CA Final – Financial Reporting Test Series

CA Final - Financial Reporting

(Test on IND AS 16, 38, 40)
(FRWITHAK)

Total - 54 Marks
Time Allotted – 1 Hr 35 Minutes

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

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

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

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

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

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

BEST OF LUCK GUYS

#FRwithAK

#FRwithAK CA Aakash Kandoi 1

 CA Final – Financial Reporting Test Series
Question 1 (10 Marks)
An entity has a nuclear power plant and a related decommissioning liability. The nuclear power plant
started operating on 1st April, 20X1. The plant has a useful life of 40 years. Its initial cost was ₹ 1,20,000.
This included an amount for decommissioning costs of ₹ 10,000, which represented ₹ 70,400 in estimated
cash flows payable in 40 years discounted at a risk- adjusted rate of 5 per cent. The entity’s financial year
ends on 31st March. Assume that a market-based discounted cash flow valuation of ₹ 1,15,000 is obtained
at 31st March, 20X4. This valuation is after deduction of an allowance of ₹ 11,600 for decommissioning
costs, which represents no change to the original estimate, after the unwinding of three years’ discount. On
31st March, 20X5, the entity estimates that, as a result of technological advances, the present value of the
decommissioning liability has decreased by ₹ 5,000. The entity decides that a full valuation of the asset is
needed at 31st March, 20X5, in order to ensure that the carrying amount does not differ materially from fair
value. The asset is now valued at ₹ 1,07,000, which is net of an allowance for the reduced
decommissioning obligation
How the entity will account for the above changes in decommissioning liability if it adopts revaluation
model?

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 CA Final – Financial Reporting Test Series
Question 2 (10 Marks)
Heaven Ltd. had purchased a machinery on 1.4.2X01 for ₹ 30,00,000, which is reflected in its books at
written down value of ₹ 17,50,000 on 1.4.2X06. The company has estimated an upward revaluation of 10%
on 1.4.2X06 to arrive at the fair value of the asset. Heaven Ltd. availed the option given by Ind AS of
transferring some of the surplus as the asset is used by an enterprise.

On 1.4.2X08, the machinery was revalued downward by 15% and the company also re- estimated the
machinery’s remaining life to be 8 years. On 31.3.2X10 the machinery was sold for ₹ 9,35,000. The
company charges depreciation on straight line method.

Prepare machinery account in the books of Heaven Ltd. over its useful life to record the above transactions.

Question 3 (6 Marks)
Sun Ltd acquired a software from Earth Ltd. in exchange for a telecommunication license. The
telecommunication license is carried at ₹5,00,000 in the books of Sun Ltd. The Software is carried at
₹10,000 in the books of the Earth Ltd which is not the fair value.
Advise journal entries in the following situations in the books of Sun Ltd and Earth Ltd:-
1) Fair value of software is ₹5,20,000 and fair value of telecommunication license is ₹5,00,000.
2) Fair Value of Software is not measureable. However, similar Telecommunication license is transacted by
another company at ₹4,90,000.
3) Neither Fair Value of Software nor Telecommunication license could be reliably measured.

Question 4 (10 Marks)

Super Sounds Limited had the following transactions during the Financial Year 2019-2020.
(i) On 1st April 2019, Super Sounds Limited purchased the net assets of Music Limited for ₹ 13,20,000.
The fair value of Music Limited's identifiable net assets was₹ 10,00,000. Super Sounds Limited is of
the view that due to popularity of Music Limited's product, the life of goodwill is 10 years.
(ii) On 4th May 2019, Super Sounds Limited purchased a Franchisee to organize musical shows from
Armaan TV for ₹ 80,00,000 and at an annual fee of 2% of musical shows revenue. The Franchisee
expires after 5 years. Musical shows revenue were ₹ 10,00,000 for financial year 2019-2020. The
projected future revenues for financial year 2020-2021 is ₹ 25,00,000 and ₹ 30,00,000 p.a. for
remaining 3 years thereafter.
(iii) On 4th July 2019, Super Sounds Limited was granted a Copyright that had been applied for by Music
Limited. During financial year 2019-2020, Super Sound Limited incurred ₹ 2,50,000 on legal cost to
register the Patent and ₹ 7,00,000 additional cost to successfully prosecute a copyright infringement
suit against a competitor.
The life of the Copyright is for 10 years.
Super Sound Limited follows an accounting policy to amortize all intangible on SLM (Straight Line Method)
basis or any appropriate basis over a maximum period permitted by relevant Ind AS, taking a full year
amortization in the year of acquisition.
You are required to prepare:
(i) A Schedule showing the intangible section in Super Sound Limited Balance Sheet as on 31st March
2020, and
(ii) A Schedule showing the related expenses that would appear in the Statement of Profit and Loss of
Super Sound Limited for the year ended 2019-2020.

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 CA Final – Financial Reporting Test Series
Question 5 (8 Marks)
Shaurya Limited owns Building A which is specifically used for the purpose of earning rentals. The
Company has not been using the building A or any of its facilities for its own use for a long time. The
company is also exploring the opportunities to sell the building if it gets the reasonable amount in
consideration.
Following information is relevant for Building A for the year ending 31 st March, 2020:
Building A was initially purchased at the cost of ₹ 10 crores. At that time, the useful life of the building was
estimated to be 20 years; out of which 5 years have been expired as on 1st April, 2019. The company
follows straight line method for depreciation
During the year, the company has invested in another Building B with the purpose to ho ld it for capital
appreciation. The property was purchased on 1st April, 2019 at the cost of ₹ 2 crore. Expected life of the
building is 40 years. As usual, the company follows straight line method of depreciation.
Further, during the year 2019-2020, the company earned / incurred following direct operating expenditure
relating to Building A and Building B:

Rental income from Building A = ₹ 75 lakh

Rental income from Building B = ₹ 25 lakh

Sales promotion expenses = ₹ 5 lakh

Fees & Taxes = ₹ 1 lakh

Ground rent = ₹ 2.5 lakh

Repairs & Maintenance = ₹ 1.5 lakh

Legal & Professional = ₹ 2 lakh

Commission and brokerage = ₹ 1 lakh

The company does not have any restrictions and contractual obligations against buildings - A and B. For
complying with the requirements of Ind AS, the management sought an independent report from the
specialists so as to ascertain the fair value of buildings A and B. The independent valuer has valued the fair
value of property as per the valuation model recommended by International valuation standards committee.
Fair value has been computed by the method by streamlining present value of future cash flows namely,
discounted cash flow method.
The other key inputs for valuation are as follows:
The estimated rent per month per square feet for the period is expected to be in the range of ₹ 50 - ₹ 60. It
is further expected to grow at the rate of 10 percent per annum for each of 3 years. The weighted discount
rate used is 12% to 13%.
Assume that the fair value of properties based on discounted cash flow method is measured at ₹ 10.50
crore on 31st March, 2020. The treatment of fair value of properties is to be given in the financials as per
the requirements of Indian accounting standards
What would be the treatment of Building A and Building B in the balance sheet of Shaurya Limited? Provide
detailed disclosures and computations in line with relevant Indian accounting standards. Treat it as if you
are preparing a separate note or schedule, of the given assets in the balance sheet.

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 CA Final – Financial Reporting Test Series
Question 6 (10 Marks)
Stars Ltd. is a multinational entity that owns three properties. All the three properties were purchased on 1st
April 2016. The details of purchase price and the market values of the properties are given as follows:

Particulars Property 1 Property 2 Property 3

Factory Factory Let-out Building

Purchase Price 30,000 20,000 24,000

Market Value (31-03-2017) 32,000 22,000 27,000

Life 10 years 10 years 10 years

Subsequent Measurement Cost Model Revaluation Model Revaluation Model

Property 1 and 2 are occupied by Stars Ltd, whilst property 3 is let out to a non-related party at a market rent.
The management presents all three properties in balance sheet as' 'Property, plant and equipment'.
The company does not depreciate any of the properties on the basis that the fair values are exceeding their
carrying amount and recognise the difference between purchase price and fair value in Statement of Profit
and Loss.
Analyze whether the accounting policies adopted by the Company in relation to the given properties are in
accordance with Ind AS. If not, advise the correct treatment and present an extract of the Balance Sheet.

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