CA Inter Adv Accounting

AS 17 — Segment Reporting: PTU Limited

Under AS 17 (Segment Reporting), a segment is reportable if it satisfies ANY ONE of three quantitative thresholds: Revenue Test, Profitability Test, or Assets Test. The threshold in each case is 10% of the relevant combined total.

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Question 1 — Revenue Test Answer: (B) P, Q & T

Revenue of a segment includes both external and internal (inter-segment) sales. Total combined revenue = ₹300 lakhs (External ₹250 + Internal ₹50). Threshold = 10% × 300 = ₹30 lakhs.

Segment-wise revenues: P = 76, Q = 99, R = 16, S = 15, T = 80, U = 14. Segments with revenue ≥ ₹30 lakhs: P (76), Q (99), T (80). → Option (B)

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Question 2 — Profitability Test Answer: (C) P & T

The threshold is 10% of the greater of: (i) total profit of all profit-making segments, or (ii) total loss of all loss-making segments (in absolute terms).

Profit segments: P=22, Q=4, S=3, T=20, U=1 → Total profit = ₹50 lakhs. Loss segments: R=(4) → Total loss = ₹4 lakhs. Greater of 50 and 4 = ₹50 lakhs. Threshold = 10% × 50 = ₹5 lakhs.

Segments with |result| ≥ ₹5 lakhs: P = |22| = 22 ✓; Q = |4| = 4 ✗; R = |4| = 4 ✗; S = |3| = 3 ✗; T = |20| = 20 ✓; U = |1| = 1 ✗. → P and T qualify. Option (C)

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Question 3 — Assets Test Answer: (D) P & Q

Total assets = ₹350 lakhs. Threshold = 10% × 350 = ₹35 lakhs.

Segment assets: P = 112 ✓; Q = 147 ✓; R = 28 ✗; S = 28 ✗; T = 21 ✗; U = 14 ✗. → P and Q qualify. Option (D)

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Question 4 — Overall Test (Combined) Answer: (B) P, Q & T

A segment is reportable if it qualifies under any one of the three tests. Combining:
- P: Revenue ✓, Profitability ✓, Assets ✓ → Reportable
- Q: Revenue ✓, Assets ✓ → Reportable
- R: None → Not reportable
- S: None → Not reportable
- T: Revenue ✓, Profitability ✓ → Reportable
- U: None → Not reportable

Reportable segments = P, Q, T. Also verify the 75% external revenue test: P+Q+T external = 66+94+70 = ₹230 out of ₹250 = 92% > 75% ✓. No additional segments need to be included. → Option (B)

Question 5 — Net Borrowing Cost to be Capitalised: Answer: (A) ₹5,50,000

Under AS 16 'Borrowing Costs', when funds are borrowed specifically for the purpose of acquiring or constructing a qualifying asset, the actual borrowing cost incurred on that specific borrowing is eligible for capitalisation. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use.

The bank loan of ₹50 lakhs (obtained 01.04.2024) was entirely deployed for qualifying assets — ₹30 lakhs for construction of the Factory Building and ₹20 lakhs for purchase and installation of Machinery. Both assets were completed on 31.03.2025. Since 100% of the specific borrowing was utilised for qualifying assets throughout the year, the entire interest of ₹5,50,000 is eligible for capitalisation. There is no temporary surplus investment income to deduct. The refund of the machinery grant in March 2025 is an AS 12 event and does not reduce the AS 16 capitalisation.

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Question 6 — Amount of Deferred Grant Debited on Refund: Answer: (D) ₹30 lakhs

Under AS 12 'Accounting for Government Grants', a government grant that becomes refundable is treated as a revision to an accounting estimate. For grants related to depreciable assets recognised as deferred income, upon refund, the deferred grant account is debited to the extent of the unamortised balance, and any excess refund over the unamortised balance is charged to the Statement of Profit and Loss.

The total grant credited to the Deferred Grant Account for machinery was ₹40 lakhs. Machinery installation was completed on 31.03.2025 (the last day of the financial year). Since depreciation (and corresponding grant amortisation) for 2024-25, if charged at all, would be for just one day, the amortised portion is negligible (or if treated as full-year: ₹40L ÷ 4 = ₹10L amortised, leaving ₹30L balance). In either case, the unamortised balance in Deferred Grant related to the ₹30 lakhs refunded = ₹30 lakhs, which is the amount debited to the Deferred Grant Account. No additional charge to P&L arises as the refund equals the unamortised balance.

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Question 7 — Subsidy in Nature of Promoters' Contribution: Answer: (A) (i), (ii) and (iii)

Under AS 12 para 20, government grants of the nature of promoters' contribution — i.e., grants where the recipient is not required to repay them — are treated as capital receipts and credited directly to shareholders' funds as Capital Reserve. They are not treated as deferred income and are not distributable as dividends (being a capital reserve). Statement (iv) is incorrect because it states the subsidy is considered deferred income, which contradicts AS 12. Statements (i), (ii), and (iii) are all correct.

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Question 8 — AS 26 Treatment of ₹18 lakhs Publicity and Research: Answer: (D) ₹18 lakhs is charged as an expense in the Statement of Profit and Loss.

Under AS 26 'Intangible Assets': (a) Research costs must always be recognised as an expense in the period incurred — they cannot be recognised as an intangible asset. (b) Advertising and publicity costs are specifically excluded from recognition as intangible assets under AS 26, as the enterprise cannot demonstrate control over the future economic benefits arising from them. (c) The product was marketed in the same year and proved to be a failure, confirming the absence of any future economic benefits. Accordingly, the entire ₹18 lakhs is to be expensed in the Statement of Profit and Loss for 2024-25. It cannot be treated as goodwill or amortised over any period.

This problem involves buy-back of shares under Section 68 of the Companies Act, 2013. Three conditions must be simultaneously satisfied:

Condition 1 — Amount Limit: Buy-back cannot exceed 25% of (Paid-up Capital + Free Reserves).

Condition 2 — Number Limit: Buy-back in a financial year cannot exceed 25% of total paid-up equity share capital (in terms of number of shares).

Condition 3 — Debt-Equity Ratio: Post buy-back, total debts must not exceed twice the paid-up capital and free reserves.

Determination of Free Reserves:
General Reserve (₹74L) + Securities Premium (₹30L) + P&L Account (₹25L) = ₹129 lakhs. Revaluation Reserve (₹4L) is excluded as it is not a free reserve per Section 2(43). Statutory Reserve (₹6.50L) is excluded as it is not freely distributable.

Total Equity (Paid-up Capital + Free Reserves) = ₹45L + ₹129L = ₹174 lakhs
Buy-back price = ₹250 × 120% = ₹300 per share
Existing shares = ₹45,00,000 ÷ ₹100 = 45,000 shares

Question 11 — Loan Fund = ₹350 Lakhs:
Answer: (C) Nil Shares. Pre-buy-back debt-equity ratio = 350/174 = 2.01:1, which already exceeds the permissible 2:1 limit. Any buy-back would further reduce equity (via premium outflow), worsening the ratio. Therefore, buy-back is not possible when Loan Fund is ₹350 lakhs.

Question 12 — Loan Fund = ₹300 Lakhs:
Answer: (A) 11,250 Shares. Pre-buy-back ratio = 300/174 = 1.72:1, which is within limit. Applying all three conditions:
— Condition 1 (Amount): 25% × ₹174L = ₹43.50L → ₹43,50,000 ÷ ₹300 = 14,500 shares
— Condition 2 (Number): 25% × 45,000 = 11,250 shares
— Condition 3 (Debt-equity post buy-back): 11,250 shares × ₹300 = ₹33.75L outflow; equity reduces by premium = 11,250 × ₹200 = ₹22.50L; post buy-back equity = ₹174L − ₹22.50L = ₹151.50L; ratio = 300/151.50 = 1.98:1 ✓
The binding constraint is Condition 2 → 11,250 shares.

Question 13 — Decision Based on Both Scenarios:
Answer: (A) 11,250 Shares. Since Q11 results in Nil shares (loan = ₹350L) and Q12 results in 11,250 shares (loan = ₹300L), the company will proceed with reducing the loan to ₹300L before 4th July 2025. Accordingly, the maximum permissible buy-back is 11,250 shares.

Question 14 — Equity Share Capital After Buy-back:
Answer: (A) ₹33,75,000. Equity Share Capital = (45,000 − 11,250) × ₹100 = 33,750 × ₹100 = ₹33,75,000.