28974sm_fr_finalnew_vol3_cp-ipages.pdf

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PRACTICE MANUAL

Final Course

PAPER :1

FINANCIAL REPORTING

VOLUME-III

BOARD OF STUDIESTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

The Institute of Chartered Accountants of India


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This Practice Manual has been prepared by the faculty of the Board of Studies. Theobjective of the study material is to provide teaching material to the students to enable

them to obtain knowledge and skills in the subject. Students should also supplement their

study by reference to the recommended text books. In case students need any

clarifications or have any suggestions to make for further improvement of the material

contained herein, they may write to the Director of Studies.

All care has been taken to provide interpretations and discussions in a manner useful for

the students. However, the Practice Manual has not been specifically discussed by the

Council of the Institute or any of its Committees and the views expressed herein may not

be taken to necessarily represent the views of the Council or any of its Committees.

Permission of the Institute is essential for reproduction of any portion of this material.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

All rights reserved. No part of this book may be reproduced, stored in retrieval system, or

transmitted, in any form, or by any means, Electronic, Mechanical, photocopying, recording, or

otherwise, without prior permission in writing from the publisher.

Edition : January, 2013

Website : www.icai.org

Department/ : Board of Studies

Committee

E-mail : [email protected]

ISBN No. :

Price : `

Published by : The Publication Department on behalf of The Institute of Chartered

Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha

Marg, New Delhi-110 002, India.

Printed by : Sahitya Bhawan Publications, Hospital Road, Agra 280 003January/2013/ Copies



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AWORD ABOUT PRACTICE MANUAL

The Board of Studies has been instrumental in imparting theoretical education for the students

of Chartered Accountancy Course. The distinctive characteristic of the course i.e., distanceeducation, has emphasized the need for bridging the gap between the students and the

Institute and for this purpose, the Board of Studies has been providing a variety of educational

inputs for the students. Bringing out a series of subject-wise Practice Manuals is one of thequality services provided by the Institute. These Practice Manuals are highly useful to the

students preparing for the examinations, since they are able to get answers for all important

questions relating to a subject at one place and that too, grouped chapter-wise.

The paper of Financial Reporting in the Final Course concentrates on understanding of thecrucial aspects of preparing and analyzing financial statements. The importance of the subjectof financial reporting is growing over the years due to various factors like liberalization, flow of

cross-border capital, emergence of global corporations and movement towards bettercorporate governance practices. Standardization of accounting policies and financial reporting

norms are significant aspects that make the subject more interesting in the recent years. The

students are required to develop understanding of the Accounting Standards and the relevantGuidance Notes and should gain ability to apply the provisions contained therein under the

given practical situations.

The Practice Manual in the subject of Financial Reporting is divided into ten chapters. Itcovers a wide range of practical questions and questions based on practical application of

Accounting Standards and Guidance Notes. Care has been taken to present the chapters inthe same sequence as prescribed in the syllabus to facilitate easy understanding by the

students. The students are expected to cover the entire syllabus and also do the practice ontheir own while going through the Practice Manual. The main aim of this Practice Manual is to

provide guidance as to the manner of writing answers in the examination. The main features of

this Practice Manual are as follows:

Important definitions, equations, formulae and basic concepts have been given before eachtopic for quick recapitulation.

Compilation of questions from past examinations at Final Level as well as other importantquestions, which would facilitate in thorough understanding of the concepts contained in thechapters of the study material.

Exercises have been given at the end of each topic for independent practice. The Financial Statements of the Companies have been revised as per Revised Schedule VI.

Also, provisioning on Standard Assets of NBFCs has been made on the basis of the

notification issued by the RBI.

The Practice Manual will serve as a useful and handy reference guide while preparing for FinalExamination. Further, it will enhance the understanding about the pattern of questions set and the

manner of answering such questions. It will enable solving the problems in the best possible manner



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and guide the students to improve their performance in the examinations. It will also help them to workupon their grey areas and plan a strategy to tackle theoretical as well as practical problems.

Any theoretical additions made in the chapters have been highlighted in bold and italics while

practical illustrations have been highlighted with grey shading in the Practice Manual for easy

identification and quick reference.

We thank CA. Ajay Lunawat for his valuable contribution in Chapter-4 Accounting for Corporate

Restructuring and Chapter-5 Consolidated Financial Statements of Group Companies.

Happy Reading and Best Wishes!



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Group I : Paper 1 Financial Report ingStatement showing Topic-wise distribut ion of Examination Questions alongwith Marks

Syllabus contentsSyllabus covered in the examination held in

Nov., 2008 June, 2009 Nov., 2009 May, 2010 Nov., 2010 May, 2011 Nov., 2011 May, 2012 No

Q M Q M Q M Q M Q M Q M Q M Q M Q

1. Accounting Standardsand Guidance notes

17(b)7(d)7(e)

2044432

1 20 16(b)6(c)6(d)

2044432

1 20 17(a)7(c)7(d)7(e)

204444

36

17(a)7(b)7(c)7(d)

204444

36

1(a)7(b)

549

17

202040

17(b7(c7(d

2. International accountingstandards, internationalfinancial reportingstandards, theirinterpretations and us

GAAPs an overview

7(a) 4 7(c) 4 7(b) 4

3. Corporate FinancialReporting

7(a) 4 1(b) 5 6(c

4. Accounting forCorporate Restructuring

24(b)5*

1681640

2 16 2 16 4 16 4 16 34(a)

168

24

3 16 34

161632

36(a

5. Consolidated FinancialStatements of Group

3 16 3 16 3 16 3 16 3 16 2 16 24(b)

168

24

2 16 2

6. Accounting andReporting of FinancialInstruments.

7(e) 4 4(a) 8 2(b) 12 5(b)6(a)

88

16

7(a)7(c)7(e)

444

12

5(a) 8

7. Share based payments 2 16 1(c) 5 7(a8. Financial Reporting for

Financial Institutions4(a) 8 4(a)

7(b)64

5(a)6(a)

84

2(a) 4 6(b) 6 6(b)7(d)

84

4(a5(b



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7(d) 4

1412 12

9. Valuation

Unit 1 Concept ofValuation.

Unit 2 Valuation ofTangible FixedAssets

Unit 3 Valuation ofIntangibles

5 16 5,6(a)

164

20

4(b)7(e)

84

12

4(b

Unit 4 Valuation ofLiabilities

6(b) 8

Unit 5 Valuation ofShares

4(b) 10 5(a) 8 5 16 5 16 5

Unit 6 Valuation ofBusiness

6(a) 12

10 Developments inFinancial Reporting

Unit 1 Value AddedStatement

6(b) 8 4(a) 8 5(b) 8

Unit 2,3 & 4

Economic ValueAdded, MarketValue Added,ShareholdersValue Added

7(c) 4 6(b) 8 6(a) 5 6(a) 8 6(b) 4 7(e

Unit 5 HumanResourceReporting

5(b) 8 6(c) 5 1(d) 5 6(b

Note: Q represents question numbers as they appeared in the question paper of r espective examination. M represents the marks whthat examination. The question papers of all the past attempts of Final Examination can be accessed from the BOS Knowledge Powww.icai.org.



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CONTENTS

CHAPTER 1: ACCOUNTING STANDARDS AND GUIDANCE NOTES ................ 1.1 1.85

CHAPTER 2: INTERNATIONAL FINANCIAL REPORTING STANDARDS, THEIR

INTERPRETATIONS AND US GAAPS AN OVERVIEW .................... 2.1 2.16

CHAPTER 3: CORPORATE FINANCIAL REPORTING ...................... ................ 3.1 3.13

CHAPTER 4: ACCOUNTING FOR CORPORATE RESTRUCTURING ............... 4.1 4.125

CHAPTER 5: CONSOLIDATED FINANCIAL STATEMENTS OF

GROUP COMPANIES ......................... ........................ .............. 5.1 5.118

CHAPTER 6: ACCOUNTING AND REPORTING OF FINANCIAL INSTRUMENTS ...... 6.1 6.13

CHAPTER 7: SHARE BASED PAYMENTS ....................................................... 7.1 7.12

CHAPTER 8: FINANCIAL REPORTING FOR FINANCIAL INSTITUTIONS ......... 8.1 8.14

Mutu al Fund ..................................................................................... 8.5

NBFCs ............................................................................................. 8.8

Merchant Bankers.......................................................................... 8.12

Stoc k and Comm od ity Market Int ermed iari es ................................ 8.12

CHAPTER 9: VALUATION ............................................................................... 9.1 9.62

Valuat io n of Intan gib les .................................................................. 9.7

Valuat io n of Shares ....................................................................... 9.25

Valuati on of Bus in ess ................................................................... 9.52

CHAPTER 10: DEVELOPMENTS IN FINANCIA L REPORTING ...................... 10.1 10.42

Value Add ed, EVA, MVA and SVA .................................................. 10.4

Human Resou rce Repor ti ng ......................................................... 10.32


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