30% 120000 60000 0
Annual DTL 120000 (60000) (60000)
Create Reversal
Concept 9 : Assets held at fair value (Financial Assets/ Financial Instruments)
As per the Provisions of Ind AS-12, It may be Possible that Entity has some
Financial Assets under Ind AS 109 which are required to be reported at fair value at
B/s date. There may be some fluctuation in Carrying Amount due to change in fair
Value, but Tax Base will not change as Tax Laws do not Permit this type of
Presentation. So, we may need to calculate Deferred Tax on these differences. The
Following Point may be considered :-
I. If fair value change is recorded in P&L A/c then Deferred Tax on such change
Will also be recorded in P&L A/c.
II. If fair value change is recorded in “OCI” then Deferred Tax on such change will
Also be recorded in “OCI”.
E.g.
1.4.2017 : Acquisition of 10,000 shares @ 115 Per share
31.3.2018 : fair value is 119
31.3.2019 : fair value is 118
Tax Rate @ 30%
Calculate Deferred Tax assuming that fair value change has been recorded in “OCI”
Solution
31.3.18 31.3.19
Carrying Amount 11,90,000 11,80,000
Tax Base 1150,000 1150,000
Diff 40000 30,000
DTL @ 30% (Cumulative) 12000 9000
D.T Exp 12000 (3000)
D.T Exp a/c Dr 12000 DTL a/c Dr 3000

To DTL 12000 To DTI 3000
OCI a/c Dr 12000 DTI a/c Dr 3000

To D.T Exp 12000 To OCI 3000
Concept 10 : Deferred Tax Calculations on Revaluation of Assets *V.V.Imp
E.g.
i. Original Cost of Asset : 10,00,000
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ii. Salvage Value : 50,000

iii. Estimation of Life : 20 years
iv. Method of Dep in Books : SLM
v. After 7 years, It is revalued by increasing 20% to Carrying Amount.
vi. Revised Salvage Value : 80000
vii. Tax Rate 30%
viii. Dep as per Tax Laws : 13.9108% on WDV Basis
Show Impact of Revaluation on Deferred Tax.
Solution :
Calculation of Carrying Amount & Tax Base after 7 years
Carrying Amount Tax Base

Original Value 10,00,000 10,00,000
Dep. for 7 years (332,500) (649,538)
10,00,000 – 50,000 x 7 (@ 13.9108%)
20
Value after 7 years 667500 350462
DTL Balance = (667500 – 350462) x 30% = 95,111
Calculation of Revaluation Surplus & its Deferred Tax
Carrying Amt Tax Base Diff DTL

Revaluation Surplus 133,500 0 133,500 40050
(67500 x 20%)
i. P&M a/c Dr 133500

To Rev. Res. 133500
(Being Rev. made)
ii. OCI a/c Dr 40050
To DTL 40050
(Being DTL Created on Rev. Res.)
At the end of 8th year :- Extra Dep. due to Revaluation = 133500 = 10269
13Y
Carrying Amount Tax Base DTL

(133500 – 10269) 0 123231 @ 30%
123231 = 36969
(40050 – 36969)
= 3081
DTL a/c Dr 3081

To OCI 3081
(Being DTL Reversed)
Note : As per the provisions of Ind AS-12, Deferred Tax on Revaluation will be dealt
Under OCI because Revaluation Surplus is disclosed under OCI.
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Concept 11 : Presentation & Disclosures
1. Off Set : a) we can off Set D.T Exp & D.T Income in P&L as a Net figure if these
Are Payable to same Authorities.
b) We can off Set FTL & DTA in B/s as well if these are Payable to same
Authorities.
2. Breakup : The following Breakup of Tax Exp. should be given :-
Tax Exp. Current Tax

Deferred Tax
D.T Exp D.T Income
Exp. due new Reversal of New DTA Reversal of DTA

DTL DTA
*Part 4*
Solution of Q.1
Calculation of Taxable future Income
Expected Income 60,000

Expected Cost (12000)
Net Income 48,000
Comments : In the Given case, Company will gave taxable Profit of Rs.48,000 which can
Be set off against Deductible Temporary Differences
DTA = 48000 x 30% = 14,400
Solution of Q.2
In the Given Case, DTL should be created @25% on Rs.10,000 for X1. The Following
Points should be considered :
i. As per Ind AS 10, the Given Event should be classified as a Non Adjusting
Event because finance bill which stakes Tax Rate is 30% was introduced on 28th Feb
Which indicates that such Event was not in Knowledge at B/s date.
ii. The application of Tax Rate of 30% will be considered in XZ as it is considered
As a Non Adjusting Event.
Solution of Q.7
a) The entity can create DTL @ 30% on 9000 which will be Rs.2700 on Taxable Timing
Diff.
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b) The Entity can create DTA on deductible Differences only if the following
Conditions (at least one) is satisfied :-
 There should be same Taxable Timing Diff. or
 There should be probability of future Income or
 Income can be Generated from Tax Planning.
In the Given case, Taxable differences are in 3 years but not in 4th Year and future
Outlook is also Loss. So, DTA should be created @30% on 3000.
Note : DTA can be created on remaining 1000 only if Tax planning Income can be
Identified.
*Part 5*
Extra Questions
Solution of Q.12
As per the Provisions of Ind AS 12, Deferred Tax Assets on Taxable Losses or
Reversible differences can be created only if there is a Probability for future taxable
Income against which these Assets shall be recovered if Probability of future
Taxable Income is low then we should not recognise DTA in books. It can also be said
That DTA can be Created in the books to the Extent of Recovery against Taxable
Income.
In the Given case, Taxable Losses can be carried forward for 2 years only and
Company is Expecting only Breakeven Point in up coming 2 years which indicates that
Company will not have Taxable Income in Carry forward Period.
Conclusion : On the basis of above discussion, It can be said that It should not
Recognise DTA on Taxable Loss of 250 Crores because Probability of future
Taxable Income is very low.
Solution of Q.13
Deferred Tax on Finance Lease (116 & 12)
The following statement shall be Prepared for the computation of Deferred Tax in
Finance Lease Diff. :-
ROU Assets (Carrying Amount : B/s) xxxx

Lease Liability (Carrying Amount : B/s) xxxx
Net Asset/ Liab xxxx
Tax Base of Net Asset/ Liab. 0
Diff xxxx
DTL DTA
N.Assets x TR N. Liab x TR
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Solution of Q.13
Calculation of Deferred Tax on financial Lease
ROU 120 Crore – 120 Crore 96 Crore

5Y
Lease Liab. (120 crore + 8% - 30 Crore) 99.6 Crore
Net Liab. 3.6 Crore
Deferred Tax Asset = (3.6 Crore – Nil) 30% = 1.08 Crore
Journal : DTA a/c Dr 1.08

To (P&L) Tax Exp 1.08
(Being DTA Created)
Calculation of N. Assets on DOA
Carrying Amount of Assets held by B 23 Crore

Fair value Adjustments : Property 3 Crore
Plant 2 Crore
Stock .5 Crore
Fair value of N. Assets 28.5 Crore
Increase in Accounting Base of Assets (3 + 2 + .5) 5.5

Tax Rate 20%
DTL (5.5 x 20%) 1.1. crore
Computation of Goodwill on DOA
N. Assets a/c Dr 28.5 Crores

*Goodwill (Bal fig) a/c Dr 3.6 Crore
To DTL 1.1 Crore
To Cash 25 Crore (PC)
TO NCI 6 Crore
12 Crore x 20% = 3 crore x 2/- shares
80%
*Statement can also be Prepared for Computation of GW.
DTL on Goodwill
If It is clearly specified in question that Tax Base of Goodwill is Zero then we will
Compute DTL on Goodwill as well and Ultimate Goodwill Get increased.
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Solution of Q.25
Journal Entry

Goodwill a/c (Bal) Dr 45500
To Cash 100,000
To DTL on GW 10500
(100,000 – 65000) x 30%
Deferred Tax Explanation on increase in “Value of Investment due to consolidation”

*Imp
CFS
Ind AS 110 Ind AS 28
CFS with Subsidiary CFS with Associate & J.V
Full Consolidation Equity Method
1. Equity Method (Associate/JV) : If Investment in Associates or Joint Ventures

Gets increased due to share in Undistributed profits then we should create DTL on
Such Increase because Investor cannot control dividend Policy of Investee due
To which Tax can become Payable on share in Distributed Profits by Investor or At
the time of sale of Investments, Tax can become payable on Appreciation in value
Of Investments.
2. Full Consolidation : If Increase in value of Investments get increased due to

Share in undistributed Profits of Subsidiary then No DTL will be created because
Dividend Policy can be controlled by Holding of Subsidiary. So, It is not sure that
Subsidiary will distribute dividend and Holding will pay Tax on Dividend Income.
Solution of Q.17 *V.V.Imp
Case I : Investment in Associates
A. Calculation of Closing Balance in DTL A/c
Carrying Value of Investment as at 31.3.x2 75 Crores

Carrying value (Original) (45 Crore)
Total share in Undistributed Profits 30 crore
Tax Rate 20%
DTL 6 Crore
B. Increase in DTL during X1- X2
a) Opening Balance in DTL (1.4.x1)
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Carrying Amount as at 31.3.x1 70 Crores

Carrying Amount (Original) 45 Crore
Income 25 Crore
DTL Balance on 31.3.x1 25 x 20% = 5 Crore
b) Increase in DTL (X1 – X2) = 6 Crore – 5 crore = 1
Journal : (P&L) Tax Exp a/c Dr 1

To DTL 1
(Being DTL created)
Case II : Revaluation of Assets
i. Closing Balance in DTL on Diff between A/cs & Tax :
Accounting Base as at 31.3.x2 45 Crore

Tax Base as at 31.3.x2 (22 -1.25) (20.75 Crore)
Diff. 24.25 Crore
Tax 20%
DTL Balance at 31.3.x2 4.85
ii. Current year change in DTL
Accounting Base (31.3.x1) 40

Tax Base (31.3.x1) (22)
Diff 18
Tax 20%
DTL (31.3.x1) 3.60
Increase in C.Y = 4.85 – 3.60 = 1.25
Journal : OCI a/c Dr 1.25

To DTL 1.25
(Being DTL created through OCI on Revalauation)
Solution of Q.19
No Deferred Tax will be created for increase in value of Investment in Subsidiary

Because holding company can control dividend Policy of Subsidiary.
Solution of Q.20
We should create DTL on (50 x 50%) increase in Value of Investment in Asset/JV

Because Investor cannot control dividend Policy of Investee.
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“Concept on Reconciliation Statement “
Reconciliation
Statement I : Tax on Accounting Statement II : Effective Tax Rate

Profit & Tax Expense
(Numeric Reconciliation) (% Reconciliation)
*Presentation of either statement I or II or Both should be given by each Entity.
Explanation on Statement I
Tax Expense on Accounting Profit (A.I x TR) xxxx

Tax on Permanent Difference between A. Income
& Taxable Income xxxx +
Actual Tax Expense in P&L xxxx
Explanation on Statement II
i. Effective Tax Rate = Tax Exp (PL) x 100 = %

Accounting Profit
ii. Reconciliation of Tax Rate :
Actual Tax Rate %
“Tax Rate due to Permanent diff. + %
Effective Tax Rate %
Solution of Q.26
Reconciliation statement of Tax
Tax on Accounting Income (100,000 x 30%) 30,000

Increase in Tax due to disallowance of Exp. 3000
Tax Exp. (110,000 x 30%) 33000
OR
Reconciliation of Tax Rate
Effective Tax Rate = 33000 (Actual) x 100 = 33%

100,000 (AI)
Reconciliation of Tax Rate :
Actual Tax Rate 30%
“Increase in Tax Rate due to penalty 3%
Effective Tax Rate 33 %
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Solution of Q.16
A. Calculation of Current Tax & Deferred Tax
a) Calculation of Diff in A.I & T.I
Accounting Profit 100

Add: Disallowance of Donations 8
Less : Extra Dep. allowed in Tax Law (4)
120/10y = 12 x (6m – 2m)
12m
Taxable Profit 104
i. Current Tax = T.I x TR

= 104 x 25%
= 26
ii. Deferred Tax Liab. = 4 x 25% = 1
iii. Tax Exp. = 26 + 1 = 27
iv. Journal : PL a/c Dr 27
To C.T 26
To DTL 1
(Being Tax Exp charges)
B. Reconciliation statement
i. Numeric Form :
Tax on Accounting Income (100 x 25%) 25

Tax on Donation (8 x 25%) +2
Tax Exp 27
ii. % form :
a) Effective Rate = 27 x 100 = 27%
100
b) Actual Tax Rate 25%
Increase in rate due to Donation 2%
Effective Rate
27%
Solution of Q.27
Reconciliation Statement
20X2 20x1
Tax on Total Income as Per Domestic Rate 900 750
(1500 + 1500) 30% (2000 + 500) 30%
Tax Relief in country B in Rate by 10% (150) (150)
(1500 x 10%) (500 x 10%)
Increase in Tax due to Disallowance of Exp. 30 60
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(100 x 30%) (200 x 30%)

Tax Exp. 780 760
“DTA on Indexation of Capital Assets” *Imp
As per the Provisions of Ind AS-12, DTA can be created on increase in cost of Assets
Due to Indexation Benefit in Tax Laws. After Indexation of Assets, Capital Gain will
get reduced due to difference between selling Price and Indexed Cost.
Condition: We can create DTA on Indexation Benefit only if sale of Asset is probable.
If sale of Asset is not Expected then we should Ignore DTA on Indexation.
Solution of Q.15
Calculation of Deferred Tax as at 31.3.x2
SBP Res. Balance in A/cs = 1.6 Crore x 1 y = .8 Crore

2Y
DTA = .8 x 30% = .24
Entry = DTA a/c Dr .24

To (PL) Tax Exp .24
Reversal of DTA on 31.3.x3
(PL) Tax Exp a/c Dr .24

To DTA .24
(Being DTA reversal as Exercise duty)
Solution of 18 *V.V.Imp
a) In the Given case, Investment is held in FVOCI model due to which Deferred Tax
On fair value Gain/ Loss will also be routed through OCI.
DTL = (A/cs base of Invest – Tax base of Invest) x TR

= (240,000 – 200,000) x 25%
= 10,000
“Journal : OCI a/c Dr 10,000

To DTL 10,000
(being DTL Created on fair value Gain on Invest)
b) Calculation of A/cs base of Inventory in CFS
Total Sale value 80,000

- Sold Inventory (80000 x 40%) (32000)
Unsold Stock 48000
Stock Res. (96000)
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(16000/80000 x 48000)
A/c base 38400
DTA = (Tax Base of stock is higher) = (48000 – 38400) x 25%

= 2400
DTA a/c Dr 2400

To P&L 2400
DTA on Difference in Liab :
Advance Income Liab in A/cs 80000

Tax Base of Liab 0
Diff 80000
DTA = 80000 x 25% = 20000
DTA a/c Dr 20000

To PL 20000
Thank You 😊
CA. Parveen Jindal
133 | P a g e
Chapter 5- Ind AS 113 : Fair Value Measurements
*Part 1*
Concept 1 : What is the need of “Fair Value”
As per the Provisions of Ind AS 113, Fair value for Assets & Liabilities may be
Required for initial Recognition, Subsequent measurements and Disclosures Purpose
Under other various Ind AS. The following Examples may be Referred regarding need
Of fair value under other Ind AS :-
i. Ind AS 105 : fair value is required for initial Recognition of Held for sale
Assets
ii. Ind AS 109 : Fair value is required for initial Recognition & Subsequent
Measurements of financial Instruments
iii. Ind AS 41 : Fair value is required for initial Recognition and Subsequent
Measurement of Biological Assets & Agricultural Produce
iv. Ind AS 16 : Fair value is required for Revaluation of PPE
v. Ind AS 40 : Fair value is required for Disclosure of Parties.
Out of scope of Ind AS 113 :
i. Fair value of Options under share based Payments
These are valued as per Option Price model

ii. NRV of Inventories under Ind AS 2
iii. VIU of Assets/ CGU under Ind AS 36
Concept 2 : Meaning of “Fair value”
Meaning of fair value : Fair value is the Price which would be received to sell the Assets
Or would be Paid to Settle the Liability in an Orderly
Transaction between the market Participants at the
measurement date in Current Market conditions.
Components in Fair value
Assets/Liab Transaction Market Participants Price
Components A : Assets / Liabilities
As per the Provisions of Ind AS 113, Fair value measurement will be made after
Considering “Location”, “Condition” and “Restriction to sell or use” of Assets &
Liabilities. If any Restriction has been imposed on Entity then It will not be
Considered for fair value measurement. It means that Restriction of use/ Sell on
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Assets & Liab. are only considered, but on Entity are not considered.
Example:
Restriction on Entity Restriction on Assets
If A company cannot construct If a Land can be used only for Residential

Commercial Buildings on Land as per “AOA” Purpose then It is a restriction on land
Then It will not be considered while fair And It will affect fair value of land
Value measurement of land because Because land is not available for use for
Restriction is not on land All Purpose.
Summary
Restriction on Entity = Does it affect F.V of A/c = No

Restriction on A/c = Does it affect f.v = yes
Component B : Transaction
As per the Provisions of Ind AS 113, Transaction may be conducted through

“Principal Market” or Most Advantageous Market”. We can consider most
Advantageous market only in the absence of Principal market.
i. Principal Market : It is the readymade Platform for sale of Assets in which

Identical and comparable Assets are Traded at High volumn. For Example,
Securities can be Trade through NSE/ BSE. These are Principal markets
Note : If more than one Principal markets are observed then we will consider the
Principal Market where volumn of Transaction is very high.
ii. Most Advantageous Market : This market is observed only if we don’t have
principal market for Trade of Assets. In this market, we consider maximum sale
Proceeds that can be recovered from sale of Asset
Example : we want to sell “ an old car”
No Principal market does Exist for old cars
We will Go in Most Advantageous Market
Offer A : offer B : OLX offer C :

Buyer = 200,000 250000 Exchange value 80000
(Cars 24. Com)
Maximum value in most Advantageous Market
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Component C : Market Participants
As per the Provisions of Ind AS 113, Market Participants are Parties which eventually
Transact Assets/ Liab. in current Market conditions. These Parties are not under
any Pressure/ Force for Transaction and these parties have sufficient Knowledge
Component D : “Price”
Price
Principal market Most Advantageous Market
i. Transaction Cost : No Yes

ii. Transportation Cost : Yes Yes
Notes :
A. While computing Price/ fair value, we should consider some Expenses which are
Related with sale of Assets
B. In Principal Market, we will not include Transaction cost because these Expenses
Are incurred according to market standards but not related with particular Asset.
Solution of Q.1
i. If A Market is principal Market
Selling Price 26
Transaction Cost NA
Transportation Cost (2)
FV 24
Note :
1. Transaction Cost is not relevant for Principal market
2. We will not refer market B because valuation of Transaction is high in Market A
ii. None market is principal Market
Here we will consider maximum sale Proceeds as follows :
A B
SP 26 25
- TC (3) (1)
- TC (2) (2)
Fv 21 22
*Rs.22 is higher than 21, so we will consider market B if there is no Principal Market.
136 | P a g e
*Part 2*
Concept 3 : Valuation Techniques
Fair value measurements techniques
i. Market Approach
ii. Income Approach
iii. Cost Approach (Less Popular)
Summarised Presentation
Market Approach Income Approach Cost Approach
We use “Market value” We use “Discounted cash We use “Replacement Cost

For similar/ Identical A/c flows” which are Expected which is Expected to be
in Future paid if we replace the
Ist Preference Existing Assets
IInd Preference
(if market value cannot be IIIrd Preference
Determined) (If Market value is not
Available for similar items
as well as cash inflow can
Also not be identified)
Concept 4 : “Inputs for fair value Measurements” *Imp
Inputs
Observable Inputs Unobservable Inputs
Level III Input

Level I Level II
Discounted Cash flows
“Market Approach”
Level I : If there is an active market for similar or Identical Assets/ Liabilities and
We can use “Market Value” of similar A/c without any adjustment then It is
Level I Input.
(i.e., we use closing Prices as market value for valuation of Securities)
Level II : i) If there is an active market for similar or identical A/c and we can use
Market value of identical items as fair value, but Subject to some adjustment
Then It will be taken as Level II Input.
OR
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ii) If there is no any active market, but we can Estimate maximum sale Proceeds or
Minimum payments for Assets or Liabilities in most Advantageous market subject to
Some Adjustments.
Level III : It is an Unobservable Input in market due to which we may need to

Estimate assets own cash flows for fair value measurement.
Concept 5 : Unit of F.V measurement
i. If independent valuation can be made then single Asset/Liab will be considered

As unit of measurement.
ii. If Group of A/c is required to be valued together then Group will be
Considered as unit of Valuation (i.e., GU)
Solution of Q.4 , Q.5, Q.3 (Discussed in class)
Solution of Q.2
In the Given case, we will use Level II Input because we may require some
Adjustments to Obtain max. sale Proceeds. The best use of this land may be higher of
below two Outputs :-
1. We should measure sale Proceeds from Industrial factory

2. We should measure sale proceeds from sale of Plain land for Residential Purpose.
While computing sale proceeds from Plain Residential land, we will consider cost of
Demolish the Building.
Solution of Q.1
In the Given case, we cannot use Investment 3 for computing Interest Rate
Because It has Expected cash flow at the end of year 2, but we have Expected cash
Flow in year I. so, we will use Investment 2 for the said Purpose.
1. Calculation of Interest Rate in Invest.2
Cash flow at the end of Ist year 1200

Market value (Existing) (1083)
Interest 117
IR = 117 x 100 = 10.80%

1083
2. F.V of Investment I = 800 x .902 = 722
Solution of Q.2
1. As per the provisions of Ind AS 113, Restrictions on use or sale of Assets are
Considered while fair value measurements, but Restriction on Entities are not
Considered.
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In the given Entity is not interested in development of commercial project

Which is best use of Given land but there is no restriction on conversion of Land.
So, valuation of land should be made assuming it will be used for commercial
Projects.
2. a) If company is using discounted cash flow method then It is Level III input
(Unobservable).
b) if company can have an idea from quoted prices of similar companies in active
Market then It will be classified under Level II input.
Thank You 😊
CA. Parveen Jindal
139 | P a g e
CA Inter Accounts Group I CA Parveen Jindal Classes
Chapter 6 - Analysis of Financial Statements
*Part 1*
Case Studies Based on Ind AS
Solution of Case Study 1
In the Given case, Treatment of Staff Loan & Interest on Staff Loan is not as
Per Ind AS 109. The given case can be considered at off market Terms because market
Rate is 10%, but company is charging 4% only. So, company should have computed
Fair value of Loan at market rate & Difference between Loan Given and fair value
Should have been Recognised as Prepaid salaries which are to be amortised on SLM
basis over 5 years. Further, calculation of Interest should also have been made at
Market rate on Amortised Balance. The following calculation may be considered :-
I. Statement showing calculation of fair value of staff Loan
Period Cash Inflow (P + I) PVF@ 10% (Market Rate) Present value

1 240,000 .909 218,160
2 232,000 .826 191,632
3 224,000 .751 168,224
4 216,000 .683 147,528
5 208,000 .621 129,168
Fair value of Loan 854,712
Prepaid Salaries = 10,00,000 – 854,712 = 145,288
II. Statement showing Amortisation Table
Period Opening Balance Interest @10% Collection Closing Balance

s
1 854,712 85471 (240,000) 700,183
2 700,183 70018 (232,000) 538,201
3 538,201 53820 (224,000) 368,021
4 368,021 36802 (216,000) 188,823
5 188,823 19177 (208,000) Nil
(Bal fig)
Journal Entries (Ist year)
1. Staff Loan a/c Dr 854,712

Prepaid salaries a/c Dr 145,288
To Bank 10,00,000
(Being Initial Recognition made at market Rate)
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Comments : on the basis of above Entry, It is clearly Indicated that Recognition of

Loan at 10 lacs is wrongly done by Accountant of company.
2. Staff Loan a/c Dr 85471

To Interest 85741
(Being Int. made due at Market Rate)
Comments : On the basis of above Entry, It can be said that Treatment of Interest
Is also wrong in the Given question.
3. Bank a/c Dr 240,000

To staff Loan 240,000
(Being Collection made)
4. Interest a/c Dr 85471

To P&L a/c 85471
(Being Income Recognised)
5. P&L a/c Dr 29058 (145288/5)

To Prepaid salaries 29058
(Being Salaries Amortised)
Solution of Case study 2
In the Given case, Classification of Asset under Held for sale is completely
Wrong because there is no intention of the Entity to sell the Specified Asset. It is
Clearly mentioned that the company will use this Asset in future as demand of
Product Pick up. The following calculations should have been made by company :-
Statement Showing carrying of Calculation Amount of Asset as on 31.3.x4
Original Cost 600,000

Depreciation for 3 years* (600000/10 x 3) (180,000)
Carrying Amount of Asset as on 31.3.x4 420,000
Recoverable Amount 350,000
Impairment Loss 70,000
 Additional Comments :
1. The company cannot stop charging Depreciation on Asset as it cannot be

Classified as held for sale.
2. The Specified Asset should be reported under Non Current Assets (PPE) as per
Ind AS 16. It can be treated as Abandonment of Asset only.
Solution of Case study 3
As per the Provisions of Ind AS 10, Events after B/s date can be adjusted in
Financial statements only if these Events are in Knowledge of Enterprise at B/s
date. In the Given case, Decline in value of Inventory has taken place due to fire
141 | P a g e
Which can not considered as Known Event. So, NRV of 7.6 Lacs is not considerable for
Valuation of stock.
The Goods have been sold on 15.5 at Rs.9 Lacs which is also more than cost of
Inventory. It means that there is no Hint for decline in value of Inventory in
Subsequent Sale as well.
So, Valuation of stock should be made by the Entity at Rs.8 Lacs at B/s date.
Solution of Case study 4 (Discussed in Class)
*Part 2*
Solution of Case study 5 *Imp
In the Given case, the following mistakes have been made by Venus limited while
Preparing financial statements :-
A. As per the Provisions of Ind AS 16, Revaluation model can be opted only if It is
Chosen for entire class of Assets. It means that Revaluation cannot be made
selectively for a Particular Asset, but It should be done for similar Assets on
global Basis. In the Given case, Venus Limited has opted Revaluation model on one
factory Building, but cost model for other one which is wrong. It should apply cost
model or Revaluation model as per choice on Both Assets.
B. As per Ind AS 40, Revaluation model is not allowed on Investment Properties. In
the Given case, Venus limited has opted Revaluation model for I.P which is
Completely wrong. So, we should Apply cost model on Such Asset.
C. The Venus Limited has disclosed all the Property as PPE which is correct for PI &
PII, but It is incorrect in relation to PIII. The third Property is held for Rental
Purpose which should be reported as Investment Property in B/s.
D. The Entity should have calculated Depreciation for Current year.
Calculation of Carrying Amount of Properties if cost model is Opted.
Property I Property II Property III

Original Cost 15,000 10,000 12,000
Depreciation (1500) (1000) (1200)
Carrying Amount 13,500 9000 10,800
B/S (Extracts)
Non Current Assets :-

Property, Plant, Equipment :
Property I 13500
Property II 9000 22500
Investment Property 10800
Statement Showing Carrying Amount of Assets if Revaluation model is opted
Property I Property II Property III
142 | P a g e
Original Cost 15,000 10,000 12,000

Depreciation (1500) (1000) (1200)
Carrying Amount 13500 9000 10800

Market Value 16000 11000 -
Revaluation Reserve 2500 2000 -
B/s (Extracts)
Non Current Assets :-

Property, Plant & Equipment :
PI 16000
PII 11000 27000
Investment Property - 10800
Other Equity:-
Revaluation Res. : PI 2500
PII 2000 4500
Solution of Case Study 6, 7 (Discussed in Class)
Solution of Case Study Q.8 *Imp
As per the Provisions of Ind AS 115, the Entity should consider Time value of
Money while Recognition of Revenue from customer. It cannot recognise Rs.10 Lacs
as Revenue because Amount is collected over a Period of 2 years due to which assumed
Interest is required to be recognised as Time value of Money. This concept is
Completely different from AS-9 because there is no Explanation in AS-9 on Time value
Of money.
Calculation of Present value of Future Cash flows
Period CF PVF @5.36% Present value

0 333,333 1 333,333
1 333,333 .949 316,333
2 333,333 .900 300,000
949,667
(Rounding : 950,000)
1. Cash a/c Dr 333,333

Debtors a/c Dr 616,334
To Sales 949,667
(Being Goods Sold)
2. Debtors a/c Dr 33035 (616,334 x 5.36%)
To Interest 33035
(Being Interest made due)
3. Cash a/c Dr 333,333
To Debtors 333,333
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(Being Collection made)
4. Debtors a/c Dr 17298

To Int. 17298
5. Bank a/c Dr 333,334
To Debtors 333,334
*Part 3*
Solution of Case Study 9 *V.V.Imp (Already Discussed in RTP)
Solution of Case Study 10
i. As per the Provisions of Ind AS 23, B. Cost can be capitalised to the cost of
Q. Assets only. A Q. Asset is an Asset that takes Substantial Period of Time to get
Ready for its intended use or Sale.
In the Given Case, the Sports company is constructing a stadium which can be
Considered as a Q. Asset because It will get ready in Next financial year which
Indicates that It is taking Substantial time to get ready.
The company is availing overdraft facility for the construction of stadium in
the Given case. It means that Interest on Overdraft can be considered for
Capitalisation Purpose to the cost of stadium. The following statement may be
Prepared to calculate the amount of Borrowing Cost which can be capitalised under
Ind AS 23 :-
Statement showing Calculation of B. Cost
Month Balance in overdraft A/c Interest @15% P.a. for

Respective Month
December X1 150 Crores 1.875 Crores
January X2 500 Crores 6.25 Crores
(150 + 350)
Feb. X2 850 Crores 10.625 Crores
(500 + 350)
March X2 1200 Crores 15 Crores
(850 + 350)
Interest on Overdraft 33.75 Crores
a. Interest a/c Dr 33.75

To Overdraft a/c 33.75
(Being Interest debited)
b. Capital WIP/Q.A a/c Dr 33.75
To Interest 33.75
(Being Interest Capitalised)
ii. In the Given case, the following observations can be Given :-

a. At the time of Acquisition of Registration of Player, the company can consider it
as an Intangible Asset under Ind AS 38 because company acquiring Rights from the
Player. These rights can be sold subsequently which indicates that conditions of
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Identifiability & Economic Benefits are satisfied. The company has incurred many
Expenses in addition to Registration Rights such as Agents fees, Transfer fees etc.
Which can be capitalised to the cost of Intangible Asset as per Ind AS 38 because
these Exp. are directly related with Acquisition of Intangible Assets.
b. At the end of year, if company decides to sell any Registration then It will be
Considered as Non Current Asset Held for sale under Ind AS 105. It will be carried
in B/s at carrying Amount or Net fair value whichever is Lower.
c. If Any Registration is sold during the season then It will be treated as Disposal
Of I. Asset and Profit or Loss on Disposal will be transferred to P&L A/c as per
Ind AS 38.
d. In the Given case, A Registration Costing 49 crores has been sold for 175 crores
Which indicates Profit of Rs.126 Crores, but the transaction has taken place in next
Year after B/s date due to which it will be recorded next year. It cannot be taken as
An adjusting Event under Ind AS 10.
iii.
a. The company can consider Naming Rights Benefits at the time of Revaluation of
Stadium because there is an Economic Benefit in Naming Rights which can be
Generated from stadiums.
b. There is no relationship between the Sports company and Airlines company. As per
the Provisions of Ind AS 24, common directors in 2 Entities do not create
Relationship between the Entities. So, there will be no restriction on the Entities
If they Enter into the Transactions.
Solution of case Study 11
a.
i. The Agreement between two companies shall be considered as a Joint
Arrangement in the nature of Joint Operation under Ind AS 111. It can be treated
as a joint Venture because No Separate Vehicle is formed to take the benefits from
Storage facility. We are taking it as Joint Arrangement because Activity is subject
to Joint Control. No Entity can take decisions on its own.
ii. The following Points are to be considered before the understanding of

Accounting of Irrecoverable Gas :-
a) The Entities should consider storage facility as a PPE under Ind AS 16 and
Respective share in Ownership will be disclosed in B/s by each Entity.
b) As per the Laws, Decommissioning is mandatory due to which company should
Create Provision for De-Commissioning Cost as follows :-
PPE a/c Dr xxxx
To Provision for D. Cost xxxx
c) The company should consider cost of Irrecoverable Gas as a part of cost
storage facility and It will be depreciated over the useful life of storage facility.
If Gas is estimated to be recovered at the end of life of Asset then its salvage
Value will be adjusted while computing Depreciation on storage facility.
145 | P a g e
b. In the Given case, Ind AS 109 cannot be applied because Non Financial obligation is
Delivered in the form of delivery of Gas. There is no financial Asset or financial
Liab. In the Given case, one company is making Payment in cash, but other
company is delivering Goods. Further, difference in Price will be considered as
Change in Estimation, but not as a derivative contract. The Given Transaction
shall be Accounted under Ind AS 115.
*Part 4*
Message (About RTP & MTP)
Thank You 😊
CA. Parveen Jindal
146 | P a g e
Chapter 7- Conceptual Framework For Financial Statements

*Part 1*
Example
Statement of P&L
Case I Case II
(Going Concern) (Not Going Concern)
A. Revenues
Revenues from Operations 450,000 450,000
Total (A) 450,000 450,000
B. Expenses
Purchases 400,000 400,000
Changes in Inventories (2000) (10000)
(32000 – 30000) (40000 – 30000)
Employees Benefit Exp. 14900 14900
Finance charges 3500 6000
Depreciation & Amort. 15500 15500
65000 + 10000 (65000 – 60000 + 10000)
5 4
Other Expenses : PFDD 2000 6000
Total B 433900 431900
(a-b) NP 16100 18100
Balance sheets
Case I Case II
Non Current Assets:

PPE 52000 60000
Current Assets:
Inventories 32000 40000
Financial Assets :
i. Trade Receivables 23000 19000
(Net off PFDD)
ii. Other Assets 7500 -
iii. C&CE 33600 33600
148100 152600
Equity : Share capital 60000 60000
Other Equity 41100 43100
NCI : 10% Loan 35000 37500
CL : T. Payables 12000 12000
148100 152600
147 | P a g e
Concept of capital maintenance
Capital Maintenance
Financial Capital Maintenance Physical Capital Maintenance
Historical Current Purchasing

Approach power
1. Historical Approach = Closing Capital – (Opening Capital + Capital Introduces)
Retained Profits
2. Current = Closing Capital – (Opening Cap. + Capital Introduced) x Closing
Purchasing Power 100 Index
Financial Retained Profits
3. Current Cost = Closing Capital – (Current Cost of Opening Cap & A. Capital )
Physical Retained Profits
Example A
1. Historical Approach :
i. Opening Capital = 12000 (Given)
ii. C. Capital = O.C + P – D
= 12000 + 6000 - 6000
= 12000
Retained Profit = 12000 – 12000 = 0
Cc - oc
2. Current Purchasing Power :-
Closing Capital 12000

Opening Capital (12000 x 120/100) (14400)
Retaining (2400)
3. Physical Cap. Maint.
Closing Capital 12000

Opening Cap. (6000 x 2.5) (15000)
Retain (3000)
148 | P a g e
Thank You
CA. Parveen Jindal
149 | P a g e

The Handwritten Notes: New Syllabus May-2021 Onwards Module-4

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CA-Final

The Handwritten Notes

CA. PARVEEN JINDAL

As Per ICAI Syllabus

Chapter 1 - Ind AS 19: Employees Benefits

Basic Understanding of Some Useful Terms

“An Employee includes worker(factory), staff(office) & Directors also

B. Meaning of Employee Benefit Expenses: As per the Provisions of Ind AS-19,

Employees Benefit Expenses

Unit I: Unit II: Unit III: Unit IV:

Unit I: SHORT TERM BENEFITS (IMP)

Short Term Benefits

Salaries, Wages, Social Payments for Annual Profit sharing Non-Monetary

Other special points to be considered

B. These Expenses shall be recognised on Accrual Basis. If there is any difference

Additional Concepts to be covered under Unit I

Short Term Absences

Accumulating Leaves Non Accumulating Leaves

II) Total Employees Benefit Exp.

Total E.B. Exp = Annual Salary + Leave Encashment

i) Provision for leave encashment= Leaves to be x Profitability x Salary per day

ii) Journal: Employees Benefit Exp………..Dr xxxx

Journal (Next Year):

(iv) Journal: Empl. Benefit Exp…….Dr 30,30,000

Accounting for 20X1-X2

ii) Journal: Empl. Benefit Exp……………Dr 29,70,0000 (Bal.fig)

Comments: The Accounting Treatment which is suggested by the Accountant of

(iii) Journal: Employees Benefit Exp………….Dr 30,20,000

Accounting for 20X1-X2

i) Prov. For Casual Leaves = 30 empl. X 5 days = 150 days

I. Vested Accumulation (Payment in Cash)

i) Provision for Existing Employees [350-6%=329]

ii) Provision for New Employees [350-329=21]

Provision (2) = 21 empl. X 1 leave x 16500 per day salary = Rs.3,46,500

Total Provision (1+2) = 21,71,400 + 3,46,500 = Rs.25,17,900

B. Accrued Exp……………..Dr 65,00,000

Q.8 (Nov 2020)

ii) Provision for SL = (200 empl. X 2 days) + (800 empl. X 5 days)

(iii) Non Accumulating Leaves:

Concept 2: Profit Sharing/ Bonus

As per the any act(Bonus Payment Act)

Company clear Company implied

(1) (2) (3)

ii) Journal: Empl. Benefit Exp……….Dr 9 crore

i) Company Provision for Bonus = (1,25,000+8.5%) + 329 employees = 4,46,20,625

Bonus per empl.

ii) Journal: 31.03 Empl. Benefit Exp…………Dr 4,46,20,625

Company Estimated Profit Sharing = 2000 crores x 3.5% = 70 crores

Journal: Empl. Benefit Exp………..Dr 70 crores

Unit II: POST EMPLOYEMENT BENEFITS (RETIREMENT BENEFITS)

Defined Contribution Plans Defined Benefits Plans

C. There will be no Increase in liability C. The Entity’s Liability can be Increased

D. The Employee will get Post D. The Amount of Post-Employment

Examples of Defined Contribution Plans:

Concept 1 : Accounting for Defined Contribution Plans

Journal: i) Employees Benefit Exp……….Dr 6 [50 x 12%]

ii) P&L …………………..….Dr 6

Concept 2 : Accounting for Defined Benefit Plans [V.V.V.Imp]

I. Use of Acturial Assumptions for measurement of Defined Benefit Obligations

II. Use of Discounting Model due to Promised Payments on a Future dare

III. Acturial Gain/ Loss

Steps for Accounting under Complex Model