Chapter 1: Introduction to Accounting Standards - Test 2: answer key

Question 1 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. Sterling Garments Ltd is a company listed on an SME exchange in India. Its statutory net worth as at 31 March 2026 is Rs 560 crore. It has a wholly owned subsidiary, Sterling Retail Pvt Ltd, with net worth of Rs 60 crore, and an associate, Weave Tech Pvt Ltd, with net worth of Rs 120 crore. Sterling is not a bank, NBFC or insurance company. For FY 2026-27, the board is reviewing the group's reporting framework. The CFO has received a request from a foreign buyer to present financial statements under IFRS as issued by the IASB. The audit committee notes that India followed convergence rather than adoption, and that Ind AS contains certain carve-outs and carve-ins. It asks whether Sterling, being SME-listed, can continue to apply existing Accounting Standards; whether Sterling Retail is automatically pulled into Ind AS merely because its parent's net worth exceeds Rs 500 crore; and whether a voluntary Ind AS adoption can later be reversed. The company also wants to know the correct description of Ind AS relative to IFRS, so that the board minute records the legal and technical position accurately as on 31 March 2026.

For FY 2026-27, what is Sterling Garments Ltd's mandatory position under the Ind AS roadmap?

1. Ind AS are mandatory from 1 April 2016 because its net worth exceeds Rs 500 crore.
2. Ind AS are not mandatorily applicable because it is listed on an SME exchange; it may continue existing Accounting Standards unless it chooses otherwise. (correct answer)
3. Ind AS are mandatory from 1 April 2017 because every listed company is covered from that date.
4. Ind AS are mandatory only if the foreign buyer formally requires IFRS-based statements.

Answer: B — Ind AS are not mandatorily applicable because it is listed on an SME exchange; it may continue existing Accounting Standards unless it chooses otherwise.

Explanation. The roadmap expressly states that companies listed on an SME exchange are not required to apply Ind AS. Such companies continue to apply existing Accounting Standards unless they choose otherwise. Sterling's net worth of Rs 560 crore does not override the SME-listing exemption. The foreign buyer's request is contractual and does not determine the statutory reporting framework.

Where it goes wrong. Students apply the Rs 500 crore Phase I threshold mechanically and ignore the express SME-listing exemption.

Authority. MCA Ind AS roadmap dated 16 February 2015, special point on SME-listed companies; Companies (Indian Accounting Standards) Rules, 2015

Question 2 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Is Sterling Retail Pvt Ltd required to apply Ind AS for FY 2026-27 solely because its parent, Sterling Garments Ltd, has net worth above Rs 500 crore?

1. Yes, because a subsidiary of a company with net worth above Rs 500 crore is always covered from the parent's phase date.
2. Yes, because a wholly owned subsidiary must follow the parent's accounting policies even if the parent is SME-listed.
3. No, because Sterling itself is SME-listed and not mandatorily covered, so Sterling Retail is not automatically pulled in solely through that parent; it continues existing AS unless independently covered or it voluntarily chooses Ind AS. (correct answer)
4. No, because every subsidiary with net worth below Rs 250 crore is permanently exempt from Ind AS.

Answer: C — No, because Sterling itself is SME-listed and not mandatorily covered, so Sterling Retail is not automatically pulled in solely through that parent; it continues existing AS unless independently covered or it voluntarily chooses Ind AS.

Explanation. The parent-subsidiary inclusion applies where the parent is covered by the Ind AS roadmap. Sterling is SME-listed and expressly outside mandatory Ind AS. Therefore, Sterling Retail is not automatically covered merely because its parent has high net worth. It would apply Ind AS only if it is independently covered, or if it validly chooses Ind AS under the roadmap.

Where it goes wrong. The common error is to treat any parent with net worth above Rs 500 crore as automatically pulling all subsidiaries into Ind AS.

Authority. MCA Ind AS roadmap dated 16 February 2015, Phase I and Phase II parent-subsidiary inclusion; Special point on SME-listed companies

Question 3 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

If Sterling Garments Ltd voluntarily adopts Ind AS from FY 2026-27, can it revert to existing Accounting Standards in FY 2027-28?

1. Yes, with retrospective disclosure and the auditor's consent.
2. Yes, because voluntary adoption is an accounting policy choice reviewed every year.
3. No, unless its net worth falls below Rs 250 crore for two consecutive years.
4. No; once Ind AS are adopted, the entity must follow Ind AS for all subsequent financial statements, and there is no looking back. (correct answer)

Answer: D — No; once Ind AS are adopted, the entity must follow Ind AS for all subsequent financial statements, and there is no looking back.

Explanation. The roadmap states that once Ind AS are applicable, the entity must follow Ind AS for all subsequent financial statements. There is no looking back once Ind AS are adopted. Reversal is not permitted merely by disclosure, auditor consent or a later fall in net worth.

Where it goes wrong. Students treat Ind AS adoption like an ordinary accounting policy that can be changed annually with disclosure.

Authority. MCA Ind AS roadmap dated 16 February 2015, special point on no looking back; Companies (Indian Accounting Standards) Rules, 2015

Question 4 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Which description most appropriately reflects Ind AS relative to IFRS?

1. Ind AS are IFRS-converged standards with limited carve-outs and carve-ins suited to the Indian environment; India converged with, rather than adopted, IFRS. (correct answer)
2. Ind AS are IFRS as issued by the IASB adopted verbatim, with no deviations permitted.
3. Ind AS are local standards entirely independent of IFRS and retain only terminology similarities.
4. Ind AS are optional standards that a company may apply only if a foreign lender requires IFRS-based reporting.

Answer: A — Ind AS are IFRS-converged standards with limited carve-outs and carve-ins suited to the Indian environment; India converged with, rather than adopted, IFRS.

Explanation. India decided to converge with IFRS rather than adopt IFRS verbatim. Ind AS are formulated to be in line with IFRS as far as possible, with carve-outs where deviations are considered essential and carve-ins where additional guidance is given. Ind AS are not optional for entities covered by the roadmap.

Where it goes wrong. The distractor that Ind AS are verbatim IFRS ignores carve-outs and carve-ins; the optionality distractor confuses contractual lender needs with statutory applicability.

Authority. ICAI Study Material, Chapter 1, convergence versus adoption and carve-outs/ins; Companies (Indian Accounting Standards) Rules, 2015

Question 5 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. Aurora Finserve Ltd is an unlisted non-banking financial company with net worth of Rs 480 crore as at 31 March 2026. It is not a scheduled commercial bank or an insurer. It has no listed equity or debt securities and is not in the process of listing. A foreign lender requires covenant statements prepared under IFRS as issued by the IASB. The CFO proposes to prepare the statutory financial statements under IFRS as issued by the IASB and to label them IFRS-compliant. The auditor notes that Aurora is covered by the NBFC Ind AS roadmap and that Ind AS is converged with IFRS, with carve-outs and carve-ins. The CFO asks whether IFRS includes only standards issued by the IASB or also older IAS and interpretations; what additional guidance in Ind AS over IFRS is called; whether the statutory statements can be labelled IFRS-compliant; and what the statutory basis should be for FY 2026-27. The audit committee also wants to know whether the lender's contractual requirement changes the statutory reporting framework under the Companies Act, 2013.

For Aurora Finserve Ltd, what is the statutory reporting framework for FY 2026-27?

1. Existing Accounting Standards, because unlisted NBFCs below Rs 500 crore are outside Ind AS.
2. IFRS as issued by the IASB, because the foreign lender requires IFRS-based statements.
3. Ind AS, because under the NBFC roadmap an unlisted NBFC with net worth of Rs 250 crore or more but less than Rs 500 crore falls in Phase II, mandatory from 1 April 2019. (correct answer)
4. Either existing AS or Ind AS at the company's option, since it has no listed securities.

Answer: C — Ind AS, because under the NBFC roadmap an unlisted NBFC with net worth of Rs 250 crore or more but less than Rs 500 crore falls in Phase II, mandatory from 1 April 2019.

Explanation. For NBFCs, Phase II applies from 1 April 2019 to unlisted NBFCs with net worth of Rs 250 crore or more but less than Rs 500 crore, among others. Aurora's net worth of Rs 480 crore places it in Phase II. Its statutory statements must therefore be prepared under Ind AS, not existing AS and not IFRS as issued by the IASB.

Where it goes wrong. Students apply the corporate Rs 500 crore threshold or let the lender's IFRS covenant override the NBFC roadmap.

Authority. MCA Ind AS roadmap for NBFCs, Phase II from 1 April 2019; Companies (Indian Accounting Standards) Rules, 2015

Question 6 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

Which of the following bodies is primarily responsible for issuing International Financial Reporting Standards (IFRS)?

1. International Accounting Standards Board (IASB) (correct answer)
2. International Federation of Accountants (IFAC)
3. Auditing and Assurance Standards Board (AASB)
4. United Nations Conference on Trade and Development (UNCTAD)

Answer: A — International Accounting Standards Board (IASB)

Explanation. The International Accounting Standards Board (IASB), an independent standard-setting body of the IFRS Foundation, is responsible for the development and publication of IFRS.

Where it goes wrong. Confusing IASB (standard setter for IFRS) with IFAC (global organization for the accountancy profession).

Authority. ICAI Study Material, Chapter 1, composition of IFRS; IASB pronouncements: IFRS, IAS, SIC and IFRIC interpretations

Question 7 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

When an Indian Accounting Standard (Ind AS) modifies an IFRS principle to suit local economic and legal conditions, such modification is termed:

1. A carve-out (correct answer)
2. A carve-in
3. A GAAP override
4. An IFRS exemption

Answer: A — A carve-out

Explanation. Modifications where an IFRS principle, treatment, or option is departed from to accommodate the Indian economic and legal environment are termed 'carve-outs'.

Where it goes wrong. Confusing carve-out (omitting/modifying an IFRS rule) with carve-in (adding extra guidance).

Authority. ICAI Study Material, Chapter 1, carve-outs and carve-ins in Ind AS; Companies (Indian Accounting Standards) Rules, 2015

Question 8 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Can Aurora Finserve Ltd label its statutory Ind AS financial statements as IFRS-compliant?

1. No, because Ind AS is converged with IFRS and contains carve-outs and carve-ins; it is not IFRS as issued by the IASB. A reconciliation may be provided separately for the lender. (correct answer)
2. Yes, because Ind AS and IFRS are identical in all respects after convergence.
3. Yes, provided the notes disclose that the carve-outs are not material.
4. No, unless the foreign lender appoints an auditor to certify the statements as IFRS-compliant.

Answer: A — No, because Ind AS is converged with IFRS and contains carve-outs and carve-ins; it is not IFRS as issued by the IASB. A reconciliation may be provided separately for the lender.

Explanation. India converged with IFRS and did not adopt IFRS verbatim. Ind AS contains carve-outs and carve-ins, so Ind AS statements are not automatically IFRS-compliant as issued by the IASB. The lender's covenant can be met through a supplementary reconciliation, but that does not change the statutory label.

Where it goes wrong. The disclosure distractor wrongly assumes that disclosing carve-outs makes converged Ind AS statements equivalent to IFRS.

Authority. ICAI Study Material, Chapter 1, convergence versus adoption; Companies (Indian Accounting Standards) Rules, 2015

Question 9 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

Scenario. An unlisted company, not a bank, NBFC or insurer, had net worth of Rs 520 crore as at 31 March 2016 and continued to exceed Rs 500 crore thereafter. From which date were Ind AS mandatory for it under the corporate roadmap?

An unlisted company, not a bank, NBFC or insurer, had net worth of Rs 520 crore as at 31 March 2016 and continued to exceed Rs 500 crore thereafter. From which date were Ind AS mandatory for it under the corporate roadmap?

1. 1 April 2015
2. 1 April 2017
3. 1 April 2016 (correct answer)
4. 1 April 2018

Answer: C — 1 April 2016

Explanation. Under Phase I, unlisted companies with net worth of Rs 500 crore or more were mandatorily covered from 1 April 2016. The company's net worth of Rs 520 crore as at 31 March 2016 places it in Phase I. Voluntary adoption was permitted from 1 April 2015, but mandatory application began on 1 April 2016.

Where it goes wrong. Students confuse the voluntary date of 1 April 2015 with the mandatory Phase I date of 1 April 2016.

Authority. MCA Ind AS roadmap dated 16 February 2015, Phase I mandatory basis; Companies (Indian Accounting Standards) Rules, 2015

Question 10 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. A company listed on a recognised stock exchange, but not on an SME exchange, had net worth of Rs 180 crore and was not covered in Phase I. From which date were Ind AS mandatory for it?

A company listed on a recognised stock exchange, but not on an SME exchange, had net worth of Rs 180 crore and was not covered in Phase I. From which date were Ind AS mandatory for it?

1. 1 April 2016
2. 1 April 2017 (correct answer)
3. 1 April 2018
4. 1 April 2019

Answer: B — 1 April 2017

Explanation. Phase II, effective 1 April 2017, covers all companies listed or in the process of listing on stock exchanges in India or outside India that were not covered in Phase I, other than companies listed on SME exchanges. The company is non-SME listed and not in Phase I, so Phase II applies from 1 April 2017 regardless of its net worth.

Where it goes wrong. Students apply the Rs 250 crore unlisted threshold and wrongly conclude the listed company is outside Ind AS.

Authority. MCA Ind AS roadmap dated 16 February 2015, Phase II mandatory basis; Companies (Indian Accounting Standards) Rules, 2015

Question 11 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. P Ltd is covered by Ind AS Phase II from 1 April 2017. Its subsidiary S Ltd has net worth of Rs 90 crore and is not otherwise covered. When must S Ltd apply Ind AS?

P Ltd is covered by Ind AS Phase II from 1 April 2017. Its subsidiary S Ltd has net worth of Rs 90 crore and is not otherwise covered. When must S Ltd apply Ind AS?

1. 1 April 2017, the same date as its parent, because parent and subsidiary of a covered company are included in the same phase. (correct answer)
2. 1 April 2019, after two years of parent compliance.
3. Never, because S Ltd's net worth is below Rs 250 crore.
4. Only when S Ltd's net worth independently crosses Rs 250 crore.

Answer: A — 1 April 2017, the same date as its parent, because parent and subsidiary of a covered company are included in the same phase.

Explanation. The roadmap includes the parent, subsidiary, associate and joint venture of a covered company in the same phase. S Ltd is a subsidiary of P Ltd, which is covered by Phase II from 1 April 2017. Therefore S Ltd applies Ind AS from 1 April 2017 even though its own net worth is below Rs 250 crore.

Where it goes wrong. Students test only S Ltd's standalone net worth and miss the parent-subsidiary inclusion rule.

Authority. MCA Ind AS roadmap dated 16 February 2015, parent-subsidiary inclusion in Phase II; Companies (Indian Accounting Standards) Rules, 2015

Question 12 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

Scenario. India's approach to IFRS is most accurately described as:

Which category of Indian companies is required to adopt Ind AS under Phase I of the MCA corporate roadmap from 1 April 2016?

1. All listed and unlisted companies whose net worth is ₹500 crore or more. (correct answer)
2. All unlisted companies whose net worth is ₹250 crore or more.
3. All Small and Medium-sized Companies (SMCs).
4. Only banking and insurance companies.

Answer: A — All listed and unlisted companies whose net worth is ₹500 crore or more.

Explanation. Under Phase I of the MCA Ind AS roadmap (effective 1 April 2016), all companies—whether listed or unlisted—having a net worth of ₹500 crore or more were mandatorily required to adopt Ind AS.

Where it goes wrong. Confusing Phase I (net worth ≥ ₹500 crore) with Phase II (net worth ≥ ₹250 crore or listed companies).

Authority. ICAI Study Material, Chapter 1, convergence versus adoption; Companies (Indian Accounting Standards) Rules, 2015

Question 13 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. Samruddhi Ltd, an unlisted company not covered by any special sector roadmap, has the following statutory balances as at 31 March 2026: paid-up equity capital Rs 150 crore; paid-up preference capital Rs 50 crore; general reserve Rs 80 crore; surplus in profit and loss Rs 90 crore; revaluation reserve Rs 40 crore; accumulated losses Rs 30 crore; preliminary expenses not written off Rs 10 crore. What is its net worth for the Ind AS roadmap and its phase?

A company has a net worth of ₹330 crore as at 31 March 2016. Under the MCA Ind AS roadmap, when was it mandatorily required to adopt Ind AS?

1. Phase I from 1 April 2016
2. Phase II from 1 April 2017 (correct answer)
3. Phase III from 1 April 2018
4. It remains exempt indefinitely because it is unlisted.

Answer: B — Phase II from 1 April 2017

Explanation. Unlisted companies having a net worth between ₹250 crore and ₹500 crore were covered under Phase II of the MCA Ind AS roadmap, with mandatory adoption commencing from 1 April 2017.

Where it goes wrong. Assuming that net worth above ₹250 crore triggered Phase I, which applied only to net worth ≥ ₹500 crore.

Authority. Section 2(57) of the Companies Act, 2013, definition of net worth; MCA Ind AS roadmap dated 16 February 2015, Phase II unlisted threshold

Question 14 · 2 marks · Chapter 1: Introduction to Accounting Standards · medium

Scenario. For a company not covered by the Ind AS roadmap, which statement about existing Accounting Standards is correct?

For a company not covered by the Ind AS roadmap, which statement about existing Accounting Standards is correct?

1. It may choose IFRS as issued by the IASB for its statutory financial statements.
2. It shall continue to apply Accounting Standards notified under the Companies (Accounting Standards) Rules, 2021; the notified set currently has 27 effective AS after withdrawals. (correct answer)
3. It must voluntarily apply Ind AS if its foreign lender requires IFRS-based figures.
4. It may apply a mixture of AS and Ind AS standard-by-standard in the same financial statements.

Answer: B — It shall continue to apply Accounting Standards notified under the Companies (Accounting Standards) Rules, 2021; the notified set currently has 27 effective AS after withdrawals.

Explanation. Companies not covered by the Ind AS roadmap continue to apply Accounting Standards notified under the Companies (Accounting Standards) Rules, 2021. ICAI has issued 29 AS, but AS 6 and AS 8 were withdrawn, leaving 27 effective AS. A lender's contractual requirement does not permit a statutory shift to IFRS or a standard-by-standard mixture.

Where it goes wrong. Students let the lender's covenant or a supposed voluntary choice override the statutory continuance of existing AS.

Authority. Companies (Accounting Standards) Rules, 2021; MCA Ind AS roadmap, companies not covered continue existing AS

Question 15 · 2 marks · Chapter 1: Introduction to Accounting Standards · hard

Scenario. A standard was issued by the IASC in 1998 and continues to be adopted by the IASB. Within the composition of IFRS, how is that standard described?

A standard was issued by the IASC in 1998 and continues to be adopted by the IASB. Within the composition of IFRS, how is that standard described?

1. IFRS
2. IFRIC
3. SIC
4. IAS (correct answer)

Answer: D — IAS

Explanation. Standards issued by the IASC until 31 March 2001 are known as International Accounting Standards and continue to be designated IAS even after adoption by the IASB. Standards issued by the IASB from 1 April 2001 are IFRS. IFRIC and SIC refer to interpretations, not to the standard itself.

Where it goes wrong. Students label every standard within IFRS as IFRS and forget the continuing category of IAS.

Authority. ICAI Study Material, Chapter 1, IASC and IASB standards; Composition of IFRS: IAS, IFRS, SIC and IFRIC