Taxmann's Financial Reporting (FR) | CRACKER

Contents

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CHAPTER 1

L A I C N A N I & F O N O I T A T N E S E R 0 D N A N O I T A R A P E R 0 R O F KS RT ON WE EM E MT AA R T &3

CHAPTER 2

S T N E M E T A T 3 L A I C N A N I & N I S M E T I F O N O I T A T N E S E R P N O 3 !

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T N E M E R U S A E E U L A 6 R I A &

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Previous Exams Trend Analysis (May 2019 Onwards) (New Syllabus)

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Chapter-wise Comparison with Study Material

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CHAPTER 7

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CHAPTER 9

D N A S E I T I L I B A I , T N E G N I T N O # S N OS I T S E I V S OS R! 0T N

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CHAPTER 10

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S T N A R ' T N E M N RE EC VN OA 'T S I RS OS F! T GN NE I T M NN UR OE CV CO !'

F O E R U 3S O !L C DS NI )$ CHAPTER 5

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N U O C C3 !!

CHAPTER 12

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T N E M Y A 0 D E S A " E R A H 3 R O F G N I T N U O C C !

CHAPTER 13

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G N I R U T C U R T S E 2 E T A R O P R O # D N A N O I T A N I B M O # S S

E

N I S U3 "!

CHAPTER 14

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S T N E M E T A T 3 L A I C N A N I & D E T A D I L O S N O #

CHAPTER 15

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S T N E M E T A T 3 L A I C N A N I & F O S I S Y L A N !

CHAPTER 16

16.1

G N I T R O P E 2 D E T A R G E T N )

CHAPTER 17

17.1

Y T I L I B I S N O P S E 2 L A I C O 3 E T A R O P R O #

CHAPTER 18

18.1

SOLVED PAPER - NOV. 2020 (NEW SYLLABUS) (GUIDELINE ANSWERS)

P.1

SOLVED PAPER - JAN. 2021 (NEW SYLLABUS) (GUIDELINE ANSWERS)

P.28

SOLVED PAPER - JULY 2021 (NEW SYLLABUS) (GUIDELINE ANSWERS)

P.59

SOLVED PAPER - DEC. 2021 (NEW SYLLABUS) (GUIDELINE ANSWERS)

P.91

SOLVED PAPER - MAY 2022 (NEW SYLLABUS) (GUIDELINE ANSWERS)

P.120

14

CHAPTER

I S I U Q C A T E S S A N A F O G N I T N U O C C A N I S E C N E R E F F I D

N YO ET I KA EN I HB T EM R O A C GS NS I E WN I OS L L U O B F EA HD 4N A N O I T ADNNR IC FZ EI OI OA E O FR T T I TN A C EE R GCAV A B S O I O PC T L N L A SE D AL A A L R DRNTEU EEAERO R B R N HI W I DOTE U L L QLDFHI CUEOTW AOSTOD SWASTO O B T SD EO CC E T S LN E G EL S S A R A EO S R R EAUE L FSVE.D

A F B O O I E E

S E G ERE Z NPMH U I HUN AO DT T LG T I NFW A RA N O VO G )

GYEA OELS CHBA A ETI R F FI D I E TZ E N R I EEN AU DG L I SA O T C V E Y ET

S L R RE S E I TSS AA A S RIA EFA L LE T L B PI A T I EWA G R NDSDA EEOP AZ T OE R' IA N N S )

AS T SE A S DS EA Z E I L H A T T IO F P AT CS EO R C A E SH T T S OF CO NT ON

I E T D NE C AOR S I NPU AMQ R OC 4C A HDF D NNXC NOE I EI O A R I T T R EH R S A W E D A R T F NS EPS A NR I O N B C IRSA M YDUAR T C O T ODUI NDN CEDR I T E E O I SA PEDT L P R U E S A EA L ERMH R C NNAT E SI ND I T T S OS NS I UI I S O N T T G I BS NDCOO I E N I S C H AUD N Q C E E UE R UA NCL H PS T )AC

T F S E A D Y T F C E S OI H E L N S E E N N T D G Z S R U I N I O FO NN N L A I I O I YS OYA CD G T I T R E N I U I I N T A T L BMCROOG I I I O A C R B N N IR CE O SC T AAE GOII C R E T E! OPNL E C H H O R CMORN T T I ENL R E EEPO E T E A RTU R A S NMAE I TI T REE SOSF I FN SO S T T IFS IS CCEII X N D R T E B I ADN NF SAAA I T E Y F O N E H A H L R

OXTATNABDA S A RAA R E N H N O F N PTT I O OXROO OT A R I I P A I DE SNT T T E T 3E I OCNCRFMS I A A E !RCI O E I B R T S S N NDTU I E NMNG EN Q DF RC R ANOO AO GR NEE R O )DF TCT INFA NSDI N OA D OD EFOE DOGM N N RSA U O O EHS CC T SI T EN A RAN R E E S ER I HEB R E I T A T F M O I F SI L

I E O XDDBC E A AYR I S T L I R S DA U E ER QDN R OCNS I R PAAU E L S F MT L B E I EW ES $T A

14.1

-

-

Deferred tax accounting

-

Transaction costs

-

Intangible assets, including goodwill

Acquisition of group of assets under Ind AS Business combination Topic

BUSINESS COMBINATION AND CORPORATE RESTRUCTURING (IND AS 103)

QUESTIONS ON SCOPE (ASSET ACQUISITION) [BASED ON PARA NO. 2]

Que. 1. What are the key differences in accounting of an asset acquisition and a business combination?

-

Ans. :

-

-

i ii

' . ) 2 5 4 # 5 2 4 3 % 2 % 4 !

2 / 0 2 / # $ . ! . / ) 4 ! . ) " / # 3 3 % . ) 3 5 "

14.2 Topic

Business combination

SN NNE E ANOIS I T OPAA G I L H GCUO IN C F B N R I O A IS D U T E L U L E P S U D UAS N L D B I E A NE A R V AR G DA UI R RES DS A R B A !

EA R R A E EFF I S E E U R QMHSUO C TNLF A E A AR FRV D T E SAO R II Z T NNA E DO N OF S ET I I EG S T O V M A A A I C R CE TE UO ES A R L DE HS L LI S 4A A S R I L FDSRI SNEA SSESO T UN N RENIMT E AL I E R P T A S A A T O I R E N S A SV RN I CA I A T T U ER IN GR US C I QT YAUI ET EC INOR A HI I QEN L M F C O A E T I U VI I T AN I FBET EQEAS E D A A O H E E I H NE I R E R H T I ET ELTE HGF D T U S A HL UDD L DTN OE QYE L I CB NEI A SSL RU LEHA VAEN P U M UO R COLRLYEDMU A X E P L T D I C H S VU Z OCE A

EE NR T I F CCV O N R E D I O N GRAR EIEHDCA I I E O HU TE FV E R S M N DS Q E T HN CT ER R T OH CUFE S E EO FA PE AR R SOFNT )

Situations where the fair value of the assets acquired and liabilities assumed exceeds the fair value of consideration transferred (referred to as bargain purchases)

Acquisition of group of assets under Ind AS

-

-

-

-

IDENTIFICATION OF A BUSINESS COMBINATION (BASED ON PARA NO. 3 AND PARA NOS. B5 TO B12 OF APPENDIX B) Que. 2. Which of the following scenario represents a Business Combination? (a) Case A: On 1st January, 2012, A Ltd. owns a majority share of its investee’s voting equity interests. The other investors in the investee hold contractual rights (for example, board membership rights accompanied by veto rights on operating matters, or other substantive participation rights) which preclude A Ltd. from exercising control over the investor.

The contractual rights of other investors were for 5 years which lapsed on 31st December, 2016 as per the terms of the contract. (b) Case B: P Ltd. owns an equity investment in an investee that gives it significant influence but not control. During the year, the investee repurchased its own shares from other parties and the same were extinguished which resulted in an increase in the P Ltd.’s proportional interest in the investee (to 60% of the voting rights), which results in P Ltd. acquiring control of the investee. a

FSN T O I H SG E T I H H R GLT I A F R UO ET L CO HA T R RT NT I NN EOO GCC N G AEN HHI CTNN I F A AOT O I T SNBA T OON N I I T EA D B S T R E ,M I R P PX O !C EE R NS R I S TO I TE L N NU I O SS I E U T R A B NHA YI CS R MI A HA I UL NEWG N A I *SLY R O TE F RI S T DN L

A L O OU NH CQ OE G D R !A NN I HD A ES S U E R A L E E C T #H S EE R TP NO V )

Ans. :

-

S RS SE E I HED

T N T R I T O A S , POU RN B0 E Y HGAB T N O S I D MMAI E L OUSP E S RE lP F RL I SP A E AE R A EUB EQD HT SS N L NE OU I O VT WN CW OI AD SE S T N I O H F AH T O R T EFTE EOSM L T I O S H N R E O VT4I NN I T O I LS O YCR I U BGT Q ENN I S OC N A CA I HA E CT GH R B N T UOT I D P C N ED AA R T E,PN M H0I O T I T "NRA I O N ES T I S A T B L A C U I M #S D O EN NR ) IC

b

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2 / 0 2 / # $ . ! . / ) 4 ! . ) " / # 3 3 % . ) 3 5 "

14.3

DETERMINE THE ACQUISITION DATE (BASED ON PARA NOS. 8 AND 9)

RT S SFHE T AC I

E S SRW S DAOM A P O N TE RH E EF C H D NI SR ET EV NA HIBSR L D T LAUT

NYIHE ONW!R S I DAST N E S A EES HTI O I S VO T I A T T P E I C BC R E S I SE U F U I ERP FQ T G AC CO I NYOA R F PNI TRTO A S N EOU UA E HDO T T S NOA A R C TE A C*SD

DA D HL E T H ORTTT GH O , O NE N Y F I RND8G L D ONFN NAI AOI AHT S I T D SR S S S I E

H8 U I O T T I Q C I V WTC I C A AHT TH !

O C C F NTO AD R DE A TT EN T-N, S AA A8 A C D VH ET S ENL I HOEI H

T T YRW L NYEN ET I N RTOHE A T A EU DS M R T I ONTT C E F E AA) V E R

H *T L I R

O D E

V R HT ON E 4A T T I

Ans. :

3 !

D N ) F O

D N A

S H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

Que. 3. Company A Ltd. acquired all the shares of Company X Ltd. The negotiations had commenced on 1st January, 2016 and the agreement was finalized on 1 March, 2016. While A Ltd. obtains the power to control X’s operations on 1 March, 2016, the agreement states that the acquisition is effective from 1 January, 2016 and that A Ltd. is entitled to all profits after that date. In addition, the purchase price is based on X’s net asset position as at 1 January 2016. What is the date of acquisition?

-

LI FNA O OVU LEO Q O RTRC A A P T D N PE OEAH L A CH ETV HYO ETT R N LR I G T A P U NP QHAI D A CTHR T RN AE H OC E OI CU L T VC R I A S A D EGD F T T O ,EN NT EAP !BN T S I I E S ROT E R C ONE F CR E N O LAPR A VCS IPN ONSEO ROI Y V H I L PT I N T 4 I PS N O AI A ) D EU#TE S VQ#B T C I T E A UL M N SP FO AO AM T R S EFEO BT B D C UA EOE SD NT B AEA I H DO ST T E I T R L BE O D S A DE VNI SI R S OOL E I RT AND PA I VOS PR OCN AER SO )PPIC ) #OP# SA# S #

I H ED N C O M CTI N,H I OT I RS I 8WF 3

Ans. :

3 !

D N ) F O

D N A

S H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

Que. 4. Company A Ltd. and Company X Ltd. are manufacturers of rubber components for a particular type of equipment. A Ltd. makes a bid for X Ltd.’s business and the Competition Commission of India (CCI) announces that the proposed transaction is to be scrutinized to ensure that competition laws are not breached. Even though the contracts are made subject to the approval of the CCI, A Ltd. and X Ltd. mutually agree the terms of the acquisition and the purchase price before competition authority clearance is obtained. Can the acquisition date in this situation be the date on which A Ltd. and X Ltd. agree the terms even though the approval of CCI is awaited (Assume that the approval of CCI is substantive)?

-

EN HO T D TE C T EL R U I S D N OO T RC E E WB OL L PI EW HI T T ET VA AH HT T OC T A DF EE R H E DT I O S NT OE CU ED BY L TN O NO N AD CT , D 9 T ,F 8O S E EI S T I A V CI T NC EA VT I G N A EV HE T L E NR )

Ans. :

3 !

D N ) F O

D N A

S H P A R G A R A P N O D E S A B S I R E W S N A E H 4

Que. 5. X Ltd. makes an offer (subject to the satisfactory completion of due diligence) to buy all of the shares in Y Ltd. which is wholly owned by Z Ltd. Pending transfer of shares to X, the parties agree that X Ltd. should be consulted on any major business decisions. Whether offer date can be considered to be the date of acquisition?

' . ) 2 5 4 # 5 2 4 3 % 2 % 4 !

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14.4

O 9T ND OE R SE ND OI I S S N I C O EC DE SB T I T EO S N ON PA MC IE T OA T RD E R E WF OF PO EE HT H T EE VV AO HB TA O NE H ST E ONN

DOO DT I D E I T S S ,A I U 8BQ C YA S L NG F ONO I I S D E I R T C OA EC D DC R E O!T H

J D A E T M, B

COMPUTATION OF CONSIDERATION TRANSFERRED (BASED ON PARA NOS. 37 TO 40 AND 53)

D!HN E TO E I UN Y I L T WA T I A I T VMN NT U O RE RE I I P T A T HC M F E CA SDI O T HSC I N TEWAF U A O R L T T A A DV E TS ET EEO R K T N UE P A RR SS R A A U EEEMP R H EE MP T T T A H EE G T R

BN E A R OS P O T TEEF DITSG A T EA A R R N N I T I DN I T U T A QE B U R U EL OE T R AC DI SVI S D I FE DEDOR

EBETCD N L T UI RE A UO SL I R S R IWROFE NNPMTF O N AE S OOR I I N TPEM T A A A P R R R AMTT S A E E DNSUN DI J I O SAEDI S T NNOHAA OOTT R E E CCEU T E A DDCSI D I EENSR I S E P R R R N DO R R E L E O E R F U F F PC E E E E DDROPH C A EEH ET D T HHI T F HO 44W,T

Ans. :

3 !

D N ) F O

H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

Que. 6. A Ltd. acquired the entire equity share capital of P Ltd. for INR 8 crores. A Ltd. paid INR 2 crores in cash and the balance INR 6 crores has been agreed to be paid to the seller in 5 years as a deferred consideration. How should the deferred consideration be valued for determining the consideration transferred in relation to computation of goodwill?

E S BS O OL T D DN EA R T Il U O QR EP R F SO I ET VN OE BM AE T DA ES T S S

S UR CA S E I D Y E GV NI I T T C N E UP OS CE S R I E D H ET HN T I FS T O O GC NE I C D N NA I WN Nl US TA N D EE Z UI QN EG S O BC UE 3R F HO TDPNC O N N MI I S U)AA TH T OFT N COSNWE I CSYB NM I ATL MDT E ENG BENOOA I I CR T OMD S E E T S R R L DI OSPA E EUCN I EC R Q CI HN I E! STA U R U NN QR B I 3 EE l R P!AEE S SS I NH FE DO YA N T T PN ) TX N U R I ORA DI EO PTEP T D N C MANSAT C ASUASE N T F S ANDAF E D DROR E E I I ETT Z N U N T C I E A OAQN L I V SCGI E T NA OG A R A C NR EI DE D HB TNR N T EAEA DMT L BD NOA O R E ACA OT T DSP NTL E S D NE O EI EP AN S T R L M I A I F AL S U O O EQ USR C RB A ES E F ETNRI I S E N NHO R D T N O

A AF E I R T R R D O E N I T R S R O ETNUI I I U U HRACT A C QQ NA 4P CC IS S AA Y N A T EE AH D3UR H E!DT TT

Que. 7. Should stamp duty paid on acquisition of land pursuant to a business combination be capitalized to the cost of the asset or should it be treated as an acquisition related cost and accordingly be expensed off?

Ans. :

-

Que. 8. On 1st April, 2016, Company P Ltd. acquired 30% of the voting ordinary shares of Company X Ltd. for INR 8,000 crores. P Ltd. accounts its investment in X Ltd. using equity method as prescribed under Ind AS 28, Investments in Associates and Joint Ventures. At 31 March, 2017, P Ltd. recognized its share of the net asset changes of X Ltd. using equity accounting as follows: (Amounts in INR-crores) Share of profit or loss Share of exchange difference in OCI Share of revaluation reserve of PPE in OCI

700 100 50

' . ) 2 5 4 # 5 2 4 3 % 2 % 4 !

2 / 0 2 / # $ . ! . / ) 4 ! . ) " / # 3 3 % . ) 3 5 "

S T N E M E T A T S L A I C N A N I F D E T A D I L O S N O C S T I N I Y R T N E G N I W O L L O F E H T S D R O C E R

D T , 0 S E R O R C 2 . ) N I S T N U O M !

Ans. :

(Amount in INR-crores) 9,000 30,000 Fair value of the 30% interest already owned Fair value of X’s identifiable net assets

14.5 The carrying amount of the investment in the associate on 31 March, 2017 was therefore 8,850 (8,000 + 700 + 100 + 50).

On 1 April, 2017, P Ltd. acquired the remaining 70% of X Ltd. for cash of INR 25,000 crores. The following additional information is relevant at that date

How should such business combination be accounted for?

T I D E R # T I B E $

H S A #

E V R E S E R N O I T A U L A V E R % 0 0 L L I W D O O '

E V R E S E R N O I T A L S N A R T Y C N E R R U C N G I E R O &

D T , 8 F O S T E S S A T E N E L B A l I T N E D )

E T O .

E E 3

S G N I N R A E D E N I A T E 2

D T , 8 E T A I C O S S A N I T N E M T S E V N )

0 S S O L R O T l O R 0 N I D E Z I N G O C E R 8 N I T S E R E T N I D L E H Y L S U O I V E R P N O N I A ' =

D T , 8 F O N O I T I S I U Q C A E Z I N G O C E R O 4 ;

S E T O .

N O I T A R E D I S N O C H S A #

2 . )

S W O L L O F S A D E T A L U C L A C L L I W D O O '

D T , 8 N I T S E R E T N I Y T I U Q E D L E H Y L S U O I V E R P F O E U L A V R I A &

N O I T A R E D I S N O C L A T O 4

D E R I U Q C A S T E S S A T E N E L B A l I T N E D I F O E U L A V R I A &

34,000

L L I W D O O '

DED EHN T Z ) I L OH A T ETI D R NEW E UTC A L EE N HR A T D FER O M O LO

CS A S S CCO R NAL E NR V)) E EV O T R IT ES N l HNEO T E R SHMP T P EI N O R U EP T Q S D ME E E R l PODI E#NS R AS R A SE TL G C NHNE T A I /L R N RNPO T A I Y ES N T R DE S E I ERP T NOO R I RN A C PU T E O R FM O OA 2 T NS T.O I I H )I D TT EFA R OU C L

A NV EI 3 HA E! 4G R

S2 A D. E) T A L U C L A C S I

D T , 8 N I T S E R E T N I Y T I U Q E D L E H Y L S U O I V E R P E H T N O N I S A GW O EL L HO 4F

L I R P !

T S

T A

D T , : 9 8 N I T S E R E T N I

F O E U L A 6 R I A &

S S O L R O T l O R P N I D E Z I N G O C E R

D T , 8 N I T S E R E T N I D L E H Y L S U O I V E R P N O N I A '

L I R P !

T S

T A

D T , : 9 8 N I T S E R E T N I F O T N U O M A G N I Y R R A #

) # / N I D E Z I N G O C E R Y L S U O I V E R P N I A G D E Z I L A E R N 5

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14.6

Que. 9. Deepak Ltd., an automobile group acquires 25% of the voting ordinary shares of Shaun Ltd., another automobile business, by paying ` 4,320 crore on 01.04.2017. Deepak Ltd. accounts its investment in Shaun Ltd. using equity method as prescribed under Ind AS 28. At 31.03.2018, Deepak Ltd. recognised its share of the net asset changes of Shaun Ltd. using equity accounting as follows: (` in crore) 378 54 27

Share of Profit or Loss Share of Exchange difference in OCI Share of Revaluation Reserve of PPE in OCI

The carrying amount of the investment in the associate on 31.03.2018 was therefore ` 4,779 crore (4,320+378+54+27).

On 01.04.2018, Deepak Ltd. acquired remaining 75% of Shaun Ltd. for cash ` 13,500 crore. Fair value of the 25% interest already owned was ` 4,860 crore and fair value of Shaun Ltd.’s identifiable net assets was ` 16,200 crore as on 01.04.2018.

L A I C N A N l D E T A D I L O S N O C S T I N I Y R T N E G N I W O L L O F E H T S D R O C E R

D T , K A PS

ET EN $E M E T A T S

How should such business combination be accounted for in accordance with the applicable Ind AS ?

[May 2019 - 8 Marks] Ans. :

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Working Notes:

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D T T N E/ R E C NM EIP E HR I U 4O Q RE C

`

S W O L L O F S A D E T A L U C L A C S I

D T , N U A H 3 N I T S E R E T N I Y T I U Q E D L E H Y L S U O I V E R P E H T N O N I A G E H 4

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T A

D T , N U A H 3 N I T S E R E T N I F O T N U O M A G N I Y R R A #

CONTINGENT CONSIDERATION (BASED ON PARA NOS. 39, 40 AND 58) Que. 10. How should contingent consideration payable in relation to a business combination be accounted for on initial recognition and at the subsequent measurement in the following cases:

a

C E R L A I T I N I N O D E Z I N G O C E R E B O T N O I T A R E D I S N O C ES

S A W HO CL L R O UF PS FA O L L TA N H US ON MO I AI T EN HG 4O

Ans. :

3 !

D N ) F O

D N A

S H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

(a) On 1 April, 2016, A Ltd. acquires 100% interest in B Ltd. As per the terms of agreement the purchase consideration is payable in the following 2 tranches: an immediate issuance of 10 lakhs shares of A Ltd. having face value of INR 10 per share; a further issuance of 2 lakhs shares after one year if the profit before interest and tax of B Ltd. for the first year following acquisition exceeds INR 1 crore.

The fair value of the shares of A Ltd. on the date of acquisition is INR 20 per share. Further, the management has estimated that on the date of acquisition, the fair value of contingent consideration is INR 25 lakhs.

During the year ended 31 March, 2017, the profit before interest and tax of B Ltd. exceeded INR 1 crore. As on 31 March, 2017, the fair value of shares of A Ltd. is INR 25 per share. (b) Continuing with the fact pattern in (a) above except for: The number of shares to be issued after one year is not fixed.

Rather, A Ltd. agreed to issue variable number of shares having a fair value equal to INR 40 lakhs after one year, if the profit before interest and tax for the first year following acquisition exceeds INR 1 crore.

-

2 . )

D E U S S I S E R A H S E U L A V R I A &

2 . )

N O I T A R E D I S N O C T N E G N I T N O C F O E U L A V R I A &

2 . )

N O I T A R E D I S N O C E S A H C R U P L A T O 4

2 . )

E DSH E I T I S T E F I L R O I ABH A T SI O L E B S CT NI S T EFE DO E I L V L M EA T TGA A N H HI T T T C E TU C N ADO R ES T D A N RT OE CT N YFE NAM AYU T R SI T T I S TNN E N I ENY MAI T UFU ROQ T SE S T NE N I

YSAS S S T N A I E O U BT I QEI I EHRD T C NE S NI N AT O C LSDG

E A R

R N E E I 3 T NN W !O EI GL L DL AN O NU ) )F

Y T I U Q E N W O S

R E U S S I E H T N I D E L T T E S E B Y A M R OS

LI L I T WI N TE N EH MT S UT RN T E S NM I U ER HT T S N FI )

RT SA E E F HS N T S U O A NL Y AA L L I A RC I ON

T N T HAEN SNTE l O A CEPM U GRR RN ET E S VADN I N H L CUI E E DX H Y E T T OOR T F TAO NRPR R OOE E I T U HS YT A T GR S O I I A L N B E P A H O H T RT LE R IO A H WF UT T OS C S ANEN I A R T I T O L OI I N T I OTBD CTAN E I L OSL O S A NA C I C E SLN L A I B I AA C EN NR R lU E A HNRO 4lO V

RR E O US

ST S N I EE HM T U RR OT F S NN OI I Y T T A I GU I Q LE B ON NW AO SS E T S I I F R PO MR OE CB TM A U HN T D EE VX I T l A VA I R R E E DI V L NE OD NO AT

GD NE I X G Nl AA HR CO XF ES T RE E S US SA S I L A EI

HC S T T YNN BAE N Yl M L N U RR OE T DHS ETI N O L T R T Y E O T I S U H ES Q BA E LC L I N WFW TOO T A N S HU T T I EOF V O M I T AR A E VDB I E R XM E DlU AAN

D 3 EN XO! lCD N ET) N UE F SG O S NS I I T OT T NN NOE OCM I E E T R A HI GT U I L Q YE B CR ON NEE AGH T SNR I A T E HN P ROS C E R EA I Y HT U QTI CFU AOQ TE EN HE S T A TMD A L E Hl L l T U I NF S S EN A VO L I C G SE E ER B S AL L A CHI NSW EFN O VR O I I G EA T EBR HME T

D UI NN S )

T IN S E S A M L C E L T NT OE I S T T A N R E E DU I Q S E NS OB CU TS N S ET GI ND I N T A N OD CE

Y R T UI S A U E Q E 3MN ! I EH DRI T NEW ) B R FO TO O F ND DE L T HUN O PH U AS O R C G YC AT A I R U A E Q PE B RSL D E AU PD O SEH !lS

T TO N N UE OR MO F AE NE R OH I T T A R D E N DA I S YS

NT E OIR CUA Q TE H N S EFF GOO NR T I E T AC N OPN CAA U YSS AAS P I D OE N T Z O NIR N OG O I T O Y A CT L GE I N RE L B SU OI Q E E H S T B E U S S A C D E N R E2U V.S I )A G EOE HTM T GE NN ) IR

C E R L A I T I N I N O D E Z I N G O C E R E B O T N O I T A R E D I S N O C E S A

HS CW R UL O PL O FF O S TA N S UI ON MO I AI T EN HG 4O

-

b

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14.8

Subsequent measurement of contingent consideration payable for business combination -

-

-

-

2 . )

D E U S S I S E R A H S E U L A V R I A &

2 . )

N O I T A R E D I S N O C T N E G N I T N O C F O E U L A V R I A &

2 . )

N O I T A R E D I S N O C E S A H C R U P L A T O 4

2 . )

S A Y T I L I B A I L S A D E l I S S A L C E B L L I W N O I T A R E D I S N O C T N E G N I T N O C E H T E S A

C N E3 V! I G D EN H) T R E NP )

Subsequent measurement of contingent consideration payable for business combination

SE S A G DN EA lH I S C S D A L N C A TE O T NA ND OG I T N A I T R R E DO P I S E NR S OH S CC O L TA N R EEO GTT NAl I EO T R U N L P OA CV N I RD I A E F Z I 3TN !AG DO DE C NR E ) UR FS E O AB ED ML H U PEO ABH R DS L G E AUU R OL A A PHV S R R Y E I T A PI U F SQN !E I

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14.9

SE2 RS E OH. T DL ) I N G S I

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N E G ER OF GEC NH EO I TR T E N DEC ON BN CA A D UE FEL O SR U U S A O I TA L H N H E S EVS Z I R R N MI E EA L F GP T T O C S E

T E I S R 2 T FA D. O L

) U D2 EE OF T R.WO A DU) M

S D EA T U

HE I T M ,M !

GE E R NB D O I P E D I A BL RT

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S E W.ER ) H Y T A T R I H L HI

O S CB

F R A S

A I S L

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O ) O I ST R FP !A O

-

Que. 11. A Ltd. acquires P Ltd. in September 2016 for cash. Additionally, A Ltd. agrees to pay the selling shareholder an amount equivalent to 10% of profits in excess of INR 10 crores generated over the next two years in cash in lump sum at the end of the three years. A Ltd. determines the fair value of the contingent consideration liability to be INR 1 crores at the date of acquisition.

A year after the acquisition, P Ltd. has performed better than initially projected by A Ltd. and a higher payment is now expected to be made at the end of year two. The fair value of this financial liability is INR 2.5 crores at the end of the first year.

ROE SD I T N D A R F DG)A SENHD A T T R I I HW N UC NS A I T A ES SE HC E C E G U NH NM3 A T AE DF HRD R O OE CEE C L EBT P CO TA HDE L T C U S NS YO SI E T HI H I U SYST Q CSN T O N EN I L ER H SEG T A O I MN TW DTI l T ES S lUNOI J R I O N S D CPO S A I A ENT L DHIA C R TOTDE I E I O RL Z D T NEN I I N S SPU I GN NTEOO ONTCC E A I T T M EN D R A E E G O R R G T E N U N I DS DI T I E R T S A R N OI NE O O PU CMEQC H TTREC H O N R ENCEU GEAR S EAE NR I R ATEE T N TAUH L E OA A W UV CHL ETA

R R E I V E A

U R HL F I 3 AA N! 7V FI

Ans. :

3 !

D N ) F O

H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

Whether there should be any adjustment in the acquisition accounting? If yes, by what amount?

R A E Y E H T F O D N E E H T T A N O I T A R E D I S N O C T N E G N I T N O C E R

US SW A O EL L MO F ES R A D L

U O H SH C D R T ,A !

S U HE

4I

N O I T A R E D I S N O C T N E G N I T N O C R O F Y T I L I B A I ,

R

R $ #

C

!

S S O L D N A T l O R 0

TE N H ET MF I ES

L R T S T A OE E L S Y LRT A O S NTR ll l OE ER HP H T T TNF C EIO mDD EEN R ZE I ON E T GH YO T T CT I L EA I R B E AET I LBA L M A OI I T T C S NDE A E E R NI U lU L EQA EV HR T R I OI SA T F TEE N H UT EL MA T M V S O R UI R J AF D S AFR L EA E F HNF T I lD

YT L T R N N A UU L I O MOM IMA 3 A Que. 12. Entity A Ltd. acquired entity P Ltd. for INR 5 crores. To protect A for false representations and warranties (if any) asserted by the sellers of entity P Ltd. the acquisition agreement provides that A Ltd. will pay INR 4.5 crores at the acquisition date and place the balance INR 50 Lakhs in an escrow account (being a protective clause). If no violation of the representations and warranties is reported or noticed within one year of the acquisition date, the amount of INR 50 Lakhs in the escrow account will be released to the sellers. Should INR 50 Lakhs lying in escrow be accounted for as contingent consideration by entity A Ltd.?

T DO EN S A E BR SA R D E L N L A E S E T EA HD T ON T O I DT I ES S I A U EQ L C E R A EE R H A T WT OA RD C E S T S E I X NE I T GA NH I Y T L S SN DO NT I UI FD N EO HC T F EO S A Y CI T D NI EL VA I V G E EH HT T N NO )

Ans. :

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14.10

L L WEDCI OBEAW RTT D A F O C EO O S NR E O LTEG L T EI E A F HWBD O T SSOEN H T A H O K T D I T RAE A NT E , R I OU H U T NP R U QOM E 2 I R &.

T O A ) D C D ANR T I E E B ,R O T F S M 0ON D F O I E YR E SCR T I E TEISD T S H N ) E I E4 S NN N FE I S O OU O R I C T EUA BE CT R NAE EB AND HD ITL MNS U R RIN O O E OV OF F H

C I R S N T N E T O Y O PCN E I L I T T T T E EO I N GAE S R R I R N UP U E UQ I T T D QC U YN I EA FL S ENONSE C N HO OO H T SACC I T SED NT A O H T ON TEDTNN A F N E O EMRONI DEE OA T T D I R NGI T L A I ENS E A S PR NPI R ER OSUN DA CAQI -

T O NA D T O H A I T Y T D A S NO ME AI C RRN FE OA I PF T STI NS T N M N EEWU MMEC TENI R R S UUMC J S O D D A RN AE F A TS ML T UC A S S A E F 3ART !RYU OEO DF HB N T D ) TA EA FT E O T H N A T UN D OE N HCVO PCII A

G T E AE I T S LI R A BL IU G D ADWQ R L D CN A U O O A PO I O T E I NWGH S O ST I U T RQ DWC E EOA C T R S PF C A A S MAE BE IDH N ET T YI NF A L T I TH O A N ENTTS UUTBA QONOD EMESE I M S T TI BATA S E S UH X HE UT 3T J -

AEES L T I N SH I A O

I 7DI D T T D , NN O E I T 0A T O I C S FDI O T NUN NO Q E C OT I I V A I T S E I E I S E I U HR U T U QQT T CCS AAOU E PF SH Y

D T N D EA FT T ,OE F LO !SP A T LMC OA T A O T NI CP P OA M EI I T CBE A L GYH E NAT R I R NKME R I N D TOO I N WI S EE T N A O MH T C TT U S T EPO UN J IMN D AMOS LRCE L O A E A T D

T T I C E I P N T E ADPO COAI S C T E GTGT A I NMN C I SIUN K RIKPE ONRMG N WAOOI H W C T EC E N E HEH O HC 4MT T

Ans. :

3 !

D N ) F O

H P A R G A R A 0 N O D E S A B S I R E W S N A E H 4

Que. 13. A Ltd. agrees to acquire P Ltd. for INR 60 crores as per an agreement dated 15 March, 2017. The acquisition is however subject to the successful completion of the closing conditions. As per the agreement between A Ltd. and P Ltd., to the extent the working capital (that is, inventory, receivables and payables) at the acquisition date (on successful completion of closing conditions) exceeds a specified minimum level of 10 crores, A Ltd. will pay additional consideration to the seller. For instance, if P’s working capital is INR 11 crores, A will pay an additional INR 1 crores. Should A Ltd. account for the working capital adjustment as contingent consideration?

S DA I S D NE OT CA E ER HT T E SB T T C EO mN EY R A TM N EE MM TA S US J E D H AT LE A T T I A P AD CN O GT I NI I S I K RU OQ C WA EE HH

T T N TFO A I T HOA S T R A E ND D EI I VA S I PN G O EC YB L T G N NOE T I G D N N RO I OT I T CA N CR O !E C -

Que. 14. P Ltd., a manufacturing company, prepares consolidated financial statements to 31st March each year. During the year ended 31st March, 2018, the following events affected the tax position of the group:

Q Ltd., a wholly owned subsidiary of P Ltd., incurred a loss adjusted for tax purposes of ` 30,00,000. Q Ltd. is unable to utilise this loss against previous tax liabilities. Income-tax Act does not allow Q Ltd. to transfer the tax loss to other group companies. However, it allows Q Ltd. to carry the loss forward and utilise it against company’s future taxable profits. The directors of P Ltd. do not consider that Q Ltd. will make taxable profits in the foreseeable future.

During the year ended 31st March, 2018, P Ltd. capitalised development costs which satisfied the criteria as per Ind AS 38 ‘Intangible Assets’.

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14.11

Ans. :

H C R A T S

T A P U O R G

D T , 2 1 0 F O T E E H S E C N A L A B D E T A D I L O S N O C N O T C A P M )

The total amount capitalised was ` 16,00,000. The development project began to generate economic benefits for PQR Ltd. from 1st January, 2018. The directors of P Ltd. estimated that the project would generate economic benefits for five years from that date. The development expenditure was fully deductible against taxable profits for the year ended 31st March, 2018.

On 1st April, 2017, P Ltd. borrowed ` 1,00,00,000. The cost to P Ltd. of arranging the borrowing was ` 2,00,000 and this cost qualified for a tax deduction on 1st April 2017. The loan was for a three-year period.

No interest was payable on the loan but the amount repayable on 31st March 2020 will be ` 1,30,43,800. This equates to an effective annual interest rate of 10%. As per the Income-tax Act, a further tax deduction of ` 30,43,800 will be claimable when the loan is repaid on 31st March, 2020.

Explain and show how each of these events would affect the deferred tax assets/liabilities in the consolidated balance sheet of P Ltd. group at 31st March, 2018 as per Ind AS. The rate of corporate income tax is 30%.

FL E PRO UE B OVTA C REE X G WP A OS T D O O ( T , RN P

S

0 OA E NR E H I SU T T R EU O RF E

F E HL T T E B SEA S I S SE A EUE S AS XA CE AB ER T O DXBF ADE ET R EH R S S T I E T N F I N E I DGS DN O E CI LA A EI T I LRI L T I EB N N BA ES T I I N O L AX PEC

U T AD AL T E SAEET V S E CA S T P U G A A I D N C EI XE I R T YAR C N T R SR OA D T A S E E E OCR R L L R B S A XT E AS F AI T Gl T EEN ECDI O NOER HI 4S NBP

`

SED T S HE R O 4 R C E TD F E NED EML IL MA ! ;PL C O L N EE

VE EB D Y E H D T A E FFR O O L EEA US S L

A A A VBH T

GXN N NAO E T I I R T R Y EC R U R HU C

A D C4E N

A= D O N E V XES A B A T LA H T L I N S N T AWW S O O VYH C ETS I L L E I T R B N E R E AA I M EL H

S X P TA E O ET I T L C L I

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AF T E F I HD H4 Y C R =R A A

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P T M S X

E

T F EO T L A BT I E N TS A CS O UA D L EX E D A H A T T D F SE

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L C D A S V I L HA G I T N 4N

I

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C A E D H N 4; A

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CONTINGENT LIABILITY+ INDEMNIFICATION ASSETS (BASED ON PARA NOS. 22, 23, 27 AND 28) Que. 15. (a) A Ltd. acquired a beverage company P Ltd. from X Ltd. At the time of the acquisition, P Ltd. is the defendant in a court case whereby certain customers of P Ltd. have alleged that its products contain pesticides in excess of the permissible levels that have caused them health damage.

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14.12

P Ltd. is being sued for damages of INR 2 crores. X Ltd. has indemnified A Ltd. for the losses, if any, due to the case for amount up to INR 1 crore. The fair value of the contingent liability for the court case is INR 70 lakhs.

How should A Ltd. account for the contingent liability and the indemnification asset? (b) A Ltd. acquires P Ltd. in July 2017. P Ltd. is in dispute with local tax authorities over its tax return for 2015. A Ltd. receives an indemnity from the selling shareholder(s) of P Ltd. to cover the outcome of the tax dispute. A Ltd. ascertains that an outflow in relation to the tax case is probable and estimates the amount expected to be paid as INR 25 lakhs i.e., the full amount being claimed by the tax authorities. The fair value of the liability is INR 17.4 lakhs.

Paragraph 24 of Ind AS 103 requires the acquirer to recognize and measure a deferred tax asset or liability arising from the assets acquired and liabilities assumed in a business combination in accordance with Ind AS 12, Income Taxes. Thus, A Ltd. recognized a liability of INR 25 lakhs. If the tax authorities require this amount to be paid, the seller of P Ltd. will pay A Ltd. the full INR 25 lakhs. A Ltd. considers the creditworthiness of selling shareholders of P Ltd. to be such that the indemnification asset is fully collectible. How should indemnification asset be accounted for? (c) A Ltd. pays INR 50 crores to acquire P Ltd. from X Ltd. P Ltd. manufactured products containing fiber glass and has been named in 10 class actions concerning the effects of these fiber glass. X Ltd. agrees to indemnify A Ltd. for the adverse results of any court cases up to an amount of INR 10 crores. The class actions have not specified amounts of damages and past experience suggests that claims may be up to INR 1 crore each, but that they are often settled for small amounts.

A Ltd. makes an assessment of the court cases and decides that due to the potential variance in outcomes, the contingent liability cannot be measured reliably and accordingly no amount is recognized in respect of the court cases.

How should indemnification asset be accounted for? a

E Y2L LIEB T U I .INL T L )WMA L N I EFDEVW O D R FOO I T T O NA GI E E YS S NDFS T S I O ESA

L A I Y T T B E T G A C I I AN H L C I I IAO T L B EDPS AS M N L I S B L OIA E AP R EO T D E lS HR I E NNT T C R N EAE R EO HYR E T DC 4L I I H I EAT 2 W B HSE A .

T E E E I ) L S SZ HT IS A E E N L N R C P UGEE E O C G SC M H NNT A A EEAI T X R L NE MO N A I O B S R RO D C L E DE T A F V ,D EH T E E T !NA W R F DO

OAI OOE L R S I R O R N(CO HS A O K

R L NI NA I C OTN EL I 2 C N C S. S GI S )2 T T OT N 2IC EN. E. NES A) R )ORSHO R UTSEATT CAHHNED

KTORE ED O I T AMT HT I L M A T , OC M N0 Rl SL I F ) I

Ans. :

-

ST I S HJ U CD I H A WO SN HS KA AY L T I L I B A 2I .L )D E Fl O I TN E M S S E A D N NI OE I T H A T CS lA I N S I MS EA DB NE I M NA AS SE E H Z I T N GN OO CD EE R R U D S T A ,E !M

b

-

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14.13

N O S N O I T A T I M I L L A U T C A R T N O C R O Y T I L I B A T C E L L O C R O F

T DN EU R I O U QM EA R D NE El EI BN SM A E HD N TI N EE H MT TN O O NT I A ON SI L A B LM L I O WC S S D T E ,N I S !U EB S E A H CT F NO ET VR I A G P ES HA T T NE I S DS EA Z N I O N I T GA OC Cl EI R N SM I E YD T I N L I I B ANG

A I L N E I OI Z T NN N U EGO COC NCC I EA 3 R

c

TA N ER GA NP I Y T N B OD CE RI R OU F Q SE E R R US SA OS L T C E S S I S D A YN R A O I S T S A E C Cl EI NN EM HE T D EN KI AD MN A OS

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MEASUREMENT AFTER ACQUISITION ACCOUNTING - ADJUSTMENTS TO PROVISIONAL AMOUNTS Que. 16. As part of its business expansion strategy, K Ltd. is in process of setting up a pharma intermediates business which is at very initial stage. For this purpose, K Ltd. has acquired on 1st April, 2018, 100% shares of A Ltd. that manufactures pharma intermediates. The purchase consideration for the same was by way of a share exchange valued at ` 35 crores. The fair value of A Ltd.’s net assets was ` 15 crores, but does not include:

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(i) A patent owned by A Ltd. for an established successful intermediate drug that has a remaining life of 8 years. A consultant has estimated the value of this patent to be ` 10 crores. However, the outcome of clinical trials for the same are awaited. If the trials are successful, the value of the drug would fetch the estimated ` 15 crores. (ii) A Ltd. has developed and patented a new drug which has been approved for clinical use. The cost of developing the drug was ` 12 crores. Based on early assessment of its sales success, the valuer has estimated its market value at ` 20 crores. (iii) A Ltd.’s manufacturing facilities have received a favourable inspection by a Government department. As a result of this, the Company has been granted an exclusive five-year license to manufacture and distribute a new vaccine. Although the license has no direct cost to the Company, its directors believe that obtaining the license is a valuable asset which assures guaranteed sales and the value for the same is estimated at ` 10 crores.

K Ltd. has requested you to suggest the accounting treatment of the above transaction under applicable Ind AS. Ans. :

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(i) Patent owned by A Ltd.:

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(ii) Patent internally developed by A Ltd.:

-

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(iii) Grant of Licence to A Ltd. by the Government:

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REACQUIRED RIGHTS (BASED ON PARA NO. 29 + PARA NOS. B35 AND B36 OF APPENDIX B + PARA NOS. B51 TO B53 OF APPENDIX B)

Que. 17. Entity A acquires entity P for a consideration of INR 1 crore. Four years ago, Entity A had granted a ten-year license allowing entity P to operate in Europe. The cost of the license was INR 2,50,000. The contract allows either party to terminate the franchise at a cost of the unexpired initial fee plus 20%. At the date of acquisition, the settlement amount is INR 1,80,000 ((INR 2,50,000 X 6/10) + 20%).

Entity A has acquired entity P, because it sees high potential in the European market and wishes to exploit it. Entity A calculates that under current economic conditions and at current prices it could grant a six-year franchise for a price of INR 4,50,000.

How is the license accounted for as part of the business combination?

Financial Reporting (FR) | CRACKER AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO NO. OF PAGES BINDING TYPE

: : : : : : :

Parveen Sharma, Kapileshwar Bhalla TAXMANN June 2022 6th Edition 9789356220430 628 PAPERBACK

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| USD : 42

Description This book is prepared exclusively for the Final Level of Chartered Accountancy Examination requirement. It covers the questions & detailed answers strictly as per the new syllabus of ICAI. The Present Publication is the 6th Edition & updated till 30th April 2022 for CA-Final | New Syllabus | Nov. 2022/May 2023 exams. This book is authored by CA Parveen Sharma & CA Kapileshwar Bhalla, with the following noteworthy features: · Strictly as per the New Syllabus of ICAI · Coverage of this book includes: o Past Exam Questions 

CA Final November 2020 (New Syllabus) – Guideline Answers



CA Final January 2021 (New Syllabus) – Guideline Answers



CA Final July 2021 (New Syllabus) – Guideline Answers



CA Final December 2021 (New Syllabus) – Guideline Answers



CA Final May 2022 (New Syllabus) – Guideline Answers

o Selected Questions from RTPs and MTPs of ICAI · [Arrangement of Question] Questions in each chapter are arranged 'sub-topic' wise based on Para No. of each Ind AS · [Most Updated & Amended] This book is updated & amended as per the Companies (Ind AS) Amendment Rules 2020 · [Previous Exam Trend Analysis] from May 2018 Onwards for New Syllabus · [Marks Distribution] Chapter/Topic-wise marks distribution · [Comparison with Study Material] Chapter-wise comparison with ICAI Study Material

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