The Board of directors of K Ltd approved the financial statements for the reporting period FY 22-23 on 15th June 2023. The management of K Ltd discovered a major fraud and has decided to reopen the books of accounts. The financial statements were subsequently approved by the board of directors on 30th June 2023. What is the date of approval for issue as per Ind As 10.

The date of approval as per Ind As 10 is 30th June 2023.

The date of approval as per Ind As 10 is 15th June 2023.

The date of approval as per Ind As 10 is the date on which AGM is held for the approval of FS.

XYZ Ltd. has completed the construction of a building (a qualifying asset) but is not permitted to use it until certain safety approvals are obtained as per the government regulations. Should capitalisation of borrowing costs be continued when the qualifying asset has been constructed and is ready for use but is not permitted to be used until safety approvals are obtained?

Safety approvals does not require any activity pending from XYZ Ltd`s side and hence capitalisation should not be continued.

XYZ ltd can decide as to whether to continue the borrowing cost capitalisation or writing off in P&L.

EAC opinion to be obtained as to whether to continue with capitalisation or to cease the capitalisation.

S Ltd. financed the construction of a qualifying asset with an intercompany loan taken from its parent company P Ltd. with an interest rate of 7% p.a. P Ltd. in-turn has obtained the said loan from a Bank at the same rate of interest of 7% p.a. for the specific purpose of providing it to S Ltd. Since, the qualifying asset is in the subsidiary company and the borrowings in the parent company, how is this treated in the separate financial statements of both entities as per Ind AS 23

P Ltd has the ultimate borrowings and capitalise the borrowing cost in its books of accounts and do not recognise any borrowing cost in S ltd books

P Ltd will and S ltd will both treat the interest cost as borrowing cost incurred, however capitalisation of borrowing cost will happen in P ltd`s books of accounts.

S ltd cannot capitalise the borrowing cost, as the loan amount is borrowed from the Parent company and not from any bank or financial institution

Z Ltd. issued preference shares that are mandatorily redeemable at premium in 10 years to raise funds of Rs. 10,00,000 for the purpose of obtaining a qualifying asset. It carries compulsory cumulative 10 per cent dividend payments to be made annually. Provided that 10 per cent is the market rate of return for this similar type of instrument when issued. Z Ltd. has assumed a contractual obligation to make a future stream of 10 per cent payments in return. Whether Z Ltd. can capitalise dividend payable to preference shareholders as borrowing costs as per Ind AS 23?

Preference shares even if is part of share capital, in substance it is is a financial liability and EIR should be calculated and used for capitalisation as borrowing cost.

Preference shares forms part of share capital and dividends can never ever be treated as borrowing cost.

Irrespective of whether the financial instrument is in the nature of equity or a liability any amount paid in the form of dividends/interests it shall be treated as borrowing cost.

KS Ltd has created 3 provisions for the year ended FY 22-23. 1. Provision for warranty obligation 2. Provision for guarantee on account of the loan taken by its subsidiary named SK Ltd . 3. Accrued Interest payable on borrowings. Whether the company`s treatment for the above-mentioned transactions in line with Ind as -37.

The company`s accounting treatment for 1 is inline with Ind as -37 and 2&3 is not in line with Ind as-37.

The company`s accounting treatement for all the 3 is inline with Ind as -37.

The company`s accounting treatment for 1 &3 is inline with Ind as -37 and 2 is not in line with Ind as-37.

The company`s accounting treatment for 1 &2 is inline with Ind as -37 and 3 is not in line with Ind as-37.

AD Ltd is an automobile component manufacturer. The automobile manufacturer has specified a delivery schedule and non adherence will entail a penalty. The penalty clause is variable based on the actual delivery date. As on March 31, 2023, the reporting date, the manufacturer has a delivery scheduled for June 2024. However the manufacturer is aware that he will not be able to meet the delivery schedule in June 2024. Determine whether the entity has a present obligation as at March 31, 2023 or March 31,2024 requiring recognition of provision.

Ad Ltd need not recognise a liability nor a provision as on 31st March 2023 or 31st March 2024.

Ad ltd is sure that it will pay a penalty and timing to be paid is also specified then liability should be created, on 31st March 2023 as there is no uncertainity regarding the amount and timing.

Ad ltd is sure that it will pay the penalty but amount is not certain and hence provision should be created as on 31st March 2023.

Management may decide for creation of provision as on 31st March 2023 or 31st March 2024.

An entity has entered into a contract to purchase specific quantity of coal at the rate of Rs. 50 per unit over a period of three years. The contract is not cancellable without payment of compensation. The current market price of coal is Rs. 45 per unit. The coal is purchased for consumption during the manufacturing process, the output of which is sold in the market at a loss. Is the contract an onerous contract and creation of provision is required under Ind As -37?

Whether or not the output is sold at a profit the transaction would entail for creation of provision as per Ind as-37.

Ind as - 37 does not provide any guidelines for the given transaction and hence provision need not be created as per Ind as-37.

As the amount and timing is given specifically the entity can recognise a liability instead of provision.

IOC ltd is engaged in the business of extracting oils from the mid seas, for this purpose it has placed a rig in the mid sea. There is a government regulation, where by at the end of the contract period the company has to restore the sea to the original condition.

The company should create provision as and when it has started to extract the oil and hence the provision should be created.

The company need not create a provision as per Ind as -37.

The company will create a provision as per Ind as -37 at the end of the contract period.

As the obligating event is restoration, provision should be created as and when the activities relating to restoration has been initiated.

C ltd is a company engaged in providing management consultancy services and it holds 100 bundles of A4 Sheets and other consumables which are expected to be consumed in the course of providing services to its clients. Whether the above mentioned items can be treated on par with inventories .

Accounting standards in general are only applicable to manufacturing industries.

Ind as -2 specifically excludes the entities which are engaged in providing services.

Ind as -2 is applicable for entities even if it is engaged in provision of services.

CA ltd is transitioning to Ind As in the financial year 22-23, It has been existing for past 50 years, now there are restatements that should be made for presenting its first time Ind As balance sheet, there are significant changes in accounting policies for hedge instruments and equity valuations which requires huge amount of spending but without any benefits and hence CA ltd needs immediate remedy for the same.

No. Practical expediency cannot be invoked on the grounds that it involves huge amount of spending.

yes practical expediency can be invoked without any prior requirements from shareholders or MCA

yes practical expediency can be invoked but prior approval should be sought from MCA and special resolution to be passed in General meeting.

Prior EAC opinion should be obtained for invoking practical expediency.

Vijay Ltd is engaged in 2 businesses. real estate and manufacture of passenger vehicles. With respect to the real estate business, the entity constructs residential apartments for customers and the normal operating cycle is three to four years. With respect to the business of manufacture of passenger vehicles, normal operating cycle is 19 months. The management of vijay ltd has been classifying all the liablities and assets of the company based on the operating cycle of real estate.

Action of vijay ltd is not in line with Ind as-1, as the company should have classified respective assets and liablities based on the respective business operating cycles

Action of vijay ltd is in line with Ind as-1

Action of vijay ltd is not in line with Ind as-1, as the company should have chosen the normal operating cycle as the average operating cycle of the 2 businesses.

Action of vijay ltd is not in line with Ind as-1, as the company should have chosen the normal operating cycle as which is most beneficial for reporting.

Maurya Ltd has provided the related party transactions disclosures in the Board`s report and argued that the same need not be disclosed in the financial statements, as it is already available in the Board`s report and hence it wil lead to duplication. Identify the correct option.

Argument of maurya ltd is incorrect . Whether or not the disclosures are made in the board`s report, complete disclosure as required by the Ind as is mandatory.

Argument of maurya ltd is correct.

If the transactions are material then disclosure is required , otherwise the same can be ignored without providing for any disclosure in the financial statements.

Depends upon the auditor`s judgement and auditor may decide whether to disclose the same again in Financial statements.

M Ltd. entered into a contract with a ship builder company S Ltd and ordered it to construct 3 ships for its fleet on April 1, 2022. The terms of the contract are commercially negotiated as per which M Ltd. makes a down payment of 25% of the contract value of each of the ship. The balance amount is to be paid at the time of delivery. The contract also specifies that the construction activity for all the three ships should be completed by not later than financial year 2026. On March 1, 2023, the ship builder informs that planning and designing activity (being substantive activities) for the said ships is in progress but, construction activity has not commenced for any of the three ships. M Ltd. pays the down payment out of long-term borrowings taken from a scheduled bank and is incurring borrowing costs on the same. Is it permissible for M Ltd. to capitalise borrowing costs for the financial year ended March 31, 2023 or March 31, 2024?

Depends upon the judgement of the management and management can decide to identify the date from which capitalisation of borrowing cost can be initiated.

M ltd cannot capitalise the borrowing cost for any of the financial year, as there are no activities undertaken by M ltd by itself as it is outsourced to the third party.

M ltd can capitalise the borrowing cost only on 31st March 2024.

M ltd can capitalise the borrowing cost on 31st March 2023.

H Ltd. incurs borrowing costs for the purpose of construction of a qualifying asset for its own use. The construction gets completed on May 31, 2022. However, decoration work is under process which is expected to be completed by November 2022 after which H Ltd. will be able to start using the said asset for its own use. H Ltd. wants to capitalise the eligible borrowing costs incurred up to November 2022.

Intention of the H Ltd is not in line with Ind as - 23.

Intention of the H Ltd is in line with Ind as - 23.

Harsh Ltd. uses its own cash resources to finance the construction of a qualifying asset. It did not borrow any funds. Management of Harsh Ltd. is of the view that interest that could have been earned on the cash that has been used for the qualifying asset represents forgone benefit and could be capitalised as Borrowing costs as per Ind AS 23? Whether the contention of the management is correct?

Contention of the management is not in line with Ind As -23 and notional borrowing cost cannot be capitalised.

Contention of the management is in line with Ind As -23 and notional borrowing cost can be capitalised as borrowing cost.

The company has an PPE which has been recognised under cost model orignially and now it intends to change the same to revaluation model, and it has originally recognised De-commissioning cost as one of its component. As a result of change from cost to revaluation model, there is also a significant change in De-commissioning costs. The company has treated both the changes as change in accounting policy.

Change from cost to revaluation model results in change in accounting policy and changes in decommissioning cost results to change in accounting estimate.

Both the transactions results in change in an accounting policy.

Change from cost to revaluation model results in change in accounting estimate and changes in decommissioning cost results to change in accounting policy.

Both the transactions results in change in an accounting estimate.

ACA Ltd. prepared interim financial report for the quarter ending June 30, 2023. The interim financial report was approved for issue by the Board of Directors on July 15, 2023. ACA ltd has disputed with Income tax department and it is pending in High court for the past 5 years, and now based on the recent supreme court ruling which is similar to the company`s facts and case, the company is virtually certain to receive Rs.500 crores as refund. Whether this event occurring between end of the interim financial report and date of approval by Board of Directors, i.e., events between July 1, 2023 and July 15, 2023 that provide evidence of conditions that existed at the end of the interim reporting period shall be adjusted in the interim financial report ending June 30, 2023? Identify the correct accounting treatment.

Ind as-10 is applicable for interim financial reporting and it should be adjusted whether or not it is a favourable or unfavourable event.

Ind as-10 is applicable for interim financial reporting and it should not be adjusted as it is a favourable event which is not covered under Ind as -10.

Ind as - 10 is not applicable for Interim financial reporting and only applicable for annual financial reporting.

Ind as -10 is applicable for interim financial reporting but the event is non-adjusting event.

PKF Quiz

Authored by Avinash Pandey

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25 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Ind as -1 "Presentation of Financial Statements" issues the format for presentation of the general purpose financial statements.

True

False

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

SPK Ltd has transitioned to Ind as for the first time in the FY 22-23, the company is in the process of preparing the financial statements under Ind as and the company has outstanding bank over draft. The company has been classifying the same under financing activity prior to Ind As adoption. The same treatment of classifying the bank over draft under financing activity is carried by SPK ltd in the preparation of Ind as financial statements.

Action of SPK Ltd is inline with the Ind as-7.

If the bank overdraft has negative balance on the reporting date then it should be shown as Financing activity or else it can be treated as cash and cash equivalent.

The management can decide upon the treatment, whether to treat under cash flow from financing activity or treat it as cash and cash equivalent.

None of the given options are correct

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

ABC ltd is a manufacturing company and it has invested in 20 year deep discount bonds at Rs. 2,26,200 having face value of Rs. 6,00,000. The effective interest rate of the bond is 5%. At 20th year the company received Rs. 6,00,000 and it is unaware on how to treat this amount in the cash flow statement.

Present Rs.2,26,200 under financing activity and Rs. 3,73,800 under investing activity.

Present Rs.2,26,200 under investing activity and Rs. 3,73,800 under operating activity.

Present only Rs. 2,26,200 under investing activity as the ignore the interest component in the cash flow statement, as it would have been already considered in the past years.

Present Rs.2,26,200 as redemption of bonds under investing activity and Rs. 3,73,800 as interest received under investing activity.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

CJP ltd is a pharma based company which has wholly a owned subsidiary named ASK ltd. CJP ltd has sold 26% of it`s holdings in the open market. How should the sale of 26% holdings should be treated in the cash flow statement as per Ind as - 7.

The sale of investments should be treated as investing activity.

The sale of investments can neither be treated as investing activing or operating activity depends upon the management judgement.

The sale of investments should be treated as operating activity.

The sale of investments should be treated as financing activity.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

RP rental solutions private limited is engaged in the business of renting home appliances to its customers. The company has paid Rs.2 crores for acquiring the 200 washing machines, 100 Televisions and 100 Air conditioners and these assets are also purchased for the purpose of rentals and will be sold in the ordinary course of business. The company has classifed Rs. 2 crores as investing activity.

Action of RP rental solutions private limited is correct.

Action of RP rental solutions private limited is incorrect.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Baba Ltd acquired a building for its administrative purpose and presented the same as PPE in the Financial year 2017-18. During the Financial year 2022-23, it relocated the office to a new building and leased the acquired building to the third party. Following change in the usage, Baba Ltd reclassified the building from PPE to investment property. The auditor of Baba ltd argued that this should be accounted as change in accounting policy as per Ind As 8.

The argument of the auditor is correct and in line with Ind As 8.

Ind As 8 does not provide any guidance to the given case and hence judgement of the auditor is correct by referring to Ind As 16 and Ind As 40.

ICAI pronouncement or EAC opinion should be considered to decide whether this change tant amounts to change in accounting policy.

The argument of the auditor is incorrect and not in line with Ind As 8.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

DU ltd is engaged in the business of manufacturing and have been using Machine hours rate of depreciation till date, However now the management has decided to charge depreciation on WDV basis. The management of DU ltd is unaware about the accounting treatment for this change.

The change in method of deprectaion should be treated as change in accounting estimate and requires retrospective ammendments.

The change in method of deprectaion should be treated as change in accounting policy and requires retrospective ammendments.

The change in method of deprectaion should be treated as change in accounting policy and requires prospective ammendments.

The change in method of deprectaion should be treated as change in accounting estimate and requires prospective ammendments.

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