Description

Financial Reporting & Analysis – II
December 2023 Examination

Q1.) On January 1 2015, Royal Manufacturers acquired 25% Equity Interest in Skyline
Corp for Rs. 900000 USD. The following Information of Asset & Liabilities of Skyline
is available: (10 Marks)
PARICULARS Book Value ($) Fair Value ($)
Current Assets 220,000 220,000
Plant &Equipment 13,00,000 15,00,000
Land 9,00,000 10,50,000
Total Assets 24,20,000 27,70,000
Liabilities 7,50,000 7,50,000
Net Assets 16,70,000 20,20,000
Plant & Equipments are depreciated on Straight Line basis Zero over a Term of 10
Years
ROYAL Group uses EQUITY Method to Account for this Investment in Alton. Alton
Reports NETINCOME of Rs. 250,000 for 2010 & Pays Dividend of $ 100,000.
CALCULATE : for ROYAL
# GOODWILL INCLUDED IN PURCHASE PRICE
# AMT OF EQUITY INCOME TO BE REPORTED ON ROYAL INCOME
#S TVAATLEUMEE ONFT A20L1T0ON’S INVESTMENT RECOGNIZED BY ROYAL ON BALANCE
SHEET FOR 2015.
Ans 1.
Introduction
Goodwill is an intangible asset linked with buying one firm and employing another.
Specifically, goodwill is recorded in a segment in which the purchase price is more than the
sum of the fair value of all intangible belongings and visible assets purchased in the
acquisition and the liabilities assumed in the manner. The fee of a company’s brand call,
precise client relations, solid purchaser base, good employee family members, and patents or
proprietary technology are some examples of goodwill.
Goodwill arises when an organization acquires any other entire business. The amount of
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Q2.) In case of annual risk audit of a recognized Manufacturing Company at USA, How
Beneish Model M Score can be significant in judgment of its overall Financial
Reporting Quality for Risk Manager & Top Management of Company. Kindly
Elaborate in Financial Reporting Quality parameters from Beneish Model pt. of view.
(10 Marks)
Ans 2.
Introduction
The Beneish model is a mathematical version that utilizes eight variables and financial ratios
to identify whether an organization has manipulated its revenue. It’s far used as a tool to
uncover financial manipulation and fraud.
The variables are developed from the information within the organization’s financial
statements and, once determined, create an M-score to describe the value and degree to which
the earnings have been manipulated.
• The Beneish model may be defined as a mathematical version that includes eight variables
and an economic ratio to discover whether a company has manipulated its earnings.

3a) How is Impairment of Good will recognized in IFRS? (5 Marks)
Ans 3a.
Introduction
While a company acquires control over any other company, goodwill often arises, too. You
need to present it as an intangible asset. However, when you think about it minutely, goodwill
isn’t always a general asset because, unlike other investments, you can’t sell it to anyone; you
can not use it to your production method or provide services.
Therefore, IFRS standards are pretty complex and strict about goodwill – for instance, you
need to check charity for impairment each year (you do not need to try other assets, most

b) How a Debt Instrument ‘Available for Sale’ (AFS) Category has crucial impact in
IFRS? (5 Marks)
Ans 3b.
Introduction
(AFS) available-for-sale safety is a fairness or debt safety bought to sell before it reaches
maturity or is held for an extended period so it does not have an adulthood or expiry date.
Accounting standards require that companies classify any investments in debt or equity
securities while purchased as held-to-maturity, to be had-for-sale or held-for-trading.
Available-for-sale securities are recorded at a truthful price; changes in cost between