Accounting Interview Questions

Interviewers ask this to see whether you stay calm under deadline pressure, escalate early and fix the root cause instead of forcing the numbers to agree. Structure your reply with STAR (Situation, Task, Action, Result) and keep the figures specific.

Situation and task: Set the scene in two lines. For example: “Two days before the quarterly close, the reconciliation of our main current account showed an unexplained difference of about ₹4.2 lakh, and I owned that reconciliation.”

Action: Show a logical, step-by-step investigation:

• Re-ran the reconciliation from the last clean month to find when the difference first appeared.
• Matched entries by amount and date, and checked for transpositions (a difference divisible by 9 is a classic clue), duplicate postings and entries booked in the wrong period.
• Traced the gap to a vendor payment recorded twice after a failed bank upload was re-processed in the ERP.
• Told my manager the same day, with the finding, the impact and a proposed correction, rather than waiting until everything was solved.
• Passed the reversal with supporting documents and had it reviewed before posting.

Result: Quantify it: “The account reconciled with no unexplained items, the close finished on time, and I added a duplicate-reference check to the payment upload so it has not recurred.”

Mistakes to avoid: parking the difference in a suspense account just to meet the deadline, blaming a colleague, or telling a story where the difference was never actually explained.

Note: End with the permanent change you made. Interviewers value the control improvement more than the one-time fix.

This question tests integrity and professional judgement. The interviewer wants to hear that you will not bend accounting rules under pressure, but also that you can handle the conversation tactfully and offer a practical way forward.

Situation: Pick a realistic, low-drama example. For instance: “At quarter end, a sales manager asked me to book revenue for an order that was invoiced but not yet dispatched, because it would help the team hit its target.”

Action: Show that you followed a clear process:

• Asked for evidence first — delivery proof, customer acceptance, contract terms — instead of refusing outright.
• Explained the rule in plain words — under Ind AS 115, revenue is recognised when control of the goods passes to the customer, and here the goods were still in our warehouse.
• Offered an alternative — showing the order as confirmed pipeline in the management report, so the effort was still visible.
• Escalated calmly to the financial controller when the manager insisted, and documented the discussion.

Result: “Revenue was recorded in the following month when the goods were delivered. The controller backed the decision, and we later added a dispatch-document check to the quarter-end cut-off checklist.”

Keep the tone neutral. Do not portray the other person as dishonest; frame it as a difference in understanding that you resolved with facts.

Note: Mention that you would escalate to the audit committee or a whistle-blower channel if a genuine attempt at misstatement continued. It signals that you know where the line is.

Employers want accountants who reduce effort and errors, not just people who process transactions. Use this question to show initiative, basic tech skills and a focus on measurable results.

Situation: Describe the pain point clearly. Example: “Our monthly vendor reconciliation for about 300 suppliers was done by manually comparing ledger extracts with vendor statements. It took three people nearly three days and still missed items.”

Action: Explain what you changed and why:

• Mapped the existing steps and identified which were repetitive and rule-based.
• Built an Excel template using Power Query to pull the ERP ledger export and vendor statements into one standard format.
• Used XLOOKUP and conditional logic to auto-match invoices by number and amount, flagging only exceptions such as missing invoices, TDS differences and debit notes not accounted for.
• Wrote a one-page guide and trained the team before rolling it out.
• Ran the old and new methods in parallel for one month to prove accuracy.

Result: Put numbers on it: “Time dropped from three days to about four hours, unmatched items became visible on day two of the close, and we recovered ₹6 lakh of duplicate payments in the first quarter.”

Other good examples include automating bank reconciliations through ERP bank statement upload, building a GST input tax credit match against GSTR-2B, or creating a standard accruals template.

Note: Emphasise controls as well as speed — explain how you made sure the new process was reviewed and could be followed by someone else.

Audits are a normal part of accounting roles, so interviewers want to know you can support auditors professionally, defend a position with evidence, and accept a correction when the auditor is right.

Structure your answer this way:

1. The query: “During the statutory audit, the auditors questioned why we had not created a provision for a customer balance of ₹18 lakh that was more than 180 days overdue.”
2. Your position and evidence: “I believed the balance was recoverable. I shared the customer’s signed payment plan, the instalments already received after year end, and our expected credit loss working under Ind AS 109.”
3. How you communicated: “I set up a short call rather than exchanging long emails, walked them through the documents and answered follow-up questions the same day.”
4. Outcome: “The auditors accepted that no specific provision was needed beyond the ECL already recognised, and noted it as resolved.”

If your story ended with the auditor being right, that is equally strong. Say so directly: “Once I rechecked the cut-off, I agreed that two invoices belonged to the next year, and we passed the adjustment.” Owning a correction shows maturity.

Points that impress interviewers:

• You kept a PBC (prepared by client) tracker and responded within agreed timelines.
• You separated facts from opinion and relied on documents.
• You escalated only unresolved items to your manager with a clear summary.
• You improved something afterwards, such as a better year-end ageing report.

Note: Never describe auditors as the enemy. Present the relationship as collaborative, even when you disagreed.

Accountants increasingly partner with business teams, so this question checks whether you can translate numbers into decisions. A strong answer shows preparation, simple language and a clear recommendation.

Situation: “Our plant head was upset that his department showed a cost overrun of ₹25 lakh against budget for the quarter, even though production had gone well.”

Action: Walk through how you made it understandable:

• Split the variance into drivers — about ₹15 lakh came from higher volumes (a good thing), ₹7 lakh from a rise in raw material prices, and ₹3 lakh from overtime.
• Used a simple visual — a one-page bridge chart from budget to actual rather than a trial balance extract.
• Avoided jargon — said “we produced more, so we spent more” instead of talking about flexed budgets and volume variances.
• Linked it to action — the price increase was outside his control, but overtime could be reduced by rescheduling shifts.
• Checked understanding by asking him how he would explain it to his own team.

Result: “He presented the bridge in the leadership review, overtime reduced the next quarter, and he started asking for the variance analysis before his monthly meetings.”

You can also use examples like explaining why profit rose while cash fell (working capital build-up), or why a deferred tax charge appeared despite no extra tax payment.

Note: Interviewers listen for empathy. Show that you tailored the message to the listener instead of expecting them to learn accounting.

Closing the books involves many deliverables with fixed deadlines, so this question tests prioritisation, planning and communication. Avoid saying you simply “worked late”; show a method.

Situation: “At year end, I had the fixed asset schedule, the GST annual reconciliation, audit schedules and the regular monthly close due in the same week, while a colleague was on leave.”

Action: Explain your approach:

• Listed every task with its deadline, dependency and the person waiting for it.
• Prioritised by impact — items that blocked others (such as depreciation, which feeds the trial balance and deferred tax) went first; standalone items went later.
• Front-loaded preparation — pulled reports and prepared templates in the week before the close.
• Communicated early — told my manager on day one that the GST reconciliation would be two days late unless I got support, and suggested a junior who could handle data extraction.
• Protected quality — kept a short self-review checklist so speed did not create errors.

Result: “All close deliverables went out on schedule, the GST reconciliation followed two days later as agreed, and the audit had no findings on my schedules. We later adopted my task tracker as the team’s close calendar.”

Note: Interviewers like to hear that you raised a risk early rather than missing a deadline silently. Negotiating a realistic timeline is a strength, not a weakness.

Balance disputes are common in accounts payable and receivable roles. The interviewer wants to see that you investigate methodically, stay polite and protect both the relationship and the company’s money.

Situation: “A key supplier claimed we owed them ₹9.6 lakh, while our ledger showed ₹6.1 lakh. They had put our account on credit hold, which threatened production.”

Action: Show a structured reconciliation:

• Requested their statement of account and compared it line by line with our ledger for the same period.
• Grouped differences by type: invoices they had raised that we had not received, payments they had not applied, debit notes for rejected material, and TDS deducted by us but not reflected by them.
• Found that ₹2.4 lakh related to two invoices stuck in our approval workflow, and the rest was TDS and a debit note they had not yet accepted.
• Shared a clear reconciliation with supporting documents — payment advices, TDS certificates and the goods rejection note.
• Released the valid invoices immediately and agreed a timeline for the debit note.

Result: “The hold was lifted within two days, the balance was agreed and signed off, and I introduced quarterly balance confirmations with our top 20 vendors to catch such gaps earlier.”

Note: Highlight communication — you listened, avoided blame, and backed every point with documents. Also mention checking GSTR-2B, since unreported invoices can affect input tax credit.

Everyone makes mistakes; this question tests honesty, ownership and learning. Choose a real but manageable error — not one that caused serious damage and not a fake “mistake” like working too hard.

Situation: “In my first year, I recorded an annual software subscription of ₹3.6 lakh fully as an expense in April, instead of treating it as a prepaid expense and spreading it over twelve months.”

How you found it: “While preparing the monthly expense variance analysis, I noticed IT costs for April were far above budget and traced it back to my own entry.”

Action:

• Informed my supervisor immediately, before anyone else noticed.
• Passed a correcting entry — debiting Prepaid Expenses and crediting Software Expense for eleven months’ cost — with the invoice and the calculation attached.
• Checked other large invoices from the same month to confirm there were no similar errors.
• Created a simple rule for myself: any invoice covering more than one month gets a prepaid review before posting.

Result and learning: “The error was corrected within the same month, so reported results were not affected. The prepaid check was later added to the team’s AP checklist.”

What interviewers want to hear:

• You found and reported it yourself.
• You fixed it properly with documentation.
• You looked for related errors.
• You changed a process to prevent it happening again.

Note: Keep the story short and end on the improvement. Dwelling on the mistake or making excuses weakens the answer.

Systems and regulations change often in Indian accounting — ERP migrations, GST changes, e-invoicing, new TDS provisions. This question checks whether you learn fast, help others adapt and keep the books accurate during the transition.

Situation: “When e-invoicing became applicable to our company, every B2B invoice had to be reported to the Invoice Registration Portal to get an IRN and QR code before it was issued. We had about three weeks to get ready.”

Action: Describe concrete steps:

• Read the notifications and FAQs and summarised the requirements for my team in one page.
• Worked with IT and the ERP vendor to test the integration in a sandbox environment.
• Cleaned the customer master — GSTINs, state codes, HSN codes — because incorrect data caused most rejections.
• Created a daily exception report for invoices that failed to generate an IRN.
• Trained the billing team and stayed on call during the first week of go-live.

Result: “We went live on time, rejections fell to almost zero after the first week, and GSTR-1 preparation became faster because invoice data auto-populated.”

Similar examples work equally well: migrating from Tally to SAP or Oracle, moving from AS to Ind AS, or implementing new TDS provisions.

Note: Stress how you verified accuracy after the change, for example by reconciling the new system’s trial balance with the old one. Data integrity is what finance leaders care about most.

This question tests professional scepticism and judgement. The interviewer wants to see that you notice red flags, gather facts quietly, and escalate through the right channels without making accusations.

Situation: “While reviewing a payment run, I noticed a new vendor with a generic name that had received five payments of just under ₹50,000 each within a month — just below the limit that needed senior approval.”

Action:

• Checked the facts first — the vendor master showed a bank account recently changed, no GSTIN, and an address matching an employee’s residential locality.
• Looked for supporting documents — purchase orders existed but no goods receipt notes were available.
• Maintained confidentiality — did not discuss it with the team or the employee involved.
• Escalated to the finance controller with a factual summary and the evidence, following the company’s whistle-blower policy.

Result: “Internal audit investigated and confirmed the payments were fictitious. The company recovered part of the amount, and new controls were introduced: segregation of vendor master creation from payment approval, mandatory GSTIN and PAN validation, and a report flagging split payments just below approval limits.”

If you have not faced fraud, describe a control gap instead — for example, one person both creating vendors and approving payments — and how you proposed segregation of duties.

Note: Never claim you confronted the person yourself. Interviewers want someone who documents facts and escalates, not someone who investigates alone.

Note: Tap into your past work experience to answer this question and illustrate with examples why you prefer one accounting software over others.

For example,

I have used QuickBooks, which I like for its simplicity, speed, and accuracy. Nevertheless, NetSuite and Zoho are my areas of expertise. Those programs have helped me create balance sheets and financial statements.

But out of all of them, I still prefer Tally ERP9, because:

1. it is user-friendly.

2. It can multitask.

Here are some ways through which you could improve the working capital flow of the company:

• Earning additional profits
• Issuing common stock or preferred stock for cash
• Borrowing money on a long-term basis
• Replacing short-term debt with long-term debt
• Selling long-term assets for cash

Note: You might get brownie points if you explain the above points by taking the example of a real company to emphasize your points.

By creating automated processes using VBA macros in Excel, users can create custom user-generated functions and speed up manual tasks. VBA can also access the Windows API (Application Programming Interface). In addition to creating customized toolbars, menus, dialog boxes, and forms, it can also change and customize the user interface.

Note: If possible, give an example of a problem that you worked on and which you solved using VBA Macros.

The purpose of TDS is to collect taxes from the very source of income. Using this concept, a person (deductor) who makes payments of specified nature to another person (deductee) deducts tax at the source and remits it to the government.

Section 194R

The Finance Act, 2022, introduced Section 194R, which pertains to the deduction of tax on benefits or perquisites in respect of businesses or professions.

The purpose of introducing the new Section 194R is to plug the possibility of tax revenue leakages (tax evasions) in businesses or professions

Section 194S

With effect from 1st July 2022, the Finance Act, 2022 added a new section 194S. According to the new section, a person paying any sum to a resident as consideration for the transfer of a virtual digital asset (VDA) must deduct an amount equal to 1% of such sum as income tax. Tax deductions must be made at the time of crediting the sum to the resident's account or at the time of payment, whichever occurs first.

The term 'window dressing' refers to manipulating accounts to make them appear better than they are. There may be an overstatement of assets and an understatement of liabilities, for example.

Based on section 133 of the Companies Act 2013, the Indian Accounting Standards (Ind AS) have been formulated in accordance with the Indian economic and legal environment and with the aim of ensuring convergence with IFRS Standards, which are issued by the IFRS Foundation and hold the copyright.  As of date, MCA has notified 40 Ind AS that are applicable to companies in India (Ind AS 11 is omitted).

For accounting, PPE, Include the asset's purchase price and any associated taxes, as well as the construction expenses, if any, import tariffs, freight and handling, site preparation, and installation charges, in the cost of an item when recording it in PP&E.

Depreciation is a consistently-applied charge that is intended to reflect the use of an asset over time. As per Ind As 16 depreciation amount of an asset shall be allocated on a systematic basis over its useful life.

The main difference between the two is that depreciation expense represents the amount depreciated for one period (e.g., the quarter). On the other hand, accumulated depreciation is the total amount a company has depreciated its assets.

The practice of fair value accounting involves measuring assets and liabilities at their current market value. In accounting terms, fair value refers to the amount for which an asset can be sold or a liability settled for a price that is fair to both parties.

On the other hand, historical cost accounting reports assets and liabilities at the initial price at which they were exchanged. 

In this case, your best bet would be the cash flow statement. The overall health of the company can be evaluated by determining how much cash the company is generating.

Deferred revenue is the cash received from customers for services or goods that have not been delivered yet, while accounts receivables are yet-to-be received cash from products or services that have already been sold/delivered to customers.

By paying more than the fair value of the tangible and intangible assets of another company, goodwill can be increased.

The company's excess business income will indicate that it is earning additional income due to its goodwill. The overall value further increases when expectations for economic growth are added to the equation. A company is expected to attract new customers and create more products, resulting in combined wealth.

Here are some of the major disadvantages of the double-entry system:

• It is difficult to find the errors, especially when the transactions are recorded in the books
• Whenever an error occurs, extensive clerical labor is required
• When a transaction is not properly recorded in a journal, you can't disclose all the information of that transaction

Deferred tax assets reduce a company's future taxable income by reducing its current taxable income. The asset can be found when a business overpays its taxes. Eventually, this money will be returned to the business as tax relief.

On the other hand, deferred tax liability records taxes owing but not due until a future date on a company's balance sheet. The liability is deferred due to the difference in timing between when the tax was accrued and when it is due.

Revenue Recognition Principle – According to this principle, revenue should be recognized when it is earned and realized, regardless of when it is paid.

Matching Principle – This principle dictates the company to report an expense on its income statement at the time the related revenues are earned. It is associated with the accrual basis of accounting.

Capital expenditure is spending that acquires a new asset or improves an existing one so that it gives benefits over more than one accounting period. It is recorded on the balance sheet and charged to profit gradually through depreciation or amortisation.

Revenue expenditure is spending incurred to run the business day to day or to maintain assets in their existing condition. Its benefit is used up within the period, so it is charged to the statement of profit and loss immediately.

Grey areas interviewers like to test:

• Replacing an engine that extends a truck’s life is capital; routine servicing is revenue.
• Legal fees for acquiring land are capital; legal fees for defending a routine customer claim are revenue.
• Large advertising campaigns were once treated as “deferred revenue expenditure”, but under Ind AS they are generally expensed as incurred because they do not create a separately recognisable asset.

Under Ind AS 16, an item is capitalised only if future economic benefits are probable and its cost can be measured reliably. For income tax, capital expenditure is not deductible directly; it is recovered through depreciation on the relevant block of assets.

Note: Wrongly capitalising revenue expenses overstates profit and assets — a common window-dressing technique, so auditors test this area closely.

A trial balance only checks that total debits equal total credits. Errors that affect both sides equally, or none at all, leave it in agreement and go undetected. The main types are:

• Errors of omission (complete) — a transaction is not recorded at all, for example a purchase invoice never entered.
• Errors of commission — the right amount is posted to the correct side of the wrong account of the same class, for example a payment to Ramesh posted to Suresh’s account.
• Errors of principle — a transaction is recorded against accounting principles, such as repairs to machinery debited to the Machinery account (revenue treated as capital).
• Compensating errors — two or more errors cancel each other, for example Sales undercast by ₹1,000 and Wages overcast by ₹1,000.
• Errors of original entry — the wrong amount is entered in the book of original entry, so both debit and credit carry the wrong figure.
• Complete reversal — the correct accounts are used but debit and credit are swapped.

Rectification:

• Two-sided errors are corrected with a journal entry that cancels the wrong effect and records the right one. Example for the repairs error: debit Repairs, credit Machinery.
• One-sided errors (wrong totalling, posting to only one account) do cause a trial balance mismatch. If they are not found before the accounts are finalised, the difference is temporarily placed in a suspense account, which is cleared as each error is traced.
• Errors discovered after the books are closed are corrected through the relevant account in the next period. Material prior-period errors under Ind AS 8 require retrospective restatement.

Note: Errors of principle matter most in practice because they change profit and asset values. Say that you would look for them through analytical review and by vouching large repair and capital entries.

This is a classic test of how the income statement, balance sheet and cash flow statement link together. Assume a tax rate of 25% and that the extra depreciation is also deductible for tax.

1. Statement of profit and loss

• Depreciation up by ₹100, so profit before tax falls by ₹100.
• Tax expense falls by ₹25 (25% of ₹100).
• Net profit falls by ₹75.

2. Cash flow statement (indirect method)

• Starts with profit, which is ₹75 lower.
• Depreciation is a non-cash expense, so ₹100 is added back.
• Cash from operating activities therefore rises by ₹25 — the tax saving.

3. Balance sheet

• Assets: property, plant and equipment falls by ₹100 (higher accumulated depreciation); cash rises by ₹25. Net change in assets: minus ₹75.
• Equity: retained earnings fall by ₹75 because of lower profit.
• Both sides fall by ₹75, so the balance sheet still balances.

Indian nuance: Book depreciation under Schedule II of the Companies Act, 2013 is usually different from tax depreciation under the Income Tax Act. If only book depreciation changes, current tax paid does not change. The ₹25 then appears as a movement in deferred tax rather than a cash saving, and operating cash flow is unchanged.

Note: Walk through the statements in the order P&L, cash flow, balance sheet and finish by proving the balance sheet balances. Interviewers mainly check your logic.

Adjusting entries are passed at the end of a period so that income and expenses are recorded in the period to which they relate, as required by the accrual basis. Section 128 of the Companies Act, 2013 requires companies to keep books on the accrual basis and the double-entry system.

1. Prepaid expense — paid in advance for a future period. Example: insurance of ₹12,000 paid on 1 October for twelve months; the year ends on 31 March, so six months (₹6,000) is prepaid.

Prepaid Insurance A/c Dr 6,000
To Insurance Expense A/c 6,000

2. Outstanding (accrued) expense — incurred but not yet paid. Example: March salaries of ₹80,000 payable on 5 April.

Salaries Expense A/c Dr 80,000
To Salaries Payable A/c 80,000

3. Accrued income — earned but not yet received. Example: interest of ₹15,000 accrued on a fixed deposit up to 31 March.

Accrued Interest Receivable A/c Dr 15,000
To Interest Income A/c 15,000

4. Income received in advance — received but not yet earned. Example: rent of ₹60,000 received for April to June.

Rent Income A/c Dr 60,000
To Rent Received in Advance A/c 60,000

Other common adjustments:

• Depreciation and amortisation for the period.
• Provision for expected credit losses on receivables.
• Closing inventory and any write-down to net realisable value.
• Provisions for bonus, gratuity, leave encashment and warranties.

Most prepaid and accrual entries are reversed on the first day of the next period so that the actual invoice or payment can be recorded normally without double counting.

Note: Missing adjustments distort both the profit and loss account and the balance sheet — a common cause of audit adjustments at year end.

A bank reconciliation explains the difference between the balance in the company’s cash book and the balance shown in the bank statement on the same date. Differences arise from timing and from errors.

Common reconciling items:

• Cheques issued but not yet presented — recorded in the cash book but not yet debited by the bank.
• Cheques deposited but not yet credited — recorded in the cash book but still in clearing.
• Bank charges and interest debited — known to the bank first.
• Interest credited and direct receipts — NEFT, RTGS or UPI collections from customers not yet recorded in books.
• Direct debits — ECS or NACH debits for loan EMIs, insurance or utilities.
• Dishonoured cheques — credited earlier, then reversed by the bank.
• Errors — by either the company or the bank, such as a wrong amount or a transposition.

Step-by-step process:

1. Tick matching entries between the cash book and the bank statement for the period.
2. Record in the cash book the items the bank already knows about — charges, interest, direct receipts, direct debits and dishonoured cheques — and obtain the adjusted cash book balance.
3. Prepare the reconciliation starting from the adjusted cash book balance: add cheques issued but not presented, deduct cheques deposited but not credited, and adjust for any bank errors.
4. The result should equal the bank statement balance. Any unexplained difference must be investigated, not written off.
5. Have the reconciliation reviewed and signed by someone other than the preparer.

Red flags to look for: cheques outstanding beyond their validity period (generally three months in India), old uncleared deposits, round-sum reconciling items, and repeated unexplained differences — all may indicate errors or misappropriation.

Note: Only the adjusted cash book balance goes into the balance sheet. The reconciliation itself is a control, not a source of accounting entries for timing items.

The month-end close is a structured routine that makes sure every transaction for the month is recorded, reconciled and reviewed before reports go to management. Most teams follow a close calendar with deadlines such as working day 1 to working day 5.

Typical sequence:

1. Cut-off — stop billing and receiving in the old period; make sure sales, purchases and goods received are recorded in the correct month.
2. Close sub-ledgers — accounts receivable, accounts payable, inventory, fixed assets and payroll, then confirm each agrees with its general ledger control account.
3. Accruals and prepaids — accrue expenses for goods and services received but not invoiced, amortise prepaids, and record accrued or deferred revenue.
4. Depreciation and amortisation — run the fixed asset module and capitalise completed capital work-in-progress.
5. Provisions — expected credit loss, inventory obsolescence, bonus, gratuity and leave encashment.
6. Foreign exchange revaluation of foreign-currency receivables, payables and loans at the month-end rate.
7. Reconciliations — bank, intercompany, GST ledgers against returns, TDS payable and receivable, and key balance sheet accounts.
8. Tax entries — GST liability and input tax credit, TDS deducted, and current and deferred tax provisions where monthly reporting requires them.
9. Trial balance review — flux analysis comparing the month with the prior month and budget; investigate unusual movements.
10. Reporting — financial statements, MIS pack and variance commentary for management.

Controls that make a close reliable:

• A checklist with an owner and reviewer for every task.
• Maker-checker review of manual journal entries above a threshold.
• Locking the period in the ERP after sign-off.
• A log of open items carried into the next month.

Note: Mention a real improvement you made, such as moving accrual templates earlier or automating reconciliations to shorten the close by a day or two.

Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, decides whether an uncertain obligation or asset is recognised in the books, only disclosed, or ignored.

Provision — a liability of uncertain timing or amount. It is recognised only when all three conditions are met:

• there is a present obligation (legal or constructive) arising from a past event;
• an outflow of resources is probable (more likely than not); and
• a reliable estimate of the amount can be made.

Contingent liability — either a possible obligation whose existence depends on uncertain future events outside the entity’s control, or a present obligation where the outflow is not probable or cannot be measured reliably. It is not recognised; it is disclosed in the notes unless the chance of outflow is remote.

Contingent asset — a possible asset arising from past events. It is not recognised; it is disclosed only when an inflow is probable. When the inflow becomes virtually certain, it is no longer contingent and is recognised as an asset.

Examples: product warranties and onerous contracts usually lead to provisions; an income tax demand under appeal where the company expects to win is a contingent liability; an insurance claim that is likely but not yet accepted is a contingent asset.

Provisions are measured at the best estimate of the amount needed to settle the obligation, discounted where the time value of money is material, and reviewed at every reporting date.

Note: Provisions for future operating losses are not allowed, and a restructuring provision needs a detailed formal plan that has been announced. Interviewers often test these two points.

Ind AS 2, Inventories, requires inventories to be measured at the lower of cost and net realisable value (NRV).

What is included in cost:

• Costs of purchase — purchase price, import duties and non-recoverable taxes, freight and handling, less trade discounts and rebates. Recoverable GST is excluded because it is claimed as input tax credit.
• Costs of conversion — direct labour plus a systematic allocation of fixed and variable production overheads. Fixed overheads are allocated based on normal capacity; unallocated overheads from low production are expensed.
• Other costs incurred to bring inventories to their present location and condition.

Excluded and expensed: abnormal wastage, storage costs (unless necessary in the production process), administrative overheads not related to production, and selling costs.

Cost formulas:

• Specific identification for items that are not ordinarily interchangeable, such as custom-built machinery.
• FIFO or weighted average cost for interchangeable items. The same formula must be used for inventories of similar nature and use.
• LIFO is not permitted.
• Standard cost or retail methods can be used for convenience if the results approximate actual cost.

NRV write-down: NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs to sell. A write-down is needed when inventory is damaged, obsolete, slow-moving, or when selling prices fall or completion costs rise. Write-downs are usually made item by item or for groups of similar items, never for inventory as a whole. If circumstances improve, the write-down is reversed, limited to the original cost.

Raw materials are not written down below cost if the finished goods they will be used in are expected to sell at or above cost.

Note: Link this to practice — mention reviewing the inventory ageing report and post-year-end selling prices to identify NRV issues.

Input tax credit (ITC) lets a registered person reduce output GST by the GST paid on inputs, input services and capital goods used in the course or furtherance of business. The main provisions are Sections 16 and 17 of the CGST Act, 2017.

Conditions to claim ITC (Section 16):

• The recipient holds a valid tax invoice or debit note.
• The goods or services have actually been received (including through bill-to-ship-to arrangements).
• The supplier has reported the invoice in its outward supply return and it appears in the recipient’s GSTR-2B.
• The tax charged has actually been paid to the government by the supplier.
• The recipient has filed its own return (GSTR-3B).
• The supplier is paid within 180 days of the invoice date; otherwise the credit must be reversed with interest and can be reclaimed on payment.
• The credit is claimed within the Section 16(4) time limit — currently the earlier of 30 November following the end of the financial year and the date of filing the annual return.
• If depreciation is claimed on the tax component of a capital good, ITC on that tax is not allowed.

Blocked credits (Section 17(5)) — key examples:

• Motor vehicles for transporting persons with limited seating capacity, except when used for further supply, transport of passengers or training — along with their related insurance and repairs.
• Food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery, club and fitness memberships, and travel benefits for employees on vacation — unless provided under a legal obligation.
• Works contract and goods or services used to construct immovable property on one’s own account, other than plant and machinery.
• Goods lost, stolen, destroyed, written off, or given as gifts or free samples.
• Goods or services used for personal consumption, and tax paid under the composition scheme.

Credit relating to exempt supplies must also be reversed proportionately under Rule 42 and Rule 43.

Note: Regular reconciliation of the purchase register with GSTR-2B is the most practical control. Mention it in any GST discussion.

GST is not a cost or income for a registered business that can claim credit; it is collected on behalf of the government. So it is kept in separate ledger accounts for each tax head: Input CGST, Input SGST, Input IGST, and Output CGST, Output SGST and Output IGST.

Intra-state purchase of goods worth ₹1,00,000 at 18% GST (9% CGST plus 9% SGST):

Purchases A/c Dr 1,00,000
Input CGST A/c Dr 9,000
Input SGST A/c Dr 9,000
To Supplier A/c 1,18,000

Inter-state sale worth ₹2,00,000 at 18% IGST:

Customer A/c Dr 2,36,000
To Sales A/c 2,00,000
To Output IGST A/c 36,000

Order of utilising ITC (Section 49 and Rule 88A):

• IGST credit is used first against IGST liability; any balance can then be used against CGST and SGST, in any order or proportion.
• IGST credit must be fully exhausted before CGST or SGST credit is used.
• CGST credit is used against CGST, then IGST.
• SGST credit is used against SGST, then IGST.
• CGST credit can never be used against SGST liability, or the other way round.

In the example, output IGST of ₹36,000 is first set off with any input IGST, then with input CGST of ₹9,000 and input SGST of ₹9,000. The remaining ₹18,000 is paid in cash through the electronic cash ledger:

Output IGST A/c Dr 36,000
To Input CGST A/c 9,000
To Input SGST A/c 9,000
To Bank A/c (GST paid) 18,000

Interest, late fees and reverse charge liabilities cannot be paid from ITC; they must be paid in cash.

Note: At month end, reconcile each GST ledger with GSTR-1, GSTR-3B and GSTR-2B. Unreconciled balances in GST ledgers are a common audit observation.

Normally the supplier collects GST and pays it to the government. Under the reverse charge mechanism (RCM), the liability to pay GST shifts to the recipient of the goods or services.

When RCM applies:

• Notified supplies under Section 9(3) of the CGST Act (and Section 5(3) of the IGST Act) — for example, services of a goods transport agency in specified cases, legal services by an advocate to a business entity, sponsorship services, and services supplied by a director to the company.
• Section 9(4) — specified supplies from unregistered suppliers to notified classes of registered persons.
• Import of services, where the Indian recipient pays IGST under reverse charge.

Key compliance points:

• The recipient must pay RCM tax in cash through the electronic cash ledger; existing ITC cannot be used to discharge it.
• After paying, the recipient can claim ITC of the same tax if the supply is used for business and the credit is not blocked.
• Where the supplier is unregistered, the recipient issues a self-invoice and a payment voucher.
• RCM liability is reported separately in GSTR-3B.

Accounting example — legal fees of ₹50,000 from an advocate, intra-state, 18% GST:

Legal Expenses A/c Dr 50,000
To Advocate A/c 50,000

Input CGST (RCM) A/c Dr 4,500
Input SGST (RCM) A/c Dr 4,500
To CGST Payable (RCM) A/c 4,500
To SGST Payable (RCM) A/c 4,500

On payment of the RCM liability in cash:

CGST Payable (RCM) A/c Dr 4,500
SGST Payable (RCM) A/c Dr 4,500
To Bank A/c 9,000

Net cost to the business is nil if the credit is fully available, but there is a cash-flow effect because tax is paid before credit is used.

Note: Missing RCM on director fees, legal fees or freight is a frequent finding in GST audits, so mention a monthly RCM checklist of expense ledgers.

When a company pays a vendor for a service covered by TDS provisions, it deducts tax at the applicable rate, pays the net amount to the vendor, and deposits the tax with the government.

Example: contract charges of ₹1,00,000 (ignoring GST) paid to a company contractor with TDS at 2%.

On booking the invoice and deducting TDS:

Contract Charges A/c Dr 1,00,000
To Contractor A/c 98,000
To TDS Payable A/c 2,000

On depositing TDS with the government (normally by the 7th of the following month, with a later date for March deductions):

TDS Payable A/c Dr 2,000
To Bank A/c 2,000

The deductor then files the quarterly TDS return and issues a TDS certificate (Form 16A for non-salary payments) to the vendor. TDS on GST-inclusive invoices is generally computed on the value excluding GST when GST is shown separately.

Receiving side: when a customer deducts TDS from payments to your company, record it as an asset:

Bank A/c Dr 98,000
TDS Receivable A/c Dr 2,000
To Customer A/c 1,00,000

Reconciliation with Form 26AS and AIS:

• Download Form 26AS and the Annual Information Statement from the income tax portal.
• Match each deductor’s TAN, amount credited and TDS with the TDS Receivable ledger.
• Investigate differences: TDS deducted but not deposited, wrong PAN or TAN, timing differences, or customers who have not filed their TDS returns.
• Follow up with customers to file or correct their returns, because credit is available only for TDS reflected in Form 26AS.
• Also reconcile your own TDS Payable ledger with the challans and the TDS returns filed.

Note: The Income-tax Act, 2025 has replaced the 1961 Act from 1 April 2026 and renumbers the TDS provisions, but the accounting entries and the reconciliation discipline stay the same.

Ind AS 109, Financial Instruments, requires an expected credit loss (ECL) model rather than the old “incurred loss” approach. Losses are provided based on expectations, even before a customer actually defaults.

Simplified approach for trade receivables: For trade receivables without a significant financing component, Ind AS 109 requires the loss allowance to be measured at lifetime ECL from initial recognition. There is no need to track changes in credit risk through stages, which makes this approach practical for most companies.

Building a provision matrix:

1. Group receivables with similar credit risk characteristics (for example, by customer type or region).
2. Prepare ageing buckets such as not due, 0–30 days past due, 31–90 days, 91–180 days and more than 180 days.
3. Calculate historical loss rates for each bucket from past data on how much of each bucket was eventually written off.
4. Adjust the rates for forward-looking information such as economic conditions or industry stress.
5. Apply the rates to the current balances in each bucket.

Customers already known to be in trouble — insolvency proceedings, disputes, cheque bounces — are assessed individually and removed from the matrix.

Accounting entry for an increase in the allowance:

Impairment Loss on Trade Receivables A/c Dr
To Allowance for Expected Credit Loss A/c

Note: Under income tax, a general ECL provision is not deductible; only actual bad debts written off are allowed, so the provision usually creates a deferred tax asset.

Under Ind AS 36, Impairment of Assets, an asset is impaired when its carrying amount exceeds its recoverable amount. The standard prevents assets from being shown at more than the value the company can recover from using or selling them.

When to test:

• At every reporting date, look for indicators of impairment. External signs include a sharp fall in market value, adverse changes in technology, markets or law, rising interest rates, and market capitalisation below net assets. Internal signs include physical damage, obsolescence, plans to discontinue or restructure, and performance worse than expected.
• If an indicator exists, estimate the recoverable amount.
• Goodwill, intangible assets with indefinite useful lives and intangibles not yet available for use must be tested annually, whether or not there are indicators.

Recoverable amount is the higher of:

• Fair value less costs of disposal — the price receivable from market participants, less direct selling costs.
• Value in use — the present value of future cash flows expected from continuing use and final disposal, discounted at a pre-tax rate reflecting current market assessments and asset-specific risks.

Cash-generating units (CGUs): If an individual asset does not generate independent cash inflows, it is tested as part of the smallest group of assets that does — for example, an entire factory or retail store. Goodwill is allocated to the CGUs expected to benefit from the business combination.

Example: machinery with a carrying amount of ₹50 lakh, fair value less costs of disposal ₹38 lakh, and value in use ₹42 lakh. Recoverable amount is ₹42 lakh, so an impairment loss of ₹8 lakh is recognised in profit and loss, and future depreciation is based on the reduced carrying amount.

Reversals: Impairment losses on assets other than goodwill can be reversed if estimates improve, up to the carrying amount that would have existed had no impairment been recognised. Impairment of goodwill is never reversed.

Note: Interviewers often ask what happens with a CGU loss — it is allocated first to goodwill, then pro rata to other assets in the unit.

Ind AS 116, Leases, removed the old split between finance and operating leases for lessees. Almost every lease now comes onto the balance sheet.

Initial recognition at the commencement date:

• Lease liability — the present value of lease payments not yet paid, discounted at the interest rate implicit in the lease or, if that cannot be determined, the lessee’s incremental borrowing rate.
• Right-of-use (ROU) asset — the lease liability plus lease payments made at or before commencement, initial direct costs and estimated restoration costs, less any lease incentives received.

Right-of-Use Asset A/c Dr
To Lease Liability A/c

Subsequent measurement:

• The ROU asset is depreciated, usually on a straight-line basis over the shorter of the lease term and the asset’s useful life.
• Interest is charged on the lease liability using the effective interest method. Lease payments reduce the liability.
• The total expense is higher in early years (front-loaded) because interest is higher when the liability is larger.

Exemptions: lessees may choose not to apply this model to short-term leases (12 months or less, with no purchase option) and to leases of low-value assets. Those payments are expensed on a straight-line basis.

Impact on financial statements:

Note: Lessor accounting under Ind AS 116 still classifies leases as finance or operating, so clarify that the single model applies only to lessees.

Ind AS 115, Revenue from Contracts with Customers, uses a single five-step model for all contracts with customers.

1. Identify the contract — an agreement that creates enforceable rights and obligations, with commercial substance, approved by the parties, where collection of consideration is probable.
2. Identify the performance obligations — each distinct good or service promised. A good or service is distinct if the customer can benefit from it on its own and it is separately identifiable within the contract.
3. Determine the transaction price — the consideration expected, adjusted for variable consideration (discounts, rebates, penalties), significant financing components, non-cash consideration and amounts payable to the customer. GST collected is excluded.
4. Allocate the transaction price to each performance obligation based on relative standalone selling prices.
5. Recognise revenue when, or as, each performance obligation is satisfied — at a point in time when control transfers, or over time if the criteria are met.

Example: a company sells a machine with two years of maintenance for a single price of ₹1,20,000. Sold separately, the machine is priced at ₹1,00,000 and the maintenance at ₹30,000 (total ₹1,30,000).

On delivery, revenue of ₹92,308 is recognised. The ₹27,692 for maintenance is shown as a contract liability (deferred revenue) and released at about ₹1,154 per month.

Revenue is recognised over time when the customer receives and consumes benefits as the entity performs, the entity’s work creates or enhances an asset the customer controls, or the asset has no alternative use and the entity has an enforceable right to payment for work done to date.

Note: Mention principal versus agent assessment too — an agent recognises only its commission, which matters for e-commerce and marketplace businesses.

Ind AS 21, The Effects of Changes in Foreign Exchange Rates, applies when an entity has transactions in a currency other than its functional currency — the currency of the primary economic environment in which it operates (usually INR for Indian companies).

Initial recognition: a foreign currency transaction is recorded at the spot exchange rate on the transaction date. An average rate for a week or month may be used if rates do not fluctuate significantly.

At each reporting date:

• Monetary items (cash, receivables, payables, loans — amounts to be received or paid in fixed units of currency) are translated at the closing rate.
• Non-monetary items carried at historical cost (property, plant and equipment, inventory, advances for goods) stay at the historical rate on the transaction date.
• Non-monetary items carried at fair value are translated at the rate on the date fair value was measured.

Exchange differences on settlement or restatement of monetary items are recognised in profit or loss.

Example: an import invoice of USD 10,000 is received when the rate is ₹83. At year end the rate is ₹84, and the invoice is paid next month at ₹83.50.

The inventory purchased is not restated; only the payable moves with the exchange rate.

Translation of foreign operations: when consolidating a foreign subsidiary, its assets and liabilities are translated at the closing rate and income and expenses at transaction or average rates. The resulting difference goes to other comprehensive income and is reclassified to profit or loss on disposal of the operation.

Note: Advances paid to foreign suppliers are non-monetary, so they are not revalued at year end — a common exam and interview trap.

Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, separates three situations because each has a different effect on comparatives.

Change in accounting policy is allowed only if required by an Ind AS or if it results in reliable and more relevant information. Opening balances of equity for the earliest period presented are adjusted, and comparative figures are restated.

Change in accounting estimate arises from new information or developments, not from correcting an error. Example: a machine costing ₹10 lakh was depreciated over 10 years; after 4 years the remaining life is reassessed as 3 years instead of 6. The carrying amount of ₹6 lakh is depreciated over the remaining 3 years at ₹2 lakh a year. Earlier years are not changed.

Prior period errors are omissions or misstatements arising from failure to use reliable information that was available. Material errors are corrected in the first set of financial statements approved after discovery by:

• restating comparative amounts for the prior period in which the error occurred; or
• if the error occurred before the earliest period presented, restating the opening balances of assets, liabilities and equity for that period.

Ind AS 1 also requires a third balance sheet at the beginning of the preceding period when a retrospective restatement has a material effect on it.

Note: If it is difficult to tell whether a change is in policy or estimate, Ind AS 8 says to treat it as a change in estimate.

Ind AS 7, Statement of Cash Flows, classifies cash flows into operating, investing and financing activities. Under the indirect method, operating cash flow is derived by adjusting profit for non-cash items and working capital changes.

Step 1 — Start with profit before tax.

Step 2 — Adjust for non-cash and non-operating items:

• Add depreciation, amortisation and impairment losses.
• Add finance costs (they are shown under financing activities).
• Deduct interest income and dividend income (usually shown under investing activities).
• Deduct profit on sale of assets, or add a loss on sale.
• Adjust unrealised foreign exchange gains and losses, and provisions that are not yet paid in cash.

Step 3 — Adjust for working capital changes:

Step 4 — Deduct income taxes paid (actual cash paid, not the tax expense) to arrive at net cash from operating activities.

Step 5 — Investing activities: purchase and sale of property, plant and equipment and intangibles, purchase and sale of investments, loans given, interest and dividends received.

Step 6 — Financing activities: proceeds from issue of shares, borrowings taken and repaid, principal portion of lease payments, interest paid and dividends paid.

Step 7 — Reconcile the net change in cash and cash equivalents with opening and closing balances on the balance sheet.

Points interviewers check:

• Non-cash transactions — for example, buying an asset by issuing shares or through a lease — are excluded and disclosed separately.
• Ind AS 7 requires a reconciliation of movements in liabilities arising from financing activities.
• Bank overdrafts repayable on demand may form part of cash and cash equivalents.

Note: A quick sense check: the operating cash flow of a stable, profitable company should broadly track its EBITDA over time. A persistent gap may signal aggressive revenue recognition or working capital problems.

The cash conversion cycle (CCC) measures how many days it takes a business to turn cash spent on inventory back into cash collected from customers. A shorter cycle means less money is tied up in working capital.

CCC = DIO + DSO − DPO

Days Inventory Outstanding (DIO) — how long inventory is held before sale.

DIO = (Average inventory / Cost of goods sold) x 365

Days Sales Outstanding (DSO) — how long customers take to pay.

DSO = (Average trade receivables / Revenue from operations) x 365

Days Payables Outstanding (DPO) — how long the business takes to pay suppliers.

DPO = (Average trade payables / Cost of goods sold or purchases) x 365

Example:

The company must finance 55 days of operations from its own funds or working capital loans.

How to shorten the cycle:

• Reduce DSO — stricter credit terms, faster invoicing, e-invoicing, early payment discounts, receivables financing through platforms such as TReDS.
• Reduce DIO — better demand planning, clearing slow-moving stock, just-in-time purchasing.
• Increase DPO carefully — negotiate longer credit terms, but keep in mind that payments to micro and small enterprises must be made within the MSMED Act time limits, and delayed payments beyond those limits can be disallowed under the Income Tax Act.

Industry context matters: FMCG and retail companies can have very short or even negative cycles because they collect from customers before paying suppliers, while capital goods manufacturers often have long cycles.

Note: Use averages of opening and closing balances, and be consistent about using 365 or 360 days when comparing periods or companies.

Ind AS 23, Borrowing Costs, requires borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset to be capitalised as part of that asset’s cost. All other borrowing costs are expensed.

Qualifying asset: an asset that necessarily takes a substantial period of time to get ready for its intended use or sale — for example, a new factory, a power plant, or real estate inventory under construction. Assets that are ready when acquired and routine inventories do not qualify.

Borrowing costs include: interest calculated using the effective interest method, interest on lease liabilities, and exchange differences on foreign currency borrowings to the extent they are an adjustment to interest costs.

How much to capitalise:

• Specific borrowings — actual borrowing costs incurred during the period, less any income earned from temporary investment of those funds.
• General borrowings — apply a capitalisation rate (the weighted average cost of general borrowings outstanding) to the expenditure on the asset funded from general funds. The amount capitalised cannot exceed the actual general borrowing costs for the period.

Example: a company takes a specific loan of ₹10 crore at 9% to build a plant and temporarily invests ₹2 crore of it for three months at 6%. For the year:

• Interest on loan: ₹10 crore x 9% = ₹90 lakh
• Less investment income: ₹2 crore x 6% x 3/12 = ₹3 lakh
• Borrowing cost capitalised: ₹87 lakh

Timing rules:

• Commencement — when expenditure is being incurred, borrowing costs are being incurred, and activities to prepare the asset are in progress.
• Suspension — during extended periods when active development is suspended.
• Cessation — when substantially all activities to prepare the asset for use or sale are complete.

Note: For tax purposes, interest on capital borrowed for acquiring an asset is capitalised up to the date the asset is first put to use, and ICDS IX also has separate capitalisation rules, so book and tax figures can differ.

Companies calculate depreciation twice — once for the financial statements and once for the tax computation — because the two laws have different objectives and rules.

Additional tax features: additional depreciation for new plant and machinery in eligible manufacturing businesses, and the block concept where sale proceeds reduce the block instead of creating a separate profit or loss (unless the block ceases to exist).

Effect on the accounts:

• Book profit and taxable profit differ, creating a temporary difference between the carrying amount of assets and their tax base.
• When tax depreciation is higher in early years (as is usual with WDV rates), the tax base is lower than the carrying amount, creating a deferred tax liability under Ind AS 12.
• The difference reverses over the asset’s life, so total depreciation over time is similar under both.

Example: an asset’s carrying amount is ₹80 lakh while its tax written down value is ₹60 lakh. The temporary difference of ₹20 lakh at a 25% tax rate gives a deferred tax liability of ₹5 lakh.

Note: The same book-versus-tax logic continues under the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026 while keeping the block-of-assets approach.

Ind AS 19, Employee Benefits, classifies benefits by when they are payable and by who bears the risk.

1. Defined contribution plans — the employer pays fixed contributions and has no further obligation. Examples: employer’s contribution to provident fund (when administered by the EPFO) and NPS. The contribution is expensed as the employee renders service; any unpaid amount is a liability.

2. Defined benefit plans — the employer promises a specific benefit and bears the investment and actuarial risk. Gratuity is the most common Indian example. Under the Payment of Gratuity Act, 1972, an eligible employee receives 15 days’ last drawn salary for every completed year of service, generally after five years of continuous service, subject to a statutory ceiling.

Accounting for gratuity:

• An actuary measures the defined benefit obligation using the projected unit credit method, with assumptions for salary growth, attrition, mortality and a discount rate based on government bond yields.
• If the plan is funded (for example, through an insurer’s group gratuity scheme), plan assets are measured at fair value and the net liability or asset is shown.
• Profit or loss: current service cost, past service cost and net interest on the net liability.
• Other comprehensive income: remeasurements — actuarial gains and losses and the return on plan assets excluding interest. These are never reclassified to profit or loss.

3. Leave encashment (compensated absences)

• Leave expected to be used or encashed within 12 months after the year end is a short-term benefit, measured at the undiscounted amount expected to be paid.
• Accumulated leave expected to be settled later is an other long-term employee benefit, measured actuarially like gratuity, but all remeasurements go to profit or loss, not OCI.

Tax angle: provisions for gratuity and leave encashment are deductible only when actually paid (or contributed to an approved gratuity fund), so they usually create deferred tax assets.

Note: Be ready to explain why the discount rate matters — a lower discount rate increases the obligation and creates an actuarial loss in OCI.

Consolidated financial statements under Ind AS 110 present a parent and its subsidiaries as a single economic entity. Balances and transactions between group companies must be fully eliminated, and this only works if both sides of every intercompany account agree.

Intercompany reconciliation — process:

1. Agree a monthly timetable and a common cut-off date for all group entities.
2. Each entity reports its receivables, payables, sales, purchases, loans, interest and cross charges with every counterparty.
3. Match both sides by counterparty and by type of transaction.
4. Investigate differences and agree who will pass the correcting entry.

Common reasons for mismatches:

• Goods or cash in transit at the period end.
• Invoices recorded by the seller but not yet by the buyer.
• Different exchange rates used by entities with different functional currencies.
• Management fees or cost recharges booked by one side only.
• Disputed amounts or unaccepted debit notes.

Elimination entries on consolidation:

• Intra-group balances — for example, parent’s receivable of ₹50 lakh from the subsidiary against the subsidiary’s payable of ₹50 lakh.
• Intra-group income and expenses — sales and purchases, interest, dividends, royalties and management fees.
• Unrealised profit in closing inventory or fixed assets sold within the group.
• Investment in subsidiary against the subsidiary’s equity, with goodwill and non-controlling interest recognised.

Unrealised profit example: the parent sells goods costing ₹80 lakh to its subsidiary for ₹100 lakh. At year end, half the goods are still in the subsidiary’s inventory. Unrealised profit = ₹20 lakh x 50% = ₹10 lakh, which is deducted from consolidated inventory and profit. Deferred tax is recognised on this elimination under Ind AS 12.

Note: Intercompany transactions are also related party transactions, so they must be at arm’s length and disclosed in standalone financial statements under Ind AS 24, even though they are eliminated on consolidation.

A three-way match is a control in accounts payable where a vendor invoice is approved for payment only after it agrees with two other documents:

1. Purchase order (PO) — what was ordered, at what price and terms.
2. Goods receipt note (GRN) or service entry sheet — what was actually received and accepted.
3. Vendor invoice — what the supplier is billing.

Quantity, price, item and tax details must match within an agreed tolerance (for example, 1% or a small rupee amount). Mismatches are put on hold and sent to the buyer or requester to resolve. A two-way match (PO and invoice only) is sometimes used for services or low-value items, and a four-way match adds a quality inspection report.

Other key procure-to-pay controls:

• Vendor master controls — separate who creates or edits vendors from who approves payments; validate PAN, GSTIN and bank details; independently verify any change in bank account through a call-back.
• Approval matrix — purchase requisitions and POs approved according to value limits, with no self-approval.
• Duplicate invoice checks — system block on the same vendor, invoice number and amount.
• Tax checks — correct TDS deduction, GST input credit eligibility, reverse charge liability, and matching with GSTR-2B.
• Payment run review — a second person reviews the payment proposal and bank upload file; the upload file is protected from edits.
• MSME compliance — tracking payments to micro and small enterprises within the time limit under the MSMED Act.
• Periodic reviews — vendor balance confirmations, ageing of debit balances, and reviews of dormant or one-time vendors.

Fraud red flags: invoices just below approval limits, vendors sharing bank accounts or addresses with employees, round-sum invoices, and frequent manual payments outside the system.

Note: Frame the three-way match as both an accuracy control and an anti-fraud control — interviewers want to see that you understand why the control exists.