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revenue and expense are recognised otherwise not. The Conceptual Framework does not allow the recognition of
items in the balance sheet which do not meet the definition of assets or liabilities.
Considering the above guidance, while preparing its interim financials, the transactions and events of the given

case should be dealt with as follows:
(i) If employer contributions to government-sponsored insurance funds are assessed on an annual basis, the
employer‖s related expense is recognised using an estimated average annual effective contribution rate in
its interim financial statements, even though a large portion of the payments have been made early in
the financial year. Accordingly, it should work out an average effective contribution rate and account for

the same accordingly, in its interim financials.
(ii) The cost of a planned overhaul expenditure that is expected to occur in later part of the year is not
anticipated for interim reporting purposes unless an event has caused the entity to have a legal or
constructive obligation. The mere intention or necessity to incur expenditure related to the future is not
sufficient to give rise to an obligation.

(iii) A bonus is anticipated for interim reporting purposes, if and only if,
(a) the bonus is a legal obligation or past practice would make the bonus a constructive obligation for
which the entity has no realistic alternative but to make the payments, and
(b) a reliable estimate of the obligation can be made. Ind AS 19, Employee Benefits provides guidance in
this regard.
A liability for bonus may arise out of legal agreement or constructive obligation because of which it has no

alternative but to pay the bonus and accordingly, needs to be accrued in the annual financial statements.
Bonus liability is accrued in interim financial statements on the same basis as they are accrued for annual
financial statements. In the instant case, bonus liability of 10% of operating profit for the year to date may
be accrued.

In the given case, since the company has past record of declaring annual bonus every year, the same may be
accrued using a reasonable estimate (applying the principles of Ind AS 19, Employee Benefits) while preparing
its interim results.

Solution 7

Paragraph 5 of Ind AS 41, Agriculture defines agricultural activity and biological transformation as follows:
“Agricultural activity is the management by an entity of the biological transformation and harvest of biological
assets for sale or for conversion into agricultural produce or into additional biological assets.”

“Biological transformation comprises the processes of growth, degeneration, production, and procreation that
cause qualitative or quantitative changes in a biological asset.”
Contract 1:
As per contract 1, during the 3 years of the contract, ABC Ltd. only harvests apples from the apple orchards
whereas biological transformation is managed by the owners of the apple orchards (i.e. the lessor). Since ABC
Ltd. is not involved in the biological transformation of the apple orchards and is only harvesting biological

assets , it cannot be said to be an agricultural activity as per Ind AS 41. Hence, ABC Ltd. is not engaged in
agricultural activity as per Ind AS 41.
Contract 2:
As per contract 2, ABC Ltd. obtains the apple orchards and is actively involved in the raising of apple trees in

order to ensure that the apples are as per its requirements. Since, it is actively managing the biological
transformation and harvest of biological asset, Hence, ABC Ltd. is engaged in agricultural activity as per Ind

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