Page 7 - 33. FR RTP NOV. 22
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Other expenses include research and development (R & D) expenditure of Rs. 8 crore in respect of which
a 200% weighted deduction is available under income tax laws.
Other income includes dividends of Rs. 4 crore, which is exempt from tax.
Profit before tax of Rs. 594 crore includes (i) agriculture income of Rs. 55 crore which is exempt from
tax; and (ii) profit of Rs. 60 crore earned in the USA on which EARTH Limited is required to pay tax at
the rate of 20%.
Depreciation as per income tax laws is Rs. 25.0 crore.
During review of the financial statements of EARTH Limited, the CFO multiplied profit before tax by the
income tax rate and arrived at Rs. 178.2 crore as the tax expense (Rs. 594 crore x 30% = Rs. 178.2 crore).
However, actual income tax expense appearing in the summarized statement of profit and loss is Rs. 166.9
crore.
The CFO has sought your help in reconciling the difference between the two tax expense amounts. Prepare a
reconciliation containing the disclosure as required under the relevant Ind AS.
Ind AS 34
Question 6
PQR Ltd. is preparing its interim financial statements for quarter 3 of the year. How the following
transactions and events should be dealt with while preparing its interim financials:
(i) It makes employer contributions to government-sponsored insurance funds that are assessed on an annual
basis. During Quarter 1 and Quarter 2 larger amount of payments for this contribution were made, while
during the Quarter 3 minor payments were made (since contribution is made upto a certain maximum
level of earnings per employee and hence for higher income employees, the maximum income reaches
before year end).
(ii) The entity intends to incur major repair and renovation expense for the office building. For this purpose, it
has started seeking quotations from vendors. It also has tentatively identified a vendor and expected costs
that will be incurred for this work.
(iii) The company has a practice of declaring bonus of 10% of its annual operating profits every year. It has a
history of doing so.
Ind AS 41
Question 7
ABC Ltd. is in the business of manufacturing an apple beverage and requires large quantity of apples to
manufacture such beverage. In order to satisfy its requirement of apples, it enters into 3 years lease contracts
with owners of apple orchards. The lease contracts are mainly of two types:
(1) Contract 1: The owner of the apple orchard (i.e. the lessor) raises the apple trees to produce apples. ABC
Ltd. (i.e. lessee) makes a fixed annual payment to the owner of the apple orchard who is required to
cultivate the produce as per the specifications of ABC Ltd. ABC Ltd. harvests the apples itself for
fulfilling its requirement of apples.
(2) Contract 2: ABC Ltd. obtains the apple orchard from owner (i.e. the lessor) to raise the apple trees for
subsequent harvest of the apples to ensure that the apples are as per the requirements of ABC Ltd. ABC
Ltd. makes a fixed annual payment to the owner of the apple orchards (i.e. the lessor).
Explain whether ABC Ltd. is engaged in agricultural activity as per Ind AS 41 in both of the cases?
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