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Agastya Ltd. presents a loan to a director of ₹75 lakhs, repayable on demand with no specific terms, under 'Cash and Cash Equivalents'. The directors argue it is an accounting-policy choice and is convertible to cash. Identify the option that captures every accounting and ethical breach correctly.
AInd AS 7 (cash equivalents), Ind AS 109 (classification as financial asset), Ind AS 24 (related-party disclosure), Conceptual Framework (relevance, faithful representation, understandability, verifiability, comparability) and possibly section 185 of the Companies Act, 2013
BOnly the Companies Act section 185 is breached; Ind AS treatment is acceptable
COnly Ind AS 24 disclosure is breached; the cash equivalent classification is acceptable because the loan is repayable on demand
DOnly Ind AS 7 (definition of cash equivalents) is breached; everything else is a presentation preference
Answer & Solution
Correct answer: A. Ind AS 7 (cash equivalents), Ind AS 109 (classification as financial asset), Ind AS 24 (related-party disclosure), Conceptual Framework (relevance, faithful representation, understandability, verifiability, comparability) and possibly section 185 of the Companies Act, 2013
A director loan is not a short-term, highly liquid investment with insignificant risk of value change — it fails Ind AS 7's definition. It must be a financial asset under Ind AS 109; director being KMP triggers Ind AS 24 disclosures. The conceptual framework qualitative characteristics — relevance, faithful representation, understandability, verifiability, comparability — are all impaired. Section 185 of the Companies Act, 2013 restricts loans to directors, which the misclassification appears to mask. Clause 6 and 7 of Part I of the Second Schedule apply if the CA-consultant fails to report.
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