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

Meera Pharma Ltd is a first-time adopter of Ind AS. Under previous GAAP it had recognised a deferred expenditure item that does not qualify as an asset under Ind AS. On transition, the item is derecognised. Under Ind AS 101, which treatment of the resulting adjustment is correct, assuming the item is not one of the specific instances requiring a goodwill adjustment?

The item is excluded from the opening Ind AS balance sheet and the resulting change is recognised in retained earnings at the transition date. Goodwill, with the capital reserve limit, applies only in specific instances. It is not charged to the first year's profit or loss.

  1. ACharge it to the statement of profit and loss of the first Ind AS reporting year
  2. BAccount for the resulting change in retained earnings as at the transition dateCorrect
  3. CAdjust it against the capital reserve irrespective of the balance available
  4. DCarry it forward as a separate asset until amortised

Explanation

Items recognised under previous GAAP that do not qualify as an asset or liability 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. The goodwill or capital reserve route applies only to specific instances, and then only up to the capital reserve balance. Charging profit or loss of the first year would misstate the first year's results.

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