CA (Chartered Accountancy) Intermediate: Advanced Accounting Syllabus

Under AS 12, how is a government grant in the nature of promoters' contribution treated?

It is treated as capital reserve which cannot be distributed as dividend or treated as deferred income; it forms part of shareholders' funds.

Under AS 13 'Accounting for Investments', how are current investments and long-term investments measured?

Current investments are carried at the lower of cost and fair value (determined on individual investment basis). Long-term investments are carried at cost, less a provision for any decline (other than temporary) in value.

Under AS 13, what is the accounting treatment for a 'right shares' subscribed by an investor?

The cost of right shares acquired is added to the carrying amount of the original holding. If rights are not subscribed but sold, the sale proceeds are taken to the profit and loss statement.

Under AS 16, define 'borrowing costs' and state which borrowing costs are eligible for capitalisation.

Borrowing costs are interest and other costs incurred in connection with the borrowing of funds. Those directly attributable to the acquisition, construction or production of a qualifying asset are eligible to be capitalised as part of the cost of that asset; others are expensed.

Under AS 16, what is a 'qualifying asset'?

An asset that necessarily takes a substantial period of time to get ready for its intended use or sale (e.g., manufacturing plants, power generation facilities, investment properties).

Under AS 16, how is the capitalisation rate applied when funds are borrowed generally (not specifically) for a qualifying asset?

The amount capitalised is determined by applying a weighted average capitalisation rate of general borrowings to the expenditure on the asset: $$\text{Capitalised cost} = \text{Capitalisation rate} \times \text{Average expenditure on the asset}.$$

Under AS 17 'Segment Reporting', what are the two bases of segments and how is the primary segment chosen?

Business segments and geographical segments. The primary reporting format is determined by the dominant source and nature of the enterprise's risks and returns; the other becomes the secondary format.

State the AS 17 quantitative thresholds (the '10% rule') for identifying a reportable segment.

A segment is reportable if any of these is at least 10% of the total: its revenue (external + inter-segment), its result (profit or loss, whichever absolute total is greater), or its assets.

Under AS 17, what is the '75% rule' for reportable segments?

If the total external revenue attributable to reportable segments is less than 75% of total enterprise revenue, additional segments must be identified as reportable until at least 75% of total external revenue is included.

Under AS 7 'Construction Contracts', what method must be used to recognise contract revenue and costs?

The percentage of completion method, under which contract revenue and costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date.

Under AS 7, how is an expected loss on a construction contract recognised?

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately, irrespective of the stage of completion.

Give one common formula under AS 7 for computing the stage of completion by the cost basis.

$$\text{Stage of completion} = \frac{\text{Costs incurred to date}}{\text{Total estimated contract costs}} \times 100$$

Under AS 9 'Revenue Recognition', when is revenue from the sale of goods recognised?

When the seller has transferred to the buyer the property in the goods (significant risks and rewards of ownership) for a price, no significant uncertainty exists regarding the consideration, and it is reasonable to expect ultimate collection.

Under AS 9, when is revenue from the rendering of services recognised, and what are the two methods?

When the service is performed. Recognition may use the proportionate completion method (as each act is performed) or the completed service contract method (when the service is fully or substantially completed).

Under AS 9, how are interest, royalties, and dividends recognised?

Interest on a time proportion basis using the effective rate; Royalties on an accrual basis per the relevant agreement; Dividends when the owner's right to receive payment is established.

Under AS 19 'Leases', what is the basic distinction between a finance lease and an operating lease?

A finance lease transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee. An operating lease is any lease other than a finance lease.

List indicators under AS 19 that a lease should be classified as a finance lease.

Ownership transfers by end of term; lessee has a bargain purchase option; lease term is for the major part of the asset's economic life; present value of minimum lease payments is substantially all of the asset's fair value; the asset is of a specialised nature usable only by the lessee.

Under AS 19, how does a lessee record a finance lease at inception?

As an asset and a liability at an amount equal to the fair value of the leased asset, or if lower, the present value of the minimum lease payments. Lease payments are split between finance charge and reduction of the outstanding liability.

Under AS 19, how does a lessee recognise lease payments under an operating lease?

As an expense in the statement of profit and loss on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the user's benefit.

Under AS 20 'Earnings Per Share', state the formula for Basic EPS.

$$\text{Basic EPS} = \frac{\text{Net profit/loss attributable to equity shareholders}}{\text{Weighted average number of equity shares outstanding}}$$

Under AS 20, how is Diluted EPS computed and what are dilutive potential equity shares?

$$\text{Diluted EPS} = \frac{\text{Adjusted net profit attributable to equity shareholders}}{\text{Weighted average equity shares} + \text{dilutive potential equity shares}}$$ Potential equity shares (e.g., convertible debentures, options) are dilutive if their conversion would decrease EPS from continuing operations.

Under AS 20, how does a bonus issue affect the weighted average number of shares?

Bonus shares are treated as if issued at the beginning of the earliest period reported (retrospectively), since no resources are received; prior period EPS figures are restated.

Under AS 22 'Accounting for Taxes on Income', distinguish 'timing differences' from 'permanent differences'.

Timing differences originate in one period and reverse in subsequent periods (e.g., depreciation differences) and give rise to deferred tax. Permanent differences originate in one period and do not reverse (e.g., disallowed expenses) and do not create deferred tax.

Under AS 22, when is a deferred tax asset (DTA) on unabsorbed depreciation or carry-forward losses recognised?

Only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available to realise such DTA.

Under AS 22, give the basic relationship between deferred tax and timing differences.

$$\text{Deferred Tax} = \text{Timing Difference} \times \text{Tax Rate}.$$ A taxable timing difference creates a deferred tax liability; a deductible timing difference creates a deferred tax asset.

What does AS 24 'Discontinuing Operations' primarily require, and is it a measurement standard?

AS 24 establishes principles for reporting (disclosure) information about discontinuing operations to improve users' ability to make projections. It is essentially a disclosure standard and does not establish recognition or measurement principles of its own.

Under AS 24, what is the 'initial disclosure event' that triggers reporting of a discontinuing operation?

The earlier of (a) the enterprise entering into a binding sale agreement for substantially all the assets of the operation, or (b) the board of directors approving and announcing a detailed formal plan for the discontinuance.

Under AS 4 'Contingencies and Events Occurring After the Balance Sheet Date', distinguish adjusting and non-adjusting events.

Adjusting events provide further evidence of conditions existing at the balance sheet date and require adjustment of the financial statements. Non-adjusting events concern conditions arising after the balance sheet date and require only disclosure, not adjustment.

Under AS 4, how are proposed dividends treated (post the 2016 amendment)?

Proposed dividends declared after the balance sheet date but before approval of financial statements are not recognised as a liability at the balance sheet date; they are disclosed in the notes.

Under AS 5, define 'Prior Period Items' and state how they are presented.

Prior period items are income or expenses arising in the current period as a result of errors or omissions in the preparation of prior periods' financial statements. They are separately disclosed in the current statement of profit and loss so their impact on current profit/loss can be perceived.

Under AS 5, what is the difference between a change in accounting policy and a change in accounting estimate?

A change in accounting policy (e.g., changing inventory cost formula) is made only if required by statute/standard or for better presentation, with disclosure of effect. A change in accounting estimate (e.g., revising useful life or bad-debt provision) results from new information and is recognised prospectively in current and future periods.

Under AS 18 'Related Party Disclosures', name the situations deemed to constitute 'related parties'.

Enterprises that control, are controlled by, or are under common control with the reporting enterprise; associates and joint ventures; individuals owning significant voting power and their relatives; key management personnel and their relatives; and enterprises over which any such person can exercise significant influence.

Under AS 18, what is the disclosure requirement when there have been related party transactions?

Disclose the name of the related party, nature of the relationship, nature and volume of transactions, outstanding amounts at the balance sheet date, provisions for doubtful debts, and amounts written off/back during the period.

Under AS 14 'Accounting for Amalgamations', distinguish amalgamation in the nature of merger from amalgamation in the nature of purchase.

An amalgamation in the nature of merger satisfies all five specified conditions (genuine pooling of assets, liabilities and shareholders' interests). An amalgamation in the nature of purchase is one that does not satisfy all those conditions.

Under AS 14, which accounting method applies to a merger versus a purchase amalgamation?

The Pooling of Interests method applies to amalgamation in the nature of merger (assets, liabilities and reserves recorded at existing carrying amounts). The Purchase method applies to amalgamation in the nature of purchase (assets and liabilities at fair/agreed values, with goodwill or capital reserve recognised).

Under AS 14, how are goodwill and capital reserve determined and treated under the purchase method?

Goodwill arises when purchase consideration exceeds the net assets acquired and is amortised over a period not exceeding 5 years. Capital reserve arises when net assets exceed purchase consideration.

Under AS 26 'Intangible Assets', define an intangible asset and state its recognition criteria.

An identifiable non-monetary asset, without physical substance, held for use in production/supply of goods or services, rental, or administration. Recognised when it is probable that future economic benefits will flow to the enterprise and the cost can be measured reliably.

Under AS 26, how are research costs and development costs treated?

Research costs are expensed as incurred. Development costs are capitalised as an intangible asset only if all the prescribed criteria (technical feasibility, intention and ability to complete and use/sell, probable future benefits, availability of resources, reliable cost measurement) are met.

Under AS 26, what is the rebuttable presumption regarding the useful life and amortisation of an intangible asset?

There is a rebuttable presumption that the useful life will not exceed 10 years from the date the asset is available for use, and it is amortised on a systematic basis (straight-line method preferred unless another reflects the pattern of benefits).

Under AS 28 'Impairment of Assets', when is an asset impaired and how is the impairment loss measured?

An asset is impaired when its carrying amount exceeds its recoverable amount. The impairment loss equals the excess of carrying amount over recoverable amount and is recognised as an expense (or against revaluation surplus for revalued assets).

Under AS 28, define 'recoverable amount'.

Recoverable amount is the higher of an asset's net selling price and its value in use: $$\text{Recoverable Amount} = \max(\text{Net Selling Price},\ \text{Value in Use}).$$ Value in use is the present value of estimated future cash flows from the asset and its disposal.

Under AS 28, what is a Cash Generating Unit (CGU)?

The smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. Impairment is tested at the CGU level when an individual asset's recoverable amount cannot be determined.

Under AS 29 'Provisions, Contingent Liabilities and Contingent Assets', state the three conditions for recognising a provision.

A present obligation exists as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

Under AS 29, distinguish a provision from a contingent liability and state the treatment of each.

A provision is a present obligation that is probable and reliably estimable, so it is recognised in the books. A contingent liability is a possible obligation (or a present obligation that is not probable or not reliably measurable); it is not recognised but only disclosed.

Under AS 29, how are contingent assets treated?

Contingent assets are not recognised in the financial statements (to avoid recognising income that may never be realised). They are disclosed in the approving authority's report only when the inflow of economic benefits is probable.

Under AS 2, are the methods 'standard cost' and 'retail method' acceptable for measuring cost of inventory?

Yes, as techniques of cost measurement (for convenience) provided the results approximate actual cost. Standard cost takes normal levels of materials, labour and efficiency; the retail method reduces sales value by the appropriate gross margin percentage.

Under AS 3, give two examples each of investing and financing cash flows.

Investing: purchase/sale of fixed assets and purchase/sale of investments. Financing: proceeds from issue of shares/debentures, repayment of borrowings, and payment of dividends to shareholders.

Under AS 11, how are forward exchange contracts (not for speculation) accounted?

The premium or discount (difference between forward rate and spot rate at inception) is amortised over the life of the contract. The exchange difference on such a contract is recognised in profit or loss in the reporting period in which the exchange rates change.

Under AS 13, how is the cost of investment acquired in exchange for shares/securities or another asset determined?

It is the fair value of the securities issued or the asset given up (whichever is more clearly evident), which may equal the fair value of the investment acquired if that is more clearly evident.

Under AS 16, what happens to capitalisation of borrowing costs during an extended interruption of active development of a qualifying asset?

Capitalisation of borrowing costs is suspended during extended periods in which active development of the qualifying asset is interrupted, and resumes when active development restarts.

Under AS 16, when does capitalisation of borrowing costs cease?

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

Under AS 7, how are incentive payments and claims included in contract revenue?

They are included in contract revenue to the extent that it is probable they will result in revenue and they are capable of being reliably measured.

Under AS 19, how is a finance lease accounted for by a lessor?

The lessor recognises assets held under a finance lease as a receivable equal to the net investment in the lease. Finance income is recognised based on a pattern reflecting a constant periodic rate of return on the lessor's net investment.

Under AS 19, how is a sale and leaseback transaction resulting in a finance lease treated?

Any excess of sale proceeds over the carrying amount is not immediately recognised as income; it is deferred and amortised over the lease term, because the transaction is essentially a financing arrangement.

Under AS 20, how are partly paid equity shares treated in computing the weighted average number of shares?

Partly paid equity shares are treated as a fraction of an equity share to the extent they were entitled to participate in dividends relative to a fully paid equity share during the period.

Under AS 22, why might the deferred tax balance differ from the difference between book profit and taxable profit multiplied by the tax rate?

Because deferred tax arises only on timing differences (which reverse), not on permanent differences. The total difference between book and taxable profit includes permanent differences, which never create deferred tax.

Under AS 10, how is the gain or loss on derecognition (disposal) of an item of PPE determined and presented?

It is the difference between the net disposal proceeds and the carrying amount of the item, recognised in the statement of profit and loss; such gains are not classified as revenue.

Under AS 10, how are spare parts, stand-by equipment and servicing equipment classified?

They are recognised as PPE when they meet the definition of PPE (used during more than one period); otherwise they are classified as inventory.

Under AS 12, how is a non-monetary government grant given at a concessional rate or free of cost accounted?

A non-monetary asset given free of cost is recorded at a nominal value; if given at a concessional rate, it is accounted for at its acquisition cost.

Under AS 12, how is the refund of a government grant related to a fixed asset accounted?

It is recorded by increasing the carrying amount of the asset (if the grant was deducted from cost) or by reducing the deferred income/capital reserve balance, with the additional depreciation that would have been charged charged immediately to profit and loss.

Under AS 5, define 'Extraordinary Items' and how they are disclosed.

Extraordinary items are income or expenses arising from events or transactions clearly distinct from the ordinary activities of the enterprise and not expected to recur frequently or regularly. They are disclosed separately in the statement of profit and loss as part of net profit/loss for the period.

Under AS 18, list transactions that do NOT require related party disclosure even between related parties.

Disclosure is not required for state-controlled enterprises' transactions with other state-controlled enterprises, and where providing it would conflict with duties of confidentiality under statute. Also, no disclosure is needed of compensation that an entity pays in the capacity of an employer.

Under AS 26, can internally generated goodwill, brands, mastheads, publishing titles and customer lists be recognised as intangible assets?

No. Internally generated goodwill is not recognised. Internally generated brands, mastheads, publishing titles, customer lists and similar items are not recognised because expenditure on them cannot be distinguished from the cost of developing the business as a whole.

Under AS 28, how is a reversal of a previously recognised impairment loss treated?

An impairment loss is reversed (and income recognised) if there has been a change in the estimates of recoverable amount, but the increased carrying amount must not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years.

Under AS 29, how should the amount recognised as a provision be measured?

At the best estimate of the expenditure required to settle the present obligation at the balance sheet date. Where the time value of money is material, provisions under Ind AS may be discounted, but AS 29 generally does not permit discounting to present value.

Compare the carrying basis of current versus long-term investments under AS 13 in one line each.

Current investments: lower of cost and fair value (decline and any reversal both recognised). Long-term investments: cost less provision for other-than-temporary decline (temporary declines are ignored).

Under AS 17, what does a 'business segment' versus a 'geographical segment' represent?

A business segment is a distinguishable component providing an individual product/service or group of related products/services subject to different risks and returns. A geographical segment provides products/services within a particular economic environment subject to risks and returns different from other environments.

Under AS 4, give an example of an adjusting event and a non-adjusting event after the balance sheet date.

Adjusting: insolvency of a customer occurring after year-end confirming a debt was doubtful at the balance sheet date (adjust receivables). Non-adjusting: a fire destroying a factory after the balance sheet date (disclose only, no adjustment).

Under AS 9, when should revenue recognition be postponed?

When at the time of raising any claim there is significant uncertainty regarding the ultimate collection of the consideration; revenue is recognised only when it becomes reasonably certain that the consideration will be collected.

Under AS 14, how are statutory reserves of the transferor company treated in an amalgamation in the nature of purchase?

Statutory reserves (such as those required by law) are preserved by crediting an 'Amalgamation Adjustment Reserve' (shown as a debit) so the identity of the statutory reserve is retained for as long as legally required, after which it is reversed.

Under AS 22, present the Statement of Profit and Loss treatment showing how current and deferred tax affect profit.

$$\text{Profit after tax} = \text{Profit before tax} - \text{Current tax} - \text{Deferred tax (net)}.$$ Current tax is on taxable income; deferred tax is the net charge/credit from origination/reversal of timing differences.

Under AS 20, define 'potential equity share' and give three examples.

A potential equity share is a financial instrument or contract that may entitle its holder to equity shares. Examples: convertible debentures or preference shares, share warrants and options (e.g., ESOPs), and shares issuable on satisfaction of contractual conditions.

Under AS 10, how is depreciation treated when an asset is revalued, and how does the revaluation surplus move on retirement?

After revaluation, depreciation is charged on the revalued (carrying) amount over the remaining useful life. On retirement/disposal of the revalued asset, any related revaluation surplus may be transferred directly to retained earnings (general reserve), not through profit and loss.