CA Final · Financial Reporting · Ind AS 101 First-time Adoption of Ind AS
Kaveri Engineering Ltd is a first-time adopter. Under previous GAAP it recognised a deferred expense of Rs 8 lakh that does not qualify as an asset under Ind AS. Assume no goodwill adjustment is required in this case. In the opening Ind AS balance sheet, what is the treatment?
Kaveri must exclude the Rs 8 lakh deferred expense from its opening Ind AS balance sheet and adjust the amount against retained earnings at the transition date. It is not amortised or charged to the first year's profit, because only specific goodwill cases depart from this.
- ARetain the Rs 8 lakh as an asset and amortise it over five years
- BDerecognise it and adjust Rs 8 lakh against retained earnings at the transition dateCorrect
- CDerecognise it and credit Rs 8 lakh to capital reserve
- DCharge Rs 8 lakh to profit or loss of the first Ind AS reporting year
Explanation
Items recognised under previous GAAP that do not qualify as assets or liabilities under Ind AS are excluded from the opening Ind AS balance sheet. The resulting change is accounted for in retained earnings at the transition date, except specific instances requiring goodwill adjustment. Charging to profit or loss of the first year is wrong because the adjustment is made at transition date.
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