Infostar Ltd.'s CFO records a sale of land on 25 March 20X2 (just before year-end) for ₹40 cr with an OPTION TO REPURCHASE on 25 May 20X2 at ₹40 cr + 6% premium. The transaction eliminates a bank overdraft. The CFO treats it as a sale and includes the profit in 20X1-X2 P&L. Under Ind AS 115:
AINCORRECT treatment — this is a REPURCHASE AGREEMENT / FINANCING arrangement (entity has call option), control NOT transferred to buyer; treat as a loan of ₹40 cr with the 6% premium as interest. The CFO has compromised INTEGRITY and may be guilty of professional misconduct under Clause 1 of Part II of Second Schedule
BCorrect — repurchase options are mere window dressing tools, not accounting issues
CIncorrect on accounting only — no ethical implication since CFO is following CFO's prerogative
DCorrect — sale is a sale under Ind AS 115 once consideration is received
Answer & Solution
Correct answer: A. INCORRECT treatment — this is a REPURCHASE AGREEMENT / FINANCING arrangement (entity has call option), control NOT transferred to buyer; treat as a loan of ₹40 cr with the 6% premium as interest. The CFO has compromised INTEGRITY and may be guilty of professional misconduct under Clause 1 of Part II of Second Schedule
Multiple violations: (a) Ind AS 115 para B66-B68 — call options at repurchase price ≥ sale price = financing arrangement (asset stays on books, cash = liability, premium = interest). (b) Ethical: CFO's deliberate misclassification to inflate profit + eliminate overdraft = window dressing → INTEGRITY breach + OBJECTIVITY conflict (CFO's bonus link). (c) Professional Misconduct under Clause 1 Part II Second Schedule: contravention of Act/Council guidelines. (d) PROFESSIONAL BEHAVIOUR breach (non-compliance with Ind AS).
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