Page 9 - 34.2 FR MARCH 22 MTP ANSWER

agreement between MIL and the doctors creating enforceable rights and obligations.
 The doctors to whom gifts are distributed are not ‘customers’ of MIL as they have not contracted with it
to obtain goods or services in exchange for consideration.
 The items distributed as gifts are not an output of MIL ordinary activities.

In view of the above, the distribution of gifts to doctors does not fall under the scope of Ind AS 115.
As per Ind AS 38, sometimes expenditure is incurred to provide future economic benefits to an entity, but no
intangible asset or other asset is acquired or created that can be recognised. In the case of the supply of
goods, the entity recognises such expenditure as an expense when it has a right to access those goods.

Examples of expenditure that is recognised as an expense when it is incurred include expenditure on
advertising and promotional activities (including mail order catalogues).
Items acquired by MIL to be distributed as gifts as a part of sales promotion acti vities have no other
purpose than to undertake those activities. In other words, the only benefit of those items for MIL is to
develop or create brands or customer relationships, which in turn generate revenue. Ind AS 38 requires an

entity to recognise expenditure on such items as an expense when the entity has a right to access those
goods. Ind AS 38 states that an entity has a right to access goods when it owns them, or otherwise has a
right to access them regardless of when it distributes the goods.
In view of the above, MIL should recognise the cost of the items to be distributed as gifts as an expense
when it owns those items, or otherwise has a right to access them, regardless of when it distributes the
items to doctors.

OR

Date Particulars (Rs.) (Rs.)
15/3/20X1 Investment A/c Dr. 20,000
Transaction Cost A/c Dr. 400
To Bank 20,400
31/3/20X1 Investment A/c Dr. 4,000
To Fair Value Gain A/c 4,000
31/3/20X1 P&L A/c Dr. 400
To Transaction Cost A/c 400
31/3/20X1 Fair Value Gain A/c Dr. 4,000
To P&L A/c 4,000

(c) The carrying amount of the debenture on the date of transition under previous GAAP, assuming that all
interest accrued other than premium on redemption have been paid, will be Rs. 31,50,000 [(30,000 x
100) + (30,000 x 100 x 10/100 x 2/4)]. The premium payable on redemption is being recognised as
borrowing costs as per para 4(b) of AS 16 ie under previous GAAP on straight- line basis.
As per para D18 of Ind AS 101, Ind AS 32, Financial Instruments: Presentation, requires an entity to split a

compound financial instrument at inception into separate liability and equity components. If the liability
component is no longer outstanding, retrospective application of Ind AS 32 would involve separating two
portions of equity. The first portion is recognised in retained earnings and represents the cumulative interest
accreted on the liability component. The other portion represents the original equity component. However, in
accordance with this Ind AS, a first-time adopter need not separate these two portions if the liability

component is no longer outstanding at the date of transition to Ind AS.
In the present case, since the liability is outstanding on the date of transition, S Ltd. will need to split the

34.15