CA Final PAPER 1: FINANCIAL REPORTING Syllabus

Under Ind AS 2, how is inventory measured and what cost formulas are permitted?

Inventory is measured at the lower of cost and net realisable value. Permitted cost formulas are FIFO or weighted average cost; LIFO is prohibited. Specific identification is used for items not ordinarily interchangeable.

Define Net Realisable Value (NRV) under Ind AS 2.

NRV is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Under Ind AS 16, what is the measurement at recognition for an item of Property, Plant and Equipment?

It is measured at cost, comprising purchase price (net of trade discounts) plus import duties and non-refundable taxes, directly attributable costs of bringing the asset to working condition, and the initial estimate of dismantling/restoration costs.

Under Ind AS 16, what are the two measurement models permitted after recognition?

Cost model (cost less accumulated depreciation and impairment losses) or Revaluation model (fair value at revaluation date less subsequent accumulated depreciation and impairment).

Under Ind AS 36, what is the recoverable amount of an asset?

Recoverable amount is the higher of an asset's (or CGU's) fair value less costs of disposal and its value in use.

How is an impairment loss measured and recognised under Ind AS 36?

Impairment loss = carrying amount minus recoverable amount, recognised in profit or loss (unless the asset is carried at a revalued amount, where it first reduces the revaluation surplus). For a CGU, it is allocated first to goodwill, then pro rata to other assets.

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

An intangible asset is recognised if it is identifiable, controlled by the entity, expected to generate future economic benefits, the cost can be measured reliably, and it meets the asset definition (non-monetary, without physical substance).

Under Ind AS 38, can internally generated research costs be capitalised?

No. Research phase expenditure is expensed; development phase costs are capitalised only when technical feasibility, intention/ability to complete and use/sell, probable future benefits, availability of resources, and reliable cost measurement are all demonstrated.

Under Ind AS 37, what is the recognition criteria for a provision?

A provision is recognised when: (a) there is a present obligation (legal or constructive) from a past event; (b) an outflow of resources is probable; and (c) a reliable estimate of the amount can be made.

Distinguish a contingent liability from a provision under Ind AS 37.

A provision is recognised in the financials. A contingent liability is not recognised but disclosed; it is a possible obligation depending on uncertain future events, or a present obligation where outflow is not probable or cannot be reliably measured.

Under Ind AS 12, define deferred tax liability and deferred tax asset.

A deferred tax liability is the income tax payable in future on taxable temporary differences; a deferred tax asset is the income tax recoverable in future on deductible temporary differences, unused tax losses and unused tax credits.

What is a temporary difference under Ind AS 12?

It is the difference between the carrying amount of an asset/liability in the balance sheet and its tax base; it may be taxable (gives rise to DTL) or deductible (gives rise to DTA).

Under Ind AS 21, how is a foreign currency monetary item translated at the reporting date and where are exchange differences recognised?

Monetary items are translated at the closing rate. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss in the period they arise.

Under Ind AS 21, at what rate are non-monetary items measured at historical cost translated?

At the exchange rate at the date of the transaction (historical rate); they are not retranslated at the closing rate.

Under Ind AS 23, when must borrowing costs be capitalised?

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset must be capitalised as part of its cost; all other borrowing costs are expensed.

Define a qualifying asset under Ind AS 23.

A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale.

Under Ind AS 20, what are the two recognised methods of presenting government grants related to assets?

Either (a) deferred income method — set up the grant as deferred income recognised over the asset's life, or (b) deduction method — deduct the grant in arriving at the carrying amount of the asset. Note: Ind AS 20 does not permit crediting grants directly to capital reserve/shareholders' funds.

Under Ind AS 116, how does a lessee account for a lease at commencement?

A lessee recognises a right-of-use asset and a lease liability for almost all leases; the lease liability is the present value of unpaid lease payments, and the ROU asset includes the liability plus initial direct costs, prepayments and restoration costs.

What two recognition exemptions are available to a lessee under Ind AS 116?

Short-term leases (term of 12 months or less with no purchase option) and leases of low-value underlying assets; for these, payments may be recognised as expense on a straight-line basis.

Under Ind AS 24, who are key management personnel (KMP)?

KMP are persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (executive or otherwise).

Under Ind AS 33, how is Basic Earnings Per Share computed?

Basic EPS = (Profit/loss attributable to ordinary equity shareholders of the parent) divided by the weighted average number of ordinary shares outstanding during the period.

What adjustment characterises Diluted EPS under Ind AS 33?

Diluted EPS adjusts the numerator and the weighted average shares for the effects of all dilutive potential ordinary shares (e.g., convertible instruments, options, warrants).

Under Ind AS 108, how is an operating segment identified?

An operating segment is a component that engages in business activities earning revenues/incurring expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM) to allocate resources and assess performance, and for which discrete financial information is available.

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

Amortised cost; Fair value through other comprehensive income (FVOCI); and Fair value through profit or loss (FVTPL). Classification depends on the business model and the contractual cash flow (SPPI) characteristics.

What is the SPPI test under Ind AS 109?

The Solely Payments of Principal and Interest test assesses whether contractual cash flows are solely payments of principal and interest on the principal outstanding; passing it (with the appropriate business model) allows amortised cost or FVOCI classification.

Under Ind AS 109, what impairment model is used for financial assets?

The Expected Credit Loss (ECL) model — a forward-looking model recognising expected losses in three stages (12-month ECL for Stage 1; lifetime ECL for Stages 2 and 3 where credit risk has increased significantly or the asset is credit-impaired).

Under Ind AS 103, what method must be used for all business combinations and what are its key steps?

The acquisition method. Steps: (1) identify the acquirer; (2) determine the acquisition date; (3) recognise and measure identifiable assets acquired, liabilities assumed and any non-controlling interest; (4) recognise and measure goodwill or a bargain purchase gain.

Under Ind AS 103, how is goodwill (or bargain purchase) computed?

Goodwill = (Consideration transferred + NCI + fair value of previously held interest) − net of acquisition-date fair values of identifiable assets acquired and liabilities assumed. A negative figure is a bargain purchase, recognised as a gain in OCI/capital reserve after reassessment.

Under Ind AS 110, what are the three elements of control over an investee?

An investor controls an investee when it has: (1) power over the investee; (2) exposure or rights to variable returns from its involvement; and (3) the ability to use its power to affect the amount of those returns.

Under Ind AS 27, how are investments in subsidiaries, associates and joint ventures accounted for in separate financial statements?

They are accounted for either at cost, or in accordance with Ind AS 109 (fair value), or using the equity method as per Ind AS 28 — applying the chosen policy consistently to each category of investment.

In CA Final ethics, what are the fundamental principles of professional ethics a Chartered Accountant must observe?

Integrity, Objectivity, Professional competence and due care, Confidentiality, and Professional behaviour (as per the ICAI Code of Ethics).

What are the key ethical threats identified in the ICAI Code of Ethics relevant to financial reporting?

Self-interest threat, Self-review threat, Advocacy threat, Familiarity threat, and Intimidation threat — each requiring appropriate safeguards to reduce them to an acceptable level.

How is the evolution of accounting in the technological environment changing the profession (XBRL, AI, Blockchain)?

Technologies such as XBRL (standardised digital financial reporting tagging), Artificial Intelligence/data analytics (automated analysis and audit), Blockchain (immutable distributed ledgers reducing reconciliation), cloud accounting and RPA are automating routine bookkeeping, enabling real-time reporting and shifting accountants toward analysis, assurance and advisory roles.