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

Sagar Infra Ltd adopts Ind AS for the first time. In a specific instance, derecognising an item recognised under previous GAAP requires an adjustment of goodwill of ₹40 lakh. The balance in Capital reserve is ₹25 lakh. Under the Ind AS 101 departure from IFRS 1, what is the maximum amount of the adjustment that can be made against Capital reserve?

The maximum adjustment against Capital reserve is ₹25 lakh. Ind AS 101 allows the goodwill adjustment to be made against Capital reserve only to the extent it does not exceed the balance available in that reserve, so the ₹40 lakh requirement is capped at ₹25 lakh.

  1. A₹40 lakh, because goodwill adjustments may create a debit in Capital reserve
  2. B₹25 lakh, being limited to the balance available in Capital reserveCorrect
  3. C₹15 lakh, being the excess of goodwill adjustment over Capital reserve
  4. DNil, because Capital reserve cannot be used for goodwill adjustments

Explanation

Where IFRS 1 allows goodwill adjustment, Ind AS 101 permits adjustment against Capital reserve only to the extent it does not exceed the available balance. Here the adjustment is ₹40 lakh and the reserve is ₹25 lakh, so ₹25 lakh can be adjusted there. The remaining ₹15 lakh is not absorbed by the reserve, so ₹15 lakh as the answer is wrong.

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