Chapter 4: Presentation & Disclosure Based Standards - Test 5: answer key

Question 1 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Sterling Garments Ltd. manufactures apparel and technical textiles through separately managed divisions. Its Technical Textiles Division contributes 28% of the company's revenue and has its own assets, customers, workforce and accounting records. It is a major line of business that can be distinguished operationally and for financial reporting purposes. On 18 August 2026, the Board approved a detailed formal plan to dispose of substantially all of that division. The plan identifies the major assets, proposed sale process, affected locations, approximately 320 employees, estimated proceeds and a four-month completion timetable. On 25 August, the company communicated the main features specifically to affected employees, lenders, trade creditors and the stock exchange. A binding sale agreement covering substantially all attributable assets was signed on 5 September. At the financial reporting date of 31 December 2026, the division's figures are as follows (₹ crore): plant and equipment carrying amount before impairment 100; recoverable amount of the plant and equipment 88; inventories 38; trade receivables 22; and liabilities to be settled 44. The impairment indicated by the recoverable amount has been recorded. The binding agreement provides for a net selling price of ₹119 crore before expected disposal costs of ₹5 crore. Receipt is expected on 30 June 2027. For the nine months ended 31 December, the division generated revenue of ₹240 crore and incurred total expenses of ₹195 crore. This expense figure includes ₹9 crore of head-office staff costs that will continue to be incurred by the company after the division is sold. All other expenses relate to the division. The applicable income tax rate on its ordinary operating profit is 25%. Its net cash flows are operating inflow ₹23 crore, investing outflow ₹7 crore and financing outflow ₹5 crore. Completion is expected by 30 April 2027. The finance director contends that only the sale agreement can trigger initial disclosure and that every expense charged to the division must be disclosed as attributable to it.

Identify the initial disclosure event and its date for Sterling Garments Ltd. under AS 24.

1. The Board approval on 18 August 2026, because approval alone completes the formal decision.
2. The binding sale agreement on 5 September 2026, because the announcement is not an independent trigger.
3. The announcement on 25 August 2026, being the earlier date on which the approved plan was publicly communicated. (correct answer)
4. The balance sheet date of 31 December 2026, because disclosure begins only when assets are transferred.

Answer: C — The announcement on 25 August 2026, being the earlier date on which the approved plan was publicly communicated.

Explanation. AS 24 para 15 identifies two alternative initial disclosure events and uses whichever occurs earlier. Board approval on 18 August alone is insufficient because the Board must also announce the detailed formal plan. The announcement to affected parties on 25 August completed that second requirement. The binding sale agreement was entered into only on 5 September, so it occurred later. The trap is treating Board approval alone as the initial disclosure event.

Where it goes wrong. Treating approval of the plan as sufficient without the required announcement.

Authority. AS 24 para 15; AS 24 paras 16–17

Question 2 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

What carrying amounts should Sterling Garments Ltd. disclose at 31 December 2026 for the assets to be disposed of and the liabilities to be settled?

1. Assets ₹148 crore and liabilities ₹44 crore. (correct answer)
2. Assets ₹160 crore and liabilities ₹44 crore.
3. Assets ₹148 crore and liabilities ₹60 crore.
4. Assets ₹104 crore and liabilities ₹44 crore.

Answer: A — Assets ₹148 crore and liabilities ₹44 crore.

Explanation. The plant and equipment must be shown after the recognised impairment: ₹100 crore less ₹12 crore equals ₹88 crore. Add inventories of ₹38 crore and receivables of ₹22 crore, giving total assets of ₹148 crore. Liabilities are disclosed separately at ₹44 crore. AS 24 para 20(e) requires the carrying amounts of total assets and total liabilities, not merely the net asset position of ₹104 crore. The trap is either ignoring the impairment or netting liabilities against assets.

Where it goes wrong. Disclosing net assets instead of the separate carrying amounts of total assets and total liabilities.

Authority. AS 24 para 20(e); AS 24 paras 18–19; AS 28 paras 57–58

Question 3 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Determine the pre-tax profit from ordinary activities attributable to the discontinuing operation and the related income tax expense for the nine months ended 31 December 2026.

1. Pre-tax profit ₹45 crore and tax expense ₹11.25 crore.
2. Pre-tax profit ₹63 crore and tax expense ₹15.75 crore.
3. Pre-tax profit ₹54 crore and tax expense Nil.
4. Pre-tax profit ₹54 crore and tax expense ₹13.50 crore. (correct answer)

Answer: D — Pre-tax profit ₹54 crore and tax expense ₹13.50 crore.

Explanation. Total expenses of ₹195 crore include ₹9 crore of head-office staff costs that will continue after the division is sold. AS 24 para 21 permits attribution only for items that will be disposed of, settled, reduced or eliminated when discontinuance is completed. Attributable expenses are therefore ₹186 crore. Pre-tax profit is ₹240 crore less ₹186 crore, or ₹54 crore. Tax at 25% is ₹13.50 crore. The trap is including costs that continue after the discontinuance.

Where it goes wrong. Including continuing head-office costs in the discontinued operation's attributable expenses.

Authority. AS 24 paras 20(f)–(g); AS 24 para 21

Question 4 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Which presentation of Sterling Garments Ltd.'s discontinuing-operation information is consistent with AS 24?

1. Present all initial disclosures on the face of the profit and loss statement and omit the notes.
2. Present the ₹54 crore pre-tax operating profit and related ₹13.50 crore tax on the face of the profit and loss statement; present the other initial details in the notes. (correct answer)
3. Present the ₹54 crore pre-tax operating profit and tax only in the notes, and disclose the gross sale price without disposal costs.
4. Present only the net sale proceeds on the face of the profit and loss statement and defer the operating profit disclosure until completion.

Answer: B — Present the ₹54 crore pre-tax operating profit and related ₹13.50 crore tax on the face of the profit and loss statement; present the other initial details in the notes.

Explanation. AS 24 para 32 requires the pre-tax profit or loss from ordinary activities and its related income tax expense to be shown on the face of the statement of profit and loss. The other initial disclosures are presented in the notes. The expected net selling price is ₹119 crore less expected disposal costs of ₹5 crore, or ₹114 crore; the expected receipt date and carrying amount of the relevant net assets are also disclosed in the notes under para 23(b). The trap is putting every item in the notes or disclosing gross proceeds.

Where it goes wrong. Confusing the face-of-statement disclosures with information required in the notes.

Authority. AS 24 paras 20(g), 23(b) and 32

Question 5 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. Vardhan Chemicals Ltd. manufactures speciality agro-chemicals and industrial additives. Its Agro-intermediates Division accounts for 31% of revenue and has its own factory, employees, separately identifiable revenue and directly attributable operating expenses. On 16 October 2026, the Board approved a formal plan permanently to close the division over five months. The plan identifies the assets and locations affected, the employees whose services will be terminated, the method of disposing of residual equipment, expected salvage proceeds and the intended completion date. On 20 October 2026, the main features of the plan were communicated sufficiently specifically to employees, lenders, trade creditors and the stock exchange. No buyer has been found and no binding sale agreement is contemplated. Production will cease and the remaining equipment will be disposed of as scrap under the single coordinated plan. At 31 December 2026, the division's plant and equipment had a carrying amount of ₹90 crore before impairment. Its recoverable amount was estimated at ₹78 crore, and the resulting impairment loss of ₹12 crore was recorded. Inventories were ₹20 crore, trade receivables ₹10 crore and liabilities to be settled ₹36 crore. The division earned revenue of ₹180 crore and incurred ordinary operating expenses of ₹168 crore during the nine months ended 31 December. The income tax rate applicable to its ordinary operating profit is 30%. Its net cash flows during that period were an operating inflow of ₹14 crore, an investing outflow of ₹3 crore and a financing outflow of ₹4 crore. The expected completion date is 31 March 2027. In February 2027, before completion, the Board withdrew the closure plan after a new government contract materially changed the commercial outlook. A fresh assessment under AS 28 supports reversal of ₹8 crore of the impairment previously recognised. The company will present prior-period comparative information in its annual financial statements. Certain managers argue that AS 24 cannot apply because the company never signed a sale agreement and that the previous-period information should not be reclassified.

When does Vardhan Chemicals Ltd. experience the initial disclosure event under AS 24?

1. 20 October 2026, when the approved formal plan was announced sufficiently specifically to affected parties. (correct answer)
2. 16 October 2026, when the Board approved the formal plan without communicating it.
3. 31 March 2027, when the division is expected to complete the closure process.
4. The date when the residual equipment is sold, because no binding sale agreement exists.

Answer: A — 20 October 2026, when the approved formal plan was announced sufficiently specifically to affected parties.

Explanation. The initial disclosure event can arise through Board approval of a detailed formal plan together with announcement of that plan. Approval occurred on 16 October, but the announcement to affected parties occurred on 20 October. There was no earlier binding sale agreement. Therefore, 20 October is the initial disclosure date. AS 24 para 17 requires communication of the plan's main features sufficiently specifically to demonstrate commitment. The trap is assuming that approval alone is enough or that a sale agreement is indispensable.

Where it goes wrong. Assuming that an initial disclosure event requires a buyer or a binding sale agreement.

Authority. AS 24 para 15; AS 24 paras 16–17

Question 6 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Which conclusion is correct regarding Vardhan Chemicals Ltd.'s Agro-intermediates Division?

1. It cannot be a discontinuing operation because no buyer has agreed to acquire the factory.
2. It qualifies only if substantially all plant and equipment is sold in one transaction.
3. It may qualify as a discontinuing operation because permanent abandonment under a single plan can satisfy AS 24 without a substantial asset sale. (correct answer)
4. It qualifies only if the company first transfers the division's employees and liabilities to another enterprise.

Answer: C — It may qualify as a discontinuing operation because permanent abandonment under a single plan can satisfy AS 24 without a substantial asset sale.

Explanation. AS 24 para 3 includes three forms of discontinuance under a single plan: disposal substantially in its entirety, piecemeal disposal, or termination through abandonment. Para 7 specifically recognises that an operation may be abandoned without substantial sales of assets. The division is a separate major line of business and is operationally and financially distinguishable, satisfying the other elements of the definition. The absence of a buyer does not prevent classification. The trap is equating discontinuance exclusively with a sale.

Where it goes wrong. Equating discontinuing operations only with the sale of a business to a third party.

Authority. AS 24 paras 3–4; AS 24 paras 6–7; AS 24 para 10

Question 7 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

What disclosure is required when Vardhan Chemicals Ltd. withdraws from the previously announced closure plan?

1. No further disclosure is needed because the original announcement has already been made.
2. The company must continue to describe the division as discontinuing until every asset is sold.
3. Only the revised expected closure date is disclosed; the original impairment is never reconsidered.
4. The company discloses the withdrawal, its reasons and its effect, including the effect of reversal of any previously recognised impairment loss or provision. (correct answer)

Answer: D — The company discloses the withdrawal, its reasons and its effect, including the effect of reversal of any previously recognised impairment loss or provision.

Explanation. AS 24 para 29 requires disclosure of the fact that an enterprise abandons or withdraws from a previously reported discontinuance plan, together with the reasons and effect. Para 30 clarifies that disclosure of the effect includes reversal of any prior impairment loss or provision recognised in respect of the discontinuing operation. The ₹8 crore reversal must also comply with the applicable recognition and measurement requirements, including AS 28. The trap is assuming that withdrawal ends the disclosure obligation without explaining its financial effect.

Where it goes wrong. Disclosing withdrawal without the reasons and financial effect, including any relevant reversal.

Authority. AS 24 paras 29–30

Question 8 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

How should comparative information for prior periods be presented in financial statements prepared after Vardhan Chemicals Ltd.'s initial disclosure event?

1. Comparatives remain unchanged because the decision to close the division arose only in the current period.
2. Comparatives are restated to segregate continuing and discontinuing assets, liabilities, revenue, expenses and cash flows. (correct answer)
3. Only comparative revenue is restated; the balance sheet and cash flow information are not reclassified.
4. Comparatives are restated only if the division's assets are sold together under one binding agreement.

Answer: B — Comparatives are restated to segregate continuing and discontinuing assets, liabilities, revenue, expenses and cash flows.

Explanation. AS 24 para 34 requires comparative information for prior periods presented in financial statements prepared after the initial disclosure event to be restated. The restatement segregates assets, liabilities, revenue, expenses and cash flows of continuing and discontinuing operations in a manner similar to the current-period disclosures. It is not limited to revenue and does not depend on whether assets are transferred through one sale agreement. The trap is treating the discontinuance as a current-period-only reclassification.

Where it goes wrong. Restating only revenue or assuming prior-period comparatives never require segregation.

Authority. AS 24 paras 34–35

Question 9 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Kaveri Retail Ltd. prepares quarterly interim financial reports in accordance with AS 25 for the financial year 1 April 2026 to 31 March 2027. Its sales are highly seasonal, with management forecasting 40% of annual sales in the third quarter. Nevertheless, sales of ₹120 crore were completed and earned in the first quarter ended 30 June 2026, which produced profit before tax of ₹2 crore. In the second quarter, the company earned seasonal royalty income of ₹24 lakh in full. The draft interim books recognised only ₹6 lakh of that royalty and spread the balance over the other quarters. A promotional campaign costing ₹30 lakh was actually conducted in the second quarter. The draft deferred ₹12 lakh of this cost to the third quarter because higher sales are expected then. The draft second-quarter profit before tax, after both proposed treatments, is ₹2.94 crore. No prepaid asset or other year-end basis supports deferral of the promotional cost. At 30 June 2026, the estimated annual profit before tax was ₹12 crore. The expected income tax rates were 25% on the first ₹5 crore and 35% on the remaining income. The first-quarter tax charge, based on that estimate, was ₹61.67 lakh. At 30 September 2026, the forecast annual profit before tax increased to ₹14 crore, comprising first-quarter profit of ₹2 crore, second-quarter profit after correcting the proposed treatments, forecast third-quarter profit of ₹5 crore and forecast fourth-quarter profit of ₹4 crore. The two income tax rates remain unchanged. The company prepares annual cash flow statements and intends to issue a condensed interim financial report. The chief financial officer argues that each quarter should be treated as a completely independent reporting period, that the third quarter's expected sales justify shifting second-quarter expenses, and that a condensed interim report need contain only a profit and loss statement and notes. The audit committee requests the correct interim recognition, tax computation and minimum reporting components.

Calculate the income tax expense to be recognised in Kaveri Retail Ltd.'s second-quarter interim report after correcting the proposed accounting treatments and updating the annual profit forecast.

1. ₹95.48 lakh. (correct answer)
2. ₹94.29 lakh.
3. ₹154.17 lakh.
4. ₹61.67 lakh.

Answer: A — ₹95.48 lakh.

Explanation. The revised annual tax estimate is ₹1.25 crore on the first ₹5 crore plus ₹3.15 crore on the remaining ₹9 crore, totalling ₹4.40 crore. The weighted average annual effective rate is ₹4.40 crore divided by ₹14 crore, or 31.4286%. Tax on year-to-date profit of ₹5 crore is ₹1.57143 crore. Deduct the ₹61.67 lakh charged in Q1: the Q2 charge is approximately ₹95.48 lakh. The trap is applying the revised rate only to Q2 profit and missing the year-to-date catch-up.

Where it goes wrong. Applying the revised annual effective tax rate only to the current quarter instead of using the year-to-date calculation.

Authority. AS 25 paras 27–29(c); AS 25 para 35

Question 10 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

What is the corrected second-quarter profit before tax, after adjusting the draft's treatment of royalty income and promotional expenditure?

1. ₹2.82 crore.
2. ₹2.94 crore.
3. ₹3.00 crore. (correct answer)
4. ₹3.12 crore.

Answer: C — ₹3.00 crore.

Explanation. The draft recognises only ₹6 lakh of royalty instead of the ₹24 lakh earned in Q2, so add ₹18 lakh. It also defers ₹12 lakh of the ₹30 lakh promotional expenditure, so charge the omitted ₹12 lakh in Q2. Corrected profit before tax is ₹2.94 crore plus ₹0.18 crore less ₹0.12 crore, or ₹3.00 crore. AS 25 paras 36–38 prohibit artificial shifting of seasonal revenue or costs merely to smooth interim results. The trap is allowing expected Q3 sales to justify either deferral.

Where it goes wrong. Spreading seasonal royalty income and shifting current-period promotional expenses to a later quarter.

Authority. AS 25 paras 36–38

Question 11 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Which combination represents the minimum components of Kaveri Retail Ltd.'s condensed interim financial report?

1. A condensed balance sheet, condensed profit and loss statement and selected explanatory notes only.
2. A condensed balance sheet, condensed statement of profit and loss, condensed cash flow statement and selected explanatory notes. (correct answer)
3. A complete annual-format balance sheet, full profit and loss statement and every disclosure under all Accounting Standards.
4. A condensed profit and loss statement, cash budget, directors' report and management commentary.

Answer: B — A condensed balance sheet, condensed statement of profit and loss, condensed cash flow statement and selected explanatory notes.

Explanation. AS 25 para 9 specifies four minimum components: a condensed balance sheet, condensed statement of profit and loss, condensed cash flow statement and selected explanatory notes. A complete set of interim financial statements is permitted but is not compulsory. Where the enterprise elects condensed statements, the selected notes and minimum statement components remain necessary. The trap is omitting the condensed cash flow statement or confusing a condensed report with a complete annual-format set.

Where it goes wrong. Omitting the condensed cash flow statement from the minimum components.

Authority. AS 25 paras 7–9; AS 25 para 17

Question 12 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Which statement correctly describes the approach to interim-period measurement reflected in AS 25?

1. Every quarter is a completely independent accounting year, so earlier interim estimates cannot affect later quarters.
2. Each quarter is measured separately, and annual estimates are irrelevant to interim income tax expense.
3. Interim reports cannot use year-to-date measurements because the annual result is not yet finalised.
4. An interim period is part of the financial year, and year-to-date measurement incorporates updated estimates without retrospectively changing previously reported interim figures. (correct answer)

Answer: D — An interim period is part of the financial year, and year-to-date measurement incorporates updated estimates without retrospectively changing previously reported interim figures.

Explanation. AS 25 para 28 expressly recognises an interim period as part of a financial year rather than as an entirely independent reporting period. Para 27 requires year-to-date measurement so reporting frequency does not alter the annual result. Under para 35, updated estimates are reflected in the current interim period's year-to-date figures; amounts reported in prior interim periods are not retrospectively adjusted. This is the integral-period perspective, not unrestricted smoothing of quarterly income and expenses.

Where it goes wrong. Treating the interim period as wholly independent or confusing the integral approach with permission to defer costs.

Authority. AS 25 paras 27–29; AS 25 para 35

Question 13 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company's balance sheet date is 31 March 2027. On 15 April 2027, before the Board approves the annual financial statements, the Board approves and announces a detailed formal plan to discontinue a major business division. Which treatment is appropriate for the financial statements for the year ended 31 March 2027?

A company's balance sheet date is 31 March 2027. On 15 April 2027, before the Board approves the annual financial statements, the Board approves and announces a detailed formal plan to discontinue a major business division. Which treatment is appropriate for the financial statements for the year ended 31 March 2027?

1. Adjust the 31 March asset and liability balances as though the plan had been approved before the balance sheet date.
2. Apply all initial disclosures under AS 24 to the year ended 31 March, without considering subsequent-event requirements.
3. Make the disclosures required by AS 4 because the initial disclosure event occurred after the balance sheet date but before approval of the financial statements. (correct answer)
4. Omit disclosure until the business division is transferred to a buyer or its employees are terminated.

Answer: C — Make the disclosures required by AS 4 because the initial disclosure event occurred after the balance sheet date but before approval of the financial statements.

Explanation. The Board's approval and announcement on 15 April occur after the 31 March balance sheet date, so the initial disclosure event did not exist at the reporting date. AS 24 para 22 specifically directs the enterprise to make the disclosures required by AS 4 when an initial disclosure event occurs between the balance sheet date and approval of the financial statements. The year-end balances are not automatically adjusted merely because the later plan has been approved. The trap is backdating the event to 31 March.

Where it goes wrong. Treating a post-balance-sheet initial disclosure event as though it existed at the balance sheet date.

Authority. AS 24 para 22; AS 24 para 15

Question 14 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. An enterprise estimates annual profit before tax of ₹18 lakh. The estimated income tax rate is 20% on the first ₹10 lakh and 30% on the remaining ₹8 lakh. Its cumulative profit before tax for the six-month interim period is ₹7.5 lakh. What income tax expense should be recognised for the six-month period?

An enterprise estimates annual profit before tax of ₹18 lakh. The estimated income tax rate is 20% on the first ₹10 lakh and 30% on the remaining ₹8 lakh. Its cumulative profit before tax for the six-month interim period is ₹7.5 lakh. What income tax expense should be recognised for the six-month period?

1. ₹1.83 lakh. (correct answer)
2. ₹2.25 lakh.
3. ₹1.50 lakh.
4. ₹4.40 lakh.

Answer: A — ₹1.83 lakh.

Explanation. Estimated annual tax is ₹2 lakh on the first ₹10 lakh plus ₹2.40 lakh on the remaining ₹8 lakh, giving total estimated tax of ₹4.40 lakh. The weighted average annual effective tax rate is ₹4.40 lakh divided by ₹18 lakh, or approximately 24.4444%. Apply that rate to cumulative interim profit of ₹7.5 lakh: tax expense is approximately ₹1.8333 lakh, rounded to ₹1.83 lakh. The trap is applying the 30% marginal rate to all interim profit.

Where it goes wrong. Using the marginal tax slab instead of the weighted average annual effective tax rate.

Authority. AS 25 para 29(c)

Question 15 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. A company receives royalty income of ₹12 lakh in its third-quarter interim period. The royalty is seasonal or occasional, and there is no basis for recognising it before that quarter. How should the income be reflected in interim reporting?

A company receives royalty income of ₹12 lakh in its third-quarter interim period. The royalty is seasonal or occasional, and there is no basis for recognising it before that quarter. How should the income be reflected in interim reporting?

1. Allocate ₹3 lakh to each quarter to match the annual revenue pattern.
2. Defer the entire amount to the fourth quarter because annual accounts are not yet finalised.
3. Recognise the amount in the first quarter because the annual royalty estimate was available then.
4. Recognise the full ₹12 lakh in the third quarter when the income occurs. (correct answer)

Answer: D — Recognise the full ₹12 lakh in the third quarter when the income occurs.

Explanation. AS 25 paras 36–37 state that revenues received seasonally or occasionally should not be anticipated or deferred at an interim date when such treatment would not be appropriate at the financial year-end. The Standard specifically includes royalties among the examples and requires seasonal revenue to be recognised when it occurs. Accordingly, the full ₹12 lakh is recognised in the third quarter. The trap is spreading the amount across quarters to create smoother interim results.

Where it goes wrong. Allocating seasonal or occasional revenue evenly across interim periods.

Authority. AS 25 paras 36–37

Question 16 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A company plans to run a major advertising campaign only in the fourth quarter. At the end of the third quarter, no advertising service has been received, no contract has been entered into and no present obligation exists. The company would not recognise a liability or asset for this campaign in its annual financial statements before the campaign takes place. What is the appropriate third-quarter treatment?

A company plans to run a major advertising campaign only in the fourth quarter. At the end of the third quarter, no advertising service has been received, no contract has been entered into and no present obligation exists. The company would not recognise a liability or asset for this campaign in its annual financial statements before the campaign takes place. What is the appropriate third-quarter treatment?

1. Accrue the entire estimated campaign cost because management has approved an annual budget.
2. Do not anticipate the campaign cost in the third quarter; recognise it when incurred in the fourth quarter. (correct answer)
3. Defer the campaign cost as an asset in the third quarter and amortise it after the campaign.
4. Allocate the estimated campaign cost equally over the first three quarters to match seasonal revenue.

Answer: B — Do not anticipate the campaign cost in the third quarter; recognise it when incurred in the fourth quarter.

Explanation. AS 25 para 38 permits anticipation or deferral of costs incurred unevenly during a financial year only if the same treatment would be appropriate at the financial year-end. Here, no service has been received and no present obligation exists; the company would not recognise an annual liability or asset before the campaign. Therefore, no third-quarter expense or asset is recognised. The campaign cost is charged when incurred. The trap is treating an approved budget as a present obligation or an asset.

Where it goes wrong. Accruing a future cost merely because it is budgeted or expected to be incurred later.

Authority. AS 25 paras 29(b), 31 and 38

Question 17 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. An enterprise changes an accounting policy during the third quarter of a financial year. The change is not subject to a specific transitional provision in another Accounting Standard and is to be applied in the annual financial statements. What is required for interim reporting?

An enterprise changes an accounting policy during the third quarter of a financial year. The change is not subject to a specific transitional provision in another Accounting Standard and is to be applied in the annual financial statements. What is required for interim reporting?

1. Apply the new policy prospectively from the third quarter and leave earlier interim periods unchanged.
2. Apply the new policy only in the annual financial statements because interim reports cannot reflect policy changes.
3. Restate the prior interim periods of the current financial year so that the changed policy applies from the beginning of that financial year. (correct answer)
4. Apply the new policy from the next financial year and disclose only its expected effect.

Answer: C — Restate the prior interim periods of the current financial year so that the changed policy applies from the beginning of that financial year.

Explanation. AS 25 para 42 requires a change in accounting policy, other than one for which an Accounting Standard specifies transition, to be reflected by restating the financial statements of prior interim periods of the current financial year. Para 43 explains that this ensures one accounting policy is applied to a class of transactions throughout the year. Therefore, the effect is applied retrospectively to the beginning of the financial year. The trap is applying the new policy only from the quarter of change.

Where it goes wrong. Applying a current-year accounting policy change prospectively to only the later interim quarters.

Authority. AS 25 paras 27 and 42–43

Question 18 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. An enterprise recognised an impairment loss of ₹40 lakh in its first-quarter interim report. At the end of the third quarter, updated information indicates that the cumulative impairment loss required for the current financial year is only ₹25 lakh. The revised recoverable amount supports reversal of the excess under AS 28. What is the appropriate treatment?

An enterprise recognised an impairment loss of ₹40 lakh in its first-quarter interim report. At the end of the third quarter, updated information indicates that the cumulative impairment loss required for the current financial year is only ₹25 lakh. The revised recoverable amount supports reversal of the excess under AS 28. What is the appropriate treatment?

1. Recognise a reversal of ₹15 lakh in the third-quarter interim period without retrospectively changing the first-quarter report. (correct answer)
2. Retrospectively revise the first-quarter report to show an impairment loss of ₹25 lakh.
3. Continue to report the ₹40 lakh loss until the annual financial statements are prepared.
4. Recognise an additional impairment loss of ₹15 lakh because the estimate has changed.

Answer: A — Recognise a reversal of ₹15 lakh in the third-quarter interim period without retrospectively changing the first-quarter report.

Explanation. AS 25 para 29(a) requires an interim impairment estimate to be revised in a subsequent interim period when the estimate changes, by recording an additional loss or reversing the previously recognised amount as appropriate. The cumulative loss now required is ₹25 lakh against ₹40 lakh already recognised, so ₹15 lakh is reversed in Q3, subject to AS 28. Para 35 states that prior interim amounts are not retrospectively adjusted; the change is reflected in the current interim period. The trap is reopening the first-quarter report.

Where it goes wrong. Retrospectively changing a previously issued interim report instead of recognising the updated estimate in the current period.

Authority. AS 25 para 29(a); AS 25 para 35

Question 19 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. An enterprise does not prepare a separate interim financial report for its final interim period because it presents annual financial statements. During that final interim period, it significantly revises an estimate that was reported in an earlier interim period of the same financial year. What disclosure is required?

An enterprise does not prepare a separate interim financial report for its final interim period because it presents annual financial statements. During that final interim period, it significantly revises an estimate that was reported in an earlier interim period of the same financial year. What disclosure is required?

1. No disclosure is required because the final interim period is included in the annual financial statements.
2. Restate every previously issued interim report and omit any explanation in the annual notes.
3. Disclose the revised estimate only in the following year's interim financial statements.
4. Disclose the nature and amount of the significant change in estimate in a note to the annual financial statements. (correct answer)

Answer: D — Disclose the nature and amount of the significant change in estimate in a note to the annual financial statements.

Explanation. AS 25 para 24 recognises that an enterprise may not issue a separate report for its final interim period because annual financial statements are presented. Para 25 then requires the nature and amount of a significant estimate change during that final interim period to be disclosed in a note to the annual financial statements. This requirement avoids leaving users unaware of a material revision to an amount reported earlier in the year. The trap is assuming that annual reporting automatically removes the disclosure requirement.

Where it goes wrong. Omitting the estimate-change disclosure because no separate final-quarter report is prepared.

Authority. AS 25 paras 24–26

Question 20 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. An enterprise has a 31 March financial year-end and prepares a quarterly interim financial report for the nine months ended 31 December 2026. Which set of reporting periods is required under AS 25?

An enterprise has a 31 March financial year-end and prepares a quarterly interim financial report for the nine months ended 31 December 2026. Which set of reporting periods is required under AS 25?

1. Balance sheet at 31 December and 31 December of the preceding year; profit and loss for nine months only; cash flows for nine months only.
2. Balance sheet at 31 December 2026 and 31 March 2026; profit and loss for the current quarter and nine months with comparable prior-year periods; cash flows for nine months with the comparable prior-year period. (correct answer)
3. Balance sheet at 31 March 2026 only; profit and loss for the current quarter only; cash flows for the current quarter only.
4. Balance sheet at 31 December 2026 only; profit and loss for nine months with no comparative; cash flows for the current quarter and prior-year quarter.

Answer: B — Balance sheet at 31 December 2026 and 31 March 2026; profit and loss for the current quarter and nine months with comparable prior-year periods; cash flows for nine months with the comparable prior-year period.

Explanation. AS 25 para 18(a) requires a balance sheet at the current interim date and a comparative balance sheet at the end of the immediately preceding financial year. Para 18(b) requires profit and loss for both the current interim period and the year-to-date period, with comparable interim and year-to-date figures for the preceding year. Para 18(c) requires cash flows cumulatively for the current year to date and the comparable prior-year period. The trap is presenting only year-to-date profit and loss or quarterly cash flows.

Where it goes wrong. Confusing the reporting periods for the balance sheet, profit and loss statement and cash flow statement.

Authority. AS 25 para 18

Question 21 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · medium

Scenario. An enterprise has a highly seasonal retail business and prepares a nine-month interim financial report. Which additional presentation is encouraged by AS 25?

An enterprise has a highly seasonal retail business and prepares a nine-month interim financial report. Which additional presentation is encouraged by AS 25?

1. Replace the required year-to-date statements with a forecast for the remaining three months.
2. Present only the previous twelve months because the current interim period is not representative.
3. Consider presenting financial information for the twelve months ending on the interim reporting date, together with comparative information for the preceding twelve-month period. (correct answer)
4. Present a separate profit and loss statement for each month instead of the prescribed interim statements.

Answer: C — Consider presenting financial information for the twelve months ending on the interim reporting date, together with comparative information for the preceding twelve-month period.

Explanation. AS 25 para 19 states that, for an enterprise whose business is highly seasonal, financial information for the twelve months ending on the interim reporting date and comparative information for the prior twelve-month period may be useful. Such enterprises are encouraged to consider presenting this information in addition to the periods required by para 18. It is additional context, not a replacement for the prescribed interim statements. The trap is treating the rolling twelve-month information as a substitute for the normal interim report.

Where it goes wrong. Substituting rolling twelve-month information for the minimum interim reporting periods.

Authority. AS 25 para 19

Question 22 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. Which item should be excluded when determining the amounts attributable to a discontinuing operation for AS 24 presentation and disclosure?

Which item should be excluded when determining the amounts attributable to a discontinuing operation for AS 24 presentation and disclosure?

1. Salary costs of employees retained by the enterprise to serve its continuing operations after discontinuance. (correct answer)
2. Interest and other financing costs on debt that will be settled as part of the discontinuance.
3. Revenue that will cease when the discontinuing operation is completed under the approved plan.
4. Operating expenses that will be eliminated when the operation is abandoned or disposed of.

Answer: A — Salary costs of employees retained by the enterprise to serve its continuing operations after discontinuance.

Explanation. AS 24 para 21 permits attribution only where the item will be disposed of, settled, reduced or eliminated when discontinuance is completed. Salary costs of employees retained to support continuing operations will continue after closure and therefore are not attributable to the discontinuing operation. By contrast, para 12 expressly includes interest and other financing costs where the related debt is attributable to the component. The trap is allocating every cost historically charged to a division even if it survives the discontinuance.

Where it goes wrong. Including costs that continue after discontinuance or excluding financing costs linked to debt that will be settled.

Authority. AS 24 paras 11–12; AS 24 para 21

Question 23 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. An enterprise enters into a binding agreement to sell net assets of a discontinuing operation for ₹72 lakh. Expected disposal costs are ₹4 lakh, the carrying amount of those net assets at the balance sheet date is ₹61 lakh, and cash is expected to be received on 30 June. Which information is required under AS 24?

An enterprise enters into a binding agreement to sell net assets of a discontinuing operation for ₹72 lakh. Expected disposal costs are ₹4 lakh, the carrying amount of those net assets at the balance sheet date is ₹61 lakh, and cash is expected to be received on 30 June. Which information is required under AS 24?

1. Disclose gross sale proceeds of ₹72 lakh and recognise an immediate gain of ₹11 lakh.
2. Disclose only the carrying amount of ₹61 lakh because the sale has not yet been completed.
3. Disclose net proceeds of ₹72 lakh and deduct disposal costs only when cash is received.
4. Disclose a net selling price of ₹68 lakh, expected cash receipt timing and the carrying amount of ₹61 lakh. (correct answer)

Answer: D — Disclose a net selling price of ₹68 lakh, expected cash receipt timing and the carrying amount of ₹61 lakh.

Explanation. AS 24 para 23(b) requires disclosure of the net selling price after deducting expected disposal costs, the expected timing of receipt of cash flows and the carrying amount of the relevant net assets at the balance sheet date. Net selling price is ₹72 lakh less ₹4 lakh, or ₹68 lakh. The carrying amount remains ₹61 lakh for this disclosure. A difference between expected proceeds and carrying amount is not, by itself, an immediate disposal gain before the disposal is recognised under the applicable Accounting Standards. The trap is using gross proceeds or prematurely recognising a gain.

Where it goes wrong. Disclosing the gross sale price or recognising an expected disposal gain before applying the relevant recognition rules.

Authority. AS 24 paras 18–19; AS 24 para 23(b)

Question 24 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. An enterprise has two discontinuing operations under separate coordinated plans. May the enterprise combine all AS 24 disclosures into one aggregated note without identifying each operation separately?

An enterprise has two discontinuing operations under separate coordinated plans. May the enterprise combine all AS 24 disclosures into one aggregated note without identifying each operation separately?

1. Yes, provided both operations are in the same business segment and are discontinued in the same year.
2. No, the disclosures required by AS 24 must be presented separately for each discontinuing operation. (correct answer)
3. Yes, provided the combined assets and liabilities are disclosed separately from continuing operations.
4. No, but separate presentation is required only for the pre-tax profit or loss on disposal.

Answer: B — No, the disclosures required by AS 24 must be presented separately for each discontinuing operation.

Explanation. AS 24 para 31 requires any disclosures under the Standard to be presented separately for each discontinuing operation. Similarity of business segment or timing does not remove that requirement. The purpose is to enable users to understand the individual operation being discontinued, rather than receiving only a combined total. The trap is assuming that aggregation is permitted whenever the operations are related or occur in the same financial year.

Where it goes wrong. Aggregating separate discontinuing operations without separate identification and disclosure.

Authority. AS 24 para 31

Question 25 · 2 marks · Chapter 4: Presentation & Disclosure Based Standards · hard

Scenario. A discontinuance plan is substantially completed on 20 March 2027, but the enterprise has not yet received the full sale consideration from the buyer. Up to which period should the disclosures required by AS 24 continue?

A discontinuance plan is substantially completed on 20 March 2027, but the enterprise has not yet received the full sale consideration from the buyer. Up to which period should the disclosures required by AS 24 continue?

1. Until the buyer pays the entire sale consideration, irrespective of when the plan is completed.
2. Only until the binding sale agreement is signed, even if the operation continues for several months.
3. Through the financial reporting period in which the plan is substantially completed, even if full payment has not yet been received. (correct answer)
4. Only until the assets are transferred, regardless of whether the remaining plan is substantially incomplete.

Answer: C — Through the financial reporting period in which the plan is substantially completed, even if full payment has not yet been received.

Explanation. AS 24 para 28 requires disclosures to continue in financial statements for periods up to and including the period in which discontinuance is completed. The Standard defines completion by reference to substantial completion or abandonment of the plan; full payment by the buyer is not necessary. Accordingly, disclosures continue through the reporting period in which the plan is substantially completed on 20 March 2027. The trap is linking completion of the discontinuance solely to collection of the sale consideration.

Where it goes wrong. Continuing AS 24 disclosures solely because the buyer has not yet paid the full sale consideration.

Authority. AS 24 paras 26 and 28