Page 2 - 34.2 FR MARCH 22 MTP ANSWER

MOCK TEST PAPER 1

FINAL COURSE: GROUP – I

PAPER – 1: FINANCIAL REPORTING

ANSWER

Solution 1

(a) Assessment of Preliminary Impact Assessment of Transition to Ind AS on H Limited’s
Financial Statements
Issue 1: Fair value as deemed cost for property plant and equipment:
Accounting Standards Ind AS Impact on Company’s financial
(Erstwhile IGAAP) statements
As per AS 10, Property, Plant Ind AS 101 allows entity to elect to The company has decided to adopt
and Equipment is recognised at measure Property, Plant and fair value as deemed cost in this
cost less depreciation. Equipment on the transition date at case. Since fair value exceeds book
its fair value or previous GAAP value, so the book value should be
carrying value (book value) as brought up to fair value. The
deemed cost. resulting impact of fair valuation of
land Rs. 3,00,000 should be
adjusted in other equity (revaluation
reserve).

Journal Entry on the date of transition
Particulars Debit (Rs.) Credit (Rs.)
Property Plant and Equipment (Land) Dr. 3,00,000
To Revaluation Surplus (OCI- Other Equity) 3,00,000

Issue 2: Fair valuation of Financial Assets:

Accounting Standards Ind AS Impact on Company’s financial
(Erstwhile IGAAP) statements
As per Accounting On transition, financial assets All financial assets (other than Investment
Standard, investments including investments are measured in subsidiaries, associates and JVs’ which are
are measured at lower at fair values except for investments recorded at cost) are initially recognized at
of cost and fair value. in subsidiaries, associates and JVs' fair value.
which are recorded at cost. The subsequent measurement of such assets
are based on its categorization either Fair
Value through Profit & Loss (FVTPL) or Fair
Value through Other Comprehensive Income
(FVTOCI) or at Amortised Cost based on
business model assessment and contractual
cash flow characteristics.
Since investment in mutual fund are
designated at FVTPL, increase of
Rs. 1,00,000 in mutual funds fair value would
increase the value of investments with
corresponding increase to Retained Earnings.

34.8