Page 25 - 33. FR RTP NOV. 22

Solution 14

Paragraph 18 of Ind AS 105 provides that immediately before the initial classification of the asset (or disposal
group) as held for sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall
be measured in accordance with applicable Ind AS.
In the instant case, Company A should measure the property, plant and equipment (for which it has adopted

cost model), in accordance with Ind AS 16, Property, Plant and Equipment. Hence, depreciation should be
provided upto 31st May, 20X0.

Solution 15

As per para 68 of Ind AS 37, onerous contract is a contract in which the unavoidable costs of meeting the
obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable
cost under a contract reflects the least net cost of exiting from the contract, which is the lower of the cost
of fulfilling it and any compensation for penalties arising from failure to fulfilling it.

Ind AS 37 provides that the amount recognised shall be the best estimate of the expenditure required to
settle the present obligation, which is the amount that an entity would rationally pay to settle the obligation
at the end of the reporting period or to transfer it to a third party at that time. In case of onerous contracts,
an amount that an entity would rationally pay to settle the obligation would be the lower of the compensation

or penalties arising from failure to fulfil the contacts and excess of unavoidable cost of meeting the
obligations under the contract from the economic benefits expected to be received under it.
As per para 68 of Ind AS 37, the cost of fulfilling a contract comprises the costs that relate directly to the
contract. Costs that relate directly to a contract consist of both -
(a) the incremental costs of fulfilling that contract—for example, direct labour and materials; and
(b) an allocation of other costs that relate directly to fulfilling contracts— for example, an allocation of the

depreciation charge for an item of property, plant and equipment used in fulfilling that contract among
others.
The unavoidable costs of meeting the obligations under the contract are only costs that:
 "are directly variable with the contract and therefore incremental to the performance of the contract;"
 do not include allocated or shared costs that will be incurred regardless of whether the entity fulfils the

contract or not; and
 cannot be avoided by the entity's future actions.
Accordingly, HVCL has correctly measured the cost for creation of provision for onerous contracts by
considering material cost, labour cost (to the extent it relates directly to production) and material overheads
(to the extent it relates directly to production).

Further, HVCL is correct that the period cost will not be considered for measurement of cost for the purpose
of creation of provision on onerous contracts as they do not relate directly to fulfilling the contracts.

Solution 16

(i) Calculation of Inventory cost:
Particulars Amount (Rs.)
Purchase Price (1,30,000 – 20,000 – 10,000) 1,00,000
Non-refundable import duties 20,000

Transport cost 5,000

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