CA Final Financial Reporting Important Questions by PW for January 2027 Exam

Financial Reporting requires you to interpret transactions, identify the applicable accounting provisions and work through the required calculations. A question may involve adjusting a foreign exchange gain in the cash flow statement, restating financial statements after discovering an error, or determining the cost of property, plant and equipment. Applying the correct Ind AS provision to each situation is essential for reaching the right answer.

Physics Wallah’s important questions cover topics from Ind AS 1, Ind AS 2, Ind AS 7, Ind AS 8, Ind AS 12 and Ind AS 16. Work through problems on total comprehensive income, net realisable value, foreign currency transactions, prior-period errors, deferred tax and asset exchanges. The set also includes practical applications involving restoration obligations and machinery purchases. Practise the calculations alongside their solutions to improve your understanding of how these accounting standards work in examination questions.

CA Final Financial Reporting Important Questions

1. Find out the total comprehensive income for 20X1-20X2 of V Ltd. from the following information:
   Profit from normal operations: Rs. 50,00,000
   Remeasurement gains from defined benefit plans: Rs. 5,00,000
   Gain on translation of foreign operations: Rs. 10,00,000
   Revaluation gains on property, plant and equipment: Rs. 3,50,000
   Fair value changes on financial assets: Rs. 4,50,000

Solution:
Total comprehensive income = Profit or loss + Other comprehensive income (OCI)
Items not reclassified to profit or loss:
Remeasurement gains from defined benefit plans = Rs. 5,00,000
Revaluation gains on property, plant and equipment = Rs. 3,50,000
Total = Rs. 8,50,000
Items reclassified to profit or loss:
Gain on translation of foreign operations = Rs. 10,00,000
Fair value changes on financial assets = Rs. 4,50,000 (considered as OCI that is reclassified; it can be OCI (not reclassified) if an irrevocable option is chosen, or profit or loss if it is FVTPL)
Total = Rs. 14,50,000
Total OCI = Rs. 8,50,000 + Rs. 14,50,000 = Rs. 23,00,000
Total comprehensive income = Rs. 50,00,000 + Rs. 23,00,000
Answer: Rs. 73,00,000

2. An entity manufactures equipment in three stages. There is a market for the semi-finished product at each stage, but the entity only sells the completed equipment. The cost structure per unit at the year end is as follows:
   Stage 1: Conversion cost Rs. 170, selling price Rs. 130
   Stage 2: Incremental cost Rs. 35, total cost Rs. 205, selling price Rs. 195
   Stage 3: Incremental cost Rs. 62, total cost Rs. 267, selling price Rs. 275
   Assuming that the selling costs are zero, what is the NRV of the semi-finished product at stage 1 and stage 2 at the year end?

Solution:
The final equipment will be sold at a profit, so no lower of cost and NRV provision is made at stage 1 or stage 2.
The profit margin on the estimated cost of completion is therefore considered when calculating the NRV of work in progress.
NRV at stage 1:
Selling price of completed product = Rs. 275
Less: Stage 3 conversion cost = Rs. (62)
Less: Stage 2 conversion cost = Rs. (35)
NRV at stage 1 = Rs. 178
Stage 1 inventory is valued at the lower of cost Rs. 170 and NRV Rs. 178, which is Rs. 170.
NRV at stage 2:
Selling price of completed product = Rs. 275
Less: Stage 3 conversion cost = Rs. (62)
NRV at stage 2 = Rs. 213
Stage 2 inventory is valued at the lower of cost Rs. 205 and NRV Rs. 213, which is Rs. 205.
Answer: NRV at stage 1 is Rs. 178 and at stage 2 is Rs. 213. Inventory is valued at Rs. 170 at stage 1 and Rs. 205 at stage 2, even though the selling prices at those stages are Rs. 130 and Rs. 195.

3. The opening balance sheet at 1st April 20X6 of an Indian company, which accounts for its transactions in Rs. , consists of cash of Rs. 1,00,000 and share capital of Rs. 1,00,000. The company borrows a long-term loan on 30th September 20X6 for US $2,200 when the rate of exchange is 1 US $ = Rs. 87. There are no other transactions during the year. The exchange rate at the balance sheet date of 31st March 20X7 is 1 US $ = Rs. 85.
   The summarised balance sheet at 31st March 20X7 shows cash of Rs. 2,91,400, share capital of Rs. 1,00,000, retained earnings of Rs. 4,400 and a long-term loan of Rs. 1,87,000.
   How will the foreign exchange difference arising from unsettled transactions be reflected in the Statement of Cash Flows?

Solution:
Loan on the date of receipt = US $2,200 × Rs. 87 = Rs. 1,91,400
Loan at the balance sheet date = US $2,200 × Rs. 85 = Rs. 1,87,000
Exchange gain = Rs. 1,91,400 − Rs. 1,87,000 = Rs. 4,400
The gain is recognised in the Statement of Profit and Loss. It has no cash flow effect and relates to financing activities, so it is eliminated from profit.
Cash flows from operating activities:
Profit = Rs. 4,400
Less: Foreign exchange gain = Rs. (4,400)
Net cash flow from operating activities (A) = Rs. 0
Cash flows from financing activities:
Receipt of foreign currency loan = Rs. 1,91,400
Net cash flow from financing activities (B) = Rs. 1,91,400
Net increase in cash and cash equivalents (A + B) = Rs. 1,91,400
Cash and cash equivalents at the beginning = Rs. 1,00,000
Cash and cash equivalents at the end = Rs. 2,91,400
Answer: The exchange gain of Rs. 4,400 is deducted from profit in operating activities, so net operating cash flow is nil. The loan receipt of Rs. 1,91,400 is shown under financing activities, and closing cash is Rs. 2,91,400.

4. During 20X3, T Ltd. discovered that prepayments of Rs. 680 made during 20X1 had not been recognised in profit or loss as the related expenses were incurred. The prepayments should have been recognised as an expense of Rs. 170 in 20X1, Rs. 425 in 20X2 and Rs. 85 in 20X3. The misstatement is material.
   Extract from the draft Statement of Profit and Loss before correction:
   Draft 20X3: Revenue Rs. 10,200, expenses Rs. (9,350), net profit Rs. 850
   20X2: Revenue Rs. 6,800, expenses Rs. (6,120), net profit Rs. 680
   Extract from the Statement of Changes in Equity:
   Draft 20X3: Opening retained earnings Rs. 24,480, current-year net profit Rs. 850, closing retained earnings Rs. 25,330
   20X2: Opening retained earnings Rs. 23,800, current-year net profit Rs. 680, closing retained earnings Rs. 24,480
   Assume there are no tax effects. Draw the revised Statement of Profit and Loss (extract) and Statement of Changes in Equity (extract) after rectifying the error.

Solution:
The opening balance of retained earnings is adjusted and the comparatives are restated to reflect the correction of the error.
Restated Statement of Profit and Loss (extract):
20X3: Revenue Rs. 10,200
Expenses (9,350 + 85) = Rs. (9,435)
Net profit = Rs. 765
20X2 (restated): Revenue Rs. 6,800
Expenses (6,120 + 425) = Rs. (6,545)
Net profit = Rs. 255
Restated Statement of Changes in Equity (extract):
20X2 (restated):
Opening retained earnings as reported previously = Rs. 23,800
Correction of an error related to previous years = Rs. (170)
Opening retained earnings (restated) = Rs. 23,630
Current-year net profit = Rs. 255
Closing retained earnings = Rs. 23,885
20X3:
Opening retained earnings (restated) = Rs. 23,885
Current-year net profit = Rs. 765
Closing retained earnings = Rs. 24,650
The financial statements will also disclose the error and the adjustments made, as per para 49 of Ind AS 8, and the comparatives will carry the heading “restated”.
Answer: Net profit is Rs. 765 for 20X3 and Rs. 255 (restated) for 20X2. Closing retained earnings are Rs. 24,650 for 20X3 and Rs. 23,885 for 20X2.

5. X Ltd. has two wholly owned subsidiaries, A Ltd. and B Ltd., both acquired on 1st April 20X1 at an investment of Rs. 5,00,000 each.
   Profit or (loss) of A Ltd.: FY 20X1-X2 Rs. (50,000), FY 20X2-X3 Rs. (60,000), FY 20X3-X4 Rs. (70,000)
   Profit or (loss) of B Ltd.: FY 20X1-X2 Rs. 50,000, FY 20X2-X3 Rs. 60,000, FY 20X3-X4 Rs. 70,000
   As at 31st March 20X4, in the standalone financial statements of X Ltd., the entire investment in A Ltd. of Rs. 5,00,000 was impaired because future projections are negative. The impairment was disallowed under the income-tax laws. In the consolidated financial statements, the net assets of A Ltd. were also fully impaired.
   As at 31st March 20X4, B Ltd. has excess earnings which would be transferred to the holding company in future, but it cannot be repatriated in a tax-free manner.
   (a) Would a deferred tax liability be recorded for the difference between the carrying value and tax base of A Ltd. in the consolidated financial statements of X Ltd.? Assume no indexation benefit is available.
   (b) Would a deferred tax liability be recorded for the difference between the carrying value and tax base of B Ltd. in the consolidated financial statements of X Ltd.? Assume no indexation benefit is available.

Solution:
As per paras 38 and 39 of Ind AS 12, a temporary difference arises when the carrying amount of an investment in a subsidiary becomes different from its tax base.
As per para 40, a deferred tax liability is recognised on such differences, unless both these conditions are met:
The parent is able to control the timing of the reversal of the temporary difference.
It is probable that the temporary difference will not reverse in the foreseeable future.
As per para 44, a deferred tax asset is recognised on deductible temporary differences only to the extent that it is probable that the difference will reverse in the foreseeable future and taxable profit will be available to use it.
(a) A Ltd.:
In the consolidated financial statements, the investment is replaced by the net assets, including goodwill.
Book base = Rs. 5,00,000 − losses Rs. 1,80,000 − impairment Rs. 3,20,000 = Nil
The entire cost of Rs. 5,00,000 is deductible on sale of the investment, so the tax base = Rs. 5,00,000
Outside basis difference = Rs. 5,00,000 (deductible temporary difference)
This gives rise to a deferred tax asset, not a liability. The asset is recorded only if the conditions of para 44 are met.
(b) B Ltd.:
Book base = Rs. 5,00,000 + profits Rs. 1,80,000 = Rs. 6,80,000
Tax base = Rs. 5,00,000
Outside basis difference = Rs. 1,80,000 (taxable temporary difference)
The parent controls the dividend policy of the subsidiary. If profits will not be distributed in the foreseeable future, no deferred tax liability is recognised.
Here, the surplus is proposed to be repatriated and cannot be repatriated tax free, so the difference is probable to reverse in the foreseeable future.
A deferred tax liability is therefore recorded at the tax rate applicable on repatriation, only on the portion that will reverse. For example, if only Rs. 1,00,000 out of Rs. 1,80,000 will be repatriated and the balance of Rs. 80,000 will be reinvested, the liability is recorded on Rs. 1,00,000 only.
If the difference is not expected to reverse in the foreseeable future, no deferred tax liability is recognised on the Rs. 1,80,000.
Answer: (a) No deferred tax liability arises for A Ltd. The Rs. 5,00,000 difference is a deductible temporary difference, so a deferred tax asset is recognised only if the para 44 conditions are met. (b) For B Ltd., a deferred tax liability is recorded on the portion of the Rs. 1,80,000 difference expected to reverse in the foreseeable future through repatriation. 

CA Final Financial Reporting Important Questions PDF for January 2027 Exam

Download the CA Final Financial Reporting Important Questions PDF by PW to practise Ind AS-based problems for the January 2027 examination. The questions cover comprehensive income, inventory valuation, cash flow statements, accounting errors, deferred tax and property, plant and equipment.

Why Practise CA Final Financial Reporting Important Questions by PW?

The questions help you apply accounting standards to numerical problems and practical case studies. You can use them to:

• Calculate Total Comprehensive Income: Practise classifying items of other comprehensive income into those that may or may not be reclassified to the Statement of Profit and Loss and calculating total comprehensive income.

• Apply the Net Realisable Value Principle: Understand how to calculate the NRV of semi-finished products at different production stages and apply the lower of cost and NRV rule when the completed product is expected to be sold at a profit.

• Understand Foreign Exchange Differences in Cash Flows: Practise adjusting non-cash foreign exchange gains arising from unsettled foreign currency loans while preparing the Statement of Cash Flows.

• Correct Prior-Period Errors: Learn how to revise the Statement of Profit and Loss and Statement of Changes in Equity when a error from an earlier period is discovered, including the restatement of comparative figures.

• Solve Deferred Tax Problems Involving Subsidiaries: Apply Ind AS 12 to outside basis differences arising from investments in subsidiaries and understand when deferred tax assets or liabilities are recognised.

• Apply Accounting Rules to Asset Exchanges: Practise determining the cost of an asset received in an exchange transaction that lacks commercial substance and accounting for the consideration received.

• Account for Restoration and Decommissioning Obligations: Understand how the present value of restoration costs is included in the cost of property, plant and equipment and how the related provision and unwinding of discount are treated.

• Practise PPE Cost and Buy-Back Arrangements: Work through a practical question involving the purchase of a new machine, discounts, accessories, installation-related costs, insurance and the buy-back of an existing machine.

Revise the relevant Ind AS provisions before attempting each question, then work through the calculations and accounting treatments. Use the solutions to identify where a particular adjustment or recognition requirement affects the final answer.

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