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CA FINAL COURSE (Nov 2024)

GROUP I – PAPER 1
FINANCIAL REPORTING
(Series 4)
Time Allowed: - 3 Hours Maximum Marks: 100

1. The question paper comprises two parts, Part I and Part II.
2. Part I comprises Case Scenario based Multiple Choice Questions (MCQs)
3. Part II comprises questions which require descriptive type answers.

PART I – Case Scenario based MCQs (30 Marks)

Part I is compulsory.

Question no. 1-15 carry 2 marks each

Case Scenario I
Narayana Ltd. is into the manufacturing of tractor parts and mainly supplying components to the
Original Equipment Manufacturers (OEMs). The Company does not have any subsidiary, joint venture
or associate company. Tax rate of 30% is applicable to Narayana Ltd. Assume that there are sufficient
taxable profits available in future against any deferred tax assets of the company. During the
preparation of financial statements for the year ended 31st March, 20X1, the accounts department is not
sure about the treatment/presentation of below mentioned matters. Accounts department approached
you to advice on the following matters:
(i) The Company had sales transactions with 10 related party parties during previous year.
However, during current year, there are no transactions with 4 related parties out of aforesaid 10
related parties. Hence, Company is of the view that it need not disclose sales transactions with
these 4 parties in related party disclosures because with these parties there are no transactions
during current year.
(ii) Assume that subsequent to year end and before financial statements are approved, Company’s
management announces that it will materially restructure the operation of the company.
Management plans to make significant redundancies and to close a few divisions of company’s
business; however, there is no formal plan yet.
(iii) On 1st April 20X0, Narayana Ltd. had granted 1 Cr share options worth ₹ 4 Cr subject to a two-
year vesting period. The income tax law permits a tax deduction at the exercise date of the
intrinsic value of the options. The intrinsic value of the options at 31 st March 20X1 was ₹ 1.60 Cr
and at 31st March 20X2 was ₹ 4.60 Cr. The increase in the fair value of the options on 31 st March
20X2 was not foreseeable at 31st March 20X1. The options were exercised at 31st March 20X2.
Give the accounting entries for the above transaction for deferred tax for period ending 31st
March, 20X1 and 31st March, 20X2.
Analyze the transactions mentioned above and choose the most appropriate option in the below
questions 1 to 5 in line with relevant Ind AS:

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1. Evaluate the matter in (i) with respect to preparation and presentation of general-purpose
financial statement.
(a) As per Ind AS 1, entity shall present comparative information in respect of the preceding
period.
(b) As per Ind AS 1, an entity shall not require to present any comparative information in
respect of the preceding period.
(c) As per Ind AS 1, an entity shall not require to present comparative information regarding
related party transactions in respect of the preceding period.
(d) As per Ind AS 1, an entity shall has choice to present any comparative information in
respect of the preceding period.
2. Should management recognise a provision in the books, if the company decides
subsequent to end of the accounting year to restructure its operations?
(a) This would require provision as on 31.3.20X1 and it would also result in disclosure of the
event in the financial statements.
(b) This would require provision as on 31.3.20X1, yet it would not result in disclosure of the
event in the financial statements.
(c) This would not require provision as on 31.3.20X1 because event occurred after the
reporting period, yet it would result in disclosure of the event in the financial statements.
(d) This would not require provision as on 31.3.20X1 because event occurred after the
reporting period and it would also not result in disclosure of the event in the financial
statements.
3. Calculate tax base of SBP at 31.3.20X1.
(a) ₹ 4 Cr
(b) ₹ 1.60 Cr
(c) ₹ 2 Cr
(d) ₹ 0.80 Cr
4. Calculate deferred tax assets/liabilities to be recognised related to SBP at 31.3.20X1.
(a) DTA ₹ 0.24 Cr
(b) DTL ₹ 0.24 Cr
(c) DTL ₹ 0.60 Cr
(d) DTA ₹ 0.60 Cr
5. Calculate temporary difference of SBP at 31.3.20X1.
(a) ₹ 2.40 Cr
(b) ₹ 0.80 Cr
(c) ₹ 1.20 Cr
(d) Nil

Case Scenario II
Wingspan Motor Corporation operates as a leading manufacturer of motor parts and engines, catering
to major multinational entities such as Boeing and Airbus Industries. Adhering to Indian Accounting
Standards, the company meticulously maintains its financial records and prepares comprehensive
financial statements for the fiscal year ending on March 31, 20X2. As the Finance Controller, you

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oversee the financial reporting process, providing guidance to your team on various transactions to
ensure accurate finalization of the financial statements. Your assistants seek your input on specific
transactions to uphold the company's commitment to transparency and compliance.
(i) It owns land and building which are carried in its balance sheet at an aggregate carrying amount
of ₹ 10 million. The fair value of such asset is ₹ 15 million. It exchanges the land and building for a
private jet, which has a fair value of ₹ 20 million, and pays additional ₹ 3 million in cash.
(ii) It has received the following grants from the Government of Delhi for its newly started
pharmaceutical business:
• ₹ 20 lakhs received for immediate start-up of business without any condition.
• ₹ 50 lakhs received for research and development of drugs required for the treatment of
cardiovascular diseases with following conditions that drugs should be available to the public
at 20% cheaper from current market price; and the drugs should be in accordance with quality
prescribed by the World Health Organisation [WHO].
(iii) It has shown a net profit of ₹ 20,00,000 for the third quarter of the year. While computing the net
profit, 50% of exceptional loss have been deferred to the next quarter. Exceptional loss of ₹
28,000 incurred during the third quarter.
Analyze the transactions mentioned above and choose the most appropriate option in the below
questions 6 to 10 in line with relevant Ind AS:
6. Entity should recognise the private jet at
(a) ₹ 15 million
(b) ₹ 10 million
(c) ₹ 20 million
(d) ₹ 18 million
7. Profit/Loss to be recognised on exchange of land and building with a private jet
(a) Profit ₹ 5 million
(b) Profit ₹ 10 million
(c) Loss ₹ 5 million
(d) Loss ₹ 10 million
8. How should company recognise the grant received for immediate start-up of business?
(a) Recognised in Statement of Profit and Loss immediately.
(b) Recognised in Capital Reserve as Promoter’s Contribution.
(c) Recognised in profit or loss on a systematic basis over the periods.
(d) Deducted from the revenue from operations of the business.
9. How should company recognise the grant received for research and development?
(a) Recognised in Statement of Profit and Loss immediately.
(b) Recognised in Capital Reserve as Promoter’s Contribution.
(c) Recognised in profit or loss on a systematic basis over the periods.
(d) Deducted from the revenue from operations of the business.
10. Considering point (iii), ascertain the correct net profit to be shown in the Interim Financial
Report of third quarter.
(a) ₹ 20,14,000
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 (b) ₹ 20,28,000
(c) ₹ 19,72,000
(d) ₹ 19,86,000

Case Scenario III

X Ltd. is operating in coating industry. It has 5 operating segments namely A, B, C, D and E. You are the
Finance Controller and your assistants want your views on following transactions for finalization of
financial statements:
(i) The profit/loss of respective segments for the year ended March 31, 20X1 are as follows:

Segment Profit/(Loss) (₹ in crore)

A 780
B 1,500
C (2,300)
D (4,500)
E 6,000
Total 1,480

(ii) Entity issues share-based payment plan to its employees based on the below details:

Number of employees 100

Fair value at grant date ₹ 25
Market condition Share price to reach at ₹ 30
Service condition To remain in service until market condition is
fulfilled
Expected completion of market condition 4 years

(iii) Company wants to determine if the contracts entered into for purchase and sale of fibre are
derivatives within the scope of Ind AS 109 or are executory contracts outside the scope of Ind AS
109. Though the Company is using an ERP accounting package it is not properly configured to
provide the required reports for above said decision making.
Analyze the transactions mentioned above and choose the most appropriate option in the below
questions 11 to 15:
11. Based on the quantitative thresholds, which of the above segments A to E would be
considered as reportable segments for the year ending March 31, 20X1?
(a) A,B,C
(b) A,B,C,D,E
(c) B,C,D
(d) B,C,D,E
12. In compliance with Ind AS 108, the segment profit/loss of respective segment will be
compared with
(a) ₹ 1,480 crore
(b) ₹ 8,280 crore
(c) ₹ 6,800 crore

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 (d) ₹ 7,500 crore
13. Determine expense related to share-based payment plan to be recognised in year 3
assuming market condition is fulfilled in 3rd year
(a) ₹ 2,500
(b) ₹ 1,250
(c) ₹ 625
(d) Nil
14. Determine expense related to share-based payment plan to be recognised in year 4
assuming market condition is fulfilled in 5th year
(a) ₹ 2,500
(b) ₹ 1,250
(c) ₹ 625
(d) Nil
15. Whether process of determining the nature of contracts is possible through use of external
sources of technology?
(a) Yes, it is possible by using external data of another company.
(b) Yes, it is possible by extracting the data from the accounting package.
(c) No, it is not possible since ERP package is not properly configured.
(d) There is no role of technology in determining nature of contracts.

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 PART – II DESCRIPTIVE QUESTIONS (70 Marks)
Question No. 1 is compulsory. Candidates are required to answer any four questions
from the remaining five questions.
Working notes should form part of the answers.

Marks
1 Company X is engaged in the business of exploration & development of Oil & Gas 14
Blocks.
Company X currently holds participating interest (PI) in below mentioned
producing Block as follows:

Block Name Company X Company Y Company Z Total

AWM/01 30% 60% 10% 100%

For the above Block, Company X, Y & Z has entered into unincorporated Joint
Venture.
Company Y is the Operator of the Block AWM/01. Company X & Company Z are
the Joint Operators. Company Y incurs all the expenditure on behalf of Joint
Venture and raise cash call to Company X & Company Z at each month end in
respect of their share of expenditure incurred in Joint Venture. All the manpower
and requisite facilities/machineries owned by the Joint venture and thereby
owned by all the Joint Operators.
For past few months, due to liquidity issues, Company Z defaulted in payment of
cash calls to operators. Therefore, company Y (Operator) has issued notice to
company Z for withdrawal of their participating right from on 01.04.20X1.
However, company Z has filed the appeal with arbitrator on 30.04.20X1.
Financial performance of company Z has not been improved in subsequent
months and therefore company Z has decided to withdraw participating interest
rights from Block AWM/01 and entered into sale agreement with Company X &
Company Y. As per the terms of the agreement, dated 31.5.20X1, Company X will
receive 33.33% share & Company Y will receive 66.67% share of PI rights owned
by Company Z.
Company X is required to pay ₹ 1 Lacs against 33.33% share of PI rights owned by
Company Z.
After signing of sale agreement, Operator (company Y) approach government of
India for modification in PSC (Production Sharing Contract) i.e. removal of
Company Z from PSC of AWM/01 and government has approved this transaction
on 30.6.20X1. Government approval for the modification in PSC is essential given
the industry in which the joint-operators operate.
Balance sheet of Company X & Company Z are as follows:

Particulars Company X Company Z

31.5.20X1 30.6.20X1 31.5.20X1 30.6.20X1
₹ ₹ ₹ ₹
Assets
Non-Current Assets
Property, Plant & 5,00,000 10,00,000 1,50,000 3,00,000

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 Equipment
Right of Use Asset 1,00,000 2,00,000 10,000 20,000
Development CWIP 50,000 1,00,000 50,000 1,00,000
Financial Assets
Loan receivable 25,000 50,000 25,000 50,000
Total Non-Current 6,75,000 13,50,000 2,35,000 4,70,000
Assets
Current assets
Inventories 1,00,000 2,00,000 15,000 30,000
Financial Assets
Trade receivables 1,50,000 3,00,000 50,000 1,00,000
Cash and cash 2,00,000 4,00,000 1,00,000 2,00,000
equivalents
Other Current Assets 2,25,000 50,000 25,000 50,000
Total Current Assets 6,75,000 9,50,000 1,90,000 3,80,000
Total Assets 13,50,000 23,00,000 4,25,000 8,50,000
Equity and Liabilities
Equity
Equity share capital 3,00,000 3,00,000 1,00,000 1,00,000
Other equity 2,00,000 3,00,000 75,000 2,50,000
Total Equity 5,00,000 6,00,000 1,75,000 3,50,000
Liabilities
Non-Current Liabilities
Provisions 4,00,000 8,00,000 1,00,000 2,00,000
Other Liabilities 1,50,000 3,00,000 50,000 1,00,000
Total Non-Current 5,50,000 11,00,000 1,50,000 3,00,000
Liabilities
Current Liabilities
Financial Liabilities
Trade Payables 3,00,000 6,00,000 1,00,000 2,00,000
Total Current 3,00,000 6,00,000 1,00,000 2,00,000
Liabilities
Total Liabilities 13,50,000 23,00,000 4,25,000 8,50,000

Additional Information:
1. Fair Value of PPE & Development CWIP owned by Company Z as per Market
participant approach is ₹ 5,00,000 & ₹ 2,00,000 respectively.
2. Fair Value of all the other assets and liabilities acquired are assumed to be
at their carrying values (except cash & cash equivalents). Cash and cash
equivalents of Company Z are not to be acquired by Company X as per the
terms of agreement.
3. Tax rate is assumed to be 30%.
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 4. As per Ind AS 28, all the joint operators are joint ventures whereby each
parties that have joint control of the arrangement have rights to the net
assets of the arrangement and therefore every operator records their share
of assets and liabilities in their books.
You need to determine the following:
1. Whether the above acquisition falls under business or asset acquisition as
defined under business combination standard Ind AS 103?
2. Determine the acquisition date in the above transaction.
3. Prepare Journal entries for the above-mentioned transaction.
4. Draft the Balance Sheet for Company X based on your analysis in Part 1
above as at acquisition date.

2 (a) KK Ltd. has granted an interest free loan of ₹ 10,00,000 to its wholly owned Indian 10
Subsidiary YK Ltd. There is no transaction cost attached to the said loan. The
Company has not finalised any terms and conditions including the applicable
interest rates on such loans. The Board of Directors of the Company are evaluating
various options and has requested your firm to provide your views under Ind AS
in following situations:
(i) The Loan given by KK Ltd. to its wholly owned subsidiary YK Ltd. is interest
free and such loan is repayable on demand.
(ii) The said Loan is interest free and will be repayable after 3 years from the
date of granting such loan. The current market rate of interest for similar
loan is 7.27%. Considering the same, the fair value of the loan at initial
recognition is ₹ 8,10,150.
(iii) The said loan is interest free and will be repaid as and when the YK Ltd. has
funds to repay the Loan amount.
Based on the same, KK Ltd. has requested you to suggest the accounting treatment
of the above loan in the stand-alone financial statements of KK Ltd. and YK Ltd.
and also in the consolidated financial statements of the group. Consider interest
for only one year for the above loan.
Further the Company is also planning to grant interest free loan from YK Ltd. to
KK Ltd. in the subsequent period. What will be the accounting treatment of the
same under applicable Ind AS?
Note: PVF @ 7.27% for year 3 is 0.81015

2 (b) UK Ltd. has purchased a new head office property on 1st April 20X1 for ₹ 10 4
crores. The new office building has 10 floors and the organisation structure of UK
Ltd. is as follows:

Floor 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th
Use Waiting Area Admin HR Accounts Inspection MD Office Canteen Vacant

Since UK Ltd. did not need the floors 8, 9 and 10 for its business needs, it has
leased out the same to a restaurant on a long-term lease basis. The terms of the
lease agreement are as follows:

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  Tenure of Lease Agreement – 3 Years
 Lease Rental – Annual lease rental receivable from these floors is ₹ 10,00,000
per floor with an escalation of 5% every year.
Based on the certificate from its architect, UK Ltd. has estimated the cost of the 3
top floors as approximately ₹ 3 crores. The remaining cost of ₹ 7 crores can be
allocated as 25% towards Land and 75% towards Building.
As on 31st March, 20X2, UK Ltd. obtained a valuation report from an independent
valuer who has estimated the fair value of property at ₹ 15 crores. UK Ltd. wishes
to use the cost model for measuring Property, Plant & Equipment and the fair
value model for measuring the Investment Property. UK Ltd. depreciates the
building over an estimated useful life of 50 years, with no estimated residual
value.
Advise UK Ltd. on the accounting and disclosures for the above as per the
applicable Ind AS together with the computation of the carrying value of property
as at 31st March, 20X2.
Note: Present all amounts in ₹ crore upto 3 decimals

3 (a) RKA Private Ltd is an old company established in 19XX. The company started with 8
a very small capital base and today it is one of the leading companies in India in its
industry. The company has an annual turnover of ₹ 11,000 crores and planning to
get listed in the next year.
The company has a large employee base. The company provided a defined benefit
plan to its employees. Following is the information relating to the balances of the
fund’s assets and liabilities as at 1st April, 20X1 and 31st March, 20X2. ₹ in lacs

Particulars 1st April, 20X1 31st March, 20X2

Present value of benefit obligation 1,400 1,580
Fair value of plan assets 1,140 1,275

For the financial year ended 31 st March, 20X2, service cost was ₹ 55 lacs. The
company made a contribution of an amount of ₹ 111 lacs to the plan. No benefits
were paid during the year.
Consider a discount rate of 8%.
You are required to
(a) Compute the balance(s) of the company to be included its balance sheet as
on 31st March, 20X2 and amounts to be recognized in the statement of profit
and loss and other comprehensive income for the year ended 31 st March,
20X2.
(b) Give the journal entries in respect of amount(s) to be recognized.
Note: Show calculations in nearest lacs

3 (b) An entity purchases a debt instrument with a fair value of ₹ 1,000 on 15th March, 6
20X1 and measures the debt instrument at fair value through other
comprehensive income. The instrument has an interest rate of 5% over the

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 contractual term of 10 years, and has a 5% effective interest rate. At initial
recognition, the entity determines that the asset is not a purchased or original
credit-impaired asset.
On 31st March 20X1 (the reporting date), the fair value of the debt instrument has
decreased to ₹ 950 as a result of changes in market interest rates. The entity
determines that there has not been a significant increase in credit risk since initial
recognition and that ECL should be measured at an amount equal to 12 month
ECL, which amounts to ₹ 30.
On 1st April 20X1, the entity decides to sell the debt instrument for ₹ 950, which is
its fair value at that date.
Pass journal entries for recognition, impairment and sale of debt instruments as
per Ind AS 109. Entries relating to interest income are not to be provided.

4 (a) An entity has a fixed fee contract for ₹ 1 million to develop a product that meets 8
specified performance criteria. Estimated cost to complete the contract is ₹
950,000. The entity will transfer control of the product over five years, and the
entity uses the cost-to-cost input method to measure progress on the contract. An
incentive award is available if the product meets the following weight criteria:

Weight (kg) Award % of fixed fee Incentive fee

951 or greater 0% –
701–950 10% ₹ 100,000
700 or less 25% ₹ 250,000

The entity has extensive experience creating products that meet the specific
performance criteria. Based on its experience, the entity has identified five
engineering alternatives that will achieve the 10% incentive and two that will
achieve the 25% incentive. In this case, the entity determined that it has 95%
confidence that it will achieve the 10% incentive and 5% confidence that it will
achieve the 25% incentive.
Based on this analysis, the entity believes 10% to be the most likely amount when
estimating the transaction price. Therefore, the entity includes only the 10%
award in the transaction price when calculating revenue because the entity has
concluded it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the
variable consideration is subsequently resolved due to its 95% confidence in
achieving the 10% award.
The entity reassesses its production status quarterly to determine whether it is on
track to meet the criteria for the incentive award. At the end of the year four, it
becomes apparent that this contract will fully achieve the weight-based criterion.
Therefore, the entity revises its estimate of variable consideration to include the
entire 25% incentive fee in the year four because, at this point, it is probable that
a significant reversal in the amount of cumulative revenue recognized will not
occur when including the entire variable consideration in the transaction price.
Analyse the impact of changes in variable consideration when cost incurred is as
follows:

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 Year ₹
1 50,000
2 175,000
3 400,000
4 275,000
5 50,000

Calculate yearly Revenue, Operating Profit and Margin (%).

For simplification purposes, calculate revenue for the year independently based
on costs incurred during the year divided by total expected costs, with the
assumption that total expected costs do not change.

4 (b) On the first day of a financial year, A Ltd. invested in the equity share capital of B 6
Ltd. at a cost of ₹ 1,00,000 to acquire 25% share in the voting power of B Ltd. A
Ltd. has concluded that B Ltd. is an associate of A Ltd. At the end of the year, B Ltd.
earned profit of ₹ 10,000 and other comprehensive income of ₹ 2,000. In that year,
B Ltd. also declared dividend to the extent of ₹ 4,000. Pass necessary entries in the
books of A Ltd. to account for the investment in associate.

5 (a) Agastya Ltd. is a listed company engaged in the manufacturing of automotive 5

spare parts. The company is preparing the financial statements for the year ended
31st March 20X3. The directors of Agastya Ltd. are entitled to an incentive based
on the operating profit margin of the company. You have been appointed as a
consultant to advise on the preparation of the financial statements, and you notice
the following issue:
The draft financial statements include an amount of ₹ 75 lakhs given as loan to a
director. The loan has no specific repayment terms; the same is repayable on
demand. The directors have included such loan under heading ‘Cash and Cash
Equivalents’. They have reasoned that since such loan, which is advanced to one of
the directors, is repayable on demand, it is readily convertible to cash. Further the
directors opine that such presentation should not be a problem even under the
Ind AS Framework as financial statements are essentially prepared in accordance
with accounting policies which is the choice of the company, and in this case,
Agastya Ltd. has made a policy choice to show such loan as a cash equivalent.
Discuss the ethical and accounting implications of the above issues, referring to
the relevant Ind AS wherever appropriate.

5 (b) Entity X is an Indian entity whose functional currency is Indian Rupee. It has taken 5
a plant on lease from Entity Y for 5 years to use in its manufacturing process for
which it has to pay annual rentals in arrears of USD 10,000 every year. On the
commencement date, exchange rate was USD = ₹ 68. The average rate for Year 1
was ₹ 69 and at the end of year 1, the exchange rate was ₹ 70. The incremental
borrowing rate of Entity X on commencement of the lease for a USD borrowing
was 5% p.a.

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 How will entity X measure the right of use (ROU) asset and lease liability initially
and at end of Year 1?

5 (c) Alpha Ltd. on 1st April, 20X1 borrowed 9% ₹ 30,00,000 to finance the construction 4
of two qualifying assets. Construction started on 1st April, 20X1. The loan facility
was availed on 1st April, 20X1 and was utilized as follows with remaining funds
invested temporarily at 7%.

Factory Building Office Building

1st April, 20X1 5,00,000 10,00,000
1st October, 20X1 5,00,000 10,00,000

Calculate the cost of the asset and the borrowing cost to be capitalized.

6 (a) Calculate Basic EPS for period ending 20X0, 20X1 and 20X2, when 5

20X0 20X1 20X2

Profit attributable to ordinary equity ₹ 1,100 ₹ 1,500 ₹ 1,800
holders of the parent entity

Shares outstanding before rights issue 500 shares

Rights issue One new share for each five
outstanding shares
Exercise price ₹ 5.00
Date of rights issue 1st January 20X1
Last date to exercise rights 1st March 20X1
Market price of one ordinary share ₹ 11.00
immediately before exercise on 1st March
20X1:
Reporting date 31st December

6 (b) ABC Ltd. has three cash-generating units: A, B and C, the carrying amounts of 5
which as on 31st March, 20X1 are as follows:

Remaining useful
Cash-generating units Carrying amount (₹ in crore)
life
A 500 10
B 750 20
C 1,100 20

ABC Ltd. also has two corporate assets having a remaining useful life of 20 years.

(₹ in crore)
Corporate asset Carrying amount Remarks

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 The carrying amount of X can be
allocated on a reasonable basis (i.e.,
X 600
pro rata basis) to individual cash-
generating units.
The carrying amount of Y cannot be
Y 200 allocated on a reasonable basis to the
individual cash-generating units.

Recoverable amount as on 31st March, 20X1 is as follows:

Cash-generating units Recoverable amount (₹ in crore)

A 600
B 900
C 1,400
ABC Ltd. 3,200

Calculate the impairment loss, if any. Ignore decimals.

Note: Present all calculations in ₹ crore

6 (c) A trader commenced business on 1.4.20X1 with ₹ 12,000 represented by 6,000 4

units of certain product at ₹ 2 per unit. During the year 20X1-X2, he sold these
6,000 units at ₹ 3 per unit and had withdrawn ₹ 6,000. Find out:
(i) Financial capital maintenance at Historical Cost
(ii) Financial capital maintenance at Current Purchasing Power, assuming
average price indices as follows:

Date Average price indices

1.4.20X1 100
31.3.20X2 120

(iii) Physical Capital Maintenance, assuming price of the product as ₹ 2.50 per
unit on 31.3.20X2.

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