FINAL EXAMINATION SET 1

MODEL QUESTION PAPER TERM – JUNE 2023

PAPER - 18
CORPORATE FINANCIAL REPORTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.
Where considered necessary, suitable assumptions may be made and
clearly indicated in the answer.
Answer Question No. 1 and 8 are compulsory; Answer any four from
Question No. 2, 3, 4, 5, 6 & 7.

SECTION - A
1. (a) Choose the correct alternative. Provide justification in each case. 1 mark is
allotted for correct selection and 1 mark for the justification.: [10 × 2 = 20]

(i) A Company showed a net profit of ` 7,20,000 for the 3rd quarter of the year
2018 – 19 after incorporating the following:
(a) Bad Debts of ` 40,000 incurred during the quarter. 50% of the Bad
Debts have been deferred to the next quarter.
(b) Extra Ordinary loss of ` 35,000 incurred during the quarter has been
fully recognized in the quarter. Correct Quarterly Income as per
applicable Ind AS will be
a. ` 6,80,000
b. ` 7,00,000
c. ` 6,35,000
d. None of the above
(ii) In a conglomerate merger of two companies into a new company, the merging
companies operate ___________. Provide justification for your selection.
a. in related markets having similar products lines.
b. in unrelated markets having no functional economic relationship.
c. in related markets and merging companies are complimentary to each
other.
d. in two countries and one of them use the product of the others as raw
materials.
(iii) Details for an Asset are as under: Cost of Assets ` 60 lakhs, Useful life period
10 years, Salvage value ` 4 lakhs, Useful Life remaining 3 years. Upward
revision done in last year by 50%. Current value in use is ` 12 lakhs, Current
selling price ` 11 lakhs, Current disposal cost ` 1 lakh. Impairment Loss to
be charged to Profit and Loss Account as per applicable Ind AS would be
a. ` 18.7 lakhs

1
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING
b. ` 13.2 lakhs
c. ` 5.5 lakhs
d. None of the above
(iv) Which of the following is not a feature of Government Accounting? Why?
a. Reporting utilization of public funds
b. Double Entry System
c. Non-fund-based accounting
d. Both (A) and (B)
(v) Cee Ltd. acquired a 60% interest in Jee Ltd. on January 1, 2021. Cee Ltd.
paid ` 700 Lakhs in cash for their interest in Jee Ltd. The fair value of Jee
Ltd.'s assets is ` 1,800 Lakhs and the fair value of its liabilities is ` 900 Lakhs.
Compute the Non-controlling interest (NCI) at fair value.
a. ` 360 Lakhs
b. ` 700 Lakhs
c. ` 280 Lakhs
d. None of the above
(vi) Utkarsh Ltd. declares the following information:
Exchange Rate
(USD/IND `)
Purchased goods on 12.03.2022 of USD 1,00,000 78.60
Exchange rate as on 31.03.2022 79.00
Date of actual payment is 12.04.2022 79.50
What will be the gain/loss to be booked in the financial year 2021-22?
a. ` 90,000 (loss)
b. ` 40,000 (loss)
c. ` 1,30,000 (loss)
d. None of the above
(vii) Which of the following is/ are a financial asset (s)? Why?
a. Cash
b. an equity instrument of another entity
c. a contractual right
d. All of the above
(viii) Which of the following criteria is not used in the context of ESG? Why?
a. Environmental test criterion
b. Social test criterion
c. Governance test criterion
d. Competitive test criterion

2
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING
(ix) As per Ind AS 103, accounting and reporting for business combination
transactions is done under ______. Provide justification for your answer.
a. Acquisition Method
b. Purchase method
c. Pooling of interest method
d. None of the above
(x) Net Profits of J Ltd. for the years 2020-2021,2019-2020,2018-2019,2017-
2018,2016-2017 are ` 25 crore, ` 20 crore, ` 15 crore, ` 10 crore and ` 5
crore respectively. During 2020-2021, the company incurred ` 7,00,000 and
` 3,00,000 on free education and medical treatment of the employees of the
company and their families respectively under CSR projects. Calculate the
short fall of expenditure on Corporate Social Responsibility as per The
Companies Act,2013.
a. ` 23,00,000
b. ` 20,00,000
c. ` 30,00,000
d. None of these

SECTION – B
2. (a) (i) P Ltd. began construction of a new factory on 01.04.2021 and obtained a
special loan of ` 8 lakhs to finance the construction. The rate of interest on
loan was 10% p.a. The expenditure incurred on the construction were:
`
01.04.2021 5,00,000
01.08.2021 12,00,000
01.01.2022 2,00,000

P Ltd.’s other outstanding non-specific loan was `23 lakhs at an interest rate
of 12% p.a. The construction of the plant was completed on 31.03.2022.
Advise on the total expenses (including interest) to be capitalised as per the
provision of Ind AS 23.

(ii) “Change in the depreciation method for an item of property, plant and
equipment is a change in accounting estimate and not a change in accounting
policy”. Do you agree? Critically assess the given statement as per the
provisions of applicable Ind AS.

3
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING
(b) Define business combination under common control. Briefly explain the concept
of reverse acquisition. [(6 + 4) + (3 + 3) = 16]

3. (a) C Ltd. has acquired 100% of the equity of W Ltd. on March 31, 2021. The purchase
consideration comprises of an immediate payment of `15 lakhs and two further
payments of `3.63 lakhs if the Return on Equity exceeds 18% in each of the
subsequent two financial years. A discount rate of 10% is used. Analyse the above
information in the light of Ind AS 103 to determine the value of total consideration
at the acquisition date.

(b) M Ltd. and N Ltd. were amalgamated to form a new company MN Ltd. on
31.03.2021 who issued requisite number of equity shares of `10 to take over the
businesses of M Ltd. and N Ltd. The abstract of balance sheets of the companies
on 31.03.2021:
(` in Lakhs)
Particulars M Ltd. N Ltd.
PPE 15,000 16,000
Financial Assets 1,600 1,000
Current Assets 9,400 13,000
Equity Share Capital 12,000 20,000
Other Equity 6,000 2,000
Borrowings 4,000 6,000
Current Liabilities 4,000 2,000

Fair value of the following items is given:

(` in Lakhs)
Particulars M Ltd. N Ltd.
PPE 16,000 12,000
Current Assets 10,000 14,000
Fair Value of Business 15,000 30,000

However, the control of MN Ltd. is taken by the management team of erstwhile N

Ltd.
Prepare the balance sheet of MN Ltd. after merger. Workings should form part of
your answer. [4 + 12 = 16]

4
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING

4. (a) (i) An enterprise operates through eight segments, namely, A, B, C, D, E, F, G

and H. The relevant information about these segments is given in the
following table (amounts in `’000):
A B C D E F G H Total
1. Segment Revenue
(a) External Sales - 1326 74 50 26 250 100 174 2000
(b) Inter 500 300 150 26 - - 24 - 1000
Segment Sales
2. Segment Results 30 (540) 90 (30) 48 (30) 30 42
Profit/ (Loss)
3. Segment Assets 30 10 10 120 6 10 10 4 200

Assume that the management has not identified any segment to be reportable
as per their discretion. Analyse the above information in light of Ind AS 108
to determine the reportable segments.

(ii) Q Ltd. has an identifiable asset with a carrying amount of `6,00,000. its
recoverable amount is `3,90,000. The tax base of the asset is `4,80,000 and
the applicable tax rate is 30%. Impairment losses are not tax deductible. Q
Ltd. expects to continue earning profits in future. For the given identifiable
asset, calculate the deferred tax asset/ liability for the period as per the
provisions of Ind AS 12.

(b) A Ltd. acquires 70% of B Ltd. for `12,60,000 and issued equity shares at `12 per
share (including `2 as premium). Fair value of B Ltd.’s identifiable net assets
amount to `14,40,000. Analyse the above information in the light of the provisions
of Ind AS 103 and 110, to determine values of NCI and Goodwill/Gain on bargain
purchase and show the treatments in the books of A Ltd. Assume that A Ltd.
measures NCI at fair value. Present your answer in the form of a Notes to Annual
Accounts. [(6 + 4) + 6 = 16]

5
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING
5. (a) Following balances as on 31st March, 2017, are obtained from the account books
of G Ltd.:
` in Lakhs
200 Lakhs Equity Shares of ` 10 each 2,000
10 Lakhs, 10% Preference Shares of ` 100 each 1,000
General Reserve 1,600
Profit and Loss Account 1,400
12% Debentures 1,000
Creditors 800
Goodwill 1,000
Land and Buildings 2,500
Plant and Machinery 1,500
Investment in 10% Stock 480
Stock-in-trade 1,600
Debtors 400
Cash and Bank 220
Preliminary expenses 100

Additional information is given below:

(i) Nominal value of investment is ` 500 Lakhs and its market value is ` 520
Lakhs.
(ii) Following assets are revalued:
` in Lakhs
Land and Building 3200
Plant and Machinery 1800
Stock-in-trade 1450
Debtors 360
(iii) Average profit before tax of the company is ` 2,400 Lakhs and 12.50% of the
profit is transferred to general reserve, rate of taxation being 30%.
(iv) Normal dividend expected on equity shares is 18% while fair return on
closing capital employed is 12%.
(v) Goodwill may be valued at two year's purchase of super profits.
Suggest the appropriate value of goodwill to be determined by the company.

(b) Discuss the accounting guidelines to be followed by NBFCs with respect to

recognition of income? [8 + 8 = 16]

6
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING
6. R Ltd. acquires 60% shares in S Ltd. on 01.10. 2020 at ` 30,000. S Ltd. makes profits
`20,000 in the year 2020-21 and declared dividend `9000. NCI is valued at proportionate
net assets. Abstracts of Separate Balance Sheet of R Ltd. (Dividend from subsidiary not
accounted) and Individual Balance Sheet of S Ltd. as at 31-03- 2021 are as follows:
(` lakhs)
R Ltd. S Ltd.
PPE 50,000 30,000
Investment in shares of S at cost 30,000
Current Assets 20,000 28,000
1,00,000 58,000
Equity Share Capital (`10) 60,000 25,000
Other Equity 25,000 15,000
Current Liabilities
Trade Payables 15,000 9,000
Dividend Payable 9,000
1,00,000 58,000
Show Consolidated Balance Sheet and Separate Balance Sheet of R Ltd. [16]
7. (a) What do you mean by ESG reporting? Discuss its importance.
(b) Compare and contrast Government Accounting and Commercial Accounting.
[(2 + 6) + 8 = 16]
SECTION – C
8. T Ltd. is in negotiation with P Ltd. to acquire its business. For this purpose, it has been
decided that the purchase consideration will be discharged by issuing equity shares of T
Ltd. to the shareholders of P Ltd. The exchange ratio is to be determined based on the
intrinsic value of shares of the two companies calculated under net asset backing method.
Following is the extracted Balance Sheet of P Ltd. as at 31st March, 2021:
Liabilities Amount Assets Amount
(`) (`)
Equity Share Capital (` 10) 10,00,000 Plant & Machinery 12,30,000
8%, Preference Share Capital Goodwill at cost 1,00,000
(` 100) 4,00,000 Investments (at face value) 2,00,000
General Reserve 3,60,000 Stock 4,20,000
Balance of Profit & Loss 2,50,000 Sundry Debtors 1,00,000
Short- term bank loan 2,00,000 Cash at Bank 7,00,000
Sundry Creditors 5,40,000
27,50,000 27,50,000

7
Directorate of Studies, The Institute of Cost Accountants of India
 FINAL EXAMINATION SET 1
MODEL QUESTION PAPER TERM – JUNE 2023
PAPER - 18
CORPORATE FINANCIAL REPORTING

Additional information:
a. Plant & Machinery are worth 25% more than their actual book value.
b. 70% of the Investments are non-trading and the balance is trading. All investments
are to be valued at 20% above cost. Dividend at uniform rate of 20% is earned on
all investments.
c. For the purpose of valuation of shares, goodwill is to be valued on the basis of 3
years purchase of super profits based on average trading profits of the last three
years. Net profits (after tax) are as follows-
Year `
2018-2019 1,00,000
2019-2020 95,000
2020-2021 1,05,000
d. Depreciation on appreciated value of Plant & Machinery is not to be considered for
valuation of goodwill.
e. In 2018-2019, a new machinery costing `40,000 was purchased but wrongly
charged as revenue and no effect has been given yet to rectify the same.
f. Depreciation is charged on Plant & Machinery @ 15% p.a. under Straight Line
Method.
g. The return on capital employed is 15%. Tax rate is 40%.

Prepare a report to be submitted to the management of T Ltd. showing, in detail the value
of each fully paid equity share of P Ltd. under Net Asset Backing Method. [16]

8
Directorate of Studies, The Institute of Cost Accountants of India