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PRACTICE MANUAL

Final Course







PAPER : 1

FINANCIAL REPORTING


VOLUME-III






BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
The Institute of Chartered Accountants of India

This Practice Manual has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to enable
them to obtain knowledge and skills in the subject. Students should also supplement their
study by reference to the recommended text books. In case students need any
clarifications or have any suggestions to make for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner useful for
the students. However, the Practice Manual has not been specifically discussed by the
Council of the Institute or any of its Committees and the views expressed herein may not
be taken to necessarily represent the views of the Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this material.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this book may be reproduced, stored in retrieval system, or
transmitted, in any form, or by any means, Electronic, Mechanical, photocopying, recording, or
otherwise, without prior permission in writing from the publisher.
Edition : January, 2013
Website : www.icai.org
Department/ : Board of Studies
Committee
E-mail : bos@icai.org
ISBN No. :
Price : `
Published by : The Publication Department on behalf of The Institute of Chartered
Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
Marg, New Delhi-110 002, India.
Printed by : Sahitya Bhawan Publications, Hospital Road, Agra 280 003
January/2013/ Copies
The Institute of Chartered Accountants of India
A WORD ABOUT PRACTICE MANUAL
The Board of Studies has been instrumental in imparting theoretical education for the students
of Chartered Accountancy Course. The distinctive characteristic of the course i.e., distance
education, has emphasized the need for bridging the gap between the students and the
Institute and for this purpose, the Board of Studies has been providing a variety of educational
inputs for the students. Bringing out a series of subject-wise Practice Manuals is one of the
quality services provided by the Institute. These Practice Manuals are highly useful to the
students preparing for the examinations, since they are able to get answers for all important
questions relating to a subject at one place and that too, grouped chapter-wise.
The paper of Financial Reporting in the Final Course concentrates on understanding of the
crucial aspects of preparing and analyzing financial statements. The importance of the subject
of financial reporting is growing over the years due to various factors like liberalization, flow of
cross-border capital, emergence of global corporations and movement towards better
corporate governance practices. Standardization of accounting policies and financial reporting
norms are significant aspects that make the subject more interesting in the recent years. The
students are required to develop understanding of the Accounting Standards and the relevant
Guidance Notes and should gain ability to apply the provisions contained therein under the
given practical situations.
The Practice Manual in the subject of Financial Reporting is divided into ten chapters. It
covers a wide range of practical questions and questions based on practical application of
Accounting Standards and Guidance Notes. Care has been taken to present the chapters in
the same sequence as prescribed in the syllabus to facilitate easy understanding by the
students. The students are expected to cover the entire syllabus and also do the practice on
their own while going through the Practice Manual. The main aim of this Practice Manual is to
provide guidance as to the manner of writing answers in the examination. The main features of
this Practice Manual are as follows:
Important definitions, equations, formulae and basic concepts have been given before each
topic for quick recapitulation.
Compilation of questions from past examinations at Final Level as well as other important
questions, which would facilitate in thorough understanding of the concepts contained in the
chapters of the study material.
Exercises have been given at the end of each topic for independent practice.
The Financial Statements of the Companies have been revised as per Revised Schedule VI.
Also, provisioning on Standard Assets of NBFCs has been made on the basis of the
notification issued by the RBI.
The Practice Manual will serve as a useful and handy reference guide while preparing for Final
Examination. Further, it will enhance the understanding about the pattern of questions set and the
manner of answering such questions. It will enable solving the problems in the best possible manner
The Institute of Chartered Accountants of India

and guide the students to improve their performance in the examinations. It will also help them to work
upon their grey areas and plan a strategy to tackle theoretical as well as practical problems.
Any theoretical additions made in the chapters have been highlighted in bold and italics while
practical illustrations have been highlighted with grey shading in the Practice Manual for easy
identification and quick reference.
We thank CA. Ajay Lunawat for his valuable contribution in Chapter-4 Accounting for Corporate
Restructuring and Chapter-5 Consolidated Financial Statements of Group Companies.
Happy Reading and Best Wishes!

The Institute of Chartered Accountants of India

Group I : Paper 1 Financial Reporting
Statement showing Topic-wise distribution of Examination Questions alongwith Marks
Syllabus contents
Syllabus covered in the examination held in
Total
Marks
Average
Nov., 2008 June, 2009 Nov., 2009 May, 2010 Nov., 2010 May, 2011 Nov., 2011 May, 2012 Nov., 2012
Q M Q M Q M Q M Q M Q M Q M Q M Q M
1. Accounting Standards
and Guidance notes
1
7(b)
7(d)
7(e)

20
4
4
4
32
1

20

1
6(b)
6(c)
6(d)

20
4
4
4
32
1 20 1
7(a)
7(c)
7(d)
7(e)

20
4
4
4
4
36
1
7(a)
7(b)
7(c)
7(d)

20
4
4
4
4
36
1(a)
7(b)

5
4
9
1
7


20
20
40
1
7(b)
7(c)
7(d)
20
4
4
4
32
257 28.55
2. International accounting
standards, international
financial reporting
standards, their
interpretations and us
GAAPs an overview
7(a) 4 7(c)

4

7(b) 4 12 1.33
3. Corporate Financial
Reporting
7(a) 4 1(b) 5 6(c) 4 13 1.44
4. Accounting for
Corporate Restructuring
2
4(b)
5*

16
8
16
40
2 16 2 16 4 16 4 16 3
4(a)
16
8
24
3 16 3
4
16
16
32
3
6(a)
16
8
24
200 22.22
5. Consolidated Financial
Statements of Group
3 16 3 16 3 16 3 16 3 16 2 16 2
4(b)

16
8
24
2 16 2 16 152 16.89
6. Accounting and
Reporting of Financial
Instruments.
7(e) 4 4(a) 8 2(b) 12 5(b)
6(a)

8
8
16
7(a)
7(c)
7(e)

4
4
4
12
5(a) 8 60 6.66
7. Share based payments 2 16 1(c) 5 7(a) 4 25 2.78
8. Financial Reporting for
Financial Institutions
4(a) 8 4(a)
7(b)
6
4
5(a)
6(a)
8
4
2(a) 4 6(b)

6 6(b)
7(d)
8
4
4(a)
5(b)
10
6
72 8
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7(d) 4
14

12 12 16
9. Valuation
Unit 1 Concept of
Valuation.

Unit 2 Valuation of
Tangible Fixed
Assets

Unit 3 Valuation of
Intangibles
5 16 5,
6(a)
16
4
20
4(b)
7(e)

8
4
12
4(b) 6 54 6
Unit 4 Valuation of
Liabilities
6(b) 8 8 0.88
Unit 5 Valuation of
Shares
4(b) 10 5(a) 8 5 16 5 16 5 10 60 6.66
Unit 6 Valuation of
Business
6(a) 12 12 1.33
10 Developments in
Financial Reporting

Unit 1 Value Added
Statement
6(b) 8 4(a) 8 5(b) 8 24 2.67
Unit 2,
3 & 4
Economic Value
Added, Market
Value Added,
Shareholders
Value Added
7(c) 4 6(b) 8 6(a) 5 6(a) 8 6(b) 4 7(e) 4 33 3.67
Unit 5 Human
Resource
Reporting
5(b) 8 6(c) 5 1(d) 5 6(b) 4 22 2.44

Note: Q represents question numbers as they appeared in the question paper of respective examination. M represents the marks which each question carried in
that examination. The question papers of all the past attempts of Final Examination can be accessed fromthe BOS Knowledge Portal on the Institute website
www.icai.org.
The Institute of Chartered Accountants of India

CONTENTS
CHAPTER 1: ACCOUNTING STANDARDS AND GUIDANCE NOTES ................ 1.1 1.85
CHAPTER 2: INTERNATIONAL FINANCIAL REPORTING STANDARDS, THEIR
INTERPRETATIONS AND US GAAPS AN OVERVIEW.................... 2.1 2.16
CHAPTER 3: CORPORATE FINANCIAL REPORTING ...................................... 3.1 3.13
CHAPTER 4: ACCOUNTING FOR CORPORATE RESTRUCTURING ............... 4.1 4.125
CHAPTER 5: CONSOLIDATED FINANCIAL STATEMENTS OF
GROUP COMPANIES ............................................................... 5.1 5.118
CHAPTER 6: ACCOUNTING AND REPORTING OF FINANCIAL INSTRUMENTS ...... 6.1 6.13
CHAPTER 7: SHARE BASED PAYMENTS ....................................................... 7.1 7.12
CHAPTER 8: FINANCIAL REPORTING FOR FINANCIAL INSTITUTIONS ......... 8.1 8.14
Mutual Fund ..................................................................................... 8.5
NBFCs ............................................................................................. 8.8
Merchant Bankers .......................................................................... 8.12
Stock and Commodity Market Intermediaries ................................ 8.12
CHAPTER 9: VALUATION ............................................................................... 9.1 9.62
Valuation of Intangibles .................................................................. 9.7
Valuation of Shares ....................................................................... 9.25
Valuation of Business ................................................................... 9.52
CHAPTER 10: DEVELOPMENTS IN FINANCIAL REPORTING ...................... 10.1 10.42
Value Added, EVA, MVA and SVA .................................................. 10.4
Human Resource Reporting ......................................................... 10.32
The Institute of Chartered Accountants of India