Z Ltd. having net worth of 25 crores has opted voluntarily to adopt Ind AS from 1st April, 2022 in accordance with the Companies (Indian Accounting…

CA Final · Financial Reporting · PYQS · November 2024
Z Ltd. having net worth of 25 crores has opted voluntarily to adopt Ind AS from 1st April, 2022 in accordance with the Companies (Indian Accounting Standard) Rules 2015. Mr. A, the senior manager, of Z Ltd. has identified following issues which need specific attention of CFO so that opening Ind AS balance sheet as on the date of transition can be prepared: (i) As part of Property, Plant and Equipment, Company has elected to measure land at its fair value and want to use this fair value as deemed cost on the date of transition. The land was acquired for a consideration of 5,00,000. However, the fair value of land as on the date of transition was - 6,00,000. (ii) Company had taken a loan from another entity. The loan carries an interest rate of 7% and it had incurred certain transaction costs while obtaining the same. It was carried at cost on its initial recognition. The principal amount is to be repaid in equal instalments over the period of loan. Interest is also payable at each year end. The fair value of loan as on the date of transition is 2,80,000 as against the carrying amount of loan which at present equals - 3,00,000, Management wants to know the impact of Ind AS in the financial statements of company for its general understanding. Prepare Ind AS Impact Analysis Report (Extract) for Z Ltd. for presentation to the management wherein you are required to discuss the corresponding differences between Earlier IGAAP (AS) and Ind AS against each identified issue and its impact there upon for preparation of transition date balance sheet. Also pass journal entry for each of the issues mentioned above.

Suggested Answer and Working Notes:

Assessment of Preliminary Impact Assessment on transition to Ind AS of Z Ltd.'s Financial Statements (i) Fair value as deemed cost for property plant and equipment: Accounting Standards (Erstwhile IGAAP) Ind AS Impact on Company's financial statements As per AS 10, Property, Plant and Equipment is recognised at cost less depreciation. Ind AS 101 allows entity to elect to measure Property, Plant and Equipment on the transition date at its fair value or previous GAAP carrying value (book value) as deemed cost. The company has decided to adopt fair value as deemed cost in this case. Since fair value exceeds book value, the book value should be brought up to fair value. The resulting impact of fair valuation of land - 1,00,000 should be adjusted in other equity. Journal Entry on the date of transition Particulars Debit (₹) Credit (₹) Property, Plant and Equipment Dr. 1,00,000 To Revaluation Surplus (OCI- Other Equity) 1,00,000 (Being PPE recorded at fair value on the date of transition to Ind AS) (ii) Borrowings - Processing fees/transaction cost: Accounting Standards (Erstwhile IGAAP) Ind AS Impact on Company's financial statements As per AS, such expenditure is charged to Profit and loss account As per Ind AS, such expenditure is amortised over the period of the loan. Fair value as on the date of transition is 2,80,000 as against its book value of 3,00,000. Accordingly, the difference of 20,000 or capitalised as the case may be Ind AS 101 states that if it is impracticable for an entity to apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial asset or the financial liability at the date of transition to Ind AS shall be the new gross carrying amount of that financial asset or the new amortised cost of that financial liability. is adjusted through retained earnings. Journal Entry on the date of transition Particulars Debit (₹) Credit (₹) Borrowings / Loan payable Dr. 20,000 To Retained earnings 20,000 (Being Borrowings recorded at fair value on date of transition to Ind AS)

Topics: Ind AS 101

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