Indian Accounting Standard 2

VI Semester B.Com. Examination, July/August 2024 (NEP Scheme) (Freshers) COMMERCE Indian Accounting Standards - 2 Time: 2½ Hours Max. Marks: 60 Instruction: Answers to be written completely in English or Kannada only. SECTION-A Answer any five sub-questions. Each question carries two marks. 1. a) Define a wholly owned subsidiary. A: A wholly owned subsidiary is one whose (subsidiary company) all the shares (100%) are held by the parent company. b) What do you mean by non-controlling interest ? A: The parent company may not purchase all the shares of its subsidiary. When some of the shares of subsidiary company are held by outsiders, their interest in the subsidiary company is known as Non-Controlling Interest. c) What are share warrants? A: Share warrant is a contractual document issued by a company. It gives the warrant holder the right or the option to purchase or sell the company’s shares at a specific predetermined price. d) What is a sale and lease back agreement ? A: In a sale-leaseback, an asset that is previously owned by the seller is sold to someone else and then leased back to the first owner for a long duration. e) Give two examples of non-monetary government grants. A: Grant of free use of assets owned by government to business entities. Grant of licence to use government owned patent or copy rights. f) Mention any two types of Accounting Errors. A: Errors of Principle, Omission, Commission, Duplication, and Compensating g) How do you define a financial liability? A: A financial liability is one that is a contractual obligation, to deliver cash or other financial asset to another entity. SECTION-B Answer any three of the following questions. Each question carries four marks. 2. Differentiate between operating lease and finance lease. A: Difference between Operating lease and Financial lease Financial Lease Operating Lease Ownership Lessee assumes ownership of risks and rewards. Lessor retains ownership of risks and rewards. Accounting Treatment Lessee records the leased asset as both an asset and a liability. Lessee does not record the leased asset on the balance sheet. Maintenance and Expenses The lessee is responsible for maintenance, insurance, and taxes. The lessor is responsible for maintenance, insurance, and taxes. Lease Term Typically matches the asset's useful life. Usually shorter than the asset's useful life. Purchase Option Lessee may have the option to purchase the asset at the end of the lease term. Lessee does not have the option to purchase the asset. 3. How does an entity change its accounting policies? A: The changes in accounting policy is a change in the principle or basis of accounting used by an entity for a transaction or event. Example: An entity changes its accounting policy from FIFO to LIFO for inventory valuation. The entity recognizes the change and discloses the details as required. Recognition of Changes in Accounting Policies A change in accounting policy is recognized when it is made, and the financial statements are prepared using the new accounting policy from the date of the change. Disclosure of Changes in Accounting Policies The following information is required to be disclosed in the financial statements: The date of the change, nature of the change, reason for the change, financial impact of the change and the effect of the change on the financial statements.