Corporate Financial Reporting and Analysis
Corporate financial reporting tests whether you can apply Ind AS recognition and measurement and then read the resulting statements critically; analysis questions often require adjusting reported numbers before computing ratios.
Core rules
- Ind AS 115: identify the contract, identify performance obligations, determine transaction price, allocate it to stand-alone selling prices, and recognise revenue when control transfers, at a point in time or over time.
- Ind AS 116: the lessee recognises a right-of-use asset and a lease liability at the present value of lease payments; the old operating/finance lease split is gone for lessees, subject to short-term and low-value exemptions.
- Ind AS 109: financial assets are classified at amortised cost, FVOCI or FVTPL based on business model and cash-flow characteristics; expected credit losses are recognised before default.
- Ind AS 110: control requires power, exposure to variable returns and the ability to use power to affect returns.
- Ind AS 12: deferred tax uses temporary differences and the expected manner of recovery.
Worked example
A bundle is sold for ₹1,000. Stand-alone selling prices are ₹600 for product A and ₹600 for service B, total ₹1,200. Allocate: A = 1,000 × 600/1,200 = ₹500; B = ₹500. If A is delivered immediately and B over 12 months, ₹500 is recognised at delivery and ₹500 over the service period, not ₹1,000 upfront.
Traps
- Gross-versus-net revenue when the entity is an agent.
- Allocating discounts only to some performance obligations without evidence.
- Using undiscounted lease payments rather than present value.
- Mixing pre-tax profit with post-tax comparators; diluted EPS must use the most dilutive sequence.
- Ignoring off-balance-sheet obligations, related-party terms and non-recurring items in ratio analysis.