Page 10 - 22. COMPILER QB - INDAS 34

Quarter IV:

Unallocated fixed production overheads Rs. 60,000 {i.e. Rs. 4,50,000 – (Rs. 20 x 19,500)} in the 4th quarter
will be expensed as per the principles of Ind AS 2 and Ind AS 34 by way of a charge to the statement of

profit and loss.
For the year:

The cumulative result of all the quarters would also result in unallocated overheads of Rs. 60,000, thus,
meeting the requirements of Ind AS 34 that the quarterly results should not affect the measurement of the

annual result.

Q9 (Dec 21 – 4 Marks) – (Similar to Q6)

PHARMA Limited manufactures automobile parts. PHARMA Limited has shown a net profit of Rs. 50,00,000

for the second quarter of 2020.21.
Following adjustments are made while computing the net profit:
1. Bad debts of Rs. 2,60,000 incurred during the quarter. 40% of the bad debts have been deferred to

the next quarter.

2. Additional depreciation of Rs. 5,20,000 resulting from the change in the method of depreciation.
3. Exceptional loss of Rs. 8,16,000 incurred during the second quarter. 60% of exceptional loss have been

deferred to next quarter.
4. Rs. 4,70,000 expenditure on account of administrative expenses pertaining to the second quarter is

deferred on the argument that the fourth quarter will have more sales; therefore fourth quarter should
be debited by higher expenditure. The expenditures are uniform throughout all quarters.

Analyze and ascertain the correct net profit to be shown in the Interim Financial Report of second quarter to
be presented to the Board of Directors.

SOLUTION

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:
1. The treatment of bad debts is not correct as the expenses incurred during an interim reporting period
should be recognised in the same period. Accordingly, Rs. 1,04,000 should be deducted from Rs.

50,00,000.

2. Recognising additional depreciation of Rs. 5,20,000 in the same quarter is correct and is in tune with
Ind AS 34.
3. Treatment of exceptional loss is not as per the principles of Ind AS 34, as the entire amount of Rs.

8,16,000 incurred during the second quarter should be recognized in the same quarter. Hence Rs.

4,89,600 which was deferred should be deducted from the profits of the second quarter only.
4. As per Ind AS 34 the income and expense should be recognised when they are earned and incurred

respectively. As per para 39 of Ind AS 34, the costs should be anticipated or deferred only when:

22. 9