Page 2 - 32. ANALYSIS OF FS

ANALYSIS OF FINANCIAL STATEMENTS

(TOTAL NO. OF QUESTIONS – 5)

INDEX

S.No. Particulars Page No.
1 RTP Questions 32.1

2 Past Exam Questions 32.12

RTPs QUESTIONS

Q1 (RTP Nov 18)

Mr. X, is the financial controller of ABC Ltd., a listed entity which prepares consolidated financial statements
in accordance with Ind AS. Mr. X has recently produced the final draft of the financial statements of ABC
st
Ltd. for the year ended 31 March, 2018 to the managing director for approval. Mr. Y, who is not an
accountant, had raised following queries from Mr. X after going through the draft financial statements:
A. One of the notes to the financial statements gives details of purchases made by ABC Ltd. from PQR
Ltd. during the period. Mr. Y own 100% of the shares in PQR Ltd. However, he feels that there is no
requirement for any disclosure to be made in ABC Ltd.’s financial statements since the transaction is
carried out on normal commercial terms and is totally insignificant to ABC Ltd., as it represents less
than 1% of ABC Ltd.’s purchases.

B. The notes to the financial statements say that plant and equipment is held under the ‘cost model’.
However, property which is owner occupied is revalued annually to fair value. Changes in fair value are
sometimes reported in profit or loss but usually in ‘other comprehensive income’. Also, the amounts of
depreciation charge to plant and equipment as a percentage of its carrying amount is much higher than

for owner occupied property. Another note states that property owned by ABC Ltd. but rent out to
others is depreciated annually and not fair valued. Mr. Y is of the opinion that there is no consistent
treatment of PPE items in the accounts. Elucidate how all these treatments comply with the relevant
Ind AS.
C. In the year to March, 2018, ABC Ltd. spent considerable amount on designing a new product. ABC Ltd.
spent the six months from April, 2017 to September, 2017 researching into the feasibility of the

product. Mr. X charged these research costs to profit or loss. From October, 2017, A Ltd. was confident
that the product would be commercially successful and A Ltd. is fully committed to finance its future
development. A Ltd. spent remaining part of the year in developing the product, which is expected to
start from selling in the next few months. These development costs have been recognised as intangible
assets in the Balance Sheet. State whether the treatment done by Mr. X is correct when all these

research and development costs are design costs. Just if your answer with reference to relevant IndAS.
Provide answers to the queries raised by the managing director Mr. Y as per Ind AS.
32.1