Dhruv Limited, a production company, sells television to various companies all over India. Company's financial year ends on 31st March. For the…

In the instant case, the quarterly net profit has not been correctly stated. As per Ind AS 34, Interim Financial Reporting, the quarterly net profit should be adjusted and restated as follows: (i) A liability for bonus may arise out of legal agreement or constructive obligation because of which it has no alternative but to pay the bonus and accordingly, needs to be accrued in the annual financial statements. Bonus liability is accrued in interim financial statements on the same basis as they are accrued for annual financial statements. In the given case, since the company has past record of declaring annual bonus every year, the same may be accrued using a reasonable estimate (applying the principles of Ind AS 19, Employee Benefits) while preparing its interim results. Accordingly, Bonus amount to be charged in the second quarter would be 2,40,00,000 × 5% x 14 = 3,00,000. Bonus of 9,00,000 (₹ 12,00,000 - 3,00,000) must be reversed. (ii) The cost of a planned major repair and renovation that is expected to occur in later part of the year is not considered for interim reporting purposes unless an event has caused the entity to have a legal or constructive obligation. The mere intention or necessity to incur expenditure related to the future is not sufficient to give rise to an obligation. Hence, 34,00,000 provided in the second quarter must be reversed. (iii) Treatment of exceptional loss is not as per the principles of Ind AS 34, as the entire amount of 4,20,000 incurred during the second quarter should be recognized in the same quarter. Hence, 2,10,000 which was deferred should be deducted from the profits of second quarter only. Thus, considering the above, the correct net profits to be shown in Interim Financial Report of the second quarter shall be: 96,90,000 (₹ 56,00,000 +9,00,000 +34,00,000 -2,10,000).