Page 7 - 35. FR APRIL 22 MTP QP ANSWERS

Question 6

(a) EITHER
ABC Ltd. has taken a loan of USD 20,000 on 1st April, 20X1 for constructing a plant (qualifying asset) at an
interest rate of 5% per annum payable on annual basis.
On 1st April, 20X1, the exchange rate between the currencies i.e. USD vs Rupees was Rs. 45 per USD. The

exchange rate on the reporting date i.e. 31st March, 20X2 is Rs. 48 per USD.
The corresponding amount could have been borrowed by ABC Ltd. from State Bank of India in local currency
at an interest rate of 11% per annum as on 1st April, 20X1.
Compute the total borrowing cost to be capitalized for the construction of plant by ABC Ltd. for the period
ending 31st March, 20X2. Also explain the accounting treatment of exchange loss incurred in the due

process. (INDAS 21)
OR
(INDAS 105) Identify which of the following is a disposal group at 31st March, 20X1:
(1) On 21st March, 20X1, XYZ Ltd. announced the Board’s intention to sell its shares in a subsidiary
company, Alpha Ltd., contingent upon the approval of Alpha Ltd.’s shareholders. It seems unlikely that
approval will be granted in the near future and no specific potential buyer has been identified.

(2) PQR Ltd. has entered into a contract to sell the entire delivery fleet of vehicles operated from its
warehouse to a competitor, ABC Ltd., on 14th March, 20X1. The assets will be transferred on 28th April,
20X1 from which date the Group will outsource its delivery activities to another company, LMN Ltd.
(3) On 16th January, 20X1, DEF’s management and shareholders approved a plan to sell its retail business in

Mumbai and a consultant is hired to manage the sale. As at 31 st March, 20X1 heads of agreement had
been signed although due diligence and the negotiation of final terms are still in process. The transaction
is expected to be completed in April, 20X1.

(b) M Ltd. is engaged in the business of manufacturing of bottles for pharmaceutical companies and non-
pharmaceutical companies. It has a wholly owned subsidiary, G Ltd., which is engaged in the business of

pharmaceuticals. G Ltd. purchases the pharmaceutical bottles from its parent company. The demand of G
Ltd. is very high and hence to cater to its shortfall, G Ltd. also purchases the bottles from other
companies. Purchases are made at the competitive prices.
M Ltd. sold pharmaceuticals bottles to G Ltd. for Euro 12 lacs on 1st February, 20X1. The cost of these
bottles was Rs. 830 lacs in the books of M Ltd. at the time of sale. At the year-end i.e. 31st March, 20X1,

all these bottles were lying as closing stock and payable with G Ltd.
Euro is the functional currency of G Ltd. while Indian Rupees is the functional currency of M Ltd. Following
additional information is available:
Exchange rate on 1st February, 20X1 1 Euro = Rs. 83
Exchange rate on 31st March, 20X1 1 Euro = Rs. 85
Provide the accounting treatment for the above in books of M Ltd. and G Ltd. Also show its impact on

consolidated financial statements. Support your answer by Journal entries, wherever necessary, in the books of
M Ltd. (INDAS 21)

(c) On 1st April, 20X1, Sun Ltd. has acquired 100% shares of Earth Ltd. for Rs. 30 lakh. Sun Ltd. has 3

cash-generating units A, B and C with fair value of Rs. 12 lakh, Rs. 8 lakh and Rs. 4 lakh respectively.
The company recognizes goodwill of Rs. 6 lakh that relates to CGU ‘C’ only.

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