CORPORATE REPORTING PRACTICES AND IND AS

Module 1
Evolution and Convergence of International Financial Reporting

Standards (IFRS) in India: GAAP in India and Hierarchy of GAAP in India,

International Financial Reporting Standards, First time adoption (IFRS 1) –
Convergence with IFRS – Stage-wise Approach, Advantages of converting to IFRS,
Significant Criticisms of IFRS, Key Business issues that will need to be addressed
for successful implementation of IFRS, challenges and opportunities faced by
India in the implementation of IFRS - An overview of IND ASs: list of converged
Indian Accounting Standards notified by Ministry of Corporate Afairs (MCA) -
Comparison of IFRS with Ind AS.

ACCOUNTING STANDARDS
According to ICAI (Institute of Chartered Accountants of India), Accounting Standards are
“written documents, policies, and procedures issued by expert accounting body or
government or other regulatory body covering the aspects of recognition, measurement,
treatment, presentation and disclosure of accounting transactions in the fnancial
statement”.

OBJECTIVES OF ACCOUNTING STANDARDS:

1. Standardize the diverse accounting policies.
2. To eliminate to the extent possible the non comparability of fnancial statements.
3. It adds the reliability to the fnancial statements.
4. It increases the arithmetic accuracy of fnancial statements.
5. Accounting standards helps to understand accounting treatment in fnancial
statement.

GAAP (GENERALLY ACCEPTED ACCOUNTING PRINCIPLES)

GAAP (Generally Accepted Accounting Principles) is a general terms for a set of fnancial
accounting standards and reporting guidelines used to prepare accounting in a given
environment. Examples UK GAAP in London, US GAAP in America.

INTERNATIONAL ACCOUNTING STANDARD BOARD

International Accounting Standards Board (IASB) was formed to take over the work of the
International Accounting Standard Committee (IASC) in April 2001. The IASC had complete
autonomy in the setting of international accounting Standards and in the issue of discussion
documents on international accounting issues from 1981.

OBJECTIVIES OF INTERNATIONAL ACCOUNTING STANDARD BOARD

 To develop, in the public interest, a single set of high quality, understandable and
enforceable global accounting standards.
 To provide transparent and comparable information in fnancial statements.
 To promote the use of rigorous application of those standards.

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 To work actively with national standard-setters.

 To achieve convergence of national accounting standards and IFRS to provide high
quality solutions.

HISTORICAL BACKGROUND OF IFRS

In 1973, an organization known as the International Accounting Standards Committee (IASC)
was formed to address the need for standards that could be used by smaller nations in
creating their own accounting standards. This group was succeeded by the International
Accounting Standards Board (IASB) in 2001.
In March 2001 the IASC foundation was formed as a not-for-Proft corporation incorporated in
the USA. The IASC Foundation is the Parent entity of the IASB. In July 2010 it changed its
name to the IFRS foundation.
From April 2001 the IASB assumed accounting Standard Setting responsibilities from its
predecessor body, the International Accounting Standards Committee (IASC).
IASB Consists of 14 members from nine Countries and have a variety of backgrounds with a
mix of auditors prepares of fnancial statements, users of fnancial statements and an
academics.

IFRS FOUNDATION
The IFRS Foundation is made up of 22 Trustees, who essentially monitor and fund the IASB,
the IFRS Advisory Council and the IFRS Interpretations Committee. The Trustees are
appointed from a variety of geographic and functional backgrounds according to the
following procedure:
 The international Federation of Accountants suggests candidates to fll fve of the
Trustee seats and International organizations of prepares, users and academics each
suggested one candidate.
 The remaining Trustees are ‘at large’ in that they were not selected through the
constituency nomination process.
IFRS ADVISORY COUNCIL
The IFRS Advisory Council acts as an adviser to the International Accounting Standard Board
and its Trustees. It comprises of 50 members and meets at least three times a year. It is
consulted by the IASB on all major projects and its meeting is open to the public. It advises
the IASB on the prioritization of its work and on the implication of proposed standards for
uses and prepares of fnancial Statements.

IFRS INTERPRETATION COMMITTEE

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The forerunner of the IFRIC, the Standing Interpretations Committee (SIC) was founded in
April 1997 with the objective of developing conceptually sound and practicable
interpretations of IFRS to be applied on a global basis:
 For newly identifed fnancial reporting issues not specifcally addressed in IFRSs
 Where unsatisfactory, conficting, divergent or other unacceptable interpretations
have developed, or seem likely to develop in the absence of authoritative guidance .

ORGANISATION STRUCTURE OF IFRS

Monitoring Board
Approve and oversee
Trustees

IASC Foundation (22

Trustees)

Standard Advisory Council Board International fnancial reporting

Interpretations committee (IFRIC)
(SAC) (16 Members)

Working groups for major

agenda projects

MEANING OF IFRS:
International fnancial reporting standards (IFRS) refers to a set of generally accepted
accounting principles (GAAP) used by companies to prepare fnancial statements, a critical
sources of information published annually at a minimum and useful to various stakeholders
in understanding a company’s fnancial performance and management’s stewardship of the
company’s resources.

In other words International fnancial reporting standards (IFRS) are a set of Accounting
standard developed by the international accounting standard board (IASB) which helps in
becoming the global standard for the preparation of public company fnancial statements.

FEATURES OF IFRS

1. Faithfull representation: It is basic feature of IFRS. The fnancial statement is

prepared under IFRS system is complete and free from Bias.

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2. Comparability: The second basic feature of IFRS is Comparability. It will help to

compare fnancial statement form one period to the next or for two companies in the
same industry so that we can make a informed decision about the companies.

3. Accrual Basis of Accounting: An entity shall recognize its items such as Assets,
liabilities, Equity, Income and Expenses when they satisfy the Recognition criteria which
are in the frame work of IFRS.

4. Materiality and Aggregation: Every material class of similar item has to be presented
separately. Items that are dissimilar in nature or function shall be presented separately
unless they are immaterial.

5. Verifiability: Verifability helps the users that the information is faithfully presented
according to the economic phenomenon. It means that diferent knowledgeable and
independent observers could reach the consensus that a particular depiction provides a
faithful representation.

6. Timeliness: It means having information available to Decision makers in time to be

capable of infuencing their decisions. This is based on the conceptual framework of IFRS
and hence it helps the users of IFRS to take a relevant decision.

7. Understand ability: Financial reports are prepared for users who have reasonable
knowledge of business and economic activities and who review and analyze the
information diligently. Some phenomenon is complex and cannot be made easy to
understand. Excluding information on those phenomenon’s might make their information
easier who understand.

USERS OF IFRS
a) Investors: A fnancial report helps the investors to take decision about buying and
selling of shares, taking up a rights issue and voting. Investors can also know the level of
dividend and any changes in share price by going through fnancial reports. A fnancial
report helps the investors to know about liquidity and solvency position of the company
and also the company’s future prospects.

b) Employees: Financial reporting helps the employees to know about their security of
employment and future prospects for job in the company and help them with collective
pay bargaining.

c) Lenders (Debenture holders and Creditors): They need information to decide

whether to lend to a company. They will also need to check that the value of any security
remains adequate, that the interest repayments are secured, that the cash is available
to redemption at the appropriate time and that any fnancial restrictions have not been
breached.

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d) Suppliers: Suppliers to need to known whether the company will be a good customer
and pay its debts.

e) Customers: They need to know the weather the company will be able to continue
producing and supplying goods.

f) Government: Government is specifcally concerned with compliance with tax and

company law, ability to pay tax and general contribution of the company to the
economy.
BENEFIT /ADVANTAGES OF IFRS:
a) Single Reporting: Convergence with IFRS eliminates multiple reporting such as Indian
GAAP, IFRS, US GAAP.

b) Increase Comparability: IFRS will give more comparability among sectors, countries
and companies. This will result in more transparent fnancial reporting of a company’s
activities which will beneft investors, customers and other key stakeholders in India and
overseas.

c) Access to Global Capital Markets: Convergence with IFRS will enable Indian entities
to have easier access to global capital markets and eliminates barriers to cross-border
listings. It encourages international investing and thereby leads to more foreign capital
fows to the country.

d) Benefits for Investors: Financial statements prepared using a common set of

accounting standards help investors better understand investment opportunities as
opposed to fnancial statements prepared using a diferent set of national accounting
standards.

e) IFRS balance sheet will be closer to economic value: Historical cost will be
substituted by fair values for several balance sheet items, which will enable a corporate
to know its true worth.

f) Benefits to the accounting professional: Convergence to IFRS will increase the

opportunities for Indian professionals in abroad as they will be able to sell their services
as experts in diferent parts of the world.

g) Benefits for the Industry: Currently companies need to prepare additional fnancial
statements based on multiple reporting formats to arise capital in global market.
Convergence with IFRS will eliminate the requirement for dual set of fnancial statements
and thereby reduces the cost of raising funds by the companies.

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h) Improvement in financial reporting: Better quality of fnancial reporting due to

consistent application of accounting principles and improvement in reliability of fnancial
statements. This, in turn, will lead to increased trust and reliance placed by investors,
analysts and other stakeholders in a company’s fnancial statements.

DISADVANTAGES OF IFRS:
a) Small companies that have no dealings outside the countries have no incentive to adopt
IFRS unless mandated.

b) There is an extremely high price-tag – “…the SEC estimates the costs for issuers of
transitioning to IFRS would be approximately $32 million per company and relate to the
frst three years of flings on Form 10-K under IFRS. Total estimated costs for the
approximately 110 issuers estimated to be eligible for early adoption would be
approximately $3.5 billion” (SEC, 2008).

c) Although it is unlikely, Commissioners have three years to change their minds. A defnite
decision will not be made until 2011. There is no incentive for early adoption due to the
fact that it could be a colossal waste of time and resources. Also, companies would be
required to have two sets of records, one GAAP, one IFRS, during this time just in case
IFRS is not adopted.

d) Many feel that during this fnancial crisis that the world is currently experiencing, a
conversion of this magnitude is too much to ask of executives and management

e) A minimum of two years of fnancial information prior to conversion would need to be

maintained on two sets of books, both GAAP and IFRS, to meet the requirement of
fnancial statements to contain three years of fnancial data.

PROCESS OF SETTING IFRS

Identifcation and review of associated issues and consideration of the

application of the frame work to the issues.

Study of National Accounting requirements and practices and an exchange of

views with national standards setters

Consultation with SAC about adding the topic to the IASB’s Agenda

Formation of an advisory (“ Working”) Group to advise IASB

Publishing a discussion document (paper i.e. DP) for Public comment.

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Publishing an exposure draft (ED) for Public Comment

Consideration of all comments received within the comment period.

If considered desirable, holding a public hearing and conducting feld-tests

Approval of a standard by at least Nine Votes of the IASB

PRACTICAL CHALLENGES IN IMPLEMENTATION OF IFRS

1. Change to regulatory environment: For the success of convergence in India, certain
regulatory amendment is required. For example, The Companies Act (Schedule VI)
prescribes the format for presentation of fnancial statements for Indian companies,
whereas the presentation requirements are signifcantly diferent under IFRS. So, the
companies act needs to be amended in line with IFRS.

2. Lack of Preparedness: Adoption of IFRS by approximately 5000 listed companies by

2011 would result in a signifcant demand for IFRS resources. Corporate India and
accounting professionals need to be trained for efective migration to IFRS. Additionally
auditors would need to train their staf to audit under IFRS environment.

3. Educating Stakeholders: Educating Stakeholders comprising of investors, lenders,

employees, auditors, audit committee and etc would be a big challenge as this would
require a considerable time and efort.

4. Significant cost: Signifcant one-time costs of converting to IFRS (including costs of

internal personnel time, adapting IT systems, implementing revised reporting policies
and processes, training personnel and educating investors, analysts and members of the
board).

5. Complexity in the financial reporting process: Under IFRS, companies would need
to increasingly use fair value measures in the preparation of fnancial statements.
Companies, auditors, users and regulators would need to get familiar with fair value
measurement techniques.

6. Impact on financial performance: Due to the signifcant diferences between Indian

GAAP and IFRS, adoption of IFRS is likely to have a signifcant impact on the fnancial
position and fnancial performance of most Indian companies.

7. Communication of Impact of IFRS to investors: Companies also need to

communicate the impact of IFRS convergence to their investors to ensure they
understand the shift from Indian GAAP to IFRS.

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8. Conceptual diferences: For example, the Indian standard on intangibles is based on

the concept that all intangible assets have a defnite life, which cannot generally exceed
10 years; while IFRS acknowledge that certain intangible assets may have indefnite lives
and useful lives in excess of 10 years are not unusual.

9. Legal and regulatory considerations: In some cases, the legal and regulatory
accounting requirements in India difer from the IFRS. In India, Companies Act of 1956,
Banking Regulation Act of 1949, IRDA regulations and SEBI guidelines prescribe detailed
formats for fnancial statements to be followed by respective enterprises in their fnancial
reporting. In such cases, strict adherence to IFRS in India would result in various legal
problems.

10.Training to Preparers: Some IFRS are complex. There is lack of adequate skills
amongst the preparers and users of Financial Statements to apply IFRS. Proper
implementation of such IFRS requires extensive education of preparers.

THEORETICAL STUDY ON INTERNATIONAL FINANCIAL REPORTING

STANDARDS (IFRS)

IFRS – 1: FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING

STANDARDS
Scope:
 IFRS 1 does not apply to entities already reporting under IFRSs
 IFRS 1 applies to the frst set of fnancial statements that contain an explicit and
unreserved statement of compliance with IFRSs
 IFRS 1 applies to any interim fnancial statements for a period covered by those frst
fnancial statements that are prepared under IFRSs.

Efective Date:

IFRS 1 (2008) issued on November 2008, replaced IFRS 1 (2003). IFRS 1 (2008) is efective
for frst IFRS fnancial statements for periods beginning on or after 1 July 2009.

Objectives:

 To prescribe the procedures when an entity adopts IFRSs for the frst time as the
basis for preparing its general purpose fnancial statements.

Opening Ifrs Statement Of Financial Position

 An opening IFRS Statement of Financial Position is prepared at the date of transition.

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 All IFRSs are applied consistently across all reporting periods in the entity’s frst set of
IFRS compliant fnancial statements (i.e. both the comparatives and the current
reporting period)
 If a standard is not yet mandatory but permits early application, an entity is
permitted, but not required, to apply that Standard in its frst IFRS set of fnancial
statements.

IFRS 2 SHARE-BASED PAYMENT

Scope

IFRS 2 applies to all share-based payment transactions, which are defned as follows:

 Equity-settled, in which the entity receives goods or services as consideration for equity
instruments of the entity (including shares or share options)
 Cash-settled, in which the entity receives goods or services by incurring a liability to the
supplier that is based on the price (or value) of the entity’s shares or other equity
instruments of the entity

Efective date

Annual periods beginning on or after 1 January 2005

Objectives

To prescribe the accounting for transactions which an entity receives or acquires goods or
services either as consideration for its equity instruments or by incurring liabilities for
amounts based on the price of the entity’s shares or other equity instruments of the entity.

Measurement

Share Based Payments can be measured in three forms:

 Equity Settled.
 Cash Settled.
 Combination of both Equity and cash.

IFRS 3 BUSINESS COMBINATIONS

SCOPE

A business combination is: Transaction or event in which acquirer obtains control over a
business (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions).

Efective date

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IFRS 3 (2008) issued on January 2008, replacing IFRS 3 (2003).

IFRS 4 INSURANCE CONTRACTS

Scope

The standard applies to:

 Insurance contracts that an entity issues and reinsurance contracts that it holds
 Financial instruments that an entity issues with a discretionary participation feature.

Efective Date

 Annual periods beginning on or after 1 January 2005.

Objective

To prescribe the fnancial reporting for insurance contracts until the IASB completes the
second phase of its project on insurance contracts.

IFRS 5 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Scope

Applies to all recognized non-current assets and disposal groups of an entity that are:

 Held for sale; or

 Held for distribution to owners.
 Assets classifed as non-current in accordance with IAS 1 Presentation of Financial
Statements shall not be reclassifed as current assets until they meet the criteria of IFRS
5

Efective date

 Annual Periods beginning on or after 1 January 2005

Objectives

To prescribe the accounting for non-current assets held for sale and the presentation and
disclosure of discontinued operations.

Measurement

 Immediately prior to classifcation as held for sale, carrying amount of the asset is
measured in accordance with applicable IFRSs
 After classifcation, it is measured at the lower of carrying amount and fair value less
costs to sell. Assets covered under certain other IFRSs are scoped out of measurement
requirements of IFRS 5 – see above
 Impairment must be considered at the time of classifcation as held for sale and
subsequently

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IFRS 6 EXPLORATIONS FOR AND EVALUATION OF MINERAL RESOURCES

Scope

 An entity applies IFRS 6 to exploration and evaluation expenditures that it incurs

 An entity does not apply IFRS 6 to expenditures incurred:
 Before the exploration for and evaluation of mineral resources, such as expenditures
incurred before the entity has obtained the legal rights to explore a specifc area
 After the technical feasibility and commercial viability of extracting a mineral
resource are demonstrable.

Efective date

 Annual periods beginning on or after 1 January 2006.

Objectives

To prescribe the fnancial reporting for the exploration for and evaluation of mineral
resources until the IASB completes a comprehensive project in this area.

IFRS 7 FINANCIAL INSTRUMENTS: DISCLOSURES

Scope

 IFRS 7 applies to all recognised and unrecognised fnancial instruments (including

contracts to buy or sell non-fnancial assets) except:
 Interests in subsidiaries, associates or joint ventures, where IAS 27/28 or IFRS 10/11
permit accounting in accordance with IAS 39/IFRS 9
 Assets and liabilities resulting from IAS 19
 Insurance contracts in accordance with IFRS 4 (excluding embedded derivatives in these
contracts if IAS 39/IFRS 9 require separate accounting)

Efective date

 Annual periods beginning on or after 1 January 2007

Objective

To prescribe disclosure that enable fnancial statement users to evaluate the signifcance of
fnancial instruments to evaluate the signifcance of fnancial instruments to an entity, the
nature and extent of their risks, and how the entity manages those risks.

IFRS 8 OPERATING SEGMENTS

Scope

IFRS 8 applies to the annual and interim fnancial statements of an entity. It applies to the
separate or individual fnancial statements of an entity and to the consolidated fnancial
statements of a group with a parent:

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Efective date

 Annual periods beginning on or after 1 January 2009

Objectives

An entity shall disclose information to enable users of its fnancial statements to evaluate
the nature and fnancial efects of the business activities in which it engages and the
economic environments in which it operates.

IFRS 9 FINANCIAL INSTRUMENTS

THE DIFFERENT VERSION OF IFRS – 9

IFRS 9 has been completed in stages, with the IASB’S phased approach refected in a
number of versions of the standard being issued since 2009. Previous versions of IFRS 9 will
be superseded by the version issued in July 2014 at its efective date of 1 January 2018.

Scope

IFRS 9 carries forward the scope of IAS 39, and adds:

 An option to include certain contracts that would otherwise be subject to the ‘own use’.
 Certain loan commitments and contract assets in respect of the impairment
requirements.

Efective date

 IFRS 9 fnancial instruments issued in July 2014 is the IASB’s replacement of IAS 39
fnancial instruments

Objective

 IFRS’s 9 sets out requirements for recognition and measurement, impairment,

Derecognition and general hedge accounting.

IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS

Scope

A parent is required to present consolidated fnancial statements, except if:

 It meets all the following conditions:

 It is a subsidiary of another entity and all its other owners, including those not
otherwise entitled to vote, have been informed about, and do not object. to, the
parent not presenting consolidated fnancial statements.
 Its debt or equity instruments are not traded in a public market.

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 It did not, nor is in the process of fling, fnancial statements for the purpose of issuing
instruments to the public.

Efective Date

 Annual periods beginning on or after 1 January 2013.

Objectives

To prescribe a single consolidation model for all entities base on control, irrespective of the
nature of the investee i.e. whether an entity is controlled through voting rights of investors
or through other contractual arrangements as is common is special purpose entities.

IFRS 11 JOINT ARRANGEMENTS

SCOPE

IFRS 11 applies to all parties subject to a joint arrangement. A joint arrangement (JA):

 Binds the parties by way of contractual agreement (does not have to be in writing,
instead it is based on the substance of the dealings between the parties).
 Gives two (or more) parties joint control.

Efective date

 Annual periods beginning on or after 1 January 2013.

Objectives

To establish principles for fnancial reporting by entities that has an interest in joint
arrangement.

IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES

Scope

Applied by entities those have an interest in: Subsidiaries; joint arrangements, associates;
and unconsolidated structured entities. IFRS 12 does not apply to:

 Post-employment beneft plans or other long-term employee beneft plans to which

IAS 19 Employee Benefts applies
 Separate fnancial statements, where IAS 27 Separate Financial Statements applies

Efective date

 Annual periods beginning on or after 1 January 2013.

Objective

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To require information to be disclosed in an entity’s fnancial statements that will enable

users of those statements to evaluate the nature of, and risks associated with the entity’s
interests in other entities as well as the efects of those interest on the entity’s fnancial
position, fnancial performance.

IFRS 13 FAIR VALUE MEASUREMENT

Efective date

 Annual periods beginning on or after 1 January 2013

Objective

To establish a defnition of fair value, provide guidance on how to determine fair value and
prescribe the required disclosures about fair value measurements. However, IFRS 13 does
not stipulate which items should be measured or disclosed at fair value.

Objective

To establish a defnition of fair value, provide guidance on how to determine fair value and
prescribe the required disclosures about fair value measurements. However, IFRS 13 does
not stipulate which items should be measured or disclosed at fair value.

IFRS 14 REGULATORY DEFERRAL ACCOUNTS

Efective date

 First annual IFRS fnancial statements beginning on or after 1 January 2016 with
earlier application permitted.

Objective

To specify the fnancial reporting requirements for regulatory deferral account balances that
arise when an entity provides goods or services to customer at a price or rate that is subject
to rate regulation.

IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

SCOPE

Applies to all contracts with customers, except:

 Lease contracts (refer to IAS 17)

 Insurance contracts (refer to IFRS 4)
 Financial instruments and other contractual rights or obligations (refer to IFRS 9/IAS
39, IFRS 10, IFRS 11, IAS 27, and IAS 28)
 Certain non-monetary exchanges.

Efective date

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 Annual periods beginning on or after 1 January 2017

Objective

To prescribe the accounting treatment for revenue arising from sales of goods and rendering
services to a customer.

Revenue that does not arise from a contract with a customer is not in the scope of this
standard. For example revenue arising from dividends, and donations received would be
recognized in accordance with other standards.

LIST OF INTERNATIONAL ACCOUNTING STANDARD ISSUED BY IASB

IAS 1 Presentation of Financial Statements.
IAS 2 Inventories
IAS 3 Consolidated Financial Statements Originally issued 1976, efective 1 Jan 1977.
Superseded in 1989 by IAS 27 and IAS 28
IAS 4 Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of
which were issued or revised in 1998
IAS 5 Information to Be Disclosed in Financial Statements Originally issued October 1976,
efective 1 January 1997. Superseded by IAS 1 in 1997
IAS 6 Accounting Responses to Changing Prices Superseded by IAS 15, which was
withdrawn December 2003
IAS 7 Cash Flow Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 9 Accounting for Research and Development Activities – Superseded by IAS 38
efective 1.7.99
IAS 10 Events After the Balance Sheet Date
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 13 Presentation of Current Assets and Current Liabilities – Superseded by IAS 1.
IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008)
IAS 15 Information Refecting the Efects of Changing Prices – Withdrawn December 2003
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefts
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
IAS 21 The Efects of Changes in Foreign Exchange Rates
IAS 22 Business Combinations – Superseded by IFRS 3 efective 31 March 2004
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 25 Accounting for Investments – Superseded by IAS 39 and IAS 40 efective 2001
IAS 26 Accounting and Reporting by Retirement Beneft Plans
IAS 27 Consolidated Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinfationary Economies
IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions –
Superseded by IFRS 7 efective 2007
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7
Financial Instruments: Disclosures, and no longer in IAS 32)

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IAS 33 Earnings Per Share

IAS 34 Interim Financial Reporting
IAS 35 Discontinuing Operations – Superseded by IFRS 5 efective 2005
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture

LIST OF INTERNATIONAL ACCOUNTING STANDARDS COMPARED WITH

INDIAN ACCOUNTING STANDARDS

Indian Accounting Standard IAS/IFRS

AS Name of Standard IAS/ IFRS No. Name of Standard

No.

1 Disclosures of Accounting Policies 1 Presentation of fnancial statements

2 Valuation of Inventories 2 Inventories

3 Cash Flow Statements 7 Statements of Cash Flows

4 Contingencies and Events Occurring 10 Events after the Reporting Period

after the Balance Sheet Date

5 Net Proft or Loss for the Period, Prior 8 Accounting Policies, Changes in Accounting
Period Items and Changes in Accounting Estimates and Errors
Policies

6 Depreciation No equivalent standard. Included in IAS 16

7 Constructions Contracts 11 Constructions Contracts

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9 Revenue Recognition 18 Revenue

10 Accounting for Fixed Assets 16 Property, Plant and Equipment

11 The Efects of Changes in Foreign 21 The Efects of Changes in Foreign

Exchanges Rates Exchanges Rates

12 Accounting for Government Grants 20 Accounting for Government Grants and

Disclosure of Government Assistance

13 Accounting for Investments Mainly dealt with in IAS 39

14 Accounting for Amalgamations IFRS 3 Business Combinations

15 Employee Benefts 19 Employee Benefts

16 Borrowing Costs 23 Borrowings Costs

17 Segment Reporting IFRS 8 Operating Segments

18 Related Party Disclosures 24 Related Party Disclosures

19 Leases 17 Leases

20 Earnings Per Share 33 Earnings Per Share

21 Consolidated Financial Statements 27 Consolidated and Separate Financial

Statements

22 Accounting for Taxes for Income 12 Income Taxes

23 Accounting for Investment in Associates 28 Investments in Associates

in Consolidated Financial Statements

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24 Discontinuing Operations IFRS 5 Non-current Assets Held for Sale and

Discontinued Operations

25 Interim Financial Reporting 34 Interim Financial Reporting

26 Intangible Assets 38 Intangible Assets

27 Financial Reporting of Interest in Joint 31 Interest in Joint Ventures

Ventures

28 Impairment of Assets 36 Impairment of Assets

29 Provisions, Contingent Liabilities and 37 Provisions, Contingent Liabilities and

Contingent Assets Contingent Assets

30 Financial Instruments: Recognition and 32 Financial Instruments: Recognition and

Measurement Measurement

LIST OF IND AS ISSUED BY MINISTRY OF CORPORATE AFFAIRS (MCA)

IND AS No DESCRIPTION

Indian Accounting Standard (Ind

First-time Adoption of Indian Accounting Standards
AS) 101

Indian Accounting Standard (Ind

Share-based Payment
AS) 102

Indian Accounting Standard (Ind

Business Combinations
AS) 103

Indian Accounting Standard (Ind

Insurance Contracts
AS) 104

Indian Accounting Standard (Ind

Non-current Assets Held for Sale and Discontinued Operations
AS) 105

Indian Accounting Standard (Ind

Exploration for and Evaluation of Mineral Resources
AS) 106

Indian Accounting Standard (Ind

Financial Instruments: Disclosures
AS) 107

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 CORPORATE REPORTING PRACTICES AND IND AS

Indian Accounting Standard (Ind

Operating Segments
AS) 108

Indian Accounting Standard (Ind

Financial Instruments
AS) 109

Indian Accounting Standard (Ind

Consolidated Financial Statements
AS) 110

Indian Accounting Standard (Ind

Joint Arrangements
AS) 111

Indian Accounting Standard (Ind

Disclosure of Interests in Other Entities
AS) 112

Indian Accounting Standard (Ind

Fair Value Measurement
AS) 113

Indian Accounting Standard (Ind

Regulatory Deferral Accounts
AS) 114

Indian Accounting Standard (Ind

Revenue from Contracts with Customers
AS) 115

Indian Accounting Standard (Ind

Presentation of Financial Statements
AS) 1

Indian Accounting Standard (Ind

Inventories
AS) 2

Indian Accounting Standard (Ind

Statement of Cash Flows
AS) 7

Indian Accounting Standard

Accounting Policies, Changes in Accounting Estimates and Errors
(IndAS 8)

Indian Accounting Standard (Ind

Events after the Reporting Period
AS) 10

Indian Accounting Standard (Ind

Income Taxes
AS) 12

Indian Accounting Standard (Ind

Property, Plant and Equipment
AS) 16

Indian Accounting Standard (Ind

Leases
AS) 17

Indian Accounting Standard (Ind

Employee Benefts
AS) 19

Indian Accounting Standard (Ind Accounting for Government Grants and Disclosure of Government
AS) 20 Assistance

Indian Accounting Standard (Ind

The Efects of Changes in Foreign Exchange Rates
AS) 21

Indian Accounting Standard (Ind

Borrowing Costs
AS) 23

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 CORPORATE REPORTING PRACTICES AND IND AS

Indian Accounting Standard (Ind

Related Party Disclosures
AS) 24

Indian Accounting Standard (Ind

Separate Financial Statements
AS) 27

Indian Accounting Standard (Ind

Investments in Associates and Joint Ventures
AS) 28

Indian Accounting Standard (Ind

Financial Reporting in Hyperinfationary Economies
AS) 29

Indian Accounting Standard (Ind

Financial Instruments: Presentation
AS) 32

Indian Accounting Standard (Ind

Earnings per Share
AS) 33

Indian Accounting Standard (Ind

Interim Financial Reporting
AS) 34

Indian Accounting Standard (Ind

Impairment of Assets
AS) 36

Indian Accounting Standard (Ind

Provisions, Contingent Liabilities and Contingent Assets
AS) 37

Indian Accounting Standard (Ind

Intangible Assets
AS) 38

Indian Accounting Standard (Ind

Investment Property
AS) 40

Indian Accounting Standard (Ind

Agriculture
AS) 41

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 CORPORATE REPORTING PRACTICES AND IND AS

Module 2
Accounting and Reporting for Business Combinations (As per Ind AS)

Relevant Terms, Types of merger, methods of accounting, treatment of Goodwill

arising on merger, purchase consideration and settlement; Accounting in books of
vendor/transferor company, Accounting for investment in subsidiary, Accounting
for holding companies ( including chain holdings, multiple holdings), Corporate
Financial Restructuring (including intercompany holdings), Reconstruction
schemes, De-merger.

Meaning of Amalgamation/Merger
The term "Amalgamation/Merger" refers to the combining of two or more companies to form
a new company. When two or more existing companies close their separate entity and
transfer all their assets and liabilities to a newly formed company it amounts to
amalgamation/merger of companies.

Meaning of Acquisition/Absorption
The term “Acquisition/Absorption” refers to the taking over of one or more companies by
another company. When one or more existing companies close their separate entity and
transfer all their assets and liabilities to another existing company it amounts to
acquisition/absorption of companies.

Varieties of Amalgamation/Mergers
From the view point of business structures, following are the important varieties of mergers:
 Horizontal Merger: - Under horizontal merger, two or more companies that are in
direct competition and share the same product lines and markets come together.
 Vertical Merger: - Under vertical merger, a customer company and vendor company
or a supplier company and customer company come together. For example, the
cone supplier company may merge with an ice cream making company.
 Market-extension Merger: - Under market-extension merger, two or more companies
that sell the same product in diferent markets come together.
 Product-extension Merger: - Under product-extension merger, two or more
companies that are selling diferent but related products in the same market come
together.
 Conglomeration: - Under conglomeration, two or more companies that have no
common business areas come together

Diferences between Amalgamation/Merger and Acquisition/Absorption

The important diferences between merger & acquisition may be summarised as under:
Amalgamation/Merger Acquisition/Absorption
1. Involves liquidation of two or more 1. Involves liquidation of one or

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 CORPORATE REPORTING PRACTICES AND IND AS

companies more companies

2. Requires formation of a new 2. Does not require formation of any
company new company

Objectives/Advantages/Benefits merger and acquisition of companies

Following are the main objectives of amalgamation/merger and acquisition/absorption of
companies:
 To avoid competition: The main purpose of amalgamation/acquisition of companies is
to avoid competition among themselves. This will give the company an edge over its
competitors.
 To reduce cost: The amalgamated or acquired company can derive the operating
cost advantage through lowering the cost of production. This is possible because of
‘economies of large scale’.
 To gain fnancially: The amalgamated or acquired company can derive fnancial gain
which may be in the form of tax advantage, higher credit worthiness and lower rate
of borrowing.
 To achieve growth: The amalgamated or acquired company can pool its resources to
facilitate internal growth and to prevent the advent of a new competitor.
 To diversify the activities: The risk of a company can be lowered by diversifying its
activities into two or more industries. At times, amalgamation or acquisition may act
as hedging the weak operation with a stronger one.
 To expand the business or operations: The business or operations of the company
can be expanded.
 To acquire new technology: To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.
 To improve market reach and industry visibility: Companies buy companies to reach
new markets and grow revenues and earnings. A merge may expand two companies'
marketing and distribution, giving them new sales opportunities. A merger can also
improve a company's standing in the investment community: bigger frms often have
an easier time raising capital than smaller ones.
 To use resources efectively: The amalgamated or acquired company can use its
various resources like economic, fnancial, technical resources efciently and
efectively.
 In the public interest: The Company may be ordered by the Central Government in
exercise of its powers conferred by section 396 to be amalgamated or acquired.
 Other purposes: A company having vulnerable fnancial/economic position may prefer
an amalgamation or acquisition by another company so as to secure itself. And the
companies may adopt the concept laid down by the proverb, ‘union is strength’, the
result of which may be an amalgamation or acquisition.

Accounting Standard (AS) 14 - Accounting for Amalgamations

Accounting Standard (AS) 14 deals with accounting for amalgamations and the treatment of
any resultant goodwill or reserves. This standard is directed principally to companies
although some of its requirements also apply to fnancial statements of other enterprises.
This standard does not deal with cases of acquisitions which arise when there is a purchase
by one company (referred to as the acquiring company) of the whole or part of the shares,
or the whole or part of the assets, of another company (referred to as the acquired
company) in consideration for payment in cash or by issue of shares or other securities in

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 CORPORATE REPORTING PRACTICES AND IND AS

the acquiring company or partly in one form and partly in the other. The distinguishing
feature of an acquisition is that the acquired company is not dissolved and its separate
entity continues to exist.

Types of Amalgamations
Generally speaking, there are two types of amalgamations viz.,

(a) Amalgamation in the nature of merger and

(b) Amalgamation in the nature of purchase.

Amalgamation in the nature of merger

It is an amalgamation which satisfes all the following conditions:
a. All the assets and liabilities of the transferor company become, after amalgamation,
the assets and liabilities of the transferee company.
b. Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately
before the amalgamation, by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of
the amalgamation.
c. The consideration for the amalgamation receivable by those equity shareholders of
the transferor company who agree to become equity shareholders of the
transferee company is discharged by the transferee company wholly by the issue of
equity shares in the transferee company, except that cash may be paid in respect
of any fractional shares.
d. The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
e. No adjustment is intended to be made to the book values of the assets and liabilities
of the transferor company when they are incorporated in the fnancial statements of
the transferee company except to ensure uniformity of accounting policies.

In the above category there is a genuine pooling not merely of the assets and liabilities of
the amalgamating companies but also of the shareholders’ interests and of the businesses
of these companies. Such amalgamations ensure that the resultant fgures of assets,
liabilities, capital and reserves more or less represent the sum of the relevant fgures of the
amalgamating companies.

Amalgamation in the nature of purchase

It is an amalgamation which does not satisfy any one or all of the above conditions:
a. The assets and liabilities of the transferor company should be incorporated in either
revalued fgures or at their carrying amount.
b. General reserve, capital reserve or revaluation reserve of the transferor company
other than the statutory reserves should not be included in the fnancial statements
of the transferee company.
c. Statutory reserve of the transferor company such as Development Allowance Reserve
Account, Investment Allowance Reserve Account etc., should be carried forward in
the books of the transferee company for legal compliance.

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 CORPORATE REPORTING PRACTICES AND IND AS

d. The Amalgamation Adjustment Account should be disclosed under the head :

Miscellaneous Expenditure in the asset side of the balance sheet. When it is found
that the statutory reserve is no longer required to be maintained, both the Statutory
Reserve and Amalgamation Adjustment Account will be eliminated by means of
reverse entry.
e. Any excess of the amount of purchase consideration over the value of net assets of
the transferor company acquired by the transferee company shall be treated as
goodwill arising on amalgamation in the books of the transferee company. If the
value of net assets is more than the purchase consideration then the diference is
credited to Capital Reserve Account.

In the above category one company acquires another company and, as a consequence, the
shareholders of the company which is acquired normally do not continue to have a
proportionate share in the equity of the combined company, or the business of the company
which is acquired is not intended to be continued.

Amalgamation in the nature of Merger V/s Amalgamation in the nature of

Purchase
Amalgamation in the nature of Merger Amalgamation in the nature of purchase
(Pooling of interest method) (Purchase method)
 All assets and liabilities of the vendor  Only those assets and liabilities which
company will be incorporated in the are taken over will be incorporated in
books of purchasing company the books of purchasing company.
 All reserves of the vendor company  No reserves (except statutory reserves)
will be recorded in the books of of the vendor company will be recorded
purchasing company in the books of purchasing company.
 The assets and liabilities will be  The assets and liabilities which are
incorporated at book values taken over will be recorded at agreed
 Any diference between purchasing values.
cost and value of net assets taken  Any diference between purchasing cost
over must be adjusted against and value of net assets taken over will
reserves. be treated as Goodwill or Capital
 There is no need to open Reserve.
Amalgamation Adjustment A/c in the  When statutory reserves are there,
books of purchasing company Amalgamation Adjustment A/c should
be opened in the books of purchasing
company.

Important terms/definitions
 Transferor Company/Vendor Company - It means the company which is
amalgamated or merged into another company.
 Transferee Company/Purchasing Company - It means the company into which a
transferor company is amalgamated or merged
 Reserve - It means the portion of earnings, receipts or other surplus of an enterprise
(whether capital or revenue) appropriated by the management for a general or a
specifc purpose other than a provision for depreciation or diminution in the value of
assets or for a known liability.
 Statutory Reserve - It means the reserves that are maintained in accordance with
any law or legislation. Development Rebate Reserve, Investment Allowance Reserve,

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Foreign Project Reserve, Export Proft Reserve, Investment Allowance Reserve,

Workmen Compensation Reserve etc., are a few examples of Statutory Reserves.
 Amalgamation in the nature of purchase - It is an amalgamation which does
not satisfy any one or more of the conditions specifed for amalgamation in the
nature of merger.
 Purchase Consideration or Consideration for Amalgamation - It means the
aggregate of the shares and other securities issued and the payment made in the
form of cash or other assets by the transferee company to the shareholders of the
transferor company.
 Fair value - It is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length
transaction.
 Pooling of interests - It is a method of accounting for amalgamations the object of
which is to account for the amalgamation as if the separate businesses of the
amalgamating companies were intended to be continued by the transferee company.
Accordingly, only minimal changes are made in aggregating the individual fnancial
statements of the amalgamating companies.

Methods of Accounting for Amalgamations

The Pooling of Interests Method

Under the pooling of interests method, the assets, liabilities and reserves of the transferor
company are recorded by the transferee company at their existing carrying amounts (after
making the adjustments required). If, at the time of the amalgamation, the transferor and
the transferee companies have conficting accounting policies, a uniform set of accounting
policies is adopted following the amalgamation. The efects on the fnancial statements of
any changes in accounting policies are reported in accordance with Accounting Standard
(AS)

The Purchase Method

Under the purchase method, the transferee company accounts for the amalgamation either
by incorporating the assets and liabilities at their existing carrying amounts or by
allocating the consideration to individual identifable assets and liabilities of the transferor
company on the basis of their fair values at the date of amalgamation. The identifable
assets and liabilities may include assets and liabilities not recorded in the fnancial
statements of the transferor company. Where the assets and liabilities are restated on the
basis of their fair values, the determination of fair values may be infuenced by the
intentions of the transferee company. For example, the transferee company may have a
specialised use for an asset, which is not available to other potential buyers. The
transferee company may intend to efect changes in the activities of the transferor
company which necessitate the creation of specifc provisions for the expected costs,
e.g., planned employee termination and plant relocation costs.

Lump-sum Method
Where the terms of amalgamation provide for payment of a specifed sum of money either
in the form of cash or in the form of shares or in the form of both cash and shares, the
consideration for amalgamation will be taken at that sum. It is known as Lump-sum
Method of purchase consideration.

Net Assets Method

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Where the terms of amalgamation provide for payment of excess value of assets over
liabilities taken over by the transferee company, it is known as Net Assets Method. Under
this method the total amount of outside liabilities is deducted from the total realisable value
of assets taken over to arrive at the value of Purchase Consideration. In other words, Total
Realisable Value of Assets taken over minus Outside Liabilities taken over is considered as
Purchase Consideration.

Net Payment Method

Where the terms of amalgamation provide for payment of diferent sums of money in the
form of shares and cash, it is known as Net Payment Method. Under this method, value of
shares issued and the cash payment made to the shareholders of Transferor Company is
totalled up to arrive at the purchase consideration.

Intrinsic Value Method

The realisable value of total net assets divided by the number of shares outstanding is the
intrinsic value of a share. This value is also known as Asset Back Value of shares. Under this
method the purchase consideration and the number of shares to be issued to vendor
company by the purchasing company is calculated as under:

Purchase Consideration
= (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor
Company).

Number of shares to be issued

= Purchase Consideration/Face (intrinsic) value of shares of Purchasing
Company

PROBLEMS ON CALCULATION AND DISCHARGE OF PURCHASE CONSIDERATION

Problem (Amalgamation - Lump-sum Payment Method)

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
amalgamation agreement provide for purchase consideration of Rs. 1,50,000 to A Ltd., and
Rs. 2,00,000 to B Ltd., to be discharged by the issue of 10,000 shares of Rs.10 each to A
Ltd., and 15,000 shares of Rs.10 each to B Ltd., and the balance in cash to A Ltd., and B Ltd.,
respectively. Show the discharge of purchase consideration.

Solution
Statement showing discharge of purchase consideration
Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (10,000 x 10) & (15,000 x 10) 1,00,00 1,50,00
Payment of cash (Balancing Figure) 0 0
50,000 50,000
Purchase Consideration 1,50,00 2,00,00
0 0

Problem (Amalgamation - Lump-sum Payment Method):

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 CORPORATE REPORTING PRACTICES AND IND AS

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
amalgamation agreement provide for purchase consideration of Rs. 1,00,000 to A Ltd., and
Rs. 1,20,000 to B Ltd., to be discharged by the issue of 9,000 shares of Rs.10 each to A Ltd.,
and 11,000 shares of Rs.10 each to B Ltd., and the balance in cash to A Ltd., and B Ltd.,
respectively. Show the discharge of purchase consideration.

Solution
Statement showing discharge of purchase consideration
Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (9,000 x 10) & (11,000 x 10) 90,000 1,10,00
Payment of cash (Balancing Figure) 10,000 0
10,000
Purchase Consideration 1,00,00 1,20,00
0 0

Problem (Acquisition - Lump-sum Payment Method):

A Ltd., took over the business of B Ltd., The other details are as follows: Assets taken over
Rs.10,00,000; Liabilities taken over Rs.6,00,000. B Ltd., pays a purchase consideration of
Rs.6,00,000 as follows: 70% in Equity shares of Rs.10 each and the balance in 12%
Debentures of Rs.1,000 each. Show the discharge of purchase consideration.

Solution
Statement showing discharge of purchase consideration
Mode of discharge Amount (Rs.)
Issue of shares of Rs.10 each (6,00,000 x 70%) 4,20,000
Issue of 12% Debentures of Rs.1,000 each (Balancing Figure) 1,80,000
Purchase Consideration 6,00,000

Problem (Amalgamation - Net assets method):

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
amalgamation agreement provide for discharge of purchase consideration by the issue of
9,500 shares of Rs.10 each to A Ltd., and 11,500 shares of Rs.10 each to B Ltd., and the
balance in cash to A Ltd., and B Ltd., respectively. The value of assets and liabilities taken
over by AB Ltd., is as under:
A Ltd., B Ltd.,
Fixed Assets 1,10,00 1,20,000
Current Assets 0 60,000
Liabilities 70,000 50,000
70,000
Show the calculation and discharge of purchase consideration.

Solution
(i) Statement showing calculation of purchase consideration
A Ltd., B Ltd.,
Assets taken over:
Fixed Assets 1,10,00 1,20,000
Current Assets 0 60,000
70,000
Total assets taken over 1,80,00 1,80,000
Less: Liabilities taken over 0 50,000

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 CORPORATE REPORTING PRACTICES AND IND AS

70,000
Purchase Consideration 1,10,00 1,30,000
0

(ii) Statement showing discharge of purchase consideration

Amount (Rs.)
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (9,500 x 10) & (11,500 x 10) 95,000 1,15,00
Payment of cash (Balancing Figure) 15,000 0
15,000
Purchase Consideration 1,10,00 1,30,00
0 0

Problem (Amalgamation - Net assets method):

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
purchasing company takes over the assets and liabilities of A Ltd., and B Ltd., as under:
A Ltd., B Ltd.,
Goodwill 50,000 75,000
Land & Buildings 1,10,00 1,40,00
Plant & Machinery 0 0
Stock & Debtors 40,000 60,000
Bills Payable 50,000 75,000
Creditors 25,000 50,000
10,000 20,000
The amalgamation agreement provide for the discharge of purchase consideration by the
issue of 20,000 and 25,000 equity shares of Rs.10 each and the balance in cash to A Ltd.,
and B Ltd., respectively. Show the calculation and discharge of purchase consideration.

Solution
(i) Statement showing calculation of purchase consideration
A Ltd., B Ltd.,
Assets taken over:
Goodwill 50,000 75,000
Land & Buildings 1,10,00 1,40,000
Plant & Machinery 0 60,000
Stock & Debtors 40,000 75,000
50,000
Total assets taken over 2,50,00 3,50,000
Less: Liabilities taken over 0
Bills Payable 50,000
Creditors 25,000 20,000

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 CORPORATE REPORTING PRACTICES AND IND AS

10,000
Purchase Consideration 2,15,00 2,80,000
0

(ii) Statement showing discharge of purchase consideration

Mode of discharge Amount (Rs.)
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (20,000 x 10) & (25,000 x 10) 2,00,00 2,50,00
Payment of cash (Balancing Figure) 0 0
15,000 30,000
Purchase Consideration 2,15,00 2,80,00
0 0

Problem (Acquisition - Net assets method):

Calculate purchase consideration from the following details:
Total Assets at book values Rs. 5,00,000
Assets are taken over at 10% less than book values.
Total liabilities Rs.2,00,000
Liabilities not taken over Rs.50,000
Liquidation expenses of Rs.5,000 is to be borne by the purchasing company.

(BU June 2007)

Solution
Calculation of Purchase Consideration
Particulars
Assets taken over (5,00,000 – 10%) 4,50,000
Less: Liabilities taken over (2,00,000 – 50,000) 1,50,000
Purchase Consideration 3,00,000
Note: Liquidation expenses of Rs.5,000 borne by the purchasing company shall not to be
taken into consideration for calculation of purchase consideration.

Problem (Absorption - Net assets method)

Calculate the purchase consideration from the following:
a. Value of assets as per balance sheet Rs.25,12,750
b. Agreed value of assets taken over Rs.18,21,570
c. Liabilities as per balance sheet Rs.3,21,570
d. Liabilities not taken over Rs.21,570
(BU June 2009)
Solution
Calculation of Purchase Consideration
Particulars
Agreed value of assets taken over 18,21,570
Less: Liabilities taken over (3,21,570 – 21,570) 3,00,000
Purchase Consideration 15,21,570

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 CORPORATE REPORTING PRACTICES AND IND AS

Problem (Absorption - Net assets method)

Q Ltd. is taken over by R Ltd. on the following terms and conditions:
a. The assets of Q Ltd. are valued at Rs.3,00,000.
b. The liabilities of Q Ltd. are valued at Rs. 1,00,000.
c. Rs. 50,000 in cash is paid to the shareholders of Q Ltd.
d. The balance of consideration is discharged by issue of shares of Rs. 10 each at Rs. 15
per share.
Show how the consideration for amalgamation is discharged by R Ltd. and number of shares
issued to the shareholders of Q ltd.

Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Agreed value of assets taken over 3,00,000
Less: Liabilities taken over 1,00,000
Purchase Consideration 2,00,000

(ii) Statement showing discharge of purchase consideration

Mode of discharge Rs.
Payment of cash 50,000
Issue of shares of Rs.10 each at Rs.15 per share 1,50,000
Purchase Consideration 6,00,000

(iii) Number of shares issued: 1,50,000/15 = 10,000

Problem (Absorption - Net assets method)

Nischal Ltd., takes over the business of Nishanth Ltd., on 1 st April, 2013. The following
details are extracted from the books of Nishanth Ltd., as on this date.
 Fixed Assets Rs.6,00,000
 Current Assets Rs.3,00,000
 Current Liabilities Rs.2,00,000
 Equity Share Capital Rs.7,00,000 (Shares of Rs.10 each).
The purchase considered is to be discharged as follows:
 Rs.1,50,000 in cash and
 The balance in the form of equity shares of Rs.10 each in Nischal Ltd., at Rs.20 each.
You are required to fnd out the purchase consideration and state the number of shares
issued by Nischal Ltd., to shareholders of Nishanth Ltd.,

Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Assets taken over:
Fixed Assets 6,00,000
Current Assets 3,00,000
Total assets taken over 9,00,000
Less: Liabilities taken over:
Current Liabilities 2,00,000
Purchase Consideration 7,00,000

(ii) Statement showing discharge of purchase consideration

Mode of discharge Amount

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 CORPORATE REPORTING PRACTICES AND IND AS

(Rs.)
Payment of cash 1,50,000
Issue of shares of Rs.10 each at Rs.20 per share 5,50,000
Purchase Consideration 7,00,000

(iii) Number of shares issued: 5,50,000/20 = 27,500

Problem (Amalgamation - Net payment method):

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., The
amalgamation agreement provide for discharge of purchase consideration as follows:
 Issue of 12,000 shares of Rs.10 each and payment of cash Rs. 30,000 to A Ltd., and
 Issue of and 18,000 shares of Rs.10 each and payment of cash Rs. 20,000 to B Ltd.
Show the calculation of purchase consideration.

Solution
Statement showing calculation of purchase consideration
Rs.
Mode of discharge
A Ltd., B.Ltd.,
Issue of shares of Rs.10 each (12,000 x 10) & (18,000 x 10) 1,20,00 1,80,00
Payment of cash 0 0
30,000 20,000
Purchase Consideration 1,50,00 2,00,00
0 0

Problem (Absorption - Net payment method):

Calculate the amount of purchase consideration:
 A cash payment of Rs.50,000
 Issue of 80,000 equity shares of Rs.10 each fully paid at Rs.15 per share
 Issue of 50,000 preference shares of Rs.10 each Rs.6 per share paid up and
 Issue of 30,000 debentures of Rs.10 each at a discount of 10%.

Solution
Statement showing calculation of purchase consideration
Mode of discharge Rs.
Payment of cash 50,000
Issue of 80,000 equity shares of Rs.10 each fully paid at Rs.15 per share 12,00,00
(80,000x15) 0
Issue of 50,000 preference shares of Rs.10 each Rs.6 per share paid up 3,00,000
(50,000 x 6) 2,70,000
Issue of 30,000 debentures of Rs.10 each at a discount of 10% (30,000 x
9)
Purchase Consideration 18,20,00
0

Problem (Amalgamation - Intrinsic value method):

A Ltd., and B Ltd., agree to amalgamate and form a new company called AB Ltd., which
would be registered with an authorised capital of 1,00,000 equity shares of Rs.2 each. The
amalgamation agreement provide for discharge of purchase consideration on the basis of
intrinsic value of shares of both the companies. The share capital of A Ltd., consists of 5,000
equity shares of Rs.10 each and the share capital of B Ltd., consists of 6,000 equity shares
of Rs.10 each. The intrinsic values of shares of these two companies are Rs.24 and Rs.26

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 CORPORATE REPORTING PRACTICES AND IND AS

respectively. Show the calculation and discharge of purchase consideration and also state
the number of shares issued by AB Ltd., to vendor companies.

Solution
(i) Purchase Consideration
PC = (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor Company).
A Ltd., = 5,000 x 24 = Rs. 1,20,000
B Ltd., = 6,000 x 26 = Rs. 1,56,000

(ii) Number of shares to be issued = Purchase Consideration/Face (intrinsic) value of

shares of Purchasing Company
A Ltd., = 1,20,000/2 = 60,000 shares
B Ltd., = 1,56,000/2 = 78,000 shares

Problem (Amalgamation - Share exchange method):

A Ltd. and B Ltd. decide to amalgamate and form a new company called AB Ltd., which
would be registered with an authorised capital of 4,00,000 equity shares of Rs. 6 each. A
Ltd is having a share capital of Rs.1,00,000 divided into Equity shares of Rs.10 each and B
Ltd., is having a share capital of Rs.1,50,000 divided into Equity shares of Rs.10 each. The
scheme of amalgamation states that for every 4 shares held in A Ltd., its shareholders are to
get: (i) Rs.2.50 in cash & (ii) 5 equity shares of Rs.6 each at par of AB Ltd., and for every 5
shares held in B Ltd., its shareholders are to get: (i) Rs.3 in cash & (ii) 4 equity shares of Rs.6
each at par of AB Ltd. Calculate the consideration for amalgamation.

Solution

No. of shares of A Ltd. = 1,00,000/10 = 10,000

Purchase Consideration in case of A Ltd.,
Rs.
Payment in cash – Rs.2.50 for every four shares (2.50/4) x 10,000 6,250
Issue of 5 equity shares of Rs. 6 each for every four shares (5/4) x 10,000 75,000
x Rs.6
Purchase consideration 81,250

No. of shares of B Ltd., = 1,50,000/10 = 15,000

Purchase Consideration in case of A Ltd.,
Rs.
Payment in cash – Rs.3 for every fve shares (2.50/5) x 15,000 7,500
Issue of 4 equity shares of Rs. 6 each for every fve shares (4/5) x 15,000 72,000
x Rs.6
Purchase consideration 79,500

Problem (Absorption - Net payment method):

S Ltd., having 40,000 Equity shares of Rs. 10 each, is taken over by K Ltd., which agrees to
make the following payments:
a. Cash @ Rs. 4 per share for every share held in S Ltd.
b. Issue 1 share of Rs. 10 each at par for every 2 shares held in S Ltd.
c. Discharge of Rs. 1,00,000 8% debentures of S Ltd. at 10% premium by the issue of
10% Debentures in K Ltd. at par, and
d. Cash Rs. 90,000 to creditors of S Ltd. in full & fnal settlement of their account.
Determine the amount of consideration for amalgamation as per AS-14.

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Solution
Statement showing calculation of purchase consideration
Mode of discharge Rs.
Payment of cash (40,000 x 4) 1,60,000
Issue of 1 share of Rs.10 each at par for every 2 shares held (1/2 x 40,000 2,00,000
x 10)
Purchase Consideration 3,60,000
Note: As per AS-14 purchase consideration consists of payments made to shareholders only.
Any payment made for discharge of debentures and creditors will not form part of purchase
consideration.

Problem (Absorption - Net assets method)

M Ltd. is taken over by S Ltd. on the following terms and conditions:
a. The assets of M Ltd. are valued at Rs.6,00,000.
b. The liabilities of M Ltd. are valued at Rs. 2,00,000.
c. Rs. 2,00,000 in cash is paid to the shareholders of M Ltd.
d. The balance of consideration is discharged by issue of shares of Rs. 10 each at Rs. 20
per share.
Show how the consideration for amalgamation is discharged by S Ltd. and number of shares
issued to the shareholders of M ltd

Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Value of assets taken over 6,00,000
Less: Value of Liabilities taken over 2,00,000
Purchase Consideration 4,00,000

(ii) Statement showing discharge of purchase consideration

Mode of discharge Amount
(Rs.)
Payment of cash 2,00,000
Issue of shares of Rs.10 each at Rs.20 per share (Bal.fg) 2,00,000
Purchase Consideration 4,00,000

(iii) Number of shares issued: 2,00,000/20 = 10,000

Problem (Absorption – Net assets method)

Following is the list of liabilities and assets of A Ltd., as at 31-03-2008.
Liabilities Rs.
Equity share capital: 10,000 shares of Rs.10 each 1,00,000
Reserves & Surplus 50,000
12% Debentures 75,000
Creditors 25,000
2,50,000
Assets Rs.
Fixed Assets 2,00,000
Current Assets 50,000
2,50,000

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B Ltd., absorbs the business of A Ltd., as at the above date and agree to discharge the
purchase consideration as under:
a) Cash payment of Rs.2 per share
b) Issue of sufcient number of equity shares of Rs.10 each at a premium of 100% for
the balance
Calculate purchase consideration and state the number of equity shares issued assuming
that fxed assets are valued at Rs.2,75,000 and current assets at Rs.45,000.

Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Value of assets taken over 2,75,000
Less: Value of Liabilities taken over 45,000
Purchase Consideration 2,30,000

(ii) Statement showing discharge of purchase consideration

Mode of discharge Amount
(Rs.)
Payment of cash (10,000 x 2) 20,000
Issue of shares of Rs.10 each at Rs.20 per share (Bal.fg) 2,10,000
Purchase Consideration 2,30,000

(iii) Number of shares issued: 2,10,000/20 = 10,500

Problem (Absorption – Net assets method)

Bindu Ltd., was agreed to be absorbed by Sindhu Ltd., as on 31-03-07. On this date the
liabilities and assets of Bindu Ltd., was as follows:
Liabilities
50,000 shares of Rs. 10 each 5,00,000
General Reserve 2,00,000
P & L A/c 1,50,000
5% Debentures 1,20,000
Sundry Creditors 1,30,000
11,00,000
Assets
Fixed Assets 9,00,000
Current Assets excluding cash 1,60,000
Cash balance 40,000
11,00,000
Sindhu Ltd., agreed to acquire fxed assets at 10% more than the book values, but current
assets were valued only at Rs.1,50,000. The purchase consideration was paid 50% in shares
of Rs.10 each and the balance in cash. Determine the purchase consideration and also show
the discharge of purchase consideration.

Solution
(i) Calculation of Purchase Consideration
Particulars Rs.
Value of Assets taken over:
Fixed Assets (9,00,000+10%) 9,90,000
Current Assets other than cash 1,50,000

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Cash 40,000
11,80,00
Less: Value of Liabilities taken over: 0
5% Debentures
Sundry Creditors 1,20,000
1,30,000
Purchase Consideration 9,30,000

(ii) Statement showing discharge of purchase consideration

Mode of discharge Amount
(Rs.)
Issue of shares of Rs.10 each (9,30,000 x 50%) 4,65,000
Payment of cash (Bal.fg) 4,65,000
Purchase Consideration 9,30,000

Problem (Absorption - Net payment method):

X Ltd., having 50,000 Equity shares of Rs. 10 each, is taken over by Y Ltd., which agrees to
make the following payments:
a) Cash @ Rs. 5.00 per share for every share held in X Ltd.
b) Issue 1 share of Rs.10 each at par for every 2 shares held in X Ltd.,
c) Discharge of Rs.2,00,000, 8% Debentures of X Ltd., at 10% premium by the issue of
10% Debentures in Y Ltd., at par and
d) Rs. 20,000 cash to creditors of X Ltd., in fnal settlement of their account.
Determine the amount of consideration for amalgamation as per AS-14.

Solution
Statement showing calculation of purchase consideration
Mode of discharge Rs.
Payment of cash (50,000 x 5) 2,50,000
Issue of 1 share of Rs.10 each at par for every 2 shares held (1/2 x 2,50,000
50,000 x 10)
Purchase Consideration 5,00,000
Note: As per AS-14 purchase consideration consists of payments made to shareholders only.
Any payment made for discharge of debentures and creditors will not form part of purchase
consideration.

Problem (Absorption - Net payment method):

D Ltd., was acquired by N Ltd., The share capital of D Ltd., was 4,000 shares of Rs.100 each.
N Ltd., issued 2 shares of Rs.60 each at Rs.65 per share and also agreed to pay Rs.2 in cash
to the shareholders of D Ltd., in exchange for one share in D Ltd., D Ltd., sold in the open
market 1/4th of the shares received from N Ltd., at the average rate of Rs.63 per share. Give
statement of purchase consideration and journal entries afecting the sale of shares in the
books of D Ltd.,

Solution
(i) Statement showing calculation of purchase consideration
Mode of discharge Rs.
Issue of 2 shares of Rs.10 each at par for 1 share held (2/1 x 4,000 x 5,20,000
65) 8,000
Payment of cash Rs.2 per share (4,000 x 2)
Purchase Consideration 5,28,000

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(ii) Journal Entry for sale of shares by D Ltd.,

Particulars Dr. Rs. Cr. Rs.
Bank A/c Dr. (2,000 x 63) 1,26,000
Realisation A/c Dr. (2,000 x 2) 4,000
To Shares in N Ltd., (2,000 x 65) 1,30,000

Problem: (Absorption - Share exchange method)

X Ltd., absorbs Y Ltd., by issuing 4 equity shares of Rs.10 each at a premium of 10% for
every 2 shares in Y Ltd., The share capital of Y Ltd., was 16,000 shares of Rs.10 each. Y
Ltd., held 6,000 shares in X Ltd., Calculate purchase consideration.

Solution
Note: In this problem, it is given that Y Ltd., holds 6,000 shares in X Ltd. When one
company holds the shares of another company, it is called as inter-company holding. In
such a case, adjustment for inter-company holding should be made while calculating
number of shares to be issued. The total number of shares to be issued by purchasing
company to vendor company is arrived at as follows:
Gross Number of shares to be issued by X Ltd., to Y Ltd., at 4 shares for 2
shares held (4/2 x 16,000) 32,00
Less: Shares already held by Y Ltd., 0
6,000
Net Number of shares to be issued by X Ltd., to Y Ltd., 26,00
0

Statement showing calculation of purchase consideration

Mode of discharge Rs.
Issue of 26,000 shares of Rs.10 each at a premium of 10% (26,000 x 11) 2,86,000
Purchase Consideration 2,86,000

Problem 21 (June 2006): (Absorption - Intrinsic value method):

Following is the balance sheet of R Ltd.,
Liabilities Rs.
Issued Capital –Shares of Rs.10 each 1,50,00
Trade Liabilities 0
Total 60,000
2,10,00
0
Assets
Goodwill 30,000
Fixed Assets at cost less depreciation 50,000
Floating Assets 80,000
P & L A/c 50,000
Total 2,10,00
0
T Ltd., agreed to take over the business of R Ltd., The shareholders of R Ltd., agreed to
accept shares of T Ltd., on the basis that the shares of T Ltd., were worth Rs.12.50 and that
of R Ltd., were worth Rs.5 each, which is taken as the basis for calculating purchase
consideration. The purchasing company took over fxed and foating assets only. Trade
liabilities were not taken over. Calculate the purchase consideration and give the revised
value of assets.

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Solution
(i) Purchase Consideration
= (No. of shares of Vendor Company) x (Intrinsic Value of shares of Vendor Company).
= 15,000 x 5
= Rs. 75,000

(ii) Number of shares to be issued

= Purchase Consideration/Face (intrinsic) value of shares of Purchasing Company
= 75,000/12.5
= 6,000 shares

(iii) Calculation of revised value of assets: For calculation of revised value of assets,
the balance sheet is to be redrafted as under.

Revised Balance Sheet (to fnd out revised value of assets)

Liabilities
Share Capital 75,000
Trade Liabilities 60,000
Total 1,35,000
Assets
Fixed Assets 50,000
Floating Assets 80,000
Goodwill (Balancing Figure) 5,000
Total 1,35,000

ACCOUNTING ENTRIES UNDER PURCHASE METHOD IN THE BOOKS OF PURCHASING

COMPANY

Steps for journal entries

1. Purchase consideration due
2. Taking over of assets and liabilities
3. Payment of purchase consideration
4. Others adjustments like maintenance of statutory reserve, payment of
liabilities of vendor company, payment of liquidation expenses of vendor
company, etc.,

PROFORMA JOURNAL ENTRIES

For purchase consideration due on acquisition of the business:

Business Purchase A/c Dr. (with the amount of purchase consideration)
To Liquidator of Transferor Company A/c

On acquisition of assets and liabilities of the transferor company:

Respective Asset A/c Dr. (with value of assets taken over)
Goodwill A/c Dr. ( with diference, see note below)
To Respective Liabilities A/c (with the value of liabilities taken over)
To Business Purchase A/c (with the amount of purchase consideration )
To Capital Reserve A/c (with diference, see note below)

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Note: In the above journal entry, if the total amount of the debit accounts is greater than
the total amount of the credit accounts, the diference is credited to Capital Reserve
Account. Similarly if the total amount of the credit accounts is more than the debit total, the
diference is debited to Goodwill Account.

For discharge of purchase consideration:

Liquidator of Transferor Company A/c Dr. (with amount of purchase
consideration)
Discount on Issue of Shares/Debentures A/c Dr. (amount of discount)
To Share Capital A/c (nominal value of shares)
To Securities Premium A/c (amount of premium, if any)
To Debentures A/c (nominal value of debentures issued)
To Bank A/c (amount paid in cash)
(There may be either discount on issue of shares/debentures account or securities premium
account.)

For maintenance of statutory reserves such as Development Rebate Reserve,

Investment Allowance Reserve & Export Profit Reserve:
Amalgamation Adjustment A/c Dr. (amount of reserve)
To Statutory Reserves A/c

If liquidation expenses of the transferor company are borne by the transferee

company:
Goodwill A/c or Capital Reserve A/c Dr. (amount of expenditure)
To Bank A/c

For the formation expenses of the transferee company, if any:

Preliminary Expenses A/c Dr. (amount of expenditure)
To Bank A/c

In case there are both Goodwill and Capital Reserve Account, Goodwill may be set
of against capital reserves:
Capital Reserve A/c Dr. (amount of goodwill written of)
To Goodwill A/c
Note: Capital Reserve Account and Goodwill Account should not appear simultaneously in
the balance sheet.

On payment of liability by the transferee company:

Respective Liability A/c Dr. (amount payable)
To Share Capital A/c
To Debentures A/c (As the case may be)
To Bank A/c

ACCOUNTING ENTRIES IN THE BOOKS OF VENDOR COMPANY

Steps for journal entries

1. Transfer of assets to realisation account
2. Transfer of liabilities to realisation account
3. Purchase consideration due
4. Purchase consideration received

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5. Sale of assets that are not taken over by purchasing company

6. Payment of liabilities that are not taken over by purchasing company
7. Payment of liquidation expenses
8. Transfer of preference share capital and other amounts due to
preference shareholders
9. Payment to preference shareholders
10.Closing of realisation account and transfer of profit or loss to equity
shareholders
11.Transfer of equity share capital and other amounts to equity
shareholders
12.Final payment to equity shareholders

PROFORMA JOURNAL ENTRIES

For transfer of assets including cash at their book values

Realisation A/c Dr.
To Respective Assets A/c (at book values)

For transfer of liabilities including debentures and statutory reserves at their

book values
Respective liabilities A/c Dr.
Statutory Reserves A/c Dr.
To Realisation A/c

For purchase consideration due (receivable)

Purchasing Company A/c Dr.
To Realisation A/c

For purchase consideration received

Shares in Purchasing Company A/c Dr.
Debentures in Purchasing Company A/c Dr.
Bank A/c Dr.
To Purchasing Company A/c

For sale of assets not taken over by purchasing company

Bank A/c Dr.
To Realisation A/c

For payment of liabilities not taken over by purchasing company

Realisation A/c Dr.
To Bank A/c

For liquidation expenses met by vendor company

Realisation A/c Dr.
To Bank A/c

For preference share capital and other amounts due (payable) to Preference
Shareholders
Preference Share Capital A/c Dr.

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Realisation A/c Dr. (if premium is payable)

To Preference Shareholders A/c

For payment to Preference Shareholders

Preference Shareholders A/c Dr.
To Shares in Purchasing Company A/c
To Debentures in Purchasing Company A/c
To Bank A/c

For profit on closing of realisation account

Realisation A/c Dr.
To Equity Shareholders A/c

For equity share capital and other amounts due (payable) to Equity Shareholders
Equity Share Capital A/c Dr.
Non-statutory Reserves A/c Dr.
Proft & Loss A/c Dr.
To Equity Shareholders A/c

For payment to Equity Shareholders

Equity Shareholders A/c Dr.
To Shares in Purchasing Company A/c
To Debentures in Purchasing Company A/c
To Bank A/c

Note on treatment of liquidation expenses of vendor company paid by purchasing

company.

When the problem states that the liquidation expenses of vendor company is paid by
purchasing company, two alternatives may be considered.
a) The vendor company need not pass any journal entry
OR
b) The following journal entries may be passed in the books of vendor company.
Purchasing Company A/c Dr XXX
To Bank A/c XXX
Bank A/c Dr. XXX
To Purchasing Company A/c XXX

Problems
Problem
A Ltd., & B Ltd., agreed to amalgamate and form a new company called AB Ltd., with an
authorised capital of Rs.10,00,000 consisting of 1,00,000 equity shares of Rs.10 each. The
purchase consideration is agreed at Rs.4,00,000 for A Ltd., and Rs.3,00,000 for B Ltd., Show
the journal entry for purchase of the business & discharge of purchase consideration in the
books of AB Ltd.,

Solution

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Journal entries in the books of AB Ltd., for purchase of the business of A Ltd., and B Ltd &
discharge of purchase consideration to A Ltd., and B Ltd
Particulars A Ltd., B Ltd.,
Business Purchase A/c Dr. 7,00,000
To Liquidator of A Ltd., A/c 4,00,000
To Liquidator of B Ltd., A/c 3,00,000
(Being the purchase of the business of A Ltd., & B Ltd.,)
Liquidator of A Ltd., A/c 4,00,000
Liquidator of B Ltd., A/c 3,00,000
To Equity Share Capital A/c 7,00,000
(Being discharge of purchase consideration by the issue of
equity shares)

Problem
Write journal entry for the purchase of the business and settlement of purchase
consideration in the books of purchasing company from the following details. Purchase
consideration Rs.5,00,000 Discharge of purchase consideration by issue of equity shares of
Rs. 100 each at a premium of 25%.

Solution
Analytical Note:
 In the above problem it is stated that the purchase consideration is discharged by the
issue of equity shares of Rs.100 each at a premium of 25%.
 Therefore, the issue price of each equity share is Rs. 125 (i.e., Face Value Rs. 100 +
Share premium 25%).
 The total number of equity shares to be issued is 40,000 (i.e., 5,00,000/125)
 The amount to be appropriated towards share capital is Rs. 4,00,000 (i.e., 40,000 x
100)
 The amount to be appropriated towards share premium is Rs. 1,00,000 (i.e., 40,000 x
25)

Journal Entry in the books of Purchasing Company

Particulars A Ltd., B Ltd.,
Business Purchase A/c Dr. 5,00,000
To Liquidator of Vendor Company A/c 5,00,000
(Being the purchase of the business of Vendor Company)
Liquidator of Vendor Company A/c Dr. 5,00,000
To Equity Share Capital A/c (40,000 x 100) 4,00,000
To Share Premium A/c (40,000 x 25) 1,00,000
(Being the discharge of purchase consideration)

Problem
A Ltd., & B Ltd., agreed to amalgamate and form a new company called AB Ltd., with an
authorised capital of Rs.25,00,000 consisting of 2,50,000 equity shares of Rs. 10 each. The
purchase consideration is agreed at Rs.5,50,000 for A Ltd., and Rs.6,60,000 for B Ltd., to be
settled by the issue of equity shares at a premium of 10%. The agreed value of assets and
liabilities taken over by AB Ltd., is as under:
Particulars A Ltd., B Ltd.,
Land & Buildings 4,00,000 3,00,000
Plant & Machinery 2,50,000 2,75,000
Furniture & Fixtures 1,50,000 2,50,000

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Stock & Debtors 1,00,000 1,25,000

Cash & Bank 50,000 75,000
Creditors 75,000 1,50,000
Bank Overdraft 25,000 50,000
Bank Loan 75,000 75,000
12% Debentures 2,00,000 1,50,000
You are required to show in the books of AB Ltd., :
1. Journal entries for (a) business purchase, (b) incorporation of assets and liabilities
and (c) discharge of purchase consideration and
2. The Balance Sheet in the books of AB Ltd.,

Solution
(i) Journal entries in the books of AB Ltd
Particulars A Ltd., B Ltd.,
Business Purchase A/c Dr. 12,10,00
To Liquidator of A Ltd., A/c 0 5,50,000
To Liquidator of B Ltd., A/c 6,60,000
(Being the purchase of the business of A Ltd., & B Ltd.,)
Land & Buildings 7,00,000
Plant & Machinery 5,25,000
Furniture & Fixtures 4,00,000
Stock & Debtors 2,25,000
Cash & Bank 1,25,000
Goodwill (Balancing Figure) 35,000
To Creditors 2,25,000
To Bank Overdraft 75,000
To Bank Loan 1,50,000
To 12% Debentures 3,50,000
To Business Purchase A/c 12,10,000
(Being incorporation of assets and liabilities of vendor
companies)
Liquidator of A Ltd., A/c 5,50,000
Liquidator of B Ltd., A/c 6,60,000
To Equity Share Capital A/c 11,00,000
To Share Premium A/c 1,10,000
(Being discharge of purchase consideration by the issue of
1,10,000 equity shares of Rs.10 each at a premium of 10%)

(ii) Balance Sheet in the books of AB Ltd.

Liabilities
Equity Share Capital A/c 11,00,00
Share Premium A/c 0
12% Debentures 1,10,000
Bank Loan 3,50,000
To Bank Overdraft 1,50,000
Creditors 75,000
Total 2,25,000
20,10,00
0
Assets
Goodwill 35,000
Land & Buildings 7,00,000
Plant & Machinery 5,25,000
Furniture & Fixtures 4,00,000
Stock & Debtors 2,25,000

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Cash & Bank 1,25,000

Total 20,10,00
0

Problem
A Ltd., & B Ltd., agreed to amalgamate and form a new company called AB Ltd., with an
authorised capital of Rs.15,00,000 consisting of 1,50,000 equity shares of Rs.10 each. The
purchase consideration is agreed at Rs.4,40,000 for A Ltd., and Rs.3,30,000 for B Ltd., which
is to be satisfed as follows:
 Rs.40,000 in cash and the balance in equity shares to A Ltd., and
 Rs.30,000 in cash and the balance in equity shares to B Ltd.,
Show the journal entry for business purchase & discharge of purchase consideration.

Solution
(i) Statement showing discharge of purchase consideration
Mode of discharge A Ltd., B Ltd.,
Payment of cash 40,000 30,000
Issue of equity shares of Rs.10 each 4,00,000 3,00,000
Purchase Consideration 4,40,000 3,30,000

(ii) Journal entry

Particulars A Ltd., B Ltd.,
Business Purchase A/c Dr. 7,70,000
To Liquidator of A Ltd., 4,40,000
To Liquidator of B Ltd., 3,30,000
Liquidator of A Ltd., A/c 4,40,000
Liquidator of B Ltd., A/c 3,30,000
To Cash A/c 70,000
To Equity Share Capital A/c 7,00,000
(Being discharge of purchase consideration)

Problem
A Ltd., & B Ltd., agreed to amalgamate and form a new company called AB Ltd., with an
authorised capital of Rs.20,00,000 consisting of 2,00,000 equity shares of Rs.10 each. The
purchase consideration is agreed at Rs.6,50,000 for A Ltd., and Rs.4,80,000 for B Ltd., which
is to be satisfed as follows:
 Rs.50,000 in cash and the balance by the issue of equity shares in AB Ltd., at a
premium of 50% to A Ltd., and
 Rs.30,000 in cash and the balance by the issue of equity shares in AB Ltd., at a
premium of 50% to B Ltd.,
You are required to show:
(a) The journal entries for business purchase & discharge of purchase consideration and
(b) The relevant items as they appear in the Balance Sheet of AB Ltd.,

Solution
(a) Statement showing discharge of purchase consideration
Mode of discharge A Ltd., B Ltd.,
Payment of cash 50,000 30,000
Issue of equity shares of Rs.10 each 6,00,000 4,50,000
Purchase Consideration 6,50,000 4,80,000

(b) Journal entries in the books of AB Ltd.,

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Particulars A Ltd., B Ltd.,

Business Purchase A/c Dr. 11,30,00
To Liquidator of A Ltd., 0 6,50,000
To Liquidator of B Ltd., 4,80,000
Liquidator of A Ltd., A/c 6,50,000
Liquidator of B Ltd., A/c 4,80,000
To Cash A/c 80,000
To Equity Share Capital A/c 7,00,000
To Share Premium A/c 3,50,000
(Being discharge of purchase consideration)

(c) Balance Sheet in the books of AB Ltd. (Extracts)

Liabilities
Authorized Capital – 2,00,000 Equity shares of Rs.10 each 20,00,00
Issued Capital – 70,000 Equity shares of Rs.10 each fully paid 0
Share Premium 7,00,000
3,50,000

Problem
Following are the balance sheets of C Ltd., and D Ltd., as at 31-03-2015.
C Ltd., D Ltd.,
Liabilities
Equity Share Capital (15,000shares) 1,50,000 1,50,000
Reserves & Surplus 50,000 1,00,000
12% Debentures 1,00,000 1,00,000
Creditors 60,000 60,000
3,60,000 4,10,000
Assets
Land & Buildings 1,00,000 1,50,000
Plant & Machinery 1,50,000 1,25,000
Stock 75,000 75,000
Debtors 25,000 50,000
Cash 10,000 10,000
3,60,000 4,10,000
C Ltd., and D Ltd., merge their business and form a new company called DC Ltd. The assets
of both the companies are valued as follows: Fixed assets 25% more; Stock 15% less and
Debtors 10% less. The purchase consideration is discharged by the issue to both companies
sufcient number of equity shares of Rs.10 each in DC Ltd., at an agreed value of Rs.12.50
per share. Assuming that the merger process is duly completed show the journal entries &
opening balance sheet of DC Ltd., which has an authorized capital of Rs. 20,00,000
consisting equity shares of Rs. 10 each.

Solution
(a) Statement showing calculation of purchase consideration
Mode of discharge C Ltd., D Ltd.,
Assets taken over:

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Land & Buildings (25% more) 1,25,000 1,87,500

Plant & Machinery (25% more) 1,87,500 1,56,250
Stock (15% less) 63,750 63,750
22,500
Debtors (10% less) 45,000
10,000
Cash 10,000
4,62,500
Less Liabilities taken over:
12% Debentures 1,00,000 1,00,000
Creditors 60,000 60,000
Purchase Consideration 2,48,750 3,02,500

(b) Statement showing discharge of purchase consideration

Particulars Rs.
a) To C Ltd., - Issue of 19,900 (i.e., 2,48,750 / 12.50) equity shares of 2,48,750
Rs.10 each at a premium of Rs.2.50 per share
b) To D Ltd., - Issue of 24,200 (i.e., 3,02,500 / 12.50) equity shares of Rs. 3,02,500
10 each at a premium of Rs. 2,50 per share
5,51,250

(c) Journal entries in the books of DC Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
Business Purchase A/c Dr. 5,51,250
To Liquidator of C Ltd., 2,48,750
To Liquidator of D Ltd., 3,02,500
(Being purchase of the business of C Ltd., and D Ltd.,)
Land & Buildings (1,25,000 + 1,87,500) 3,12,500
Plant & Machinery (1,87,500 + 1,56,250) 3,43,750
Stock (63,750 + 63,750) 1,27,500
67,500
Debtors (22,500 + 45,000)
20,000
Cash (10,000 + 10,000) 2,00,000
To 12% Debentures (1,00,000 + 1,00,000) 1,20,000
To Creditors (60,000 + 60,000) 5,51,250
To Business Purchase A/c
(Being incorporation of assets and liabilities taken over from
C Ltd., and D Ltd.,)
Liquidator of C Ltd., A/c 2,48,750
Liquidator of D Ltd., A/c 3,02,500
To Equity Share Capital A/c (19,900 + 24,200) X Rs.10 4,41,000
To Share Premium A/c (19,900 + 24,200) X Rs.2.50 1,10,250
(Being discharge of purchase consideration by the issue of
equity shares of Rs.10 each at a premium of Rs.2.50 per
share)

(d) Balance Sheet in the books of DC Ltd. (Extracts)

Liabilities
Authorized Capital – 2,00,000 Equity shares of Rs.10 each 20,00,00
Issued Capital – 44,100 Equity shares of Rs.10 each fully paid 0
Share Premium 4,41,000
12% Debentures 1,10,250
Creditors 2,00,000
Total 1,20,000
8,71,250
Land & Buildings (1,25,000 + 1,87,500) 3,12,500
Plant & Machinery (1,87,500 + 1,56,250) 3,43,750

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Stock (63,750 + 63,750) 1,27,500

Debtors (22,500 + 45,000) 67,500
Cash (10,000 + 10,000) 20,000
Total 8,71,250

Problem (Acquisition)
The Balance Sheet of A Ltd., as at 31-03-2015 was as under:
Rs.
Liabilities
24,000 Equity Shares of Rs.10 each fully paid 2,40,000
Creditors 60,000
Bank Overdraft 56,000
Total 3,56,000
Assets
Land & Buildings 2,00,000
Plant & Machinery 80,000
Stock 30,000
Debtors 44,000
Proft & Loss A/c 2,000
Total 3,56,000
A Ltd., went into voluntary liquidation and assets were sold to B Ltd., for Rs.1,50,000
payable as to Rs.1,20,000 in cash and Rs.30,000 in the form of 12,000 equity shares of
Rs.10 each of B Ltd., at Rs.2.50 paid up per share. The creditors and bank overdraft are not
taken over by B Ltd. The expenses of liquidation of A Ltd., came to Rs.2,000 and is paid by
B Ltd., You are required to pass closing journal entries in the books of A Ltd., and opening
journal entries in the books of B Ltd.,

Solution

(a) Purchase Consideration – Directly given in the problem as Rs.1,50,000

(b) Mode of discharge of purchase consideration

Mode of discharge Rs.
Payment of cash 1,20,000
Issue of 12,000 equity shares of Rs.10 each at Rs.2.50 paid (12,000 X 30,000
2.50)
1,50,000

(c) Closing Journal Entries in the books of A Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
Realisation A/c Dr. 3,54,000
To Land & Buildings 2,00,000
To Plant & Machinery 80,000
To Stock 30,000
To Debtors 44,000
(Being assets accounts transferred to realisation account)
Creditors A/c 60,000
Bank Overdraft A/c 56,000
To Realisation A/c 1,16,000
(Being liabilities accounts transferred to realisation account)
B Ltd., A/c Dr. 1,50,000

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To Realisation A/c 1,50,000

(Being purchase consideration due)
Bank A/c Dr. 1,20,000
Equity shares in B Ltd., A/c Dr. 30,000
To B Ltd., A/c 1,50,000
Realisation A/c Dr. 1,16,000
To Bank A/c 1,16,000
(Being Creditors Rs.60,000 and Bank Overdraft Rs.56,000 not
taken over by B Ltd., discharged by payment in cash)
Equity Shareholders A/c Dr. 2,04,000
To Realisation A/c (see note 1 below) 2,04,000
(Being loss on realisation transferred to equity shareholders)
Equity Share Capital A/c Dr. 2,40,000
To Equity Shareholders A/c 2,40,000
(Being equity share capital transferred to equity
shareholders)
Equity Shareholders A/c Dr. 2,000
To Proft & Loss A/c 2,000
(Being debit balance in P&L A/c transferred to equity
shareholders)
Equity Shareholders A/c Dr. 34,000
To Equity Shares in B Ltd., A/c 30,000
To Bank A/c (1,20,000 – 1,16,000) 4,000

Working Notes:
1. Proft or loss on realisation is arrived at by preparing Realisation A/c as under:

Realisation A/c
Particulars Rs. Particulars Rs.
To Land & Buildings 2,00,00 By Creditors A/c 60,000
To Plant & Machinery 0 By Bank Overdraft A/c 56,000
To Stock 80,000 By B Ltd., A/c 1,50,00
To Debtors 30,000 By Equity Shareholders 0
To Bank (Creditors & 44,000 A/c 2,04,00
Overdraft discharged) 0
1,16,00
0

4,70,00 4,70,00
0 0

2. For cross checking whether the journal entries and amounts are correct or not, we can
prepare Equity Shareholders A/c as under by posting the relevant items in the journal
entries. If the account tallies, we can conclude that the closing journal entries is complete in
all respects.

Equity Shareholders A/c

Particulars Rs. Particulars Rs.
To Realisation A/c 2,04,00 By Equity Share Capital 2,40,00
To Proft & Loss A/c 0 A/c 0
To Equity Shares in B Ltd., 2,000
To Bank A/c 30,000
4,000
2,40,00 2,40,00

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0 0

(d) Opening Journal Entries in the books of B Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
Business Purchase A/c Dr. 1,50,000
To Liquidator of A Ltd., 1,50,000
(Being purchase of the business of A Ltd.,)
Land & Buildings 2,00,000
Plant & Machinery 80,000
Stock 30,000
Debtors 44,000
To Business Purchase A/c 1,50,000
To Capital Reserve A/c (Balancing fgure) 2,04,000
(Being incorporation of assets of A Ltd.,)
Capital Reserve A/c Dr.
To Bank A/c
(Being liquidation expenses of A Ltd., paid by B Ltd.,)
Liquidator of A Ltd., A/c 1,50,000
To Bank A/c 1,20,000
To Equity Share Capital A/c (12,000 X 2.50) 30,000
(Being discharge of purchase consideration by the payment
of cash and issue of 12,000 equity shares of Rs.10 each as
Rs.2.50 paid up)

Problem (Acquisition)
The Balance Sheet of B Ltd., as at 31-03-2007 was as under:
Rs.
Liabilities
24,000 Equity Shares of Rs.10 each fully paid 2,40,000
Creditors 60,000
Bank Overdraft 56,000
3,56,000
Assets
Land & Buildings 2,00,000
Plant & Machinery 80,000
Stock 30,000
Debtors 44,000
Proft & Loss A/c 2,000
3,56,000
B Ltd., went into voluntary liquidation and the business was sold to C Ltd., for Rs.2,50,000
payable as to Rs.20,000 in cash and the balance in the form of equity shares of Rs.10 each
of C Ltd., The expenses of liquidation of B Ltd., came to Rs.12,000 and is paid by C Ltd.,
You are required to pass closing journal entries in the books of B Ltd., and opening journal
entries in the books of C Ltd.,

Solution

(a) Purchase Consideration – Directly given in the problem as Rs.2,50,000

(b) Mode of discharge of purchase consideration

Mode of discharge Rs.
Payment of cash 20,000
Issue of 12,000 equity shares of Rs.10 each at Rs.2.50 paid (12,000 X 2,30,000

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2.50)
2,50,000

(c) Closing Journal Entries in the books of A Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
Realisation A/c Dr. 3,54,000
To Land & Buildings 2,00,000
To Plant & Machinery 80,000
To Stock 30,000
To Debtors 44,000
(Being assets accounts transferred to realisation account)
Creditors A/c 60,000
Bank Overdraft A/c 56,000
To Realisation A/c 1,16,000
(Being liabilities accounts transferred to realisation account)
B Ltd., A/c Dr. 2,50,000
To Realisation A/c 2,50,000
(Being purchase consideration due)
Bank A/c Dr. 20,000
Equity shares in B Ltd., A/c Dr. 2,30,000
To B Ltd., A/c 2,50,000
Realisation A/c Dr. (see note 1 below) 12,000
To Equity Shareholders A/c 12,000
(Being loss on realisation transferred to equity shareholders)
Equity Share Capital A/c Dr. 2,40,000
To Equity Shareholders A/c 2,40,000
(Being equity share capital transferred to equity
shareholders)
Equity Shareholders A/c Dr. 2,000
To Proft & Loss A/c 2,000
(Being debit balance in P&L A/c transferred to equity
shareholders)
Equity Shareholders A/c Dr. 2,50,000
To Equity Shares in B Ltd., A/c 2,30,000
To Bank A/c 20,000

Working Notes:
1. Proft or loss on realisation is arrived at by preparing Realisation A/c as under:

Realisation A/c
Particulars Rs. Particulars Rs.
To Land & Buildings 2,00,00 By Creditors A/c 60,000
To Plant & Machinery 0 By Bank Overdraft A/c 56,000
To Stock 80,000 By B Ltd., A/c 2,50,00
To Debtors 30,000 0
To Equity Shareholders A/c 44,000
(Balancing fgure) 12,000
3,66,00 3,66,00
0 0

2. For cross checking whether the journal entries and amounts are correct or not, we can
prepare Equity Shareholders A/c as under by posting the relevant items in the journal
entries. If the account tallies, we can conclude that the closing journal entries is complete in
all respects.

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Equity Shareholders A/c

Particulars Rs. Particulars Rs.
To Proft & Loss A/c 2,000 By Equity Share Capital 2,40,00
To Equity Shares in B Ltd., 2,30,00 A/c 0
To Bank A/c 0 By Realisation A/c 12,000
20,000
2,52,00 2,52,00
0 0

(d) Opening Journal Entries in the books of B Ltd.,

Particulars Dr. (Rs.) Cr. (Rs.)
Business Purchase A/c Dr. 2,50,000
To Liquidator of A Ltd., 2,50,000
(Being purchase of the business of B Ltd.,)
Land & Buildings 2,00,000
Plant & Machinery 80,000
Stock 30,000
Debtors 44,000
Goodwill A/c (Balancing fgure) 12,000
To Creditors A/c 60,000
To Bank Overdraft A/c 56,000
To Business Purchase A/c 2,50,000
(Being incorporation of assets & liabilities of B Ltd.,)
Goodwill A/c Dr. 12,000
To Bank A/c 12,000
(Being liquidation expenses of B Ltd., paid by C Ltd.,)
Liquidator of B Ltd., A/c 2,50,000
To Bank A/c 20,000
To Equity Share Capital A/c 2,30,000
(Being discharge of purchase consideration)

Module 3
Group Financial Statements/ Consolidated Financial Statements

Consolidation of foreign-Holding company, Subsidiary Company and Associate

Company including multiple subsidiaries, Concept of a group, Purposes of
consolidated financial statements, consolidation procedures-Minority interest,
Goodwill, Treatment pre-acquisition profit and concept of Fair value at the time of
acquisition

Introduction
A holding company is one that holds either the whole of the share capital or a majority of the
shares in one or more companies so as to have a controlling interest in such companies. In
other words, a parent corporation that owns enough voting stock in another corporation to
control its board of directors and, therefore, controls its policies and management is called
as holding company. The object of holding companies is to (a) promote combination
movement so that competition may be eliminated (b) monopoly or near monopoly
advantages are enjoyed and (c) economies of large-scale production and management are
secured without losing the individual identity of the companies. However, it may be pointed

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out that some disadvantages, namely (a) fraudulent manipulation of accounts (b)
manipulation of inter-company transactions (c) oppression of minority shareholders (d)
exploitation of subsidiary companies etc., are also associated with the system of holding
companies.

Definitions
According to Kohler, a holding company is “a controlling company having subsidiaries and
confning its activities primarily to their management”. According to Bon Bright and Meons
the holding company is “a super corporation which, by virtue of its share ownership and
hence voting right in other corporations, is in a position to exercise control or materially
infuence the management of those other corporations known as subsidiaries”. Section 4 of
the Companies Act, 1956 defnes a holding company and subsidiary company by their
relation to each other. According to this section, a company shall be deemed to be a
subsidiary company of another if and only if: that other company controls the composition of
the Board of Directors or that other company holds more than half of the nominal value of its
equity share capital or that the company is a subsidiary of other company which is a
subsidiary of other company. According to the same section “a company shall be deemed to
be a holding company of another if and only if that the other company is its subsidiary”.

Accounts
Under section 212 of the companies Act, 1956 the following must be attached to the
Balance Sheet of a holding company:
 A copy of the Balance Sheet of the subsidiary company.
 A copy of the Proft and Loss Account of the subsidiary company.
 A copy of the report of its Board of Directors.
 A copy of the report of its Auditors.
 A statement of the holding company’s interest in the subsidiary company.
 The profts of the subsidiary company so far as they concern the holding company.

Holding Company’s Balance Sheet

The Balance Sheet of holding company must disclose, in the prescribed form of Balance
Sheet as per Schedule VI, the following items in relation to its subsidiary or subsidiaries.

On the Assets side-

 Under the head Investments – Investments in shares, debentures or bonds of
subsidiary company.
 Under the head Loans and Advances – Loans and Advances to subsidiaries.

On the Liabilities side-

 Under the head Secured Loans and under the head Unsecured Loans – Loans and
advances from subsidiaries.
 Under the head Current Liabilities and Provisions – Amounts due to subsidiary
companies.
By way of footnote-
 Contingent liability in respect of any guarantee given on behalf of subsidiaries.

Consolidated Balance Sheet

In India a holding company is not required by law to prepare a Consolidated Balance Sheet
or a Consolidated Proft and Loss Account. However, in order to show complete and clear
picture, the holding company may also publish, along with the Balance Sheet as prescribed
in Schedule VI, a Consolidated Balance Sheet in which the assets and liabilities of all the
subsidiaries are given along with its own assets and liabilities.

Principles of consolidation
While preparing the consolidated balance sheet the following principles may be observed:

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Elimination of Investment of Holding Company and Share Capital of Subsidiary

Company
Where a holding company holds all the shares of a subsidiary all its assets belong to the
holding company. Similarly, the holding company becomes liable for all debts of the
subsidiary company. Therefore, while preparing the consolidated balance sheet, it is
necessary to eliminate investment and its compliment, the paid up capital of the subsidiary.
As holding company’s investment is subsidiary’s capital i.e., excess of assets over the
liabilities of the subsidiary, they become internal items in the consolidated balance sheet.
Hence, the two are cancelled against each other, and substituted by the assets and liabilities
of the subsidiary.

Minority Interest
When some of the shares in the subsidiary are held by outsiders, they will be entitled to a
proportionate share in the assets and liabilities of that company. Such proportionate share
of the outside shareholders in the subsidiary company is known as “minority interest”.
While preparing the consolidated balance sheet, minority interest must be calculated and
shown on the liabilities side.

Cost of Control/Goodwill or Capital Reserve

If the holding company purchases the shares of the subsidiary company at a price which is
more than the paid up value of the shares, the excess amount paid represents payment for
Cost of Control or Goodwill. On the other hand, if the shares are purchased at a price, which
is less than the paid up value of the shares, the diference represents Capital Reserve or
Capital Proft. While preparing the consolidated balance sheet, it is necessary to show
Goodwill on the assets side or, if Capital Reserve, on the liabilities side. Where a holding
company acquires shares in several subsidiaries, and the acquisition price is more in some
cases, and less in some other, resulting in Goodwill as well as Capital Reserve, one is set-of
against the other, and the net fgure which may be Goodwill or Capital Reserve is shown in
the consolidated balance sheet.

Pre-acquisition Reserves and Profits or Capital Profits

Profts existing in, or earned by the subsidiary company up to the date of acquisition of
shares by the holding company are called Pre-acquisition Profts or Capital Profts. Holding
company’s share of the same is to be shown separately under the heading ‘Capital
Reserves’ or adjusted against the Cost of Control. Any increase in the value of fxed assets
of the subsidiary company whether before or after the date of acquisition will also be treated
as capital proft. If there is a reduction in the value of fxed assets as on the date of
acquisition, it must be treated as capital loss and deducted from the capital profts. But if
the fall in the value of fxed assets occur after the date of acquisition, the loss is treated as
an ordinary revenue loss.

Post-acquisition Profits or Revenue Profits

Profts earned by the subsidiary company after the date of the purchase of shares by the
holding company are treated as revenue profts and the holding company’s share of such
profts is to be added to the profts of the holding company. Similarly, losses sufered by the
subsidiary company after the date of acquisition by the holding company are treated as
revenue losses and are to be deducted from the profts of the holding company.

Treatment of Goodwill
If goodwill account appears in the balance sheet of the subsidiary company even before the
date of acquisition, then it must be added to the goodwill (if any) of the holding company. In
case any capital reserve arises, the same will be set-of against such goodwill account.

Treatment of Fictitious Assets

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If fctitious assets i.e., preliminary expenses, discount on issue of shares and debentures,
underwriting commission, etc., are given on the assets side of the balance sheet of the
subsidiary company, then these items must be deducted from the capital profts before
distributing the same among the holding company and minority shareholders.

Elimination of common transactions or inter-company balances

While preparing the consolidated balance sheet, inter-company balances arising an account
of inter-company transactions should be eliminated. Such inter-company transactions may
be as under:
 Loans and Advances given by the holding company to its subsidiary or vice-versa
appearing as an asset in one company and liability in the other.
 Goods sold on credit by the holding company to the subsidiary or vice-versa
appearing as debtors in one company and creditors in the other.
 Bills drawn by the holding company on the subsidiary company or vice-versa
appearing as Bills Receivable in one company and Bills Payable in the other.
 Debentures issued by holding company and held by subsidiary or vice-versa
appearing as an asset in one company and liability in the other.
 Dividends declared but not paid appearing as liability in one company and asset in
the other.
Note: Contingent liability between the holding and subsidiary company need not be shown
under the footnote.

Treatment of unrealized profit included in closing stock

If goods sold at a proft by the subsidiary company to the holding company or vice-versa and
remains unsold at the close of the fnancial year, the proft charged by the company on
unsold goods remains unrealized. Such unrealized proft on unsold stock must be
ascertained and the stock reserve to the extent of the holding company’s share is to be
created. While preparing the consolidated balance sheet stock reserve must be deducted
from stock on the asset side and the balance of proft and loss account of holding company
must also be reduced by the same amount on the liabilities side.

Revaluation of assets and liabilities

If assets and liabilities of the subsidiary company are revalued at the time of acquisition of
shares in the subsidiary company, proft or loss on account of such revaluation is treated as
capital proft or capital loss and is adjusted while calculating the overall capital proft. Proft
and loss account will be debited at the end of the year with depreciation on the revised
values in case the value of fxed assets has appreciated and excess depreciation will be
credited to proft and loss account in case the value of fxed assets has reduced.

Treatment of issue of Bonus Shares

Where a subsidiary company issues bonus shares out of its accumulated profts, it is
necessary to distinguish between pre-acquisition and post-acquisition profts utilized for the
purpose of issue of bonus shares. In case bonus shares are issued from out of pre-
acquisition proft, no adjustment becomes necessary while preparing the consolidated
balance sheet. In such a case the holding company’s share of capital proft gets reduced
and the paid up value of the shares held by it increases and the goodwill/capital reserve
amount remains unafected. Bonus shares issued out of post-acquisition profts will reduce
the holding company’s share in revenue profts and increases the paid up value of shares
held. Consequently the amount of goodwill reduces or capital reserve increases.

Treatment of Dividend
If the dividends are received from a subsidiary out of pre-acquisition profts, the amount so
received goes to reduce the cost price of the shares acquired, and hence, cannot be treated
as income. If dividends are received from post-acquisition profts, they are available to the
members of the holding company, and hence, can be taken to the credit of proft and loss
account of the holding company.

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Treatment of Debentures
If the subsidiary company has issued debentures, they will be shown in the consolidated
balance sheet as liability of the group. But if some debentures of subsidiary company are
held by the holding company, they will be deducted at their paid up value from debentures
of subsidiary company and from the cost of investments of the holding company. The
treatment is same even if the debentures of the holding company are held by the subsidiary
company.

Basic Calculations

Pre & Post acquisition period in the current year

 Pre acquisition period = Beginning date to Acquisition date in the acquisition year
 Post acquisition period = Acquisition date to Closing date in the acquisition year

Shareholding ratio
Shares held by Holding Company : Shares held by Minority Shareholders

Ascertainment of Current Year Profit

Increase in accumulated profts of the subsidiary company during xxx
the acquisition year x
Increase in Proft & Loss A/c of the subsidiary company during the xxx
acquisition year x
Current Year Proft xxx
x

Ascertainment of Capital Profit/Capital Loss

Balance in accumulated profts of the subsidiary company as at the Xxx
beginning of the acquisition year x
Balance in Proft & Loss A/c of the subsidiary company as at the beginning of xxx
the acquisition year x
Current Year Proft of subsidiary company for pre acquisition period xxx
Increase in the value of fxed assets of subsidiary company x
xxx
x
Xxx
Less: Decrease in the value of fxed assets of subsidiary company xxx x
Fictitious assets of subsidiary company like Preliminary Expenses, x
Miscellaneous Expenditure xxx Xxx
x x
Capital Proft/Capital Loss Xxx
x

Ascertainment of Revenue Profit/Revenue Loss

Current Year Proft for post acquisition period xxx
x

Ascertainment of Goodwill or Capital Reserve

Cost of shares of subsidiary company held by holding Xxx
company x
Less: Face Value of shares of subsidiary company held by xxx
holding company x
Xxx
Less: Holding company’s share of Capital Proft/Loss x
Xxx
x

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Goodwill/Capital Reserve xxx

x

Ascertainment of Minority Interest

Face value of shares of subsidiary held by minority xxx
shareholders x
Add: Share of Capital Proft/Loss of minority xxx
shareholders x
Share of Revenue Proft/Loss of minority xxx
shareholders x
Minority Interest xxx
x

Comprehensive Problems

Problem Number One

From the following Balance Sheets of H Ltd., and S Ltd., prepare Consolidated Balance Sheet
as at 31-03-15.

H Ltd., S Ltd.,
Liabilities
Share Capital: Shares of Rs.10 1,00,00 50,000
General Reserve 0 4,000
Proft & Loss A/c 10,000 5,000
Sundry Creditors 20,000 1,000
Total 10,000
Assets 1,40,00 60,000
Fixed Assets 0
Investment: 4,000 shares in S Ltd.,
Total 65,000 60,000
75,000 -
1,40,00 60,000
0

Note: H Ltd., acquired the shares in S Ltd., on 31-03-15. There was no balance in the P&L
A/c of S Ltd., as at 1-4-2014 but there was already a balance of Rs. 4,000 in the General
Reserve A/c as at that date.

Solution
Shareholding Ratio:
Shares held by Holding Company Shares held by Minority
Shareholders
4,000 1,000
Shareholding Ratio
4,000 : 1,000 or 4:1 or 4/5 : 1/5

Pre & Post Acquisition Period in the current year

Opening Date Acquisition Date Closing Date
1-4-14 31-03-15 31-03-15
Pre acquisition period Post acquisition period
12 months Nil
Current Year Proft
Increase in General Reserve -
Increase in P & L A/c (5,000 – Nil ) 5,00
0
5,00

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Capital Proft
Balance in General Reserve on 1-4-2014 4,00
+ Balance in P & L A/c on 1-4-2014 0
+ Current Year Proft for pre acquisition period (5,000 x 12/12) -
5,00
0
Capital Proft 9,00
0

Revenue Proft
Current Year Proft for post acquisition period (5,000 x 0/12) -

Goodwill (Cost of Control)/Capital Reserve

Cost of 4,000 shares held by Holding Company 75,00
Less: Face Value of 4,000 shares 0
40,00
0
35,00
Less: Holding Company’s share in Capital Proft (9,000 x 4/5) 0
7,200
Goodwill 27,80
0

Minority Interest
Face Value of 1,000 shares held by Minority Shareholders 10,00
Add: Minority Shareholders’ share in Capital Profts (9,000 x 1/5) 0
Add: Minority Shareholders’ share in Revenue Profts 1,800
-
11,80
0

Consolidated Balance Sheet

Rs.
Liabilities
Equity Share Capital 1,00,00
General Reserve 0
P&LA/c 20,00 10,000
Add: Holding Company’s share in Revenue Proft 0
Creditors Nil 20,000
- H Ltd.,
- S Ltd., 10,00
Minority Interest 0 11,000
1,000 11,800
Total 1,52,80
0
Assets
Goodwill (as per above working) 27,800
Fixed Assets
- H Ltd., 65,00
- S Ltd., 0 1,25,00
60,00 0
0
Total 1,52,80
0

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Problem Number Two

From the following Balance Sheets of H Ltd., and S Ltd., prepare a Consolidated Balance
Sheet as at 31-03-15.

H Ltd., S
Ltd.,
Liabilities
Share Capital: Shares of Rs.10 1,00,00 50,00
General Reserve 0 0
Proft & Loss A/c 4,000 2,000
Sundry Creditors 6,000 3,000
10,000 5,000
Total 1,20,00 60,00
0 0
Assets
Fixed Assets 80,000 60,00
Investment: 4,000 shares in S Ltd., 40,000 0
-
Total 1,20,00 60,00
0 0

Note: H Ltd., acquired the shares in S Ltd., on 31-03-15. There was no balance in the P&L
A/c of S Ltd., as at 1-4-2014 but there was already a balance of Rs. 2,000 in the General
Reserve A/c as at that date.

Solution

Shareholding Ratio:
Shares held by Holding Company Shares held by Minority
Shareholders
4,000 1,000
Shareholding Ratio
4,000 : 1,000 or 4:1 or 4/5 : 1/5

Pre & Post Acquisition Period in the acquisition year

Opening Date Acquisition Date Closing Date
1-4-14 31-03-15 31-03-15
Pre acquisition period Post acquisition period
12 months Nil

Current Year Proft

Increase in General Reserve -
Increase in P & L A/c (3,000 – Nil ) 3,00
0
Current Year Proft 3,00
0

Capital Proft
Balance in General Reserve on 1-4-14 2,00
+ Balance in P & L A/c on 1-4-14 0

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+ Current Year Proft for pre acquisition period (3,000 x 12/12) -

3,00
0
Capital Proft 5,00
0

Revenue Proft
Current Year Proft for post acquisition period (5,000 x 0/12) -

Goodwil(Cost of control)l/Capital Reserve

Cost of 4,000 shares held by Holding Company 40,00
Less: Face Value of 4,000 shares 0
40,00
0
Nil
Less: Holding Company’s share in Capital Proft (5,000 x 4/5) 4,000
Capital Reserve 4,000

Minority Interest
Face Value of 1,000 shares held by Minority Shareholders 10,00
Add: Minority Shareholders share in Capital Profts (5,000 x 1/5) 0
Add: Minority Shareholders share in Revenue Profts 1,000
-
Minority Interest 11,00
0

Consolidated Balance Sheet

Rs.
Liabilities
Equity Share Capital 1,00,00
General Reserve 0
Capital Reserve (as per working) 4,000
P&LA/c 6,000 4,000
Add: Holding Company’s share in Revenue Proft Nil
Creditors 6,000
- H Ltd., 10,00
- S Ltd., 0
Minority Interest (as per working) 5,000 15,000
11,000
Total 1,40,00
0
Assets
Fixed Assets
- H Ltd., 80,00
- S Ltd., 0 1,40,00
60,00 0
0
Total 1,40,00
0

Problem

From the following Balance Sheets of H Ltd., and S Ltd., prepare a Consolidated Balance
Sheet as at 31-03-15.

H Ltd., S

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Ltd.,
Liabilities
Share Capital: Shares of Rs.10 1,00,00 50,00
General Reserve 0 0
Proft & Loss A/c 10,000 4,000
Sundry Creditors 10,000 5,000
5,000 4,000
Total 1,25,00 63,00
0 0
Assets
Fixed Assets 60,000 63,00
Investment: 4,000 shares in S Ltd., 65,000 0
-
Total 1,25,00 63,00
0 0

Note: H Ltd., acquired the shares in S Ltd., on 1-04-14 and on that date the Proft & Loss A/c
of S Ltd., had a credit balance of Rs.1,000 and General Reserve showed a balance of
Rs.3,000.

Solution

Shareholding Ratio:
Shares held by Holding Company Shares held by Minority
Shareholders
4,000 1,000
Shareholding Ratio
4,000 : 1,000 or 4:1 or 4/5 : 1/5

Pre & Post Acquisition Period in the acquisition year

Opening Date Acquisition Date Closing Date
1-4-14 1-04-14 31-03-15
Pre acquisition period Post acquisition period
Nil 12 months

Current Year Proft

Increase in General Reserve (4,000 – 3,000) 1,000
Increase in P & L A/c (5,000 – 1,000 ) 4,000
Current Year Proft 5,000

Capital Proft
Balance in General Reserve on 1-4-14 3,000
+ Balance in P & L A/c on 1-4-14 1,000
+ Acquisition Year Proft for pre acquisition period (5,000 x 0/12) -
Capital Proft 4,000

Revenue Proft
Current Year Proft for post acquisition period (5,000 x 12/12) 5,000

Goodwil(Cost of control)l/Capital Reserve

Cost of 4,000 shares held by Holding Company 65,00
Less: Face Value of 4,000 shares 0
40,00
0
25,00
Less: Holding Company’s share in Capital Proft (4,000 x 4/5) 0

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3,200
Goodwill 21,80
0

Minority Interest
Face Value of 1,000 shares held by Minority Shareholders 10,00
Add: Minority Shareholders’ share in Capital Profts (4,000 x 1/5) 0
Add: Minority Shareholders’ share in Revenue Profts (5,000 x 1/5) 800
1,000
11,80
0

Consolidated Balance Sheet

Rs.
Liabilities
Equity Share Capital 1,00,00
General Reserve 0
P & L A/c 10,00 10,000
+ 4/5th of Revenue Proft 0
Creditors 4,000 14,000
- H Ltd.,
- S Ltd., 5,000
Minority Interest 4,000 9,000
11,800
Total 1,44,80
0
Assets
Fixed Assets
- H Ltd., 60,00
- S Ltd., 0 1,23,00
Goodwill (as per working) 63,00 0
0 21,800
Total 1,44,80
0

Problem

From the following Balance Sheets of H Ltd., and S Ltd., prepare Consolidated Balance Sheet
as at 31-03-15.

H Ltd., S Ltd.,
Liabilities
Share Capital: Shares of Rs.10 4,00,00 1,00,00
General Reserve 0 0
Proft & Loss A/c 75,000 35,000
Sundry Creditors 45,000 27,500
60,000 40,000
Total 5,80,00 2,02,50
0 0
Assets
Fixed Assets 2,75,00 50,000
Investment: 75% shares in S Ltd., 0 -
Stock 1,40,00 88,500
Other Current Assets 0 64,000
52,500
1,12,50

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0
Total 5,80,00 2,02,50
0 0

Note: H Ltd., acquired the shares in S Ltd., on 1-04-14. Profts earned by S Ltd., for the year
ending 31-03-15 amounted to Rs.22,500.

Solution
Shareholding Ratio:
Shares held by Holding Company Shares held by Minority Shareholders
7,500 2,500
Shareholding Ratio
7,500 : 2,500 or 3 : 1 or 3/4 : 1/4
Pre & Post Acquisition Period in the current year
Opening Date Acquisition Date Closing Date
1-4-14 1-04-14 31-03-15
Pre acquisition period Post acquisition period
Nil 12 months

Current Year Proft

Given in the problem directly 22,500

Capital Proft
Balance in General Reserve on 1-4-14 35,00
+ Balance in P & L A/c on 1-4-14 (27,500 – 22,500) 0
+ Current Year Proft for pre acquisition period (22,500 x 0/12) 5,000
-
Capital Proft 40,00
0

Revenue Proft
Current Year Proft for post acquisition period (22,500 x 12/12) 22,50
0

Goodwill(Cost of control)/Capital Reserve

Cost of 7,500 shares held by Holding Company 1,40,00
Less: Face Value of 7,500 shares 0
75,000
65,000
Less: Holding Company’s share in Capital Proft (40,000 x 3/4) 30,000
Goodwill 35,000

Minority Interest
Face Value of 2,500 shares held by Minority Shareholders 25,00
Add: Minority Shareholders’ share in Capital Profts (40,000 x 1/4) 0
Add: Minority Shareholders’ share in Revenue Profts (22,500 x 1/4) 10,00
0
5,625
40,62
5

Consolidated Balance Sheet

Rs.
Liabilities
Share Capital 4,00,00
General Reserve 0

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P&L A/c 45,000 75,000

+ Holding Company’s share in Revenue Proft 16,875
Creditors 61,875
- H Ltd., 60,000
- S Ltd., 40,000
Minority Interest 1,00,00
0
40,625
Total 6,77,50
0
Assets
Goodwill (as per working) 35,000
Fixed Assets 2,75,00
- H Ltd., 0 3,25,00
- S Ltd., 50,000 0
Stock
- H Ltd.,
- S Ltd., 52,500
Other Current Assets 88,500 1,41,00
- H Ltd., 0
- S Ltd., 1,12,50
0
64,000 1,76,50
0
Total 6,77,50
0

Problem
From the following Balance Sheets of H Ltd., and S Ltd., prepare a Consolidated Balance
Sheet as at 31-03-15.

H Ltd., S Ltd.,
Liabilities
Share Capital: Shares of Rs.10 4,00,00 1,00,00
General Reserve 0 0
Proft & Loss A/c 75,000 35,000
Sundry Creditors 45,000 27,500
60,000 40,000
Total 5,80,00 2,02,50
0 0
Assets
Fixed Assets 2,75,00 50,000
Investment: 75% shares in S Ltd., 0 -
Stock 1,00,00 88,500
Other Current Assets 0 64,000
92,500
1,12,50
0
Total 5,80,00 2,02,50
0 0

Note:
1. H Ltd., acquired the shares in S Ltd., on 1-04-14.
2. Profts earned by S Ltd., for the year ending 31-03-15 amounted to Rs.22,500.

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 CORPORATE REPORTING PRACTICES AND IND AS

Solution
Shareholding Ratio:
Shares held by Holding Company Shares held by Minority Shareholders
75% 25%
Shareholding Ratio
75 : 25 or 3 : 1 or 3/4 : ¼

Pre & Post Acquisition Period in the current year

Opening Date Acquisition Date Closing Date
1-4-14 1-04-14 31-03-15
Pre acquisition period Post acquisition period
Nil 12 months

Current Year Proft

Given in the problem directly 22,500

Capital Proft
Balance in General Reserve on 1-4-14 35,000
+ Balance in P & L A/c on 1-4-14 (27,500 – 22,500) 5,000
+ Current Year Proft for pre acquisition period (22,500 x 0/12) -
Capital Proft 40,000

Revenue Proft
Current Year Proft for post acquisition period (22,500 x 12/12) 22,500

Goodwill(Cost of control)/Capital Reserve

Cost of 7,500 shares held by Holding Company 1,00,00
Less: Face Value of 7,500 shares 0
75,000
25,000
Less: Holding Company’s share in Capital Proft (40,000 x 3/4) 30,000
Capital Reserve 5,000

Minority Interest
Face Value of 2,500 shares held by Minority Shareholders 25,00
Add: Minority Shareholders’ share in Capital Profts (40,000 x 1/4) 0
Add: Minority Shareholders’ share in Revenue Profts (22,500 x 1/4) 10,00
0
5,625
40,62
5
Consolidated Balance Sheet
Rs.
Liabilities
Share Capital 4,00,000
General Reserve 75,000
Capital Reserve (as per working) 5,000
P&L A/c 45,000
+ Holding Company’s share in Revenue Proft 16,875 61,875
Creditors
- H ltd., 60,000
- S Ltd., 40,000 1,00,000
Minority Interest 40,625
Total 6,82,500
Assets
Fixed Assets

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- H Ltd.,
- S Ltd., 2,75,00
Stock 0 3,25,000
- H Ltd., 50,000
- S Ltd.,
Other Current Assets 92,500 1,81,000
- H Ltd., 88,500
- S Ltd.,
1,12,50 1,76,500
0
64,000
Total 6,82,500

Problem
From the following Balance Sheets of H Ltd., and S Ltd., prepare Consolidated Balance Sheet
as at 31-03-07

H Ltd., S Ltd.,
Liabilities
Share Capital: Shares of Rs.10 8,00,000 2,00,00
General Reserve 1,50,000 0
Proft & Loss A/c 90,000 70,000
Sundry Creditors 1,20,000 50,000
80,000
Total 11,60,00 4,00,00
0 0
Assets
Fixed Assets 5,50,000 1,00,00
Investment: 75% shares of S Ltd., 2,80,000 0
Stock 1,05,000 -
Other Current Assets 2,25,000 1,72,00
0
1,28,00
0
Total 11,60,00 4,00,00
0 0
Note:
H Ltd., acquired the shares of S Ltd., on 1-04-06. Proft earned by S Ltd., for the year ending
31-03-07 amounted to Rs.45,000.

Solution
Shareholding Ratio:
Shares held by Holding Company Shares held by Minority
Shareholders
75% 25%
Shareholding Ratio
75% : 25% or 3 : 1 or 3/4 : ¼

Pre & Post Acquisition Period in the current year

Opening Date Acquisition Date Closing Date
1-4-06 1-04-06 31-03-07
Pre acquisition period Post acquisition period
Nil 12 months

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Current Year Proft

Given in the problem directly 45,00
0

Capital Proft
Balance in General Reserve on 1-4-06 70,00
+ Balance in P & L A/c on 1-4-06 (50,000 – 45,000) 0
+ Current Year Proft for pre acquisition period (45,000 x 0/12) 5,000
-
Capital Proft 75,00
0

Revenue Proft
Current Year Proft for post acquisition period (45,000 x 12/12) 45,00
0

Goodwill(Cost of control)/Capital Reserve

Cost of 15,000 shares 2,80,00
Less: Face Value of 15,000 shares 0
1,50,00
0
1,30,00
Less: 3/4th of Capital Proft (75,000 x 3/4) 0
56,250
Goodwill 73,750

Minority Interest
Face Value of 5,000 shares 50,00
Add: 1/4th of Capital Profts (75,000 x 1/4) 0
Add: 1/4th of Revenue Profts (45,000 x 1/4) 18,75
0
11,25
0
80,00
0

Consolidated Balance Sheet

Rs.
Liabilities
Share Capital 8,00,000
General Reserve 1,50,000
P & L A/c 90,000
+ 3/4th of Revenue Proft 33,750 1,23,750
Creditors
- H Ltd., 1,20,000
- S Ltd., 80,000 2,00,000
Minority Interest (as per working) 80,000
Total 13,53,75
0
Assets
Goodwill (as per working) 73,750
Fixed Assets
- H Ltd., 5,50,000
- S Ltd., 1,00,000 6,50,000
Stock
- H Ltd., 1,05,000

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 CORPORATE REPORTING PRACTICES AND IND AS

- S Ltd., 1,72,000 2,77,000

Other Current Assets
- H Ltd., 2,25,000
- S Ltd., 1,28,000 3,53,000
Total 13,53,75
0

Problem
From the following Balance Sheets of P Ltd., and Q Ltd., prepare the Consolidated Balance
Sheet.

Balance Sheets of P Ltd., and Q Ltd., as at 31-3-2014

P Ltd., Q Ltd.,
Liabilities
Share Capital: Shares of Rs.100 3,00,000 1,00,000
General Reserve 50,000 40,000
Surplus A/c 1,00,000 60,000
Sundry Creditors 1,00,000 80,000
Bills Payable 50,000 20,000
Total 6,00,000 3,00,000
Assets
Plant & Machinery 1,00,000 75,000
Buildings 2,00,000 1,25,000
Investment: 750 shares of Q Ltd., 1,00,000 -
Stock 80,000 50,000
Sundry Debtors 40,000 40,000
Bills Receivable 50,000 -
Cash & Bank 30,000 10,000
Total 6,00,000 3,00,000
Note:
 P Ltd., acquired the shares of Q Ltd., on 1-7-2013.
 On 1-4-13 the Balance Sheet of Q Ltd., showed General Reserve balance of Rs.10,000
and Surplus A/c balance of Rs.20,000

Solution
Shareholding Ratio:
Shares held by Holding Company Shares held by Minority
Shareholders
750 250
Shareholding Ratio
75 : 25 or 3:1 or 3/4 : ¼

Pre & Post Acquisition Period in the current year

Opening Date Acquisition Date Closing Date
1-4-13 1-07-13 31-03-14
Pre acquisition period Post acquisition period
3 months 9 Months

Current Year Proft

Increase in General Reserve (40,000 – 10,000) 30,00
Increase in Surplus A/c (60,000 – 20,000 ) 0
40,00
0
70,00
0

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 CORPORATE REPORTING PRACTICES AND IND AS

Capital Proft
Balance in General Reserve on 1-4-2013 10,00
+ Balance in Surplus A/c on 1-4-2013 0
+ Current Year Proft for pre acquisition period (70,000 x 3/12) 20,00
0
17,50
0
Capital Proft 47,50
0

Revenue Proft
Current Year Proft for post acquisition period (70,000 x 9/12) 52,50
0

Goodwill (Cost of Control)/Capital Reserve

Cost of 750 shares 1,00,00
Less: Face Value of 750 shares 0
75,000
25,000
Less: 4/5th of Capital Proft (47,500 x 3/4) 35,625
Capital Reserve 10,625

Minority Interest
Face Value of 250 shares 25,00
Add: 1/4th of Capital Profts (47,500 x 1/4) 0
Add: 1/4th of Revenue Profts (52,500 x 1/4) 11,87
5
13,12
5
50,00
0
Consolidated Balance Sheet
Rs.
Liabilities
Equity Share Capital 3,00,00
Capital Reserve (as per working) 0
General Reserve 1,00,00 10,625
P&LA/c 0 50,000
Add:4/5thof Revenue Proft (52,500 x 3/4) 39,375
Creditors 1,39,37
- H Ltd., 1,00,00 5
- S Ltd., 0
Bills Payable 80,000
- H Ltd., 1,80,00
- S Ltd., 50,000 0
Minority Interest 20,000

70,000
50,000
Total 8,00,00
0
Assets
Plant & Machinery
- H Ltd., 1,00,00
- S Ltd., 0 1,75,00
Buildings 75,000 0

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 CORPORATE REPORTING PRACTICES AND IND AS

- H Ltd.,
- S Ltd., 2,00,00
Stock 0 3,25,00
- H Ltd., 1,25,00 0
- S Ltd., 0
Sundry Debtors
- H Ltd., 80,000 1,30,00
- S Ltd., 50,000 0
Bills Receivable
- H Ltd., 40,000
- S Ltd., 40,000 80,000
Cash & Bank
- H Ltd., 50,000
- S Ltd., Nil 50,000

30,000
10,000 40,000
Total 8,00,00
0

Module 4
Consolidated Income Statements:

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 CORPORATE REPORTING PRACTICES AND IND AS

Balance Sheet and cash Flow Statements for Group companies, Impact of group
financial statements at the point of acquisition, Treatment of investment in
associates in consolidated financial statements, compare and contrast acquisition
and equity methods of accounting, Treatment of investment in Joint ventures in
consolidated financial statements
INTRODUCTION

IAS 1 “Presentation of Financial Statements” was revised in September 2007 and is

applicable for annual periods beginning on or after 1 January 2009.

OBJECTIVES

 To prescribe the basis for presentation of general purpose of fnancial statements in

order to ensure comparability with:

 The entity’s own fnancial statements of previous periods.

 Financial statements of other entities.

 To achieve this IAS 1 sets out:

 Overall requirements for presentation of fnancial statements

 Guidelines for their structure

 Minimum content requirements

FINANCIAL STATMENTS

OBJECTIVES

 To Provide information, useful to a wide range of users in making economic decisions

about:

 Financial position

 Financial performance

 Cash fows

 To show the results of managements stewardship of the entity’s resources

 To achieve the above objectives, fnancial statements are a structured representation of:

 The fnancial Position

 Financial Performance.

USERS OF FINANCIAL STATEMENTS

 Owners (or investors) need fnancial information relating to the entity to assess how
efectively the managers are running it and to make judgments about likely levels of risk
and return in the future. Shareholders need information to assess the ability of the entity
to pay them a return (dividend). The same applies to potential shareholders.

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 CORPORATE REPORTING PRACTICES AND IND AS

 Employees and their representative groups are interested in information about the
stability and proftability of their employers. They too need information which enables
them to assess the ability of the entity to provide remuneration, retirement benefts and
employment opportunities.

 Lenders (such as banks) need fnancial information about an entity in order to assess its
ability to meet its obligations, to pay interest and to repay the amount borrowed.

 Suppliers and other trade creditors need information that enables them to
determine whether amounts owed to them will be paid when due. Trade creditors are
likely to be interested in an entity over a shorter period than lenders unless they are
dependent upon the continuation of the entity as a major customer.

 Customers have an interest in information about the continuance of an entity,

especially when they have a long-term involvement with, or are dependent on, the
entity.

 Governments and their agencies need information in order to regulate the activities
of entities, to assess whether they comply with agreed pricing policies, whether fnancial
support is needed, and how much tax they should pay. They also require information in
order to determine taxation policies and as the basis for national income and statistics.

 Public: Entities afect members of the public in a variety of ways. For example, entities
may make a substantial contribution to the local economy in many ways including the
number of people they employ and their patronage of local suppliers. Financial
statements may assist the public by providing information about the trends and recent
developments in the prosperity of the entity and the range of its activities.

COMPONENTS

A complete set of fnancial statements includes the following components:

 A statement of fnancial position

 A statement of Comprehensive income

 A separate statement of changes in equity

 A statement of Cash Flows

 Signifcant accounting Policies and other explanatory notes.

STATEMENT OF FINANCIAL POSITION

INTRODUCTION

The revised IAS 1 changed the title of the “balance sheet” to the “statement of
fnancial position.”

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 CORPORATE REPORTING PRACTICES AND IND AS

The IASB concluded that “statement of fnancial position” better refects the function
of the statement and is consistent with the Framework.

In addition, the title “balance sheet” simply refected the convention that double-
entry bookkeeping requires all debits to equal credits, and did not identify the content or
purpose of the statement.

GENERAL INSTRUCTION FOR PREPARATION OF FINANCIAL POSITION AND

STATEMENT OF PROFT AND LOSS OF A COMPANY

1. Every company to which Indian Accounting Standards apply shall prepare its fnancial
statements in accordance with this Schedule or with such modifcation as may be required
under certain circumstances.

2. Where compliance with the requirements of the Act including Indian Accounting
Standards (except the option of presenting assets and liabilities in the order of liquidity as
provided by the relevant Ind AS) as applicable to the companies require any change in
treatment or disclosure including addition, amendment, substitution or deletion in the head
or sub-head or any changes inter se, in the fnancial statements or statements forming part
thereof, the same shall be made and the requirements under this Schedule shall stand
modifed accordingly.

3. The disclosure requirements specifed in this Schedule are in addition to and not in
substitution of the disclosure requirements specifed in the Indian Accounting Standards.
Additional disclosures specifed in the Indian Accounting Standards shall be made in the
Notes or by way of additional statement or statements unless required to be disclosed on
the face of the Financial Statements. Similarly, all other disclosures as required by the
Companies Act, 2013 shall be made in the Notes in addition to the requirements set out in
this Schedule.

4. (i) Notes shall contain information in addition to that presented in the Financial
Statements and shall provide where required-

(a) Narrative descriptions or disaggregations of items recognized in those statements; and

(b) Information about items that do not qualify for recognition in those statements.

(ii) Each item on the face of the Balance Sheet, Statement of Changes in Equity and
Statement of Proft and Loss shall be cross-referenced to any related information in the
Notes. In preparing the Financial Statements including the Notes, a balance shall be
maintained between providing excessive detail that may not assist users of Financial
Statements and not providing important information as a result of too much aggregation.

5. Depending upon the turnover of the company, the fgures appearing in the Financial
Statements shall be rounded of as below:

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 CORPORATE REPORTING PRACTICES AND IND AS

TURNOVER ROUND OFF

Less Than On Hundred Crore Rupees To the nearest, lakhs, millions or crores, or
decimals thereof
One hundred crore rupees or more To the nearest, lakhs, millions or crores, or
decimals thereof

Once a unit of measurement is used, it should be used uniformly in the Financial

Statements.
6. Financial Statements shall contain the corresponding amounts (comparatives) for the
immediately preceding reporting period for all items shown in the Financial Statements
including Notes except in the case of frst Financial
Statements laid before the company after incorporation.
7. Financial Statements shall disclose all ‘material’ items, i.e., the items if they could,
individually or collectively, infuence the economic decisions that users make on the basis of
the fnancial statements. Materiality depends on the size or nature of the item or a
combination of both, to be judged in the particular circumstances.
8. For the purpose of this Schedule, the terms used herein shall have the same meanings
assigned to them in Indian Accounting Standards.
9. Where any Act or Regulation requires specifc disclosures to be made in the standalone
fnancial statements of a company, the said disclosures shall be made in addition to those
required under this Schedule.
Note: This Schedule sets out the minimum requirements for disclosure on the face of the
Financial Statements, i.e., Balance Sheet, Statement of Changes in Equity for the period, the
Statement of Proft and Loss for the period (The term ‘Statement of Proft and Loss’ has the
same meaning as ‘Proft and Loss Account’) and Notes. Cash fow statement shall be
prepared, where applicable, in accordance with the requirements of the relevant Indian
Accounting Standard.
Line items, sub-line items and sub-totals shall be presented as an addition or substitution on
the face of the Financial Statements when such presentation is relevant to an understanding
of the company’s fnancial position or performance or to cater to industry or sector-specifc
disclosure requirements or when required for compliance with the amendments to the
Companies Act, 2013 or under the Indian Accounting Standards.
PART I - BALANCE SHEET OR FINANCIAL POSITION AS PER SCHEDULE III

NAME OF THE COMPANY………………

BALANCE SHEET AS ON………………

Figures at the end Figures at the end

Particulars of the current of the previous
reporting period reporting period

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 CORPORATE REPORTING PRACTICES AND IND AS

Asset
Non-Current Assets
 Property, Plant and Equipment Xxx Xxx
 Goodwill Xxx Xxx
 Other Intangible asset Xxx Xxx
 Investments in Associates Xxx Xxx
 Investments in equity instruments Xxx Xxx
 Work in Progress Xxx Xxx
 Biological assets Xxx Xxx
 Financial assets Xxx Xxx
 Trade receivables Xxx Xxx
 Investment property Xxx Xxx
 Deferred tax assets Xxx Xxx
Total Non-Current Asset Xxx Xxx
Current Asset
 Inventories Xxx Xxx
 Trade receivables Xxx Xxx
 Other Current Assets Xxx Xxx
 Cash and Cash equivalents Xxx Xxx
 Bank balance Xxx Xxx
 Current tax assets Xxx Xxx
 Other current assets Xxx Xxx
Total Assets Xxx Xxx
Equity and Liabilities
 Equity attributable to owners of Xxx Xxx
 Share capital
the parent Xxx Xxx
 Retained earning Xxx Xxx
 Other Components of equity Xxx Xxx
 Non-Controlling Interest Xxx Xxx
Total Equity Xxx Xxx
Non-Current Liabilities
 Long-term borrowings Xxx Xxx
 Deferred tax Xxx Xxx
 Long-term Provisions Xxx Xxx
 Borrowing
 Trade payables
 Other fnancial liabilities
Total Non-Current Liabilities Xxx Xxx
Current Liabilities

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 Trade and other payables Xxx Xxx

 Short-term borrowings Xxx Xxx
 Current portion of long-term Xxx Xxx
 Borrowings Xxx Xxx
 Current tax payable Xxx Xxx
 Short-term provisions Xxx Xxx

Total equity and liabilities Xxx Xxx

GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET

1. An entity shall classify an asset as current when-

(a) It expects to realize the asset, or intends to sell or consume it, in its normal operating
cycle;
(b) It holds the asset primarily for the purpose of trading;
(c) It expects to realize the asset within twelve months after the reporting period; or
(d) The asset is cash or a cash equivalent unless the asset is restricted from being
exchanged or used to settle a liability for at least twelve months after the reporting period.

An entity shall classify all other assets as non-current.

2. The operating cycle of an entity is the time between the acquisition of assets for
processing and their realization in cash or cash equivalents. When the entity’s normal
operating cycle is not clearly identifable, it is assumed to be twelve months.

3. An entity shall classify a liability as current when-

(a) It expects to settle the liability in its normal operating cycle;
(b) It holds the liability primarily for the purpose of trading;
(c) The liability is due to be settled within twelve months after the reporting period; or
(d) It does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity instruments do not afect its
classifcation.

An entity shall classify all other liabilities as non-current.

4. A receivable shall be classifed as a ‘trade receivable’ if it is in respect of the amount due

on account of goods sold or services rendered in the normal course of business.
5. A payable shall be classifed as a ‘trade payable’ if it is in respect of the amount due on
account of goods purchased or services received in the normal course of business.
6. A company shall disclose the following in the Notes:
LINE ITEMS IN FINANCIAL POSITION OR BALANCE SHEET AS PER SCHEDULE III

A. Non-Current Assets

I. Property, Plant and Equipment:

(a) Land
(b) Buildings
(c) Plant and Equipment

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 CORPORATE REPORTING PRACTICES AND IND AS

(d) Furniture and Fixtures

(e) Vehicles
(f) Ofce equipment
(g) Bearer Plants
(h) Others (specify nature)

II. Investment Property:

III Goodwill: A reconciliation of the gross and net carrying amount of goodwill at the
beginning and end of the reporting period showing additions, impairments, disposals and
other adjustments.

IV. Other Intangible assets:

(a) Brands or trademarks
(b) Computer software
(c) Mastheads and publishing titles
(d) Mining rights
(e) Copyrights, patents, other intellectual property rights, services and operating rights
(f) Recipes, formulae, models, designs and prototypes
(g) Licenses and franchises
(h) Others (specify nature)

V. Biological Assets other than bearer plants:

VI. Investments:
(a) Investments in Equity Instruments;
(b) Investments in Preference Shares;
(c) Investments in Government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership frms; or
(g) Other investments (specify nature).

VII. Trade Receivables:

B. Current Assets

I. Inventories:
(a) Raw materials;
(b) Work-in-progress;
(c) Finished goods;
(d) Stock-in-trade (in respect of goods acquired for trading);
(e) Stores and spares;
(f) Loose tools; and
(g) Others (specify nature).
(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.
(iii) Mode of valuation shall be stated.

II. Investments:
(a) Investments in Equity Instruments;
(b) Investment in Preference Shares;
(c) Investments in government or trust securities;
(d) Investments in debentures or bonds;
(e) Investments in Mutual Funds;
(f) Investments in partnership frms; and

III. Trade Receivables:

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 CORPORATE REPORTING PRACTICES AND IND AS

(i) Trade receivables shall be sub-classifed as:

(a) Secured, considered good;
(b) Unsecured considered good; and
(c) Doubtful.

IV. Trade Receivables:

(i) Trade receivables shall be sub-classifed as:
(a) Secured, considered good;
(b) Unsecured considered good; and
(c) Doubtful.

C. Cash and Bank balances:

The following disclosures with regard to cash and bank balances shall be made:
(a) Earmarked balances with banks (for example, for unpaid dividend) shall be separately
stated.
(b) Balances with banks to the extent held as margin money or security against the
borrowings, guarantees, other commitments shall be disclosed separately.
(c) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately
stated.

D. Equity
I. Equity Share Capital: For each class of equity share capital:
(a) The number and amount of shares authorized;
(b) The number of shares issued, subscribed and fully paid, and subscribed but not fully
paid;
(c) Par value per share;
(d) A reconciliation of the number of shares outstanding at the beginning and at the end of
the period;
(e) The rights, preferences and restrictions attaching to each class of shares including
restrictions on the distribution of dividends and the repayment of capital;
(f) Shares in respect of each class in the company held by its holding company or its
ultimate holding company including shares held by subsidiaries or associates of the holding
company or the ultimate holding company in aggregate;
(g) Shares in the company held by each shareholder holding more than fve per cent. Shares
specifying the number of shares held;
(h) Shares reserved for issue under options and contracts or commitments for the sale of
shares or disinvestment, including the terms and amounts;
(i) For the period of fve years immediately preceding the date at which the Balance Sheet is
prepared-
 Aggregate number and class of shares allotted as fully paid up pursuant to contract
without payment being received in cash;
 Aggregate number and class of shares allotted as fully paid up by way of bonus
shares; and
 Aggregate number and class of shares bought back;
(j) Terms of any securities convertible into equity shares issued along with the earliest date
of conversion in descending order starting from the farthest such date;
(k) Calls unpaid (showing aggregate value of calls unpaid by directors and ofcers);
(l) Forfeited shares (amount originally paid up).

II. Other Equity:

(a) Capital Redemption Reserve;
(b) Debenture Redemption Reserve;
(c) Share Options Outstanding Account; and
(d) Others– (specify the nature and purpose of each reserve and the amount in respect
thereof);
(Additions and deductions since last balance sheet to be shown under each of the specifed
heads)

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 CORPORATE REPORTING PRACTICES AND IND AS

(ii) Retained Earnings represents surplus i.e. balance of the relevant column in the
Statement of Changes in Equity;
(iii) A reserve specifcally represented by earmarked investments shall disclose the fact that
it is so represented;
(iv) Debit balance of Statement of Proft and Loss shall be shown as a negative fgure under
the head ‘retained earnings’. Similarly, the balance of ‘Other Equity’, after adjusting
negative balance of retained earnings, if any, shall be shown under the head ‘Other Equity’
even if the resulting fgure is in the negative; and
(v) Under the sub-head ‘Other Equity’, disclosure shall be made for the nature and amount
of each item.

E. Non-Current Liabilities
I. Borrowings:
(a) Bonds or debentures
(b) Term loans
(I) From banks
(II) From other parties
(c) Deferred payment liabilities
(d) Deposits
(e) Loans from related parties
(f) Long term maturities of fnance lease obligations
(g) Liability component of compound fnancial instruments
(h) Other loans (specify nature);

(ii) Borrowings shall further be sub-classifed as secured and unsecured. Nature of security
shall be specifed separately in each case.

(iii) Where loans have been guaranteed by directors or others, the aggregate amount of
such loans under each head shall be disclosed;

(iv) Bonds or debentures (along with the rate of interest, and particulars of redemption or
conversion, as the case may be) shall be stated in descending order of maturity or
conversion, starting from farthest redemption or conversion date, as the case may be.
Where bonds/debentures are redeemable by installments, the date of maturity for this
purpose must be reckoned as the date on which the frst installment becomes due;

(v) Particulars of any redeemed bonds or debentures which the company has power to
reissue shall be disclosed;
(vi) Terms of repayment of term loans and other loans shall be stated; and

(vii) Period and amount of default as on the balance sheet date in repayment of borrowings
and interest shall be specifed separately in each case.

III. Provisions: The amounts shall be classified as-

(a) Provision for employee benefts; and
(b) Others (specify nature).
IV. Other non-current liabilities;
(a) Advances; and
(b) Others (specify nature).

F. Current Liabilities
I. Borrowings:
(i) Borrowings shall be classifed as-
(a) Loans repayable on demand
(I) From banks
(II) From other parties
(b) Loans from related parties

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 CORPORATE REPORTING PRACTICES AND IND AS

(c) Deposits
(d) Other loans (specify nature);
(ii) Borrowings shall further be sub-classifed as secured and unsecured. Nature of security
shall be specifed separately in each case;
(iii) Where loans have been guaranteed by directors or others, the aggregate amount of
such loans under each head shall be disclosed;
(iv) Period and amount of default as on the balance sheet date in repayment of borrowings
and interest shall be specifed separately in each case.

II. Other Financial Liabilities:

(a) Current maturities of long-term debt;
(b) Current maturities of fnance lease obligations;
(c) Interest accrued;
(d) Unpaid dividends;
(e) Application money received for allotment of securities to the extent refundable and
interest accrued thereon;
(f) Unpaid matured deposits and interest accrued thereon;
(g) Unpaid matured debentures and interest accrued thereon; and
(h) Others (specify nature).
‘Long term debt’ is a borrowing having a period of more than twelve months at the time of
origination

III. Other current liabilities:

(a) Revenue received in advance;
(b) Other advances (specify nature); and
(c) Others (specify nature);
IV. Provisions: The amounts shall be classifed as-
(i) Provision for employee benefts; and
(ii) Others (specify nature).

G. The presentation of liabilities associated with group of assets classifed as held for sale
and non-current assets classifed as held for sale shall be in accordance with the relevant
Indian Accounting Standards (Ind ASs).

H. Contingent Liabilities and Commitments:

(i) Contingent Liabilities shall be classifed as-
(a) Claims against the company not acknowledged as debt;
(b) Guarantees excluding fnancial guarantees; and
(c) Other money for which the company is contingently liable.

STATEMENT OF PROFIT OR LOSS

Part II of schedule III lays down a format for the presentation of statement and loss. This
format of Statement of Proft and loss does not mention any appropriation of item on its
face.

PART II - STATEMENT OF PROFIT AND LOSS

Name of the Company………………..

Statement of Profit and Loss for the Period ended……………………

Particulars Rs. Rs.

Revenue from operations Xxx Xxx

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Cost of Sales Xxx Xxx

Gross Profit Xxx Xxx
Other Incomes Xxx Xxx
Total Incomes Xxx Xxx
Expenses Xxx Xxx
Cost of materials consumed Xxx Xxx
Purchases of Stock in trade Xxx Xxx
Changes in inventories Xxx Xxx
Employees benefts Xxx Xxx
Depreciation and amortization cost Xxx Xxx
Distribution Costs Xxx Xxx
Administrative Expenses Xxx Xxx
Other Expenses Xxx Xxx
Finance Cost Xxx Xxx
Total Expenses Xxx Xxx
Share of Proft of Associates Xxx Xxx
Profit before Tax Xxx Xxx
Income tax Expenses (Current and deferred tax) Xxx Xxx
Profit for the year Xxx Xxx
Profts from discontinued operations Xxx Xxx
Tax expenses of discontinued operations Xxx Xxx

Profit for the period Xxx Xxx

GENERAL INSTRUCTIONS FOR PREPARATION OF STATEMENT OF PROFIT AND LOSS

1. The provisions of this Part shall apply to the income and expenditure account, in like
manner as they apply to a Statement of Proft and Loss.

2. The Statement of Profit and Loss shall include:

(1) Proft or loss for the period;
(2) Other Comprehensive Income for the period.
The sum of (1) and (2) above is ‘Total Comprehensive Income’.

3. Revenue from operations shall disclose separately in the notes

(a) Sale of products (including Excise Duty);
(b) Sale of services; and
(c) Other operating revenues.

4. Finance Costs: Finance costs shall be classified as-

(a) Interest;
(b) Dividend on redeemable preference shares;
(c) Exchange diferences regarded as an adjustment to borrowing costs; and
(d) Other borrowing costs (specify nature).

5 Other income: Other income shall be classified as-

(a) Interest Income;
(b) Dividend Income; and

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(c) Other non-operating income (net of expenses directly attributable to such income).

6. Other Comprehensive Income shall be classified into-

(A) Items that will not be reclassifed to proft or loss
(i) Changes in revaluation surplus;
(ii) Remeasurements of the defned beneft plans;
(iii) Equity Instruments through Other Comprehensive Income;
(iv) Fair value changes relating to own credit risk of fnancial liabilities designated at fair
value through proft or loss;
(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to the extent not
to be classifed into proft or loss; and

(vi) Others (specify nature).

(B) Items that will be reclassified to profit or loss;

(i) Exchange diferences in translating the fnancial statements of a foreign operation;

(ii) Debt Instruments through Other Comprehensive Income;
(iii) The efective portion of gains and loss on hedging instruments in a cash fow hedge;
(iv) Share of Other Comprehensive Income in Associates and Joint Ventures, to the extent to
be classifed into proft or loss; and
(v) Others (specify nature).

7. Additional Information: A Company shall disclose by way of notes, additional information

regarding aggregate expenditure and income on the following items:
(a) Employee Benefts expense [showing separately (i) salaries and wages, (ii) contribution
to provident and other funds,
(iii) Share based payments to employees,
(iv) Staf welfare expenses]f
(b) Depreciation and amortization expense;
(c) Any item of income or expenditure which exceeds one per cent of the revenue from
operations or Rs.10,00,000, whichever is higher, in addition to the consideration of
‘materiality’ as specifed in clause 7 of the General Instructions for Preparation of Financial
Statements of a Company;
(d) Interest Income;
(e) Interest Expense;
(f) Dividend income;
(g) Net gain or loss on sale of investments;
(h) Net gain or loss on foreign currency transaction and translation (other than considered as
fnance cost);
(i) Payments to the auditor as (a) auditor, (b) for taxation matters, (c) for company law
matters, (d) for other services, (e) for reimbursement of expenses;
(j) In case of companies covered under section 135, amount of expenditure incurred on
corporate social responsibility activities; and
(k) Details of items of exceptional nature;

8. Changes in Regulatory Deferral Account Balances shall be presented in the Statement of

Proft and Loss in accordance with the relevant Indian Accounting Standards.

STATEMENT OF CHANGES IN EQUITY

Name of the Company………………..

Statement of Profit and Loss for the Period ended……………………

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 CORPORATE REPORTING PRACTICES AND IND AS

Attributable to Share

Non-Controlling
Revaluation Surplus

Retained Earnings
Owners of the
Share capital

Total Equity
Particulars

Interest
Balance at 1-04-2016 X X X X X X
Changes in Accounting Policies (X) (X) (X)
Restated Balance X X X X X X
Changes in Equity for 2016 X X X X X X
Issue of share Capital X X
Dividends (X) (X)
Total comprehensive income for the year X X X X
Transfer to retained earnings (X) X
Balance at 31-03-2017 X X X X X X

ILLUSTRATIVE PROBLEMS ON ITEMS OF FINANCIAL STATEMENTS

Illustration – 01
Under which heading and sub heading will the following items appear in the Balance Sheet?
 Capital Reserve  Bank Overdraft
 Goodwill  Proposed Dividend
 Sundry Debtors  Biological assets
 Sundry Creditors  Financial assets
 Loose tools  Trade Receivables
 Provisions  Inventories
 Debentures  Cash and Cash Equivalents
 Sinking Fund  Bank Balance
 Interest Accrued on Investment  Current Tax Assets
 Outstanding Expenses

Illustration – 02
Under which heading and sub heading will the following items appear in the Balance Sheet?
 Equity share capital
 Financial Liabilities
 Borrowings
 Deferred tax liabilities
 Provisions
 Current Tax liabilities

Illustration – 03
Classify the following items as Non-Current, Intangibles and Current Assets.
 Brands or trademarks  Mastheads and publishing titles
 Computer software  Mining rights

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 Copyrights  Investment in the debentures

 Investments in preference shares  Goods in transit
 Investments in Government or trust  Licenses
securities  Vehicles
 Raw materials  Ofce equipments
 Work in Progress  Furniture and fxtures
 Investment in partnership frms  Bearer plants
 Investment in Mutual funds

Illustration - 04
Under which heading and sub heading will the following items appear in the Balance Sheet?
 Bills Payable
 Bills Receivables
 Trade Marks
 Work in Progress
 Prepaid insurance
 Stores

ILLUSTRATIVE PROBLEMS ON FINANCIAL POSITION OR BALANCE SHEET

Illustration -05
From the following particulars, prepare a Balance sheet of TMD Co. Ltd. As on 31-03-2016
Rs.`
Share capital 50000
Inventories 13000
Reserves and Surplus 47000
Tangible Fixed assets 76420
Share application money 5300
pending allotment
Current investments 2400
Long term borrowings 10000
Capital Work in progress 5800
Long term loans and advances 7340
Short term provisions 700
Other current assets 940
Trade receivables 3600
Other current liabilities 1500
Cash and Cash equivalents 1400
Intangible assets 800
Trade payables 2500
Long term provisions 1000
Other current assets 8300
Other long term liabilities 2000

Illustration -06
From the following particulars, prepare a Balance sheet of DMT Co. Ltd. As on 31-03-2016
Rs.`
Equity share capital of Rs. 10 10,00,000
each
Securities premium 100000
12% Debentures 400000
Trade payables 200000
Proposed Dividend 50000
Debit in statement of Proft 30000

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 CORPORATE REPORTING PRACTICES AND IND AS

and loss
Investments in Govt. Bonds 400000
Work in Progress 100000
Patents 40000
Unpaid dividend 10000
Trade Receivables 20000
Public deposits 50000
Plant and equipment 600000
Furniture and Fixtures 100000
Ofce equipment 200000
Stock in trade 260000
Stores and spares 40000
Expenses on issue of 20000
Debentures
Prepare Balance sheet of the company as per Schedule III of Companies Act.

Illustration -07
From the following particulars, prepare a Balance sheet of Rajini Co. Ltd. As on 31-03-2016
Rs.`
Share capital (40,000 equity 4,00,000
shares of Rs. 10 each)
Bills Receivable 90,000
10% Mortgage loan 1,70,000
Stores and Spares 1,15,000
Debtors 1,66,000
Plant and Machinery 2,90,000
Goodwill 40,000
Provision of Tax 26,000
General Reserve 1,30,000
Cash in Hand 18,000
Calls in arrear at Rs.2 per 2,000
share
Marketable Securities 5,000

Illustration - 8
From the following particulars of Aravind Ltd. Prepare Balance sheet as on 31st March, 2016.
Equity share capital 7,,00,000 Provision for taxation 1,40,000
9% Preference share capital 2,00,000 Plant and Machinery 10,68,00
0
Land and Building 5,60,000 Preliminary Expenses 12,400
6% Debentures 3,00,000 Cash and bank 25,100
Surplus from Proft and loss 1,38,200 Furniture and Fixtures 49,800
Trade Receivables 68,700 Trade payables 71,000
Stock in trade 85,200
The following further information is supplied to you:

 The authorized share capital of the company consisting of 1,00,000 equity shares of
Rs. 10 each and 5,000, 9% preference shares of Rs. 100 each.
 The debentures are secured by a foating charge on the assets of the company.

Illustration – 9
The trainee accountant of john Smith and co. Ltd., who has gained a little knowledge of
accounts, has drafted the following balance Sheet:

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 CORPORATE REPORTING PRACTICES AND IND AS

Liabilities Rs. Assets Rs.

Capital 18,000 equity shares of Rs. 1,80,00 Land and Building 1,09,500
10 each fully called up 0
General Reserve 10,000 Fixed deposit accepted 15,000
10% Debentures 35,000 Furniture 30,000
Provision for Taxation 22,000 Goodwill 10,000
Securities Premium 18,000 Stock 24,000
Proft and loss balance (cr) 8,000 Creditors for goods 9,000
Investment in suvarna ltd. Shares 15,000 Plant and equipment 25,000
Bill Receivable 7,000 Cash 38,000
Proposed Dividend 14,000 Bills payable 7,000
Capital Reserve 12,000 Bank 72,000
Debtors for goods 12,000 Calls in arrears @ 2 per share 2,000
Unclaimed dividend 9,000
Authorized capital- 20,000 equity 11,000
shares of Rs. 10 each
Shares forfeiture 500
3,41,50 3,41,500
0
You are required to require re-drafting the above balance sheet as per schedule III, parting I
of the companies Act 2013.

Illustration – 10
From the following balances extracted on 31 st March, 2016 from the books of Mukesh co.
Ltd., Prepare a Balance sheet in the form prescribed under the companies Act, 2013.
Particulars Rs.
Land 80,000
Share Capital 6,30,000
Building 2,15,000
Calls in arrear 25,000
Trade Payables 6,18000
Capital Reserve 1,54,000
Stores 90,000
Wages Due 29,000
Godown rent due 3,600
Stock in trade 2,50,000
Unexpired Insurance 8,200
Cash in Hand 1,25,000
Provision for employees 15,000
benefts
Salaries due 3,500
Bad Debts provision 6,500
Cash at Bank 69,000
Computer software 4,900
Plant and equipment 5,08,000
Loose Tools 1,30,000
Trade receivables 1,20,000
Unclaimed Dividend 5,000
Balance in proft and Loss 1,58,000
Statement
15% debenture 1,00,000
Bank loan account 1,50,000
Investment in equity 2,50,000
shares(quoted)

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 CORPORATE REPORTING PRACTICES AND IND AS

 Authorized capital of the company is Rs. 10,00,000 in equity shares of Rs. 10 each.
70,000 shares were issued and 63,000 shares were subscribed by the public calls in
arrear related to 10,000 shares on which fnal call of Rs. 2.50 per shares has not been
paid.
 Bills discounted but not matured Rs. 40,000

PROBLEMS ON PROFIT AND LOSS ACCOUNT (SOPL)

Illustration -1
From the following Trial Balance of Balu Co. Ltd., as on 31 st March 2016 Prepare a Statement
of P&L Account as per Schedule III of the Companies Act.
Particulars Rs.
Sales 6,00,000
Employee Benefts Expenses 25,000
Depreciation and Amortization Expenses 25,000
Tax During the Year 40,000
Cost of Materials 50,000
Purchases of Stock in Trade 75,000
Other Incomes 1,00,000
Opening Stock 1,00,000
Closing Stock 1,25,000

Illustration -2
From the following Trial Balance of Madhu Co. Ltd., as on 31 st March 2016 Prepare a
Statement of Proft and Loss Account as Per Schedule III of the companies Act.
Particulars Rs.
Sales 2,00,000
Employee Benefts Expenses 15,000
Depreciation and Amortization Expenses 30,0000
Tax During the Year 10,000
Cost of Materials 1,00,000
Purchases of Stock in Trade 30,000
Other Incomes 20,000
Opening Stock 50,000
Closing Stock 25,000

Illustration -3
From the following Trial Balance of Kumar Co. Ltd as on 31 st March 2016 Prepare a
Statement of Proft and Loss Account as per Schedule III of the companies Act.

Particulars Rs.
Bad Debts 10,000
Conveyance 12,000
Loss on Sale of Machinery 14,000
Employee Benefts Expenses 15,000
Insurance 15,000
Closing Stock 75,000
Depreciation and Amortization Expenses 10,000
Purchase of Stock in Trade 50,000
Opening Stock 50,000
Cost of materials 50,000
Sales 5,00,000

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 CORPORATE REPORTING PRACTICES AND IND AS

Tax During the Year 35,000

Other Income 10,000

Illustration -4
From the following Trial Balance of Ram Co. Ltd as on 31 st March 2016 Prepare a Statement
of Proft and Loss Account as per Schedule III of the companies Act.
Particulars Rs.
Salaries 10,000
PF Contribution 12,000
Bonus to Employees 10,000
Closing Stock 30,000
Depreciation and Amortization Expenses 10,000
Purchases of Stock in Trade 70,000
Opening Stock 40,000
Cost of Materials 70,000
Sales 8,00,000
Tax During the Year 50,000
Other Incomes 20,000

Illustration -5
From the following Trial Balance of Shankar Co. Ltd as on 31 st March 2016 Prepare a
Statement of Proft and Loss Account as per Schedule III of the companies Act.
Particulars Rs.
Deferred Tax 20,000
Other Expenses 10,000
Purchases of Stock in trade 50,000
Changes in Inventories of fnished Goods 50,000
Cost of materials consumed 1,00,000
Current tax expense for current year 50,000
Depreciation and amortization expenses 20,000
Employee benefts expenses 40,000
Finance cost 30,000
Non Controlling Interest 1,00,000
Other Incomes 1,00,000
Revenue from operations 5,00,000
Work in progress and stock in trade 50,000

Illustration -6
From the following Trial Balance of Raghav Co. Ltd as on 31 st March 2016 Prepare a
Statement of Proft and Loss Account as per Schedule III of the companies Act.
Particulars Rs.
Revenue from operations 8,00,000
Cost of materials consumed 75,000
Purchases of stock in trade 1,00,000
Changes in inventories of fnished goods 50,000
Finance cost 30,000
Depreciation and amortization expenses 20,000
Current tax expenses for current year 30,000
Non Controlling Interest 95,000

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 CORPORATE REPORTING PRACTICES AND IND AS

Illustration -7
From the following Trial Balance of Bhavani Co. Ltd as on 31 st March 2016 Prepare a
Statement of Proft and Loss Account as per Schedule III of the companies Act.
Particulars Rs.
Depreciation and amortization expenses 20,000
Finance Costs 50,000
Deferred Tax 10,000
Employee benefts expenses 50,000
Changes in inventories of fnished goods work in progress and stock in 1,00,000
trade
Current tax expenses for current year 50,000
Purchases of Stock in trade 3,00,000
Cost of material Consumed 8,00,000
Revenue from operations 16,00,000

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 CORPORATE REPORTING PRACTICES AND IND AS

Module 5
Accounting for Industry based standards

Agriculture –Insurance contracts- Exploration for and Evaluation of Mineral

Resources-Regulatory Deferral Accounts.

INSURANCE CONTRACTS (IND AS =104)

Dates Development
1 April 2001 Comprehensive insurance contracts project carried over from IASC to
new IASB
May 2002 Short-term insurance contracts project split of from comprehensive
project
31 July 2003 Exposure Draft ED 5 Insurance Contracts published
31 March 2004 IFRS 4 Insurance Contracts issued

FRAME WORK FOR INSURANCE CONTRACTS (IND AS – 104)

Insurance Contracts

Objectives

Scope

Recognition and
Measurement
OBJECTIVES

The objective of this IFRS is to specify the fnancial reporting for insurance contracts by any
entity that issues such contracts (described in this IFRS as an insurer) until the Board
completes the second phase of its project on insurance contracts. In particular, this IFRS
requires:

(a) Limited improvements to accounting by insurers for insurance contracts.

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(b) Disclosure that identifes and explains the amounts in an insurer’s fnancial statements
arising from insurance contracts and helps users of those fnancial statements understand
the amount, timing and uncertainty of future cash fows from insurance contracts.

Scope

An entity shall apply this IFRS to:

(a) Insurance contracts (including reinsurance contracts) that it issues and reinsurance
contracts that it holds.

(b) Financial instruments that it issues with a discretionary participation feature

IFRS 7 Financial Instruments: Disclosures requires disclosure about fnancial instruments,

including fnancial instruments that contain such features.

This IFRS does not address other aspects of accounting by insurers, such as accounting for
fnancial assets held by insurers and fnancial liabilities issued by insurers

IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7), except in the
transitional provisions in paragraph 45.

Exception to insurance contract

 Product warranties issued directly by a manufacturer, dealer or retailer.

 Employers’ assets and liabilities under employee beneft plans and retirement beneft
obligations reported by defned beneft retirement plans.
 Contractual rights or contractual obligations that are contingent on the future use of, or
right to use, a non-fnancial item (for example, some license fees, royalties, contingent
lease payments and similar items), as well as a lessee’s residual value guarantee
embedded in a fnance lease
 Financial guarantee contracts unless the issuer has previously asserted explicitly that it
regards such contracts as insurance contracts and has used accounting applicable to
insurance contracts, in which case the issuer may elect to apply IAS 39, IAS 32 and IFRS
7 or this Standard to such fnancial guarantee contracts. The issuer may make that
election contract by contract, but the election for each contract is irrevocable.
 Contingent consideration payable or receivable in a business combination
 Direct insurance contracts that the entity holds (i.e. direct insurance contracts in which
the entity is the policyholder). However, a cedant shall apply this IFRS to reinsurance
contracts that it holds.

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Overview

IAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of
biological assets (living plants and animals) into agricultural produce (harvested product of
the entity's biological assets). The standard generally requires biological assets to be
measured at fair value less costs to sell.

IAS 41 was originally issued in December 2000 and frst applied to annual periods beginning
on or after 1 January 2003.

December 1999 Exposure Draft E65 Agriculture Comment deadline 31 January 2000

December 2000 IAS 41 Agriculture issued Operative for annual fnancial statements covering
periods beginning on or after 1 January 2003

22 May 2008 Amended by Improvements to IFRSs (discount rates) Efective for annual
periods beginning on or after 1 January 2009

30 June 2014 Amended by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
Efective for annual periods beginning on or after 1 January 2016

The objective of IAS 41 is to establish standards of accounting for agricultural activity – the
management of the biological transformation of biological assets (living plants and animals)
into agricultural produce (harvested product of the entity's biological assets).

Scope

IAS 41 applies to biological assets with the exception of bearer plants, agricultural produce
at the point of harvest, and government grants related to these biological assets. It does not
apply to land related to agricultural activity, intangible assets related to agricultural activity,
government grants related to bearer plants, and bearer plants. However, it does apply to
produce growing on bearer plants.

Biological asset A living animal or plant

Bearer plant* A living plant that: is used in the production or supply of agricultural produce
is expected to bear produce for more than one period, and has a remote likelihood of being
sold as agricultural produce, except for incidental scrap sales.

Agricultural produce: The harvested product from biological assets Costs to sell The
incremental costs directly attributable to the disposal of an asset, excluding fnance costs
and income taxes

Defnition included by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which
applies to annual periods beginning on or after 1 January 2016.

Initial recognition

An entity recognizes a biological asset or agriculture produce only when the entity controls
the asset as a result of past events, it is probable that future economic benefts will fow to
the entity, and the fair value or cost of the asset can be measured reliably.

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Measurement

Biological assets within the scope of IAS 41 are measured on initial recognition and at
subsequent reporting dates at fair value less estimated costs to sell, unless fair value cannot
be reliably measured.

Agricultural produce is measured at fair value less estimated costs to sell at the point of
harvest. Because harvested produce is a marketable commodity, there is no 'measurement
reliability' exception for produce.

The gain on initial recognition of biological assets at fair value less costs to sell, and changes
in fair value less costs to sell of biological assets during a period, are included in proft or
loss.

A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair

value less costs to sell are included in proft or loss for the period in which it arises. [IAS
41.28]f

All costs related to biological assets that are measured at fair value are recognized as
expenses when incurred, other than costs to purchase biological assets.

IAS 41 presumes that fair value can be reliably measured for most biological assets.
However, that presumption can be rebutted for a biological asset that, at the time it is
initially recognized, does not have a quoted market price in an active market and for which
alternative fair value measurements are determined to be clearly unreliable. In such a case,
the asset is measured at cost less accumulated depreciation and impairment losses. But the
entity must still measure all of its other biological assets at fair value less costs to sell. If
circumstances change and fair value becomes reliably measurable, a switch to fair value
less costs to sell is required. [IAS 41.30]f

Disclosure

Disclosure requirements in IAS 41 include:

 aggregate gain or loss from the initial recognition of biological assets and agricultural
produce and the change in fair value less costs to sell during the period
 description of an entity's biological assets, by broad group
 description of the nature of an entity's activities with each group of biological assets
and non-fnancial measures or estimates of physical quantities of output during the
period and assets on hand at the end of the period
 information about biological assets whose title is restricted or that are pledged as
security
 commitments for development or acquisition of biological assets
 fnancial risk management strategies
 reconciliation of changes in the carrying amount of biological assets, showing
separately changes in value, purchases, sales, harvesting, business combinations,
and foreign exchange diferences
 Separate and/or additional disclosures are required where biological assets are
measured at cost less accumulated depreciation

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