Bee Kay Limited has voluntarily opted to adopt Indian Accounting Standards (Ind AS) from 1 st April, 2025 in accordance with the Companies (Indian…

CA Final · Financial Reporting · PYQS · September 2025
Bee Kay Limited has voluntarily opted to adopt Indian Accounting Standards (Ind AS) from 1 st April, 2025 in accordance with the Companies (Indian Accounting Standards) Rules, 2015. The management has identified the following issues and has sought your guidance so that the Opening Ind AS Balance Sheet as on the date of transition can be prepared: (i) Property, Plant and Equipment (PPE) comprise land held for capital appreciation purposes costing - 15,00,000 and qualifies to be treated as Investment Property as per Ind AS. Besides Exchange differences of 1,50,000 were capitalized to depreciable PPE on which accumulated depreciation of 37,500 was recognized. The management intends to avail deemed cost exemption for using the previous GAAP carrying values as deemed cost at the date of transition. (ii) Bee Kay Limited had acquired 70% shares of X Private Limited a few years ago thereby acquiring the control upon it at that time. It recognized a goodwill of 1,25,000 as per the erstwhile Accounting Standard by accounting the excess of consideration paid over the net assets acquired at the date of acquisition. Fair value exercise was not done at the time of acquisition. (iii) Company had given a loan of 10,00,000 at an interest rate of 7% per annum to an entity six years ago. Transaction costs were incurred separately for this loan. The loan is repayable in 10 equal instalments over the period of ten years along with accrued interest at the close of each year. The fair value of the loan as on the date of transition is 5,00,000 against the carrying amount of 4,00,000. The management says that it is a tedious task to compute the value of the loan by applying the effective interest rate method and has expressed its reluctance in doing so. You are required to state necessary explanation for each of the items presented by the management of Bee Kay Limited in the form of notes, which may or may not require the adjustment on the date of transition.

Suggested Answer and Working Notes:

(i) Property, Plant & Equipment: Since the land held for capital appreciation purposes qualifies as investment property, such investment property should be reclassified from property, plant and equipment (PPE) to investment property and presented separately. As the Company has adopted the previous GAAP carrying values as deemed cost, all items of PPE and investment property should be carried at its previous GAAP carrying values of 15,00,000. As such, the past capitalised exchange differences require no adjustment in this case. (ii) Goodwill: Ind AS 103 mandatorily requires measuring the assets and liabilities of the acquiree at its fair value as on the date of acquisition. However, a first-time adopter may elect not to apply the provisions of Ind AS 103 with retrospective effect that occurred prior to the date of transition to Ind AS. Hence, company can continue to carry the goodwill in its books of account as per the previous GAAP. (iii) Loan: Para B8C of Ind AS 101 states that if it is impracticable (as defined in Ind AS 8) 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 at the date of transition to Ind AS. Accordingly,5,00,000 would be the gross carrying amount of loan and difference of 1,00,000 (₹ 5,00,000 - 4,00,000) would be adjusted to retained earnings.

Topics: Ind AS 101

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