CA (Chartered Accountancy) Final: Financial Reporting and Advanced FM Syllabus

Under Ind AS 115, when is revenue for a performance obligation recognised over time?

Over time if any one is met: (a) the customer simultaneously receives and consumes the benefits as the entity performs; (b) the entity's performance creates or enhances an asset the customer controls; or (c) the asset created has no alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. Otherwise revenue is recognised at a point in time.

Under Ind AS 115, what two methods are allowed for estimating variable consideration, and what constraint applies?

The expected value (probability-weighted) method or the most likely amount method. Variable consideration is included only to the extent it is highly probable that a significant reversal of cumulative revenue will not occur when the uncertainty is resolved (the constraint).

Under Ind AS 116, what is the definition of a lease?

A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control = the right to direct the use of the asset and obtain substantially all the economic benefits from its use.

How does a lessee account for a lease under Ind AS 116 (single model)?

At commencement the lessee recognises a right-of-use (ROU) asset and a lease liability. The lease liability is measured at the present value of lease payments not yet paid; the ROU asset at cost (initial liability + prepayments + initial direct costs + dismantling costs − lease incentives). Subsequently the ROU asset is depreciated and the liability is unwound using interest.

What two recognition exemptions does Ind AS 116 give a lessee?

Short-term leases (lease term of 12 months or less with no purchase option) and leases of low-value underlying assets. For these the lessee may recognise payments as an expense on a straight-line basis (or another systematic basis).

How does a lessor classify and account for leases under Ind AS 116?

The lessor retains the dual model: classify each lease as a finance lease (transfers substantially all risks and rewards incidental to ownership — derecognise asset, recognise net investment/receivable) or an operating lease (recognise lease income on a straight-line basis and keep the asset on its books).

Write the formula for the initial measurement of a lease liability under Ind AS 116.

$$\text{Lease Liability} = \sum_{t=1}^{n} \frac{LP_t}{(1+r)^{t}}$$ where $LP_t$ is the lease payment in period $t$, $r$ is the interest rate implicit in the lease (or the lessee's incremental borrowing rate if that rate cannot be readily determined), and $n$ is the lease term.

Under Ind AS 16, what costs are included in the initial cost of an item of Property, Plant and Equipment?

Purchase price (including import duties and non-refundable taxes, less trade discounts/rebates) + directly attributable costs of bringing the asset to its location and condition for intended use + initial estimate of dismantling, removal and site restoration costs (a provision under Ind AS 37).

Under Ind AS 16, contrast the cost model and the revaluation model for subsequent measurement.

Cost model: carry at cost less accumulated depreciation and accumulated impairment losses. Revaluation model: carry at fair value at revaluation date less subsequent accumulated depreciation and impairment; revaluations must be regular; increases go to OCI (revaluation surplus) and decreases to P&L (except to reverse a prior surplus).

Under Ind AS 38, what are the recognition criteria for an intangible asset?

An identifiable non-monetary asset without physical substance is recognised only if (a) it is probable that expected future economic benefits will flow to the entity and (b) the cost of the asset can be measured reliably. 'Identifiable' means separable or arising from contractual/legal rights.

Under Ind AS 38, how are research costs and development costs treated?

Research costs are always expensed as incurred. Development costs are capitalised only if all six PIRATE criteria are met: technical Feasibility, Intention to complete, Ability to use/sell, generation of future economic benefit (Probable), availability of Resources, and ability to measure Expenditure reliably.

How are intangible assets with indefinite useful lives treated under Ind AS 38 regarding amortisation?

They are NOT amortised. Instead they are tested for impairment at least annually (and whenever there is an indication of impairment) under Ind AS 36, and the indefinite-life assessment is reviewed each period.

Under Ind AS 40, what is investment property and which measurement models are available?

Investment property is land or building (or part) held to earn rentals or for capital appreciation, rather than for use in production/supply/administration or sale in the ordinary course of business. Subsequently it is measured under the cost model (Ind AS 40 mandates the cost model with fair value disclosure; the fair value model of IAS 40 is not permitted).

Under Ind AS 36, define recoverable amount and state when an impairment loss is recognised.

Recoverable amount is the higher of an asset's (or CGU's) fair value less costs of disposal and its value in use. An impairment loss is recognised when the carrying amount exceeds the recoverable amount, written down to recoverable amount; the formula is $\text{Impairment} = \text{Carrying amount} - \text{Recoverable amount}$ (if positive).

Under Ind AS 36, how is value in use calculated?

$$VIU = \sum_{t=1}^{n} \frac{CF_t}{(1+r)^{t}}$$ where $CF_t$ is the estimated future pre-tax cash flow from continuing use and ultimate disposal in period $t$ and $r$ is the pre-tax discount rate reflecting current market assessments of the time value of money and asset-specific risks.

Under Ind AS 36, can an impairment loss on goodwill be reversed?

No. An impairment loss recognised for goodwill is never reversed in a subsequent period. Impairment losses on other assets may be reversed (up to the carrying amount net of normal depreciation that would have existed) if the recoverable amount increases.

Under Ind AS 32, what is the key principle for classifying an instrument as a financial liability versus equity?

Classification follows substance over form: a contractual obligation to deliver cash or another financial asset (or to exchange on potentially unfavourable terms) is a financial liability; an instrument is equity only if there is no such contractual obligation and it evidences a residual interest in net assets. A compound instrument (e.g., convertible bond) is split into liability and equity components.

Under Ind AS 109, what are the three classification categories for financial assets and the criteria?

(1) Amortised cost — business model to hold to collect contractual cash flows AND cash flows are solely payments of principal and interest (SPPI). (2) FVOCI — business model to hold to collect and sell AND SPPI. (3) FVTPL — residual category (held for trading or fails the above tests, or designated under fair value option).

Under Ind AS 109, how is the impairment of financial assets measured?

Using the Expected Credit Loss (ECL) model. General approach has three stages: Stage 1 recognises 12-month ECL; Stages 2 and 3 (significant increase in credit risk / credit-impaired) recognise lifetime ECL. A simplified approach (always lifetime ECL) applies to trade receivables, contract assets and lease receivables.

Write the general formula for Expected Credit Loss (ECL) under Ind AS 109.

$$ECL = PD \times LGD \times EAD$$ where $PD$ is the probability of default, $LGD$ is the loss given default (1 minus recovery rate), and $EAD$ is the exposure at default. ECL is the probability-weighted present value of expected cash shortfalls.

Under Ind AS 109, what are the three types of hedging relationships?

(1) Fair value hedge — hedges exposure to changes in fair value of a recognised asset/liability or firm commitment. (2) Cash flow hedge — hedges exposure to variability in cash flows of a recognised item or highly probable forecast transaction. (3) Hedge of a net investment in a foreign operation.

Under Ind AS 109, how are gains/losses on the hedging instrument recognised for a fair value hedge versus a cash flow hedge?

Fair value hedge: gain/loss on the hedging instrument goes to P&L, and the hedged item's carrying amount is adjusted for the hedged risk with the offset also in P&L. Cash flow hedge: the effective portion goes to OCI (cash flow hedge reserve) and is later reclassified to P&L when the hedged cash flows affect profit; any ineffective portion goes straight to P&L.

What three qualifying criteria must be met for hedge accounting under Ind AS 109?

(1) Only eligible hedging instruments and hedged items are involved; (2) there is formal designation and documentation at inception of the hedge relationship, objective and strategy; and (3) the hedging relationship meets the effectiveness requirements (economic relationship exists, credit risk does not dominate value changes, and the hedge ratio is appropriate).

Under Ind AS 12, define temporary difference and distinguish taxable from deductible temporary differences.

A temporary difference is the difference between the carrying amount of an asset/liability and its tax base. A taxable temporary difference gives rise to a deferred tax liability (taxable amounts in future). A deductible temporary difference gives rise to a deferred tax asset (deductible amounts in future).

Under Ind AS 12, at what rate are deferred tax assets and liabilities measured, and are they discounted?

They are measured at the tax rates expected to apply when the asset is realised or the liability settled, based on tax rates/laws enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are NOT discounted.

Under Ind AS 12, when is a deferred tax asset recognised?

A deferred tax asset is recognised for deductible temporary differences, unused tax losses and unused tax credits only to the extent that it is probable that future taxable profit will be available against which the deductible difference/loss/credit can be utilised.

Under Ind AS 19, what are the four categories of employee benefits?

(1) Short-term employee benefits (e.g., wages, paid leave within 12 months); (2) Post-employment benefits (e.g., pensions, gratuity); (3) Other long-term employee benefits; and (4) Termination benefits.

Under Ind AS 19, distinguish defined contribution plans from defined benefit plans.

In a defined contribution plan the entity pays fixed contributions and has no obligation beyond them (the employee bears actuarial/investment risk; expense = contribution payable). In a defined benefit plan the entity guarantees a defined benefit and bears actuarial and investment risk; the obligation is measured actuarially using the Projected Unit Credit Method, recognising the net defined benefit liability/asset.

Under Ind AS 19, how are remeasurements of the net defined benefit liability/asset (actuarial gains and losses) recognised?

Remeasurements — actuarial gains/losses, return on plan assets (excluding amounts in net interest) and changes in the effect of the asset ceiling — are recognised in Other Comprehensive Income and are NOT subsequently reclassified to profit or loss (may be transferred within equity).

Under Ind AS 102, what are the three types of share-based payment transactions?

(1) Equity-settled (entity receives goods/services in exchange for its own equity instruments); (2) Cash-settled (liability for amounts based on the price/value of equity instruments); and (3) transactions with a choice of settlement (cash or equity, by the entity or the counterparty).

Under Ind AS 102, how is an equity-settled share-based payment to employees measured and recognised?

Measured at the fair value of the equity instruments granted at the grant date (not remeasured for subsequent changes in fair value). The amount is recognised as an expense over the vesting period, with a corresponding increase in equity, and the estimate of the number of instruments expected to vest is revised for non-market vesting conditions.

Under Ind AS 37, what three conditions must be met to recognise a provision?

(1) The entity has a present obligation (legal or constructive) as a result of a past event; (2) it is probable (more likely than not) that an outflow of economic resources will be required to settle the obligation; and (3) a reliable estimate of the amount can be made.

Under Ind AS 37, distinguish a provision, a contingent liability and a contingent asset.

A provision is recognised (probable outflow, reliable estimate). A contingent liability is NOT recognised but disclosed — a possible obligation, or a present obligation that is not probable or cannot be reliably measured. A contingent asset is NOT recognised but disclosed when an inflow is probable; it is recognised only when realisation becomes virtually certain.

Under Ind AS 103, what is a business combination and which method is used to account for it?

A business combination is a transaction or event in which an acquirer obtains control of one or more businesses. All business combinations within scope are accounted for using the acquisition method.

List the four steps of the acquisition method under Ind AS 103.

(1) Identify the acquirer; (2) determine the acquisition date; (3) recognise and measure the identifiable assets acquired, liabilities assumed and any non-controlling interest (generally at fair value at acquisition date); and (4) recognise and measure goodwill or a gain from a bargain purchase.

Under Ind AS 103, write the formula for goodwill arising in a business combination.

$$\text{Goodwill} = (\text{Consideration transferred} + \text{NCI} + \text{FV of previously held interest}) - \text{FV of identifiable net assets acquired}$$ If the result is negative, it is a bargain purchase gain recognised in profit or loss (after reassessment).

Under Ind AS 103, what two options are available for measuring non-controlling interest (NCI), and how does each affect goodwill?

(a) Fair value method (full goodwill) — NCI at acquisition-date fair value, giving goodwill attributable to both parent and NCI; (b) Proportionate share method — NCI at its proportionate share of the acquiree's identifiable net assets, giving only the parent's share of goodwill (partial goodwill). The choice is made on a transaction-by-transaction basis.

Under Ind AS 103, how is contingent consideration classified and subsequently measured?

It is measured at fair value at the acquisition date and included in consideration. If classified as equity, it is not remeasured; settlement is within equity. If classified as a liability (or asset), it is remeasured to fair value at each reporting date with changes recognised in profit or loss.

Under Ind AS 110, what is the definition of control?

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee AND has the ability to affect those returns through its power over the investee. All three elements — power, exposure to variable returns, and the link between power and returns — must exist.

Under Ind AS 110, what is the basic procedure to prepare consolidated financial statements?

Combine like items of assets, liabilities, equity, income, expenses and cash flows of parent and subsidiaries line-by-line; eliminate the parent's investment against its portion of each subsidiary's equity (recognising goodwill); eliminate intragroup balances, transactions, income, expenses and unrealised profits in full; and present non-controlling interests separately within equity.

Under Ind AS 110, how is a change in a parent's ownership interest that does NOT result in loss of control accounted for?

It is accounted for as an equity transaction (transaction between owners). No gain or loss is recognised in profit or loss and goodwill is not adjusted; the carrying amounts of controlling and non-controlling interests are adjusted, with any difference between the consideration and the NCI adjustment recognised directly in equity attributable to the parent.

Under Ind AS 110, how does a parent account for the loss of control of a subsidiary?

The parent derecognises the subsidiary's assets, liabilities and NCI; recognises the fair value of any consideration received and of any retained interest; and recognises the resulting gain or loss in profit or loss. Amounts previously recognised in OCI are reclassified or transferred as required.

Under Ind AS 111, what are the two types of joint arrangements and how is each accounted for?

(1) Joint operation — parties (joint operators) have rights to the assets and obligations for the liabilities; each recognises its own assets, liabilities, revenue and expenses (and its share of jointly held/incurred ones). (2) Joint venture — parties (joint venturers) have rights to the net assets; accounted for using the equity method under Ind AS 28.

Under Ind AS 111, what is the definition of joint control?

Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Under Ind AS 28, what is significant influence and what presumption is used to identify it?

Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not control or joint control. It is presumed when the investor holds 20% or more (but less than 50%) of the voting power, unless clearly demonstrated otherwise; below 20% it is presumed absent unless demonstrated.

Under Ind AS 28, describe the equity method of accounting for associates and joint ventures.

The investment is initially recognised at cost and subsequently adjusted for the investor's share of the investee's post-acquisition profit or loss (recognised in P&L) and OCI (recognised in OCI). Dividends received reduce the carrying amount. The carrying amount is also reduced for impairment, and losses are recognised until the investment reaches nil (then suspended).

Under Ind AS 28, how are unrealised profits on transactions between an investor and its associate/joint venture treated?

Profits and losses resulting from upstream (associate to investor) and downstream (investor to associate) transactions are eliminated to the extent of the investor's interest in the associate/joint venture; the investor's share of the associate's profits/losses from such transactions is removed.

Compare the accounting outcomes for control (Ind AS 110), joint control of a joint venture (Ind AS 111/28), and significant influence (Ind AS 28).

Control → full consolidation (line-by-line, with NCI). Joint control of a joint venture and significant influence over an associate → equity method (single-line investment adjusted for share of profit/OCI). Joint control of a joint operation → recognise the entity's own share of assets, liabilities, income and expenses.