Page 6 - 34.2 FR MARCH 22 MTP ANSWER

(b) In the instant case, since fire took place after the end of the reporting period, it is a non -adjusting
event. However, in accordance with paragraph 21 of Ind AS 10, disclosures regarding material non-
adjusting event should be made in the financial statements, i.e., the nature of the event and the

expected financial effect of the same.
With regard to going concern basis followed for preparation of financial statements, the company needs to
determine whether it is appropriate to prepare the financial statements on going concern basis, if there is
only one plant which has been damaged due to fire. If the effect of deterioration in operating results and
financial position is so pervasive that management determines after the reporting period either that it

intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so,
preparation of financial statements for the financial year 20X0- 20X1 on going concern assumption may not
be appropriate. In that case, the financial statements may have to be prepared on a basis other than going
concern.
However, if the going concern assumption is considered to be appropriate even after t he fire, no adjustment

is required in the financial statements for the year ending 31 st March, 20X1.

(c) (i) De-commissioning Obligation of G Ltd. and recognition of decommissioning cost:
Retrospective application of Ind AS 37 requires management to recognise the provision for decommissioning
cost on the opening Ind AS Balance Sheet. The provision should reflect the net present value of the
management’s best estimate of the amount required to settle the obligation.

Accounting Treatment:
The obligation should be capitalised as a separate component of property, plant and equipment, together with
the accumulated depreciation from the date when the obligation was incurred to the transition date. The
amount to be capitalised as part of the cost of the asset is calculated by discounting the liability back to

the date when the obligation initially arose, using the best estimate of historical discount rate. The
associated accumulated depreciation is calculated by applying the current estimate of the asset’s useful life,
using the entity’s depreciation policy for the asset.
Any difference between the provision and the related component of the property, plant and equipment is
adjusted against the retained earnings.
The entity could elect to apply the deemed cost exemption. Property, plant and equipment would be restated

to fair value, with the corresponding adjustment to the retained earnings. Management would need to ensure
that the fair value obtained was the gross fair value and not net of the decommissioning obligation.
Management would recognise the provision for decommissioning costs in accordance with Ind AS 37. No cost
in respect of provision should be added to property, plant and equipment but such cost should be recognised
in the entity’s opening retained earnings.

(ii) Measurement basis for valuation of PPE:
An entity has the following options with respect to measurement of its property, plant and equipment (Ind
AS 16) in the opening Ind AS Balance Sheet:
 Measurement basis as per the respective standards applied retrospectively. This measurement option can
be applied on an item-by-item basis. For example, Plant A can be measured applying Ind AS 16
retrospectively and Plant B can be measured applying the “fair value” or “revaluation” options mentioned

below.
 Fair value at the date of transition to Ind AS. This measurement option can be applied on an item-by-
item basis in similar fashion as explained above.

34.12