Corporate Financial Accounting
Chapter -I
Corporate Financial Reporting
Meaning: Financial Reporting can be defined as “communicating information that relates
directly or indirectly to the information provided by the accounting system i.e. information
about an enterprise’s resources, obligations, earnings etc. Thus, financial reporting is a means
of providing information that may be useful in making business and economic decisions.
Objectives of financial reporting:
1. Information for investment and Credit Decisions
2. Information for assessing Cash Flow Prospects
3. Information about Economic Resources
4. Information about Financial Performance
5. Information about Liquidity, Solvency and Funds Flow
6. Information about Management’s Performance
7. Information about Management’s Accountability
Financial Statements:
Components:
1. Balance Sheet
2. Profit & Loss Statement
3. Cash Flow Statement
4. Notes and Schedules
Financial Statements:
Underlying Assumptions:
1. Accrual Basis
2. Going Concern
3. Consistency
Importance of Financial Reporting:
1. Compliance
2. Statutory audit
3. Backbone for planning
4. Raising capital
5. Performance Appraisal
6. Bidding and Government Supplies
Essentials of Financial reports:
1. Relevance
2. Understandability
3. Verifiability
4. Objective
5. Timeliness
6. Comparable
7. Completeness
Consolidated Financial Statement –AS 21
Steps in Consolidation vide AS 21
1. Eliminate Parent’s Cost of Investment & Portion of Equity
2. Calculate Goodwill or Capital Reserve arising on Investment
3. Calculate Minority Interest
4. Analyse Profits of subsidiary into Profits before and after acquisition
5. Make Intra-Group Adjustments
6. Treatment of Investments made on different dates
7. Consolidate Profit & Loss Statement
8. Harmonise Reporting Dates
9. Harmonise Accounting Policies
Problem No.1
100% Subsidiary: Goodwill on Eliminating Investment
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share Capital 1,00,000 50,000 Investments: 70,000 Nil
(Face Value Rs.10
5,000 Shares in S Ltd
each)
Creditors 1,00,000 30,000 Current Assets 1,30,000 80,000
2,00,000 80,000 2,00,000 80,000
Prepare a Consolidated Balance Sheet.
Solution: Consolidated Balance Sheet as on __________
Particulars Rs.
I- Equity and Liabilities
1. Shareholder’s Funds
Share Capital 1,00,000
2. Current Liabilities
Trade Payables (1,00,000+ 30,000) 1,30,000
Total 2,30,000
II- Assets
1. Non-Current Assets
Intangible (Goodwill) 20,000
2. Current Assets (1,30,000 + 80,000) 2,10,000
Total 2,30,000
Working Note:
Cost of Capital/Goodwill Rs
Cost of Investment 70,000
Less: Paid up value of Investment 50,000
___________
Goodwill 20,000
Problem No.2
(100% Subsidiary: Capital Reserve on Eliminating Investment)
Balance Sheets as on 31st March, 2021
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share Capital 1,00,000 50,000 Investments: 30,000 Nil
(Face Value Rs.10
5,000 Shares in S Ltd
each)
Creditors 1,00,000 30,000 Current Assets 1,70,000 80,000
2,00,000 80,000 2,00,000 80,000
Prepare a Consolidated Balance Sheet.
Solution: Consolidated Balance Sheet as on 31st March, 2021.
Particulars Rs.
I- Equity and Liabilities
1. Shareholder’s Funds
Share Capital 1,00,000
Reserves & Surplus (Capital Reserve) 20,000 1,20,000
2. Current Liabilities
Trade Payables (1,00,000+ 30,000) 1,30,000
Total 2,50,000
II- Assets
1. Non-Current Assets Nil
2. Current Assets (1,70,000 + 80,000) 2,50,000
Total 2,50,000
Working Note:
Cost of Capital/Goodwill Rs
Cost of Investment 30,000
Less: Paid up value of Investment 50,000
___________
Cost of Capital/Capital Reserve (20,000)
Assignment:
Problem No.3
100% Subsidiary: Goodwill on Eliminating Investment
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share 2,00,000 1,00,000 Investments: 1,40,000 Nil
Capital (Face
10,000 Shares in S
Value Rs.10 each)
Ltd
Creditors 2,00,000 60,000 Current Assets 2,60,000 1,60,000
4,00,000 1,60,000 4,00,000 1,60,000
Prepare a Consolidated Balance Sheet.
Assignment:
Problem No.4
(100% Subsidiary: Capital Reserve on Eliminating Investment)
Balance Sheets as on 31st March, 2021
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share 2,00,000 1,00,000 Investments: 60,000 Nil
Capital (Face Value
10,000 Shares in S
Rs.10 each)
Ltd
Creditors 2,00,000 60,000 Current Assets 3,40,000 1,60,000
4,00,000 1,60,000 4,00,000 1,60,000
Prepare a Consolidated Balance Sheet.
Minority Interest:
It is that part of the net results of operations and of the net assets of a subsidiary attributable
to interests which are not owned, directly or indirectly through subsidiaries, by the parent.
Such interest of the outsiders is known as “Minority Interest”
Problem No.5
(Minority Interest)
Balance Sheets as on 31st March, 2021
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share Capital 12,000 5,000 Investments: 4,000 Nil
(Face Value Rs.1
4,000 Shares in S Ltd
each)
Creditors 8,000 3,000 Current Assets 16,000 8,000
20,000 8,000 20,000 8,000
Prepare a Consolidated Balance Sheet.
Solution: H ltd (Holding Co) Holds 80% and S Ltd (Subsidiary Co) 20% { 1,000/5,000 X
100}
Consolidated Balance Sheet as on 31st March, 2021.
Particulars Rs.
I- Equity and Liabilities
1. Shareholder’s Funds
Share Capital 12,000
Minority Interest (20% of 5,000 {8,000 -3,000} ) 1,000
2. Current Liabilities 11,000
Trade Payables (8,000 + 3,000)
Total 24,000
II- Assets
1. Non-Current Assets Nil
2. Current Assets (16,000 + 8,000) 24,000
Total 24,000
Assignment:
Problem No.6
(Minority Interest)
Balance Sheets as on 31st March, 2021
Liabilities H Ltd S Ltd Assets H Ltd S Ltd
Rs
Rs Rs Rs
Equity Share Capital 24,000 10,000 Investments: 8,000 Nil
(Face Value Rs.1
8,000 Shares in S Ltd
each)
Creditors 16,000 6,000 Current Assets 32,000 16,000
40,000 16,000 40,000 16,000
Prepare a Consolidated Balance Sheet.
Problem No.2
Working Note No.1
Cost of Capital/Goodwill
Rs
Cost of Investment 23,40,000
Less: Paid up value of Investment 20,00,000
Reserves & Surplus 4,40,000 24,40,000
____________
Capital Reserve (1,00,000)
Problem No.3
Working Note No.2
Cost of Capital/Goodwill
Rs
Cost of Investment 16,24,000
Less: Paid up value of Investment 12,00,000
Reserves & Surplus
(60% of Rs.4,40,000) 2,64,000 14,64,000
___________
Goodwill 1,60,000
____________
Working Note No.3
Minority Interest/Non-Controlling Interest
Paid up value of shares (40% of 20,00,000) 8,00,000
Add: Reserves & Surplus 1,76,000
( 40% of Rs.4,40,000)
_____________
9,76,000
Illustration No.11
Cost of Capital/Goodwill
Rs
Cost of Investment 15,50,000
Less: Paid up value of Investment 15,00,000
Capital Profit 3,00,000 18,00,000
___________
Capital Reserve 2,50,000
____________
Date of acquisition of shares in subsidiary co.= 1/07/2020
Balance Sheet date of holding co.= 31/03/2021
1-07-2020 to 31-03-2021 Post acquisition period
1-4-2020 to 30-06-2020 Pre acquisition period
MCQ:
1. Preparation of consolidated Balance Sheet of Holding Co. and its subsidiary company
as per
a. As 11
b. AS – 22
c. AS 21
d. AS – 23
2. The share of outsiders in the Net Assets in subsidiary company is known as under :
a. outsiders liability
b. Assets
c. subsidiary company's liability
d. Minority Interest
3. Pre-acquisition profit in subsidiary company is considered as :
a. Revenue profit
b. Capital profit
c. Goodwill
d. Securities Premium
4. Excess of cost of investment over paid up value of the shares is considered as:
a. Goodwill
b. Capital Reserve
c. Minority Interest
d. General Reserve
5. Excess of paid up value of the shares over cost of investment is considered as:
a. Goodwill
b. Capital Reserve
c. Minority Interest
d. General Reserve
6. Profit earned before acquisition of share is treated as
a. Capital profit
b. Revenue profit
c. General Reserve
d. Revaluation Loss
7. Profit earned after acquisition of shares is treated as
a. Capital profit
b. Revenue profit
c. General Reserve
d. Revaluation Loss
8. Preparation of consolidated statement as per AS 21 is
a. Optional
b. Mandatory for listed Companies
c. Mandatory for Pvt. Ltd.
d. Companies Ltd and partnership firm
9. Holding Co. share in capital profits of subsidiary company is adjusted in :
a. Cost of control
b. Shown on Assets side of Balance sheet
c. Revenue profit
d. Securities Premium
10. Holding Co. share in revenue profits of subsidiary company is adjusted in :
a. a. Cost of control
b. Shown on Assets side of Balance sheet
c. Profit and loss account
d. Capital Reserve
11. Unrealised profit on goods sold and included in stock is deducted from :
a. Capital Profit
b. Revenue Profit
c. Fixed Assets
d. Minority interest
12. Face value debentures of subsidiary co. held by Holding Company is deducted from :
a. Debentures
b. Cost of control
c. Minority interest
d. Debentures in consolidated balance sheet
14. Consolidated financial statements are prepared on the principle:
a. In form the companies are one entity; in substance they are separate.
b. In form the companies are separate; in substance they are one.
c. In form and substance the companies are one entity.
d. In form and substance the companies are separate.
15. Minority Interest includes:
a. Share in share capital
b. Share in Fixed Assets
c. Share in Current Assets
d. Share in Current Liabilities
16. The Time interval between the date of acquisition of shares in subsidiary company
and date of Balance Sheet of Holding Company is known as :
a. Pre-acquisition period
b. Post-acquisition period
c. Pre-commencement period
d. Pre-incorporation period.
17. Pre-acquisition dividend received by Holding company is credited to
a. profit & loss A/c
b. Capital profit
c. Investment A/c
d. Goodwill
18. Post Acquisition dividend received by Holding Company is debited to :
a. Bank A/c
b. profit & loss A/c
c. Dividend A/c
d. Investment A/c
19. Which Exchange rate will be considered for conversion of share capital of subsidiary
company.
a. Opening Rate
b. closing rate
c. Average Rate
d. Rate at which date share acquired (actual)
20. A subsidiary company shall be excluded from consolidation when:
a. Control is intended to be temporary
b. It operates under severe long-term restrictions which significantly impair its
ability to transfer funds to the parent
c. Always included for consolidation
d. Both a and b.
Valuation of Business for Amalgamation and Merger
1. It is an intangible fixed asset having a realisable value.
2. Goodwill is the excess of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed.
Simple Average
Calculate Goodwill as per Average Profit Method:
2017 – Rs.10,000
2018 – Rs.20,000
2019 – Rs.30,000
Solution:
Step- I-Calculation of Average Profit
Average Profit = Total Profit/ Total Number of Years
Average Profit = 10,000+20,000+ 30,000/3 = 60,000/3 = Rs.20,000
Step –II Calculation of Goodwill
Goodwill = Average Profit
Goodwill = Rs.20,000
Weighted Average Method:
2017 – Rs.10,000
2018 – Rs.20,000
2019 – Rs.30,000
Year Profit (a) Weights (b) Product (a x b)
2017 10,000 1 10,000
2018 20,000 2 40,000
2019 30,000 3 90,000
6 1,40,000
Calculate Weighted Average Profit.
WAP = TWP/TW = 1,40,000/6 = Rs.23,333/-
Find out Future Maintainable Profit for the year 2021
1. Average profit for last 3 year Rs.12,000
2. Loss on sale of Furniture Rs.1,000.
3. Rent of Rs.2,000 will be received.
4. Manager’s salary Rs. 3,000 to be paid.
5. Profit on sale of Investment Rs. 1,000 in the year 2020.
Solution
FMP Rs.12,000
Add:1) Loss on sale of furniture 1,000
2) Rent will be received 2,000 3,000
___________
15,000
Less: 1) Manager’s Salary to be paid 3,000
2) Profit on sale of Investment 1,000 4,000
__________
FMP 11,000
Super Profit Method:
Step –I
Calculation of FMP/Average Profit:
FMP = Total Profit/ Total Number of Year
Step-II
Calculation of Capital Employed:
Revised value of Assets XXX
Less: Revised value of outside liabilities XXX
_________
Closing Capital Employed XXX
Step- 3
Calculation of Normal Profit:
Normal Profit = Capital Employed X Normal Rate of Return/100
Step -4
Calculation of Super Profit:
Super Profit = FMP/Average Profit – Normal Profit
Step-5
Calculation of Goodwill
Goodwill = Super Profit X Number of Years Purchase
Q.1 Find out Normal Profit from the following information:
Capital Employed Rs.4,00,000
Normal Rate of Return (NRR) 10%
Future Maintainable Profit = Rs.30,000
Ans:
Normal Profit = Capital Employed X Normal Rate of Return/100
Normal Profit = 4,00,000 X 10/100 = Rs.40,000
Q.2 Find out Normal Profit from the following information:
Sundry Assets Rs.4,00,000 and Sundry Outside Liabilities Rs.1,00,000
Normal Rate of Return (NRR) 10%
Future Maintainable Profit = Rs.50,000
Ans: Capital Employed = Sundry Assets – Sundry Outside Liabilities
CE = 4,00,000 -1,00,000 = Rs.3,00,000
Normal Profit = Capital Employed X Normal Rate of Return/100
Normal Profit = 3,00,000 X 10/100 = Rs.30,000
Q.3 Find out Super Profit from the following information:
Average Profit before tax = 90,000
Tax Rate:30%
Normal Profit Rs.30,000
Ans: Super Profit =Average Profit – Normal Profit
Super Profit = 63,000 – 30,000 = Rs.33,000
Average Profit before tax = 90,000
Less: 30% Tax = 27,000
_______
Adjusted Average Profit = Rs.63,000
Q.4 Find out Super Profit from the following information:
Average Profit before tax = 90,000
Tax Rate:30%
Closing Capital Employed = Rs.5,00,000
NRR = 10%
Ans:
Super Profit =Average Profit – Normal Profit
Super Profit = 63,000 – 50,000 = Rs.13,000
Average Profit before tax = 90,000
Less: 30% Tax = 27,000
_______
Adjusted Average Profit = Rs.63,000
Normal Profit = Capital Employed X NRR/100= 5,00,000 x 10/100 = Rs.50,000
Q.5 Find out Goodwill as per Super Profit Method from the following information:
Average Profit before tax = 90,000
Tax Rate:30%
Closing Capital Employed = Rs.5,00,000
NRR = 10%
Number of Year Purchase = 3
Ans:
Goodwill = Super Profit X No. of Years Purchase = 13,000 X 3 = Rs.39,000
Super Profit =Average Profit – Normal Profit
Super Profit = 63,000 – 50,000 = Rs.13,000
Average Profit before tax = 90,000
Less: 30% Tax = 27,000
_______
Adjusted Average Profit = Rs.63,000
Normal Profit = Capital Employed X NRR/100= 5,00,000 x 10/100 = Rs.50,000
Q.6 Calculate NRR from the following information:
Dividend Per Share Rs.15
Market Value Per Share Rs.400
Ans: NRR = Dividend Per Share/Market Value Per Share X 100
NRR = 15/400 X 100 = 3.75%
Q.7 Calculate Normal Profit from the following information:
Dividend Per Share Rs.15
Market Value Per Share Rs.400
Capital Employed = Rs.4,00,000
Ans:
Normal Profit = Capital Employed X NRR/100= 4,00,000 X 3.75/100 = Rs.15,000
NRR = Dividend Per Share/Market Value Per Share X 100
NRR = 15/400 X 100 = 3.75%
Q.8. Calculate Average Capital Employed
Opening Capital Rs.3,00,000 and Closing Capital Rs.5,00,000
ACE = Opening Capital + Closing Capital / 2
ACE = 3,00,000 + 5,00,000 / 2 = Rs.4,00,000
Q.9. Calculate Normal Profit from the following information taking Average Capital
Employed as base:
Opening Capital Rs.3,00,000 and Closing Capital Rs.5,00,000
Normal Rate of Return (NRR) = 10%
Ans:
Normal Profit = Average Capital Employed X NRR/100
Normal Profit = 4,00,000 X 10/100 = Rs.40,000
ACE = Opening Capital + Closing Capital / 2
ACE = 3,00,000 + 5,00,000 / 2 = Rs.4,00,000
Q.10. Calculate Average Capital Employed
Opening Capital Rs.3,00,000 and Current year’s Profit = Rs.50,000
Ans:
Average Capital Employed = Opening Capital + ½ of Current Year’s Profit
ACE = 3,00,000 + ½ X 50,000 = 3,00,000 + 25,000 = Rs.3,25,000
Q.11. Calculate Average Capital Employed
Closing Capital Rs.5, 00,000 and Current year’s Profit = Rs.50, 000
Ans:
Average Capital Employed = Closing Capital – ½ of Current Year’s Profit
ACE = 5,00,000 – ½ X 50,000 = Rs. 5,00,000 – 25,000 = Rs.4,75,000
Q.12. Calculate Normal Profit from the following information :
Equity Share Capital Rs.4,00,000, Profit & Loss A/c (Cr) = Rs.2,00,000
Normal Rate of Return (NRR) = 10%
Ans:
Normal Profit = Capital Employed X NRR/100
Normal Profit = 6,00,000 X 10/100 = Rs.60,000
Capital Employed = Equity Share Capital + P/L A/c
CE = 4,00,000 + 2,00,000 = Rs.6,00,000
Q.13 Find out amount of Goodwill as per capitalisation of Super Profit Method:
Super Profit = Rs.40,000
NRR = 12%
Ans:
Goodwill = Super Profit X 100/NRR
Goodwill = 40,000 X 100/12 =Rs.3,33,333
Q.14 Find out amount of Goodwill as per capitalisation of Super Profit Method:
Average Profit = Rs.40,000, Normal Profit = Rs.25,000
NRR = 12%
Ans:
Goodwill = Super Profit X 100/NRR
Goodwill = 15,000 X 100/12= Rs.1,25,000
Super Profit = Average Profit – Normal Profit
SP = 40,000-25,000 = Rs.15,000
Valuation of Shares:
Methods of Valuation of Shares:
A) Intrinsic Value:
This is also called as "Net Asset Value" or "Liquidation value" or "Break up Value" or "Asset
backing value" etc.
This method is based on the assumption that the company will be liquidated.
Step -1 Calculation of amount available to Equity shareholders:
Market Value of Assets XXX
Less: Outside Liabilities XXX
__________
XXX
Less: Preference share capital XXX
__________
Amount available to Equity shareholders XXX
_____________
Step- 2 Find out value of a Equity share
Value of an Equity share = Amount available to Equity Shareholders / Number of Equity
shares
Q.15 Find out the amount available for Equity shareholders from the following information:
Land & Building Rs.12,00,000 (Market Value Rs.15,00,000), Plant Rs.5,00,000, Bank
Rs.50,000 and Outside Liabilities Rs.4,00,000. Equity share Capital (Face Value Rs.10)
Rs.1,00,000 and 10% Preference Share Capital Rs.20,000.
Ans:
Assets: (15,00,000 +5,00,000 +50,000) =20,50,000
Less: Outside Liabilities 4,00,000
___________
16,50,000
Less: 10% PSC 20,000
___________
Amount available for ESH Rs.16,30,000
Q.16 Find out the value of an Equity share from the following information:
Land & Building Rs.12,00,000 (Market Value Rs.15,00,000), Plant Rs.5,00,000, Bank
Rs.50,000 and Outside Liabilities Rs.4,00,000. Equity share Capital (Face Value Rs.10)
Rs.1,00,000 and 10% Preference Share Capital Rs.20,000.
Ans:
Step 1
Assets: (15,00,000 +5,00,000 +50,000) =20,50,000
Less: Outside Liabilities 4,00,000
___________
16,50,000
Less: 10% PSC 20,000
___________
Amount available for ESH Rs.16,30,000
Step 2 Value of an Equity share
Value of an Equity share = Amount available to ESH/ Number of Equity shares
Value of an Equity share = 16,30,000/10,000 =Rs.163 per equity share
Number of Equity shares = Equity capital (Rs) / Face Value per share (Rs)
Number of Equity share = 1,00,000/10 =10,000 Equity shares
Q.17 Find out the value of an Equity share from the following information:
Land & Building Rs.15,00,000 (Market Value Rs.22,00,000), Plant Rs.7,00,000 (Market Value
Rs.4,00,000), Bank Rs.70,000 and Outside Liabilities Rs.5,00,000. Equity share Capital (Face
Value Rs.10) Rs.4,00,000 and 8% Preference Share Capital Rs.50,000.
B) Yield Method or Market Value Method:
It is also referred to as "Market Value Method". This method is based on the assumption that
the company is a going concern. It will continue its activities year after year. Therefore, value
of a share is based on the amount of profit that would be available to equity shareholders for
dividend.
Step 1 Calculation of FMP
Profit after Tax XXX
Less: Reserve XXX
_______
XXX
Less: Preference Dividend XXX
_________
Adjusted FMP XXX
Step – 2 Find out rate of FMP
Rate of FMP = FMP
_________ X 100
Paid up Equity Capital
Step -3 Find out value of a Equity share
Value of a Equity share = Rate of FMP
___________ X Amount paid per equity share
NRR
C) Fair Value Method:
Fair Value Method : Intrinsic Value + Yield Value
___________________________
2
Q.17. Find out fair value of equity share from the following information:
Intrinsic Value of a share = Rs.22.50 and Yield Value of a share = Rs.25.40
Ans = Fair value of ES = 22.50 + 25.40 / 2 = Rs.23.95 per share
Ind AS 23 – Borrowing Cost
Ind AS 108 – Operating Segments
Ind AS 33 – Earning Per Share
Ind AS 12 – Income Taxes
Ind AS 16 – Property, Plant and Equipment
Goodwill as per capitalisation= Super Profit X 100 /NRR
Goodwill = 9,167 X 100 /10 = Rs.91,670
AS 12 Income Taxes
Tax base of Asset = Carrying amount – Future Taxable amount + Future Deductible
amount
Taxable Temporary Difference = Carrying Value – Tax Base
Tax base of liability = Carrying amount – Revenue that will not be taxable in future
periods
Corporate Financial Accounting
1. Accounting Policies (Ind AS 1)
2. Economic Value Added (EVA)
3. In India the ICAI is a premier national institution in the
country in accounting profession.
4. ICAI – Institute of Chartered Accountant of India
5. Accounting Standard Board (ASB) in 1977
6. International Accounting Standards (IAS)
7. International Financial Reporting Standards (IFRS)
8. International Financial Reporting Standards (IFRS) issued
by International Accounting Standards Board (IASB).
9. The MCA has issued a notification dated 16th Feb. 2015. It
has announced that there will be two separate sets of
Accounting Standards. The first set is Indian Accounting
Standards (Ind ASs) converged with IFRS. This will be
applicable to specific companies. The second set is existing
Indian Accounting Standards (ASs). It will be applicable to
other companies including small and medium companies
(SMEs). A roadnup for implementation of Ind AS is also
announced. Mandatory implementation of the new standards
would be effective from 2016–17.
10. There are two types of reporting : i) Financial Reporting to
various stakeholders. ii) Management Reporting for internal
management. Both the reporting are equally important. But
financial reporting is very important. It is a vital part of
Corporate Governance.
11. Accounting Policies (Ind AS 1)
12. Director's Report is mandatory as per sec. 217 of the
companies Act 2013.
13. As per clause 49 of the listing agreement it is mandatory to
include the management Discussion and Analysis report as part
of the Annual Report to the shareholders.
14. Economic Value Added (EVA)
Meaning: EVA is the excess of earnings over weighted
average cost of capital.
EVA = Net Operating Profit after Taxes – Cost of Capital
employed
It shows the value added to shareholder's wealth. Positive EVA
shows that the company is making addition to the wealth of the
shareholders. Negative EVA shows that the wealth of the
shareholders is destroying.
15. Standards on Auditing (SAs)
16. Companies (Auditor’s Report) Order, 2013
17. Employee Stock Option Scheme (ESOS)
18. Business Responsibility Report As per SEBI guidelines,
top 100 listed entities based on market capitalization of BSE
and NSE should include Business Responsibility Report in
their Annual Report. Other listed companies may disclose
voluntarily Business Responsibility Report.
19. Unaudited Quarterly Results: All the listed companies are
now required to furnish unaudited quarterly results in the
prescribed format within one month from the end of the quarter
to the stock exchange on which it is listed and publish the same
within 48 hours of the conclusion of the Board meeting in
atleast one national newspaper and one regional newspaper.
Quarterly results are to be prepared on the basis of accrual
accounting policy and in accordance with uniform accounting
practices.
IFRS and IND AS
1. International Financial Reporting Standards (IFRS)
2. Accounting standards are the policy documents issued by the
recognised expert accountancy body relating to various aspects
of measurement, treatment and disclosure of accounting
transactions and events.
3. GAAP (Generally Accepted Accounting principles)
4. On 21st April, 1977; The Institute of Chartered Accountants
of India (ICAI ) constituted Accounting Standards Board
(known as A.S.B.) with a view to harmonise accounting
policies and practices used in India.
5. As a first task to explain nature and scope of standards, and
procedure the A.S.B. issued the first document in January
1979, which is known as ‘Preface to the Statements of
accounting standards’.
6. The IASB held its first official meeting in London in April,
2001. In this meeting it was resolved that all standards and
interpretations issued by the IASC should continue to be
applicable unless and until they are amended or withdrawn. It
was agreed that the new IASB standards would be called as
International Financial Reporting Standards (IFRS). Till date
there are 17 IFRSs and 25 IAS both are referred to as ‘IFRS’
7. The Institute of Chartered Accountants of India (ICAI) has
decided the strategy for adoption of IFRS in India with effect
from 1st April, 2011. At present listed companies over 130
countries and unlisted entitles in over 80 countries in the
European Union, Africa, West Asia and Asia Pacific regions
either require or permit the use of IFRS. Even in the US there
is on going debate about adoption of IFRS replacing the US
GAAP.
8. Now the International Accounting Standards Board (IASB)
that issues IFRS and the Financial Accounting Standards
Boards (FASB) that issues the US GAAP are cooperating and
they have long term projects and short term projects to
converge US GAAP into IFRS.
9. Two separate sets of accounting standards under sec 211
(3C) of the companies Act have been agreed upon by the core
group for convergence of Indian Accounting Standards with
IFRS. For banking and insurance companies, there will be a
separate road map. The core group committee of the
government finalized the road map for IFRS convergence in
India.
10. International Accounting Standard (I.A.S.) IAS relates to
standards on various aspects of accounting issues. These are
mainly relevant for maintenance of accounts as well as
disclosure of information. Till date 41 IAS have been issued,
but 12 have been withdrawn, As on date 29 IAS are in force.
11. Following companies shall comply with Ind AS for the
Accounting period beginning on or after 1st April, 2016 :
i) Companies whose debt equity securities are listed on any
stock exchange in India or outside India having net worth of
Rs. 500 crore or more. Companies other than these and having
net worth of Rs. 500 crore or more.
ii) Following companies shall comply with Ind AS for the
period beginning or after 1st April 2017 :
a) Companies whose equity or debt securities are listed on
stock exchange in India or outside India and having net worth
of less than Rs. 500 crore.
b) Unlisted companies having net worth of Rs.250 crore or
more but less than Rs.500 crore.
IND AS 23 Borrowing Cost
1. QUALIFYING ASSET: An asset which takes substantial
period of time to get ready for its intended use is a qualifying
asset.
2. Not Qualifying Assets
Following are not qualifying assets :
i) Financial Assets
ii) Inventories that are manufactured over a short period
iii) Assets that a ready for use or sale
Q. No. 1 : The cost of raising loans for construction of plant is
capitalised even after commencement of commercial
production. The management argues that it is correct to
capitalise. Do you agree?
Solution : As per Ind AS 23, it is not correct to capitalise the
borrowing cost.
Q.NO. 2 : The notes to accounts of Y Ltd for the year 2020-
21 include the following : Interest on bridge loan from banks
and financial institutions and on debentures specifically
obtained for the company's fertilizer project amount to ` Rs.
1,80,80,000 has been capitalized during the year, which
includes Rs.1,70,33,465 capitalised in respect of the utilisation
of loan and debenture money for the said purpose. Is the
treatment correct? Briefly comment.
Solution : As per Ind AS 23 borrowing cost that is directly
attributable to the acquisition, construction of the qualifying
asset should be capitalized as part of the cost of that asset. Other
borrowing cost is recognised as an expense. In this case ` Rs.
1,70,33,456 should have been capitalized. The remaining
amount Rs. 10,46,535 should be treated as an expense.
IND AS 108 OPERATING SEGMENTS
Chief Operating Decision Maker (CODM)
QUANTITATIVE THRESHOLDS
An entity shall report separately information about an
operating segment that meets any of the thresholds :
Its reported revenue including both sales to external customers
and intersegment sales or transfers is 10% or more of the
combined revenue, internal and external for all operating
segments. The absolute amount of its reported profit or loss is
10% or more of the greater in absolute amount of :
i) Combined reported profits of all the operating segments that
did not report loss and
ii) The combined reported loss of all operating segments that
reported a loss.
iii) Its assets are 10% or more of the combined assets of all
operating segments.
Operating segments that do not meet any of the above
thresholds, may be considered reportable and separately
disclosed if the management believes that information about
the segment would be useful to the users of financial
statements.
