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

Tara Pharma Ltd is a first-time adopter. In its opening Ind AS balance sheet, derecognising an item recognised under previous GAAP requires an adjustment that, under IFRS 1, would be made against goodwill. Capital reserve on the business combination stands at Rs 12 lakh and the required adjustment is Rs 20 lakh. What does Ind AS 101 permit?

Ind AS 101 permits the adjustment to be made against capital reserve only to the extent it does not exceed the balance available in that reserve. Tara can therefore adjust only Rs 12 lakh against capital reserve, not the full Rs 20 lakh.

  1. AAdjust against capital reserve only up to Rs 12 lakh, the balance availableCorrect
  2. BAdjust the full Rs 20 lakh against capital reserve, creating a debit balance
  3. CAdjust the full Rs 20 lakh against goodwill exactly as IFRS 1 requires
  4. DAdjust Rs 20 lakh against capital reserve and show the excess as a deferred asset

Explanation

Ind AS 101 allows the adjustment otherwise made to goodwill to be made against capital reserve, but only to the extent it does not exceed the balance available in capital reserve. Here the balance is Rs 12 lakh, so only Rs 12 lakh can be adjusted against it. Adjusting the full Rs 20 lakh would exceed the available balance, which is not permitted.

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