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CA Final · Financial Reporting · Ind AS 101 First-time Adoption of Ind AS

Kaveri Industries Ltd is adopting Ind AS for the first time. During the previous GAAP period an adjustment relating to goodwill arose from derecognising an item in a specific instance where Ind AS 101 permits goodwill adjustment. The company has a capital reserve balance of Rs 40 lakh. The goodwill adjustment amount is Rs 55 lakh. What is the maximum amount that can be adjusted against capital reserve under Ind AS 101?

The maximum adjustable against capital reserve is Rs 40 lakh. Ind AS 101 limits the adjustment to the balance available in capital reserve, and that balance is lower than the Rs 55 lakh adjustment. Rs 15 lakh is only the excess and is not the permitted amount.

  1. ARs 55 lakh, with the excess shown as a negative capital reserve
  2. BRs 15 lakh
  3. CNil, since capital reserve cannot be used for this purpose
  4. DRs 40 lakhCorrect

Explanation

Ind AS 101 allows the goodwill adjustment to be made against capital reserve only to the extent the adjustment does not exceed the balance available in capital reserve. The adjustment is Rs 55 lakh and the available balance is Rs 40 lakh, so the maximum is Rs 40 lakh. Rs 15 lakh is the unabsorbed excess, which is wrongly taken as the amount adjustable.

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