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Hence, the liability should be classified as current in the financial statement for the year ended March 31,

20X2.

Q2 (May 18) – Analysis of Financial Statements

A Ltd. is an entity who prepares its financial statements based on Accounting Standards. Following is the
draft financial statement for the year ended on 31st March, 20X1:

(Note all figures are Rs in million)

Balance Sheet
Particulars Note As at March 31, 20X1
EQUITY AND LIABILITIES
Shareholders’ funds
Share capital (shares of Rs. 10 each) 2,000
Reserves and surplus 1 4,000
Non-current liabilities
Long-term borrowings 2 11,110
Deferred tax liabilities 3 400

Current liabilities
Trade payables 600
Short-term provisions 500
Other current liabilities 4 300
TOTAL 18,910
ASSETS
Non - current assets
Fixed Assets 11,310
Deferred Tax Assets 3 1,000
Current assets
Inventories 2,000
Trade receivables 5 2,200
Cash and bank balances 2,400
TOTAL 18,910

Note 1: The Company has achieved a major breakthrough in its consultancy services in South Asia following
which it has entered into a contract of rendering services with Floral Inc. for Rs 12 Billion during the year.

The termination clause of the contract is equivalent to Rs 14 Million and is payable in case transition time
schedule is missed from 15th December 20X5. The management however is of the view that the liability

cannot be treated as onerous.

Note 2: The Company is not able to assess the final liability for a particular tax assessment pertaining to the
assessment year 20X1-20X2 wherein it has received a demand notice of Rs 12 Million. However, the company
is contesting the same with CIT (Appeals) as on the reporting date.

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