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

Sagar Infra Ltd is a first-time adopter. Its opening Ind AS balance sheet excludes an item recognised under previous GAAP that does not qualify as an asset under Ind AS. The adjustment relates to a specific instance where IFRS 1 would adjust goodwill. Capital reserve on the business combination stands at ₹40 lakh and the required adjustment is ₹55 lakh. How does Ind AS 101 differ from IFRS 1 here?

Ind AS 101 permits the adjustment against capital reserve only up to the balance available. Sagar Infra adjusts ₹40 lakh against capital reserve, and the remaining ₹15 lakh is adjusted to goodwill, as IFRS 1 would require.

  1. AThe entire ₹55 lakh is adjusted against the capital reserve, making it a negative balance
  2. B₹40 lakh is adjusted against capital reserve, being the balance available, and the excess is dealt with as the goodwill adjustmentCorrect
  3. CThe entire ₹55 lakh is charged to the statement of profit and loss
  4. DNo adjustment is made to either capital reserve or goodwill

Explanation

Ind AS 101 allows the adjustment, in instances where IFRS 1 adjusts goodwill, to be made against capital reserve only to the extent it does not exceed the balance available in capital reserve. So ₹40 lakh is adjusted against capital reserve and the remaining ₹15 lakh goes to goodwill as under IFRS 1. Option A is wrong because the capital reserve cannot go negative.

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