CMA Final Paper 17 cheat sheet

Control under Ind AS 110/IFRS 10: investor has power over investee, exposure to variable returns, and ability to use power to affect returns; reassess on change of facts.

Goodwill at acquisition = consideration transferred + NCI + previously held interest − net identifiable assets acquired; NCI measured at fair value or proportionate share of identifiable net assets.

Bargain purchase gain: after reassessing identification and measurement, any excess of net assets over consideration is recognised in profit or loss in the acquisition period.

Consolidation adjustments: eliminate parent's investment against subsidiary equity, eliminate intra-group balances, unrealised profits, and dividends; recognise NCI share of profit and OCI.

Ind AS 21/IFRS 3: foreign subsidiary functional currency translation - assets/liabilities at closing rate, income/expenses at average rate, exchange differences to OCI (translation reserve), recycled on disposal.

Ind AS 116/IFRS 16 lessee: recognise right-of-use asset and lease liability at present value of lease payments; subsequent measurement uses depreciation and interest; remeasure on modification or index change.

Ind AS 115/IFRS 15 five-step model: identify contract, identify performance obligations, determine transaction price, allocate price, recognise revenue when control transfers (over time or at a point in time).

Impairment under Ind AS 36/IAS 36: compare carrying amount with recoverable amount (higher of fair value less costs of disposal and value in use); allocate goodwill impairment first to CGU carrying goodwill.

Ind AS 109/IFRS 9 expected credit loss: loss allowance measured at 12-month ECL unless credit risk increased significantly, then lifetime ECL; simplified approach for trade receivables using provision matrix.

Target costing: target cost = competitive market price − desired profit margin; cost gap = current estimated cost − target cost; close gap through value engineering and design changes.

Activity-based costing: assign overheads to activities using cost drivers (e.g., number of setups, machine hours, purchase orders); product cost = direct costs + activity-based overhead.

Throughput accounting: throughput = sales − direct material cost; throughput ratio = throughput per bottleneck minute; prioritise products with highest throughput per constraint unit.

Balanced Scorecard four perspectives: financial, customer, internal business process, learning and growth; each perspective has objectives, measures, targets, and initiatives linked by cause-and-effect.

Transfer pricing: minimum transfer price = incremental cost + opportunity cost per unit transferred; general rule when external market exists: market price less internal cost savings.

Variance analysis: material price variance = (standard price − actual price) × actual quantity purchased; material usage variance = (standard quantity − actual quantity) × standard price; labour rate/efficiency variances analogous.

Learning curve: cumulative average time per unit = first unit time × cumulative units^(log learning rate / log 2); use for labour cost estimation in repetitive production.

Cost-volume-profit: contribution margin ratio = contribution / sales; break-even sales = fixed costs / CM ratio; margin of safety = actual sales − break-even sales.

Relevant costing: include future incremental cash flows; exclude sunk costs, allocated fixed costs, and non-cash items; opportunity cost is relevant when resources have alternative uses.

Segment reporting under Ind AS 108/IFRS 8: reportable segments are operating segments exceeding 10% of revenue, profit/loss, or assets; must cover at least 75% of external revenue.

Related party disclosures under Ind AS 24/IAS 24: disclose relationships, transactions, outstanding balances, and commitments; key management personnel compensation disclosed by category.

Ind AS 33/IAS 33 EPS: basic EPS = profit attributable to ordinary shareholders / weighted average ordinary shares; diluted EPS adjusts numerator and denominator for dilutive potential shares.

Events after reporting period under Ind AS 10/IAS 10: adjusting events provide evidence of conditions at reporting date (adjust financials); non-adjusting events disclosed if material.

Ind AS 1/IAS 1: disclose going concern basis, significant accounting policies, judgements, and estimation uncertainty; classify assets/liabilities as current or non-current unless liquidity presentation is more relevant.

Ind AS 112/IFRS 12: disclose significant judgements in determining control, interests in unconsolidated structured entities, and nature of risks associated with interests in other entities.

Integrated reporting content elements: organisational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook, and basis of preparation.

Ind AS 34/IAS 34 interim reporting: minimum content includes condensed balance sheet, income statement, cash flow statement, and explanatory notes; apply same accounting policies as annual financial statements.

Residential status under Income-tax Act: individual is resident if stay ≥182 days in previous year, or ≥60 days in previous year and ≥365 days in preceding four years; resident and not ordinarily resident if non-resident in 9 of 10 preceding years or stay ≤729 days in 7 preceding years.

Corporate tax rates (India, domestic company): 22% under section 115BAA (no incentives, surcharge 10%, cess 4%) or 15% under 115BAB for new manufacturing (conditions apply); otherwise 30% plus surcharge and cess.

Capital gains: long-term capital gain on listed equity shares taxed at 10% over ₹1 lakh under section 112A with STT; short-term at 15% under section 111A; indexation not available for 112A.

GST supply: taxable event is supply of goods or services for consideration in course or furtherance of business; place of supply determines IGST vs CGST+SGST; input tax credit available on business inputs subject to blocked credits.

GST rates and threshold: registration threshold ₹40 lakh for goods (₹20 lakh for services); composition scheme threshold ₹1.5 crore for goods; e-invoicing mandatory above prescribed turnover.

Tax planning vs avoidance vs evasion: planning uses legitimate provisions; avoidance exploits loopholes (may attract GAAR under Chapter X-A); evasion is illegal and penalised.

Transfer pricing: arm's length principle; methods include comparable uncontrolled price, resale price, cost plus, profit split, and transactional net margin; documentation and Form 3CEB required.

TDS/TCS: deduct tax at source on specified payments (e.g., 194C contract 1%/2%, 194J professional 10%); failure attracts interest 1% per month for non-deduction and 1.5% for late deposit.

Indirect tax planning: choose supply chain structure, place of supply, and ITC utilisation; avoid circular trading and ensure genuine business purpose to withstand anti-profiteering and GAAR scrutiny.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate); use market values for weights; Ke from CAPM = risk-free rate + beta × market risk premium.

Capital structure: Modigliani-Miller without taxes - firm value independent of leverage; with taxes - value increases by tax shield (Tc × D); trade-off theory balances tax shield against financial distress costs.

Dividend policy: residual theory pays dividends only from residual earnings after funding positive-NPV projects; clientele effect explains investor preference for dividend or capital gains.

Risk management: hedging with forwards, futures, options, and swaps; VaR estimates maximum loss over a horizon at a confidence level; stress testing and scenario analysis complement VaR.

Interest rate risk: duration measures sensitivity of bond price to yield changes; modified duration × yield change approximates percentage price change; immunisation matches duration of assets and liabilities.

Foreign exchange exposure: transaction, translation, and economic exposure; hedge transaction exposure with forward contracts; translation exposure from consolidating foreign subsidiaries.

Credit risk: assess counterparty default probability, exposure at default, and loss given default; expected loss = PD × EAD × LGD; use credit ratings and collateral.

Financial distress prediction: Altman Z-score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5; below 1.81 indicates distress, above 2.99 safe zone (manufacturing).

DCF valuation: enterprise value = present value of free cash flows (FCFF) discounted at WACC; equity value = enterprise value − net debt; terminal value using Gordon growth or exit multiple.

FCFF = EBIT × (1 − tax) + depreciation − capital expenditure − increase in working capital; FCFE = net income + depreciation − capex − working capital change + net borrowing.

Relative valuation: use peer multiples (P/E, EV/EBITDA, P/B, EV/Sales); adjust for growth, risk, and margins; median or mean of comparable companies.

M&A synergy: value of synergy = combined value − (acquirer value + target value); synergy sources include cost savings, revenue enhancement, and financial economies.

Acquisition premium = offer price per share − target's pre-announcement market price; accretion/dilution analysis compares pro forma EPS with and without the deal.

Exchange ratio in share swap = offer price per target share / acquirer share price; post-merger ownership dilution depends on relative values and exchange ratio.

Due diligence: financial, tax, legal, operational, and commercial review; identify hidden liabilities, contingent liabilities, and quality of earnings before signing.

Defence tactics against hostile takeover: poison pills, staggered boards, white knight, Pac-Man defence, golden parachutes; evaluate under SEBI Takeover Code and Companies Act.

ICAI Code of Ethics fundamental principles: integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour; apply conceptual framework to identify, evaluate, and address threats.

Threat categories: self-interest, self-review, advocacy, familiarity, and intimidation; safeguards include firm-level policies, engagement quality control review, and rotation.

Independence: auditor must be independent in mind and appearance; prohibited services include bookkeeping, internal audit outsourcing, and management functions for audit clients.

Companies Act 2013 governance: board composition, independent directors, audit committee, nomination and remuneration committee, and related party transaction approval; SEBI LODR adds listing obligations.

Whistleblower policy and vigil mechanism: listed companies and prescribed classes must establish; provide direct access to audit committee and protect whistleblowers.

Corporate Social Responsibility under section 135: companies meeting thresholds must spend at least 2% of average net profits of preceding three years; disclose in board report.

Insider trading: SEBI (Prohibition of Insider Trading) Regulations prohibit trading on unpublished price-sensitive information; maintain structured digital database and trading window closure.

Audit report under Companies Act: include opinions on financial statements, internal financial controls, and fraud reporting; CARO 2020 reporting requirements for specified companies.