Page 7 - 22. COMPILER QB - INDAS 34

QUESTIONS FROM PAST EXAM PAPERS
Q6 (November 18 – 5 Marks)

Navya Limited manufacturer of ceramic tiles has shown a net profit of Rs. 15,00,000 for the first quarter of
2018-2019. Following adjustments were made while computing the net profit:
(i) Bad debts of Rs. 1,64,000 incurred during the quarter. 75% of the bad debts have been deferred for the

next three quarters (25% for each quarter).

(ii) Sales promotion expenses of Rs. 5,00,000 incurred in the first quarter and 90% expenses deferred to the
next three quarters (30% for each quarter) on the basis that the sales in these quarters will be high in

comparison to first quarter.
(iii) Additional depreciation of Rs. 3,50,000 resulting from the change in the method of depreciation has been

taken into consideration.
(iv) Extra-ordinary loss of Rs. 1,36,000 incurred during the quarter has been fully recognized in this quarter.

Discuss the treatment required under Ind AS 34 and ascertain the correct net profit to be shown in the
Interim Financial report of first quarter to be presented to the Board of Directors.

SOLUTION

As per Ind AS 34, Interim Financial Reporting, the quarterly net profit should be adjusted and restated as
follows:

(i) Bad debts of Rs. 1,64,000 have been incurred during the current quarter. Out of this, the company has
deferred 75% i.e. Rs. 1,23,000 to the next 3 quarters. This treatment is not correct as the expenses

incurred during an interim reporting period should be recognised in the same period unless conditions

mentioned in Ind AS 34 are fulfilled. Accordingly, Rs. 1,23,000 should be deducted from the net profit of
the current quarter Rs. 15,00,000.
(ii) Deferment of sales promotion expenses of Rs. 4,50,000 is not correct. It should be charged in the

quarter in which the expenses have been incurred. Hence, it should be charged in the first quarter only.

(iii) Recognising additional depreciation of Rs. 3,50,000 in the same quarter is correct and is in tune with Ind
AS 34.

(iv) The treatment of extraordinary loss of Rs. 1,36,000 being recognised in the same quarter is correct.
Thus, considering the above, the correct net profits to be shown in the Interim Financial Report of the third

quarter shall be Rs. 15,00,000 – Rs. 1,23,000 – Rs. 4,50,000 = Rs. 9,27,000.

Q7 (November 20 – 6 Marks) – (Similar to Q5)

Lal Ltd. provides you the following information for financial year 2019 — 20:
Estimated Income for the year ended March 31st, 2020:

Gross Annual income ₹16,50,000
(inclusive of Estimated Capital Gains of ₹ 4,00,000)
Quarter I ₹3,50,000
Quarter II ₹4,00,000
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