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CA Intermediate · Advanced Accounting · Applicability of Accounting Standards

Mehta Pharma Ltd is an unlisted company with turnover of Rs 120 crore and borrowings of Rs 30 crore. It is not a holding or subsidiary of a listed entity. It has a subsidiary that is a Level III-sized firm. For the standards applicable to Mehta Pharma Ltd's own financial statements, which statement is correct?

Mehta Pharma Ltd is a Level II entity because its turnover of Rs 120 crore and borrowings of Rs 30 crore are below the Level I limits and it has no listed holding or subsidiary link. The subsidiary's small size is irrelevant, so Level II relaxations apply.

  1. AIt is Level I because its subsidiary is small
  2. BIt is Level II and, being non-Level I, may follow the relaxations for Level II entitiesCorrect
  3. CIt is Level III because its subsidiary is Level III
  4. DIt is exempt from all Accounting Standards as it is unlisted

Explanation

Classification depends on the entity's own turnover, borrowings and listing status, plus holding or subsidiary links to a listed entity. Here turnover is Rs 120 crore, below Rs 250 crore, and borrowings Rs 30 crore, below Rs 50 crore, with no listed link. Hence it is Level II. The size of its subsidiary does not change this, and unlisted entities are not exempt from standards.

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