CA Final · Financial Reporting · Ind AS 101 First-time Adoption of Ind AS
Kaveri Engineering Ltd adopts Ind AS for the first time. Its opening Ind AS balance sheet contains an item recognised under previous GAAP that does not qualify as an asset under Ind AS. The adjustment is not of the kind that requires an adjustment to goodwill. How should the change be accounted for?
Kaveri must remove the item from its opening Ind AS balance sheet and record the resulting change in retained earnings as at the transition date. It is neither carried forward and amortised nor charged to the first reporting period's profit or loss, since the goodwill exception does not apply.
- AExcluded from the opening Ind AS balance sheet, with the resulting change in retained earnings as at the transition dateCorrect
- BRetained in the balance sheet and amortised over five years
- CExcluded, with the change taken to profit or loss of the first Ind AS reporting period
- DExcluded, with the change adjusted against capital reserve in all cases
Explanation
A first-time adopter must exclude from its opening Ind AS balance sheet any item recognised under previous GAAP that does not qualify as an asset or liability under Ind AS. The resulting change is accounted for in retained earnings at the transition date, except in specific instances requiring goodwill adjustment. Taking it to profit or loss of the first reporting period is wrong because the adjustment relates to the transition date.
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