Beruflich Dokumente
Kultur Dokumente
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Instrument 1. Holder is entitled for a prorata share of the Entitys Net Assets on Liquidation,
specific 2. Puttable Instrument is subordinate to all other classes of Instrument, i.e.
conditions for (a) It has no priority over other claims to the Assets on Liquidation, and
Equity (b) Does not require to be converted to another Instrument before it is in the Subordinate Class.
Instrument 3. All Instruments in the class have identical features.
Issuer must have no other Financial Instrument / Contract that has
(a) Total Cash Flows substantially based on
Issuer specific Profit / Loss,
conditions for Change in the recognized Net Assets,
Equity Change in the Fair Value of the recognized and unrecognized Net Assets of the Entity (excluding
Instrument any effects of such Instrument)
(b) The effect of substantially restricting / fixing the residual return to the Puttable Instrument Holders.
Note: If Entity cannot carry out the above tests, the Puttable Instrument is classified as Financial Liability.
1. Financial Instrument / any Contract whose value changes in response to the change in an underlying,
2. It requires no / vey less Initial Investment than it would be required otherwise to enter into a
Derivatives contract in normal course.
3. It is settled at a future period. Settlement can either by delivery of the Underlying or Cash settlement.
Example: Forward Contracts, Futures, Options, Interest Rate & Currency Swaps, etc.
Classification of 1. Financial Assets measured at Amortised Cost,
Financial 2. Financial Assets measured at Fair Value Through Profit or Loss (FVTPL)
Assets 3. Financial Assets measured at Fair Value Through Other Comprehensive Income (FVTOCI)
Classification of 1. Fair Value Through Profit and Loss (FVTPL), or
Fin. Liability 2. Amortised Cost.
Classification of Derivatives classified as Financial Assets would be measured at Fair Value Through Profit and Loss
Derivatives (FVTPL) only.
Entity shall classify Financial Assets depending upon the following criteria and options elected by it
Criteria for
(a) Entitys Business Model (BM) for managing the Financial Assets, and
Classification
(b) Contractual Cash Flow Characteristics (CCFC) of the Financial Assets.
Business Model Entity assesses whether its Financial Assets meet the conditions on the basis of Business Model as
(BM) determined by its Key Managerial Personnel (KMP). [As defined in Ind AS 24 Related Party Disclosures]
1. Entitys Business Model is determined at a level that reflects how groups of Financial Assetsare
managed together to achieve a particular business objective.
2. BM does not depend on Managements intentions for an Individual Instrument. So, it is not an Instrument
byInstrument Approach to classification, and should be determined on a higher level of aggregation.
3. It refers to how an Entity manages its Financial Assets in order to generate Cash Flows, i.e. it
determines whether Cash Flows will result from collecting Contractual Cash Flows, selling Financial
Assets or both. This assessment is not performed on the basis of scenarios that the Entity does not
reasonably expect to occur, such as so called Worst / Stress Case Scenarios.
4. Example: If an Entity expects that it will sell a particular Portfolio of Financial Asset only in a Stress
Case Scenario, that scenario would not affect the Entitys Assessment of BM for those Assets if the
Entity reasonably expects that such a scenario will not occur.
5. If Cash Flows are realised in a way that is different from the Entitys expectations at the date of
Determination assessment of BM, it is not (a) Prior Period Error, or (b) change the classification of the remaining
of BM Financial Assets held in that BM. Example: Entity sells more or fewer Financial Assets than it
expected when it classified the Assets.
6. However, when an Entity assesses BM for newly originated / purchased Fin. Assets, it must consider
information about how CF were realised in the past, along with all other relevant information.
7. BM is a matter of fact and not merely an assertion. Entity will need to use judgement when it
assesses its BM for managing Financial Assets and that assessment is not determined by a single
factor or activity. Instead, the Entity must consider all relevant evidence that is available at the date
of the assessment. Such relevant evidence includes, but is not limited to:
(b) How the Performance of BM and Financial Assetsheld within that BM are evaluated and reported
to the Entitys KMP,
(c) Risks that affect its performance & the way in which those risks are managed, and
(d) How Managers of the Business are compensated (Example: Whether the Compensation is based
on the Fair Value of the Assets managed or on the Contractual Cash Flows collected).
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Entity shall measure a Financial Asset / Liability (except FVTPL) at its Fair Value plus / minus
Transaction Costs directly attributable to its acquisition / issue. Hence, Transaction Costs are
Measurement (a) Fin. Instr. measured at FVTPL:Charged to P&L, i.e. not added to Fair Value at Initial Recognition,
(Not apply for
(b) Fin. Assets at FVTOCI / Amortised Cost: Added to Initial Recognition Amount,
Trade
Receivables) (c) Fin. Liab. atAmortised Cost: Deducted from Amount of Liability originally recognized.
Note: Transaction Costs on Disposal / Transfer are not included in measurement of all Categories of
Financial Assets / Liabilities. They are charged to Profit and Loss.
(a) Best evidence of the Fair Value of a Financial Instrument at initial recognition is normally the
Transaction Price i.e. Fair Value of Consideration given/ received.
(b) If
Fair Value differs from the Transaction Price, and Difference between Fair
Fair Value Fair Value is evidenced by a Quoted Price in an active market Value at initial recognition
for an identical Asset / Liability or based on a Valuation and the Transaction Price is
technique that uses only data from observable markets, recognized as a Gain/ Loss
(c) In all other cases, Fair Value is adjusted to defer the difference between the Fair Value at initial
recognition and the Transaction Price i.e. Transaction Price is treated as Fair Value.
1. Financial Asset (Debt Instrument only) shall be measured at Amortised Cost, if
(a) It is held within a BM whose objective is to hold it to collect Contractual Cash Flows (CCF), and
Measurement (b) Contractual terms give rise on specified dates to Cash Flows that are SPPI on Principal outstanding
of Financial 2. Financial Asset (Debt & Equity) shall be measured at FVTOCI, if
Asset (a) It is held within a BM whose objective is achieved by both collecting CCF & selling Fin. Assets, and
(b) Contractual terms give rise on specified dates to Cash Flows that are SPPI on Principal outstanding
3. Financial Asset shall be measured at FVTPL if it is not measured at above. (Residuary Category)
An Entity shall classify all Financial Liabilities as subsequently measured at Amortised Cost, except
Measurement
Financial Guarantee Contracts, Commitments to provide Loan at a below Market Interest Rate, Contingent
of Fin.Liability
Consideration recognized by an Acquirer in a Business Combination.
Option to Entity may, at initial recognition, irrevocably designate a Financial Asset as measured at FVTPL, if doing so
FVTPL (Fin. eliminates or significantly reduces Measurement / Recognition Inconsistency (called Accounting Mismatch)
Assets) that would otherwise arise from measuring them / recognizing their Gains & Losses on different basis.
Entity may, at initial recognition, irrevocably designate a Financial Liability as measured at FVTPL, if
(a) It eliminates or significantly reduces Measurement / Recognition Inconsistency (referred as
Option to
Accounting Mismatch) that would otherwise arise from measuring them / recognizing their Gains &
FVTPL
Losses on different basis.
(Financial
Liabilities) (b) Group of Financial Assets / Liabilities is managed and its performance is evaluated on a Fair Value
basis, in accordance with a documented Risk Management or Investment Strategy and information
about the group is provided internally on that basis to the entitys Key Management Personnel.
Only when an Entity changes its BM for managing Fin. Assets, it shall reclassify all affected Fin. Assets
prospectively. Such changes are determined by Entitys Senior Management as a result of external /
Reclassification
internal changes and must be significant to its operation and demonstrable to external parties. BM Change
will occur only when it either begins or ceases to perform an activity that is significant to its operations.
The following are considered as a change in Business Model
1. Acquisition / Disposal / Termination of a Business Line.
2. Entity has Commercial Loans Portfolio which it holds to sell in Short Term. It acquires a Company
Change in BM having a BM that holds Loans to collect Contractual Cash Flows. Commercial Loans Portfolio is no
longer for sale.It is now managed together with the acquired loans and all are held to collect CCF.
3. Financial Services Firm decides to shut down its Retail Mortgage Business. It no longer accepts new
business and it is actively marketing its Mortgage Loan Portfolio for sale.
The following are not considered as a change in Business Model
Not a change 1. Change in intention related to particular Fin. Assets, even in case of significant change in market,
in BM 2. Temporary disappearance of a particular market for Financial Assets,
3. Transfer of Financial Assets between parts of the Entity with different BM.
1. Date of Reclassification,
Disclosures
2. Detailed explanation of change in BM and a qualitative description of its effect on Fin. Statements,
Reclassification
3. Amount reclassified into and out of each category.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
1. Entity shall derecognize a Financial Asset only when the Contractual rights to the Cash Flows from the
Financial Asset expire.
2. Entity shall derecognize a Financial Liability only when it is extinguished, i.e. when the obligation
Derecognition
specified in the contract is discharged or cancelled or expires.
3. On Derecognition, Amount recognized in P&L A/c = Carrying Amount on Derecognition
[Consideration received + New Asset Obtained New Liability Assumed]
Exchange between Existing Borrower and Lender of Debt Instruments with substantially different terms or
Exchange /
substantial modification of the terms of an existing Financial Liability shall be accounted for as an
Modification
extinguishment of Original Financial Liability and recognition of New Financial Liability.
Entity shall recognize a Loss Allowance for expected Credit Losses on
(a) Financial Asset that is measured at Amortised Cost or FVTOCI,
(b) Lease Receivable,
Impairment
(c) Contract Asset,
(d) Loan Commitment,
(e) Financial Guarantee Contract to which the impairment requirements apply.
Contractual Cash Flow due as per the Contract Less Discounted Cash Flows that Entity expects to receive.
(a) Discount Rate = Effective Interest Rate / Credit Adjusted Effective Interest Rate for purchased /
Credit Loss = originated CreditImpaired Financial Assets.
(b) Cash Flows = All Cash Flows throughout the expected life of that Instrument including CF from the
sale of collateral held and other Credit enhancements that are integral to the contractual terms.
An Entity shall measure Expected Credit Losses of a Financial Instrument in a way that reflects
Crieteria for (a) Unbiased & Probability Weighted Amount determined by evaluating a range of possible outcomes,
Measurement (b) Time Value of Money, and
of Credit Loss (c) Reasonable and supportable information that is available without undue cost or effort at the reporting
date about past events, current conditions and forecasts of future economic conditions.
Loss Allowance Situation Measurement of Loss Allowance
at Reporting Credit Risk has increased significantly since initial recognition Lifetime Expected Credit Losses
Date Credit Risk has not increased significantly since initial recognition 12 Months Expected Credit Losses
Disclosures 1. Entity shall not present Loss Allowance separately in Balance Sheet as reduction in Carrying Amount.
Credit Loss 2. However, it shall disclose the Loss Allowance in the Notes to the Financial Statements.
(a) Component of a Hybrid Contract that also includes a NonDerivative Host, with the effect that some
of the Cash Flows of the Combined Instrument vary in a way similar to a StandAlone Derivative.
Embedded
(b) However, a Derivative that is attached to a Financial Instrument but is contractually transferred
Derivative
independently of that Instrument, or has a different counterparty is not an Embedded Derivative but
a Separate Fin. Instrument.
Contract Host Contract Embedded Derivative
Examples Leases with Contingent Rent Annual Lease Rental Payments Contingent Rent
Forex Construction Contracts Construction Contract Changes in Foreign Exchange Rate
Situation Treatment
Apply Classification & Measurement
(a) Host Contract is an Asset within the scope of this AS
Accounting of Rules to the entire Hybrid Contract
Embedded (b) Host Contract is not an Asset, Contract will give rise to Standalone Split the contract and account for
Derivative Derivative if separated, & Not closely related to Host Contract Embedded Derivative separately
No need of segregating the Contract
(c) Any one of the conditions not satisfied
& accounting separately
Contracts to buy or sell NonFinancial Items. It is not a Financial Instrument as the contractual right to
NonFinancial
receive a NonFinancial Asset / Service and corresponding obligation do not establish a present right /
Contracts
obligation to receive, deliver / exchange a Financial Asset. Example: Options, Futures, Forward on Silver.
NonFinancial Contract that continue to be held for the purpose of receipt / delivery of a NonFinancial
Item is a NonFinancial Instruments. However, the following are Financial Instrument.
Exception
(a) NonFinancial Contract that can be settled net or by exchanging Financial Instruments,
(b) NonFinancial Contract in which the NonFinancial Item is readily convertible to Cash.
Compound Fin. Issuer of a NonDerivative Financial Instrument shall evaluate the terms of the Financial Instrument to
Instruments determine whether it contains both a Liability and Equity Component. Example: Convertible Bonds.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
If Compound Financial Instrument has been issued and it has multiple Embedded Derivatives whose
Disclosures
values are interdependent (like Callable Convertible Bond), it shall disclose the existence of those features.
Nature of Liability Component Measurement
Financial Fair Value = Contractual Future Cash Flows
Contractual Arrangement to deliver
Liability discounted at Market Interest Rate of Comparable
Components Cash / another Financial Asset
Component Instruments without the Conversion Option
Option to convert into fixed number Equity Fair Value of the Compound Financial Instrument
of Ordinary Shares Component Less: Fair Value of Financial Liability Component
Recognition on On conversion at maturity, the Entity derecognizes the Liability Component and recognizes it as Equity.
conversion Original Equity Component remains as Equity. There is no gain or loss on conversion at maturity.
1. Entitys own Equity Instrument are not recognised as Fin. Asset regardless of the reason for which
Treasury they are reacquired. If an Entity reacquires its own Equity, they shall be deducted from Equity.
Shares (Own 2. No Gain / Loss shall be recognised in Profit / Loss on the purchase, sale, issue or cancellation.
Equity 3. Treasury Shares may be acquired and held by Entity / other Members of the Group. Consideration
Instrument) paid or received shall be recognised directly in Equity.
4. Exception: When an Entity holds its own Equity on behalf of others, there is an agency relationship.
They are not included in Balance Sheet. Example: Bank holding its own Equity on behalf of Client.
1. Amount of Treasury Shares held is disclosed separately in Balance Sheet / Notes as per Ind AS 1.
Treatment
2. Entity should provide disclosure as per Ind AS 24, if it reacquires its own Equity from Related Parties.
Items Treatment: Recognised
1. Interest, Dividends, Losses and Gains relating to a Financial
Interest, In Profit & Loss A/c
Instrument or a component that is Financial Liability
Dividends,
2. Distributions to holders of Equity Instrument Directly in Equity
Losses and
Gains 3. Transaction Costs of an Equity Transaction As deduction from Equity
4. Income Tax relating to distributions to holders and Transaction As per Ind AS 12, Income Taxes
Costs of an Equity Transaction
1. Carrying Amount of Financial Assets it has pledged as Collateral for Liabilities / Contingent Liabilities
Disclosures
including amounts that have been reclassified,
Collateral
2. Terms and conditions relating to its pledge.
For Loans Payable recognized at the end of the Reporting Period, an Entity shall disclose
1. Details of any defaults during the period of Principal, Interest, Sinking Fund, or Redemption terms,
Defaults &
2. Carrying Amount of the Loans Payable in default at the end of the Reporting period, and
Breaches
3. Whether the default was remedied, or the terms of the Loans payable were renegotiated before the
Financial Statements were approved for issue.
Offsetting Financial Asset and Liability shall be offset and the Net Amount presented only when an Entity
Financial Asset (a) has a legally enforceable right to set off the recognized amounts currently, and
and Liability (b) intends to settle on a Net bases, or to realize the Asset and settle the Liability simultaneously.
Objective of To represent in the Financial Statements, the effect of an Entitys Risk Management Activities to manage
Hedge Exposures arising from particular risks that could affect Profit or Loss or Other Comprehensive Income.
Accounting Entitys Risk Management Activities use Financial Instruments to manage Exposures.
Identifying and Hedged Item can be a single item or a group of items of the following
designating (a) Recognised Asset / Liability,
Hedged Item (b) Unrecognised Firm Commitment,
(c) Forecast Transaction, and
(d) Net Investment in a Foreign Operation.
Conditions for 1. Hedged Item must be reliably measurable.
Hedged Item 2. If a Hedged Item is a Forecast Transaction, it must be highly probable.
Designation of Hedging Instrument Condition
Hedging (a) Derivative measured at FVTPL It cannot be designated for some Written Options.
Instrument
(b) NonDerivative Financial Asset NonDerivative Financial Liability for which the amount of change in
/ Liability measured at FVTPL Fair Value attributable to changes in its Credit risk is presented in
Other Comprehensive Income cannot be designated.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Conditions for 1. Only Contracts with Party external to Reporting Entity can be designated as a Hedging Instrument.
Hedging 2. Foreign Currency Risk Component of Investment in an Equity Instrument measured at FVTOCI cannot
Instrument be designated as a Hedging Instrument for Hedge of Foreign Currency Risk.
Qualifying 1. Hedging relationship consists only of Eligible Hedging Instruments and Eligible Hedged Items.
Criteria for 2. At the inception of Hedging relationship, there is a formal designation and documentation of Hedging
Hedge relationship and the Entitys Risk Management Objective and Hedging Strategy.
Accounting 3. It meets all of the following Hedge Effectiveness requirements
(a) There is an economic relationship between the Hedged Item and the Hedging Instrument,
(b) Effect of Credit Risk does not dominate the value changes that result from that economic
relationship,
(c) Hedge Ratio = Ratio resulting from the Quantity of Hedged Item and Hedging Instrument.
Types of (a) Fair Value Hedge: Hedge of the exposure to changes in Fair Value ofHedged Item attributable to
Hedging a particular risk and could affect Profit or Loss.
Relationship (b) Cash Flow Hedge: Hedge of the exposure to variability in Cash Flows of Hedged Item
attributable to a particular risk and could affect Profit or Loss.
(c) Hedge of Net Investment in a Foreign Operations, including a Hedge of a Monetary Item.
Fair Value Gain / Loss on Accounted in
Hedge (a) Hedging Instrument OCI, if the Hedging Instrument hedges an Equity
Accounting Instrument measured at FVTOCI. Otherwise in P&L.
(b) Hedged Item being a Financial Asset Profit and Loss (P&L)
measured at FVTOCI
(c) Hedged Item being Equity Instrument Other Comprehensive Income (OCI)
measured at FVTOCI
(d) Hedged Item being Unrecognised Firm Cumulative change its Fair Value is recognized as an asset or
Commitment liability with a corresponding gain or loss recognized in P&L
Cash Flow 1. Separate Cash Flow Hedge Reserve A/c is adjusted to the lower of the following
Hedge (a) Cumulative Gain / Loss on the Hedging Instrument from inception of the Hedge,
Accounting (b) Cumulative Change in Fair Value of the Hedged Item from inception of the Hedge.
2. Portion of Gain / Loss on the Hedging Instrument that is determined to be an effective Hedge shall be
recognized in Other Comprehensive Income.
3. Remaining Gain / Loss is hedge ineffectiveness that shall be recognized in profit or loss.
Hedge of Net Items Recognised
Investment in Portion of Gain / Loss on Hedging Instrument that is determined to be an Effective Hedge In OCI
a Foreign
Operations Ineffective Portion In P&L
Disclosures Entity shall apply Disclosure requirements for those Risk Exposures that an Entity hedges and for which it
elects to apply Hedge Accounting. Hedge Accounting Disclosures shall provide information about
(a) Entitys Risk Management Strategy and how it is applied to manage risk,
(b) How Entitys hedging activities may affect the amount, timing & uncertainty of its future Cash Flows,
(c) Effect that Hedge Accounting has had on Balance Sheet, P&L and Statement of Changes in Equity.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
2. Option Contracts
Entity A holds an Option to purchase Equity Shares in a Listed Entity B for ` 100 per Share at the end of a 90 day period.
Evaluate the Contract whether a Financial Asset or a Financial Liability? What if the Entity A has written the Option?
Solution:
If Entity A is Call Option Holder If Entity A is Call Option Writer
1. Entity A will exercise the Option, if MPS exceeds `100 at 1. In this case, Counterparty can force Entity A to sell
the end of the 90 day period. Equity Shares, if MPS exceeds `100 at the end of the 90
2. Since Entity A stands to gain if the call option is day period.
exercised, it is potentially favourable to the Entity. 2. Since Entity A stands to lose if the Option is exercised, it
Therefore, the option is a Derivative Financial Assets is potentially unfavourable and the option is a Derivative
from the time it becomes a party to the contract. Financial Liability from the time the Entity becomes a
party to the Option Contract.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Solution:
1. When Pref. Shares are NonRedeemable, appropriate classification is determined by the other rights attached to them.
2. In such case, the Principal has Equity characteristics. However, the Entity has a contractual obligation to pay dividends,
even in case of lack of funds, or insufficient distributable profits. Hence, obligation to pay dividends is a Fin. Liability.
Situation BM Reasoning
ABC Ltd holds Investments to collect their Although the Company considers Fair Values from a
Contractual Cash Flows (CCF). Maturity of its liquidity perspective, its objective is to hold to collect
Financial Assets is matched to the Funding Needs. In CCF. Sales in response to an increase in Credit Risk or
the past, when Financial Assets Credit Risk has ifrequent sales resulting from unanticipated funding
Hold to
increased, they have been sold out.In addition, needs (i.e. in a Stress Case Scenario) would not
CCCF
infrequent sales have occurred as a result of contradict that objective, even if such sales are significant
unanticipated funding needs. The Company also in value.
monitors Fair Values of Financial Assets, among
other information.
XYZ Ltd anticipates Capital Expenditure in a few Hold to The Company invests excess Cash in ShortTerm Financial
years. It invests its excess Cash in Short and CCCF Assets, until the Company requires the Funds for making
LongTerm Financial Assets, having Contractual Lives OR Capital Expenditure. When they mature, it reinvests the
more than its anticipated Period. The Company will Hold to Cash in new Short Term Assets. It maintains this strategy
hold them to collect CCF and, when an opportunity CCCF& until the Funds are needed, at which time the Company
arises, it will sell them to reinvest the Cash. selling uses the proceeds to fund the Capital Expenditure.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Situation BM Reasoning
A Company collects Cash from Trade Receivables Hold to The objective is to collect CCF from the Trade Receivables
and has no intention to dispose Trade Receivables. CCCF and, therefore, the Trade Receivables meet BM Test.
7. CCF that are Solely Payments of Principal & Interest on the Principal Amount Outstanding
8. Methods of Accounting
On 30.03.2015, an Entity enters into an agreement to purchase a Financial Asset for ` 100 which is the Fair Value on that date.
On Balance Sheet date, the Fair Value is ` 102 and on Settlement Date, i.e. 02.04.2015 the Fair Value is ` 103. Pass Journal
Entries on Trade and Settlement Date, when the Asset acquired is measured at (a) Amortised Cost, (b) FVTPL, (c) FVTOCI.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
2. Journal Entries
Particulars Dr. (`) Cr. (`)
Bank A/c (Consideration Received) Dr. 9,90,000
To Loan Receivable (Asset) A/c (Carrying Amt of derecognised portion) 8,25,468
To Profit and Loss A/c (Gain on DeRecognition) 1,64,532
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Solution:
1. As there is no increase in Credit Risk since initial recognition, Lifetime Expected Credit Loss is not required to be recognised.
2. 12Months Expected Credit Loss to be recognized = ` 1 Million LGD25% 12Months POD 0.5% = ` 1,250.
Solution:
1. As there is no increase in Credit Risk since initial recognition, Lifetime Expected Credit Loss is not required to be recognised.
3. Loss Rates are used to estimate 12 Month ECL on new loans in Group X & Y that originated during the year and for which
the Credit Risk has not increased significantly since initial recognition.
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Solution:
1. As there is increase in Credit Risk since initial recognition, Lifetime Expected Credit Loss is required to be recognised.
Item Treatment
Dividend on Shares recognized as Liabilities Recognised as Expenses in the same way as Bond Interest. However, it is
desirable to disclose them separately in P&L than with Interest because of
the difference between Interest and Dividends.
Issuing & Acquiring Cost of its own Equity Deduction from Equity to the extent they are Incremental Costs directly
Instruments attributable to Equity Transaction that would otherwise have been avoided
Cost of Equity Transaction that is abandoned Recognised as Expenses
Transaction Costs relating to issue of Allocated to the Liability and Equity Component in proportion to the
Compound Financial Instruments allocation of proceeds.
Gains & Losses related to changes in the Recognised as Income / Expenses in Profit / Loss even when they relate to
Carrying Amount of a Financial Liability an Instrument that includes a right to the residual interest in the assets of
the Entity in exchange for Cash or another Financial Asset.
Entity B places its privately held Ordinary Since the issue of New Shares is the issue of an Equity Instrument, but the
Shares that are classified as Equity with a placing of the existing Equity Instruments with the Exchange is not, the
Stock Exchange and simultaneously raises Transaction Costs should be allocated between the two transactions.
New Capital by issuing New Ordinary Shares Transaction Costs in respect of the New Shares issued will be recognised in
on the Stock Exchange. Transaction Costs Equity whereas the Transaction Costs incurred in placing the existing
are incurred in respect of both transactions. Shares with the Stock Exchange will be recognised in Profit or Loss.
16. Offsetting
X Ltd owes Y Ltd ` 20 Lakhs at the end of 31st March. As part of another Contract, Y Ltd owes X Ltd ` 15 Lakhs at 31st March. X
Ltd has the legal right to set off the Asset and Liability but historically, X Ltd has settled one month after Y Ltd settles. Can X
Ltd offset the Asset and Liability?
Solution: No, since X Ltd cannot demonstrate the intention to settle net or simultaneously for all payments.
Solution:
Date Particulars Dr. (`) Cr. (`)
01.04.2015 Loan A/c Dr. 100 Lakhs
To Bank A/c 100 Lakhs
01.04.2015 Loan Processing Expenses A/c Dr. 40,000
To Bank A/c 40,000
01.04.2015 Loan A/c Dr. 40,000
To Loan Processing Expenses A/c 40,000
Solution:
1. In the absence of Fair Value Option, the Entity may have classified the Fixed Rate Assets as FVTOCI with Gains &
Losses on changes in Fair Value recognized in Other Comprehensive Income and the Fixed Rate Debentures at
Amortised Cost.
2. Reporting both the Assets and the Liabilities at FVTPL corrects the measurement and inconsistency and produces more
relevant information.
19. Reclassification
Bonds (Assets) are for ` 1,25,000. Fair Value on Reclassification is ` 90,000. Pass Entries for the following reclassifications
(a) Amortised Cost to FVTPL, (c) FVTPL to Amortised Cost, (e) FVTOCI to Amortised Cost,
(b) Amortised Cost to FVTOCI, (d) FVTPL to FVTOVI, (f) FVTOCI to FVTPL.
Solution:
(a) Amortised Cost to FVTPL (b) Amortised Cost to FVTOCI
Bonds (FVTPL) A/c Dr. 90,000 Bonds (FVTOCI) A/c Dr. 90,000
P&L A/c Dr. 35,000 OCI A/c Dr. 35,000
To Bond (Amortised Cost) A/c 1,25,000 To Bond (Amortised Cost) A/c 1,25,000
(c) FVTPL to Amortised Cost (d) FVTPL to FVTOCI
Bonds (Amortised Cost) A/c Dr. 90,000 Bonds (FVTOCI) A/c Dr. 90,000
Impairment Loss (P&L A/c) Dr. 35,000 Impairment Loss (OCI A/c) Dr. 35,000
To Bond (FVTPL) A/c 1,25,000 To Bond (FVTPL) A/c 1,25,000
(e) FVTOCI to Amortised Cost (f) FVTOCI to FVTPL
Bonds (Amortised Cost) A/c Dr. 90,000 Bonds (FVTPL) A/c Dr. 90,000
Loss Allowance (P&L A/c) Dr. 35,000 Reclassification Loss (OCI A/c) Dr. 35,000
To Bond (FVTOCI) A/c 1,25,000 To Bond (FVTOCI) A/c 1,25,000
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
Solution:
1. The Contract is a Derivative Instrument as there is no Initial Investment, it is based on the Price of Copper and it is to
be settled at a future date.
2. However, if XYZ intends to settle the contract by taking delivery of the Copper and has no history of settling net in Cash
or of taking delivery and selling it within a short period after delivery for the purpose of generating a profit from short
term fluctuations in price / dealers margin, it is not accounted for as a Derivative.
3. Journal Entries
Date Particulars Dr. Cr.
01.04.2015 Loans to Employees A/c Dr. 8,71,361
Employee Benefits Expense A/c Dr. 1,28,639
To Bank A/c 10,00,000
31.03.2016 Loans to Employees A/c Dr. 69,709
To Interest Accrued A/c 69,709
31.03.2016 Bank A/c Dr. 2,00,000
To Loans to Employees A/c 2,00,000
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Shree Guru Kripas Institute of Management CA Final Financial Reporting Additional Material
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