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Summary of ind as

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This is summary of the Indian Accounting Standards converged to IFRS

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Summary of ind as

  1. 1. Indian Accounting Standards A Summary
  2. 2. Ind AS 1 Presentation of Financial Statements • It sets out principles of presentation of financial statements. • It enlarges the components of financial statements - Statement of changes in equity - Other comprehensive income as part of Statement of Profit & Loss. • Ind AS 1 requires disclosures of key sources of estimation uncertainty , critical managerial judgment and capital disclosures
  3. 3. • Divergence with IAS 1: - Ind AS 1 does not require functional classification of expenses - Breach of loan clause that existed as on reporting date and makes the loan payable on demand , if remedied till the financial statements are approved by the Board is not classified as current if not payable within a period of 12 months. Ind AS 1 Presentation of Financial Statements
  4. 4. Ind AS 2 Inventories • Allows the commodity broker trader to make valuation at fair value. • Requires to eliminate interest element from cost of inventories acquired on deferred payment terms. • Enlarged disclosure requirements. • Inventories which are written down below cost can be writtten back subsequently to the extent of previous write down.
  5. 5. Ind AS 7 Statement of Cash Flows • Requires additional disclosure : - An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group. • Makes carve out of IAS 7: IAS 7 allows classification of interest and dividend paid as Cash flows from operating activities IAS 7 allows classification of interest and dividend received as Cash flows from operating activities.
  6. 6. • Ind AS 8 is not applied in case of first time adoption of Ind ASs. The first time adopter applies Ind AS 101 for transition . Transition to Ind ASs requires change in accounting policies. • AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies of existing Indian GAAP is substantially different from Ind AS 8. • (i) Correction of errors and omissions - As per AS 5 correction of errors and omissions (which are termed as prior period items) is presented as income or expense of the current period as a separate line item in the Statement of Profit and Loss. • As per Ind AS 8 material prior period errors are corrected retrospectively unless giving retrospective effect is impracticable. However, in case it is impracticable to assess period-specific retrospective impact, an entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable which may be the current period. • Change in accounting policies are also given effect retrospectively. Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
  7. 7. Ind AS 10 Events after the reporting date • Ind AS 10 has defined the term ‘adjusting events’ differently when compared to IAS 10. Where there is a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the agreement by lender before the approval of the financial statements for issue, to not demand payment as a consequence of the breach, shall be considered as an adjusting event. While such breach makes the long term loan a current liability as per IFRS, that shall continue to be classified as a long term loan as per Ind AS. • Ind AS 10 is different from AS 4 : If an entity declares dividends to holders of equity instruments (as defined in Ind AS 32, Financial Instruments: Presentation) after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period. [ Paragraph 12, Ind AS 10]
  8. 8. • Ind AS 12 prescribes the accounting treatment for income taxes. • It sets out methodology for the measurement of deferred tax expense and income leading to recognition of deferred tax liability and asset respectively. • It applies balance sheet liability method in contrast to income statement liability method used in the earlier version of Ind AS 12. Ind AS 12 Income taxes
  9. 9. Ind AS 16 Property, Plant & Equipment • This standard prescribes the accounting treatment for property, plant and equipment covering recognition of the assets, the determination of their carrying amounts , component-wise depreciation charges and derecognition. • This changes the meaning of repairs and manitenance through component-wise account for tangible fixed assets. • Ind AS 17 requires a lease of land with an indefinite economic life to be normally classified as an operating lease, unless title is expected to pass to the lessee by the end of the lease term. Therefore, leasehold land is not classified along with tangible fixed assets.
  10. 10. Ind AS 17 Leases • This standard requires classifying lease of land and building separately. • It covers additional criteria for determining whether an arrangement contains a lease. • It also covers : - accounting for operating lease incentives - explains meaning of application of straight line basis recognition of operating lease rent or operation lease income - It also covers ‘Evaluating the Substance of Transactions Involving the Legal Form of a Lease’.
  11. 11. Ind AS 19 Employee Benefits • Requires to account for - Determining the remeasurements of the net defined benefit liability (asset), to be recognised in other comprehensive income, comprising: (i) actuarial gains and losses (see paragraphs 128 and 129); (ii) return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset) (see paragraph 130); and (iii) any change in the effect of the asset ceiling (see paragraph 64), excluding amounts included in net interest on the net defined benefit liability (asset).
  12. 12. • An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the amounts recognised in the financial statements do not differ materially from the amounts that would be determined at the end of the reporting period. • This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period. Ind AS 19 Employee Benefits
  13. 13. • The rate used to discount post-employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on government bonds. However, subsidiaries, associates, joint ventures and branches domiciled outside India shall discount post-employment benefit obligations arising on account of postemployment benefit plans using the rate determined by reference to market yields at the end of the reporting period on high quality corporate bonds. In case, such subsidiaries, associates, joint ventures and branches are domiciled in countries where there is no deep market in such bonds, the market yields (at the end of the reporting period) on government bonds of that country shall be used. The currency and term of the government bonds or corporate bonds shall be consistent with the currency and estimated term of the post- employment benefit obligations. Ind AS 19 Employee Benefits
  14. 14. • When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of: • (a) the surplus in the defined benefit plan; and • (b) the asset ceiling, determined using the discount rate specified in paragraph 83. Ind AS 19 Employee Benefits
  15. 15. Ind AS 19 —The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction • A requirement to make contributions to a plan would not affect the measurement of the defined benefit asset or liability. This is because the contributions, once paid, will become plan assets and so the additional net liability is nil. • However, a minimum funding requirement may give rise to a liability if the required contributions will not be available to the entity once they have been paid. Ind AS 19 Employee Benefits
  16. 16. Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance • This standard adopts income approach to account for government grants • Non-monetary assets given as government grants are measured at fair value • Gross approach is followed for the purpose of accounting for assets partly or wholly subjected to government grants. • Below market rate loan from government has implicit grant. • Requires disclosure of Government assistance.
  17. 17. Ind AS 21 The Effects of Changes in Foreign Exchange Rates • IFRS carve outs - Allows to follow previous GAAP accounting in respect of long term foreign currency denominated monetary items. • Foreign subsidiary, associates, joint ventures , branch are all treated as foreign operations and same translation rule would apply. • There is no distinction of integral and non- integral foreign operations.
  18. 18. Ind AS 23 Borrowing Costs • Borrowing costs are computed applying effective interest rate method
  19. 19. Ind AS 24 Related Party Disclosures • Ind AS 24 is a disclosure standard that requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements. • Ind AS 24 has made two important carve outs : (1) Requirements of related party disclosures would not apply if such disclosures would conflict with the reporting entity’s duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority. (2) In case a statute or a regulator or a similar competent authority governing an entity prohibits the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. • Related party disclosure as per Ind AS 24 is different from and in addition to disclosure of related party transaction in the Board’s report in accordance with the Companies Act, 2013 .
  20. 20. • Definition of related party as per Ind AS 24 is different from the definition given in Paragraph 3 of AS 18. Whereas AS 18 talks about ‘relatives’ while defining related party, Ind AS 24 talk about ‘ close family members’ which is much narrower than relative. • AS 18 does not include post-employment plan in the list of related party. No such exclusion is there in Ind AS 24. • Definition of the related party under the Companies Act is different which would result in releasing one set of related party transactions in the financial statements as per Ind AS 24 , and another set of information in the Directors’ Report in accordance with Section 188 of the Companies Act, 2013. Ind AS 24 Related Party Disclosures
  21. 21. Ind AS 27 Separate Financial Statements • Investment in subsidiary, associate and joint venture can be measured at cost or as per Ind AS 109 in separate financial statements of the parent / investor.
  22. 22. Ind AS 28 Investments in associate and joint venture • Joint ventures are accounted for applying equity method accounting in the consolidated financial statements. • Ind AS 111 Joint arrangement is applied to identify joint venture. • Potential voting right is taken into account to determine significant influence.
  23. 23. Ind AS 32 Financial Instruments : Presentation • Defines financial assets, financial liabilities and equity • Equity instrument reflects residual interest. (a) The instrument includes no contractual obligation: (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer. (b) It satisfies fixed for fixed test for settlement. However, the Companies Act, 2013 treats preference share capital as equity although as per accounting standards it may classified as financial liability.
  24. 24. Ind AS 33 Earnings per share • Same as old standard. It requires computation of basic and diluted EPS. • However, Ind AS 33 requires computation of EPS excluding as well including profit or loss from discontinuing operations
  25. 25. Ind AS 34 Interim Financial Reporting • Same as AS 25.
  26. 26. Ind AS 36 Impairment of Assets • Ind AS 36 is different from AS 28 on many counts. Scope restriction of Ind AS 36 is enhanced to include bilogical assets that are measured at fair value less costs to sell, deferred acquisition costs and intangible assets arising from an insurer’s contractual rights under insurance contracts and non-current assets held for sale. • This standard applies to investments in subsidiary, associates and joint ventures. • Recoverable amount as per AS 28 is higher of the value in use and net selling price of the asset whereas in Ind AS 36 it is higher of the value in use and fair value less costs of disposal. • AS 28 provides SMC specific methodology of value in use which is not there in Ind AS 36. For the purpose of Ind AS 36, fair value is measured in accordance with Ind AS 113 . • Ind AS 36 requires impairment testing of goodwill acquired in a business combination annually. It also requires annual impairment testing of intangible assets having indefinite useful life and intangible asset which are not yet available for use annually. • In Ind AS 36, indication for impairment of investments in subsidiary, associates and joint ventures are provided in addition to internal and external indications of impairment.
  27. 27. • If there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs of disposal, the asset’s fair value less costs of disposal may be used as its recoverable amount. This will often be the case for an asset that is heldfor disposal. • Ind AS 36 provides detailed guidance on measurement of recoverable amount of intangible assets with an indefinite useful life. • Whereas AS 28 detailed out measurement of net selling price of an asset, one of the basis to measure recoverable amount in Ind AS 36 is fair value less costs of disposal. Fair value is measured in accordance with Ind AS 113. This standard explains meaning of costs to disposal. • If the initial allocation of goodwill acquired in a business combination cannot be completed before the end of the annual period in which the business combination is effected, that initial allocation shall be completed before the end of the first annual period beginning after the acquisition date. • There are differences in disclosure requirements of Ind AS 36 and AS 28. Ind AS 36 Impairment of Assets
  28. 28. Ind AS 36 Impairment of Assets
  29. 29. Impairment Indicators of investments in subsidiaries, associates and joint ventures Two special indicators are provided in Ind AS 36.12(h) to check if the investment in subsidiary, joint venture or associate has been impaired: i. Check whether the carrying amount of the investment in the stand-alone Balance Sheet of the investor exceeds the carrying amount of the net assets including goodwill in the consolidated Balance Sheet. ii. Check if dividend from subsidiary , joint venture or associate exceeds the total comprehensive income of the subsidiary, joint venture or associate respectively in the period the dividend is declared.
  30. 30. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets 1. This standard includes three interpretations : • Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds • Liabilities arising from Participating in a Specific Market— Waste Electrical and Electronic Equipment • Levies 2. A distinguishing feature of this standard as compared to AS 29 is measurement of provisions in terms of present value when time value of money is material. 3. The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) shall not reflect risks for which future cash flow estimates have been adjusted.
  31. 31. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets 4. Recognition of provision - A provision is recognised when: (a) an entity has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision is recognised. Provision is a present obligation. Accordingly, no provision is recognised for expected future operating loss . A provision is distinguished from liabilities in the sense that in case of provision there exists uncertainty about the timing or amount of the future expenditure required in settlement. But reliable estimate of provision is possible. 5. Contingent Liabilities - Contingent liabilities are not recognised. They are disclosed in accordance with Paragraph 86, Ind AS 37 unless the possibility of an outflow of resources embodying economic benefits is remote.
  32. 32. 6. Contingent Assets - Contingent assets are not recognised. They are disclosed in accordance with Paragraph 89, Ind AS 37 where an inflow of economic benefits is probable. 7. Measurement of Provision - A provision is measured as a best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts. A provision is measured before tax. 8. Gains from expected disposal asset - Gains from expected disposal of asset is separately recognised in accordance with relevant standards. For example, while measuring decommissioning liability , expected scrap realization of relevant asset is not taken into account. 9. Reimbursements - Reimbursement is treated as a separate asset. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. However, in the Statement of Profit and Loss , provision may be presented net of reimbursements. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
  33. 33. 10. Reassessment - A provision is reviewed at the end of each reproting period , and if necessary, the amount of provision is adjusted to reflect the current best estimate. 11. Unwinding of discount - Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognised as borrowing cost. 12. Reversal of Provision -A provision is reversed when it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation. 13. Onerous contracts - If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision. 14. Provision for Restructuring - A constructive obligation for restructuring is provided for. A restructuring provision shall include only the direct expenditures arising from the restructuring. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
  34. 34. Ind AS 40 Investment Property 1. Accounting treatment as per AS 13 : As per Accounting Standard ( AS) 13 Accounting For Investments treated investment property as part of investments. Schedule II to the Companies Act, 2014 requires to classify investment property as long term investments. As per AS 13 ,investment property is defined as an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise. Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. [ Paragraph 17, AS 13] 2. Classification of investment property – As Ind AS 40 , investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business. Investment property is held to earn rentals or for capital appreciation or both. A distinguishing feature of investment property is that it generates cash flows largely independently of the other assets held by an entity. An investment property may attach providing insignificant ancillary services. 3. IAS 40 Investment property allows to opt for wither fair value model or cost model for the purpose of measurement subsequent to initial recognition. However, Ind AS 40 allows only cost model. However, it requires disclosure of fair value of investment property.
  35. 35. Ind AS 41 Agriculture 1. AS 10 Fixed Assets has scope exclusion as regards livestock . forests, plantations and similar regenerative natural resources. Ind AS 16 has scope exclusion as regards biological assets related to agricultural activity other than bearer plants . However, Ind AS 16 applies to bearer plants but itdoes not apply to the produce on bearer plants. These scope restriction is for reason that biological assets are of special nature . 2. Ind AS 41 applies to biological assets and agricultural produce.
  36. 36. Ind AS 41 Agriculture 3. A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair value less costs to sell. There two exceptions to this general principles : - at the early stage of an asset’s life; and - when fair value cannot be measured reliably on initial recognition. The first exemption is a practical expedient. Ind AS 41 allows that cost may approximate fair value where little biological transformation has taken place since the initial cost was incurred (for example, for fruit tree seedlings planted immediately before the balance sheet date). The same applies when the impact of the biological transformation on price is not expected to be material (for example, for the initial growth in a 30-year pine plantation cycle). The second exemption that fair value cannot be reliably measured is rarely relevant. Ind AS 41 includes a presumption that fair value can be measured reliably for a biological asset. That presumption can be rebutted only on initial recognition for a biological asset for which market- determined prices or values are not available and for which alternative estimates of fair value are determined to be clearly unreliable. 4. Bearer plant are excluded from the scope of Ind AS 41. It is treated just like property, plant and equipment applying Ind AS 16. 5. A gain or loss arising on initial recognition of a biological asset at fair value less costs to sell and from a change in fair value less costs to sell of a biological asset shall be included in profit or loss for the period in which it arises.
  37. 37. Ind AS 101 • It is a transition standards • Ind AS 8 does not apply for first time adoption of Indian Accounting Standards.
  38. 38. Ind AS 102 Share based payment 1. Share-based payments are of three types – (1) Equity-settled transactions for goods or services acquired by an entity (2) Cash settled but price or value of the goods or services is determined on the basis of the price of equity instrument of the entity , and (3) Transactions for goods or services acquired by the entity in which either the entity can settle or supplier can choose settlement by equity instruments of the entity. 2. A share-based transaction is recognised when the entity receives or acquires the goods and services with a corresponding increase in the equity. However, timing of goods and services received or obtained may differ from the timing of the issue of equity. In such a case, the entity shall recognise an equity suspense account which will be reversed when the equity instruments as stated in transaction are issued. 3. Equity settled share-based transactions are measured at the fair value of goods or services received unless the fair value cannot be reliably estimated. Definition of fair value as per Ind AS 102 is at variant with that of Ind AS 113. For the purpose of this standard , the definition as per Appendix A of Ind AS 102 is applied. Employee stock options are measured at fair value of options granted. It is not possible to link the specific service rendered by the employee to stock options granted reliably.
  39. 39. 4. Some share options may not have any vesting conditions . These will have the same grant date and vest date. The issuing entity shall presume that it had received the consideration of share options. Accordingly, fair value of share options ( the difference between share price on the grant date and exercise price) is recognised on the grant date. These options will have only intrinsic value – the difference between the share price and exercise price on the grant date is the fair value of the share option. 5. Most of the share options contain vesting conditions which are service condition or performance condition by nature. Service condition is staisifed over the vesting period. Accordingly, the issuer would recognise the fair value of share options over the service period i.e. length of the vesting period. Performance condition may be classified as market condition and non-market condition. 6. Non-market conditions are not adjusted in determining fair value of share options. Whereas market condition is adjusted in the valuation. But no consideration for service rendered in recognised unless all other vesting conditions are satisfied. 7. Share options are measured at intrinsic value and such intrinsic value is reviewed at every reporting date when fair value of share option cannot be reliably measured. Ind AS 102 Share based payment
  40. 40. 8. If the terms and conditions of share-based payment transaction are modified, any increase in fair value is recognised over the remainder of the vesting period. The fair value of goods and services received is accordingly changed. However, if there is any decrease in fair value , that is ignored. 9. Cancellation of share –based payment transaction or early settlement is treated as acceleration of vesting . Any cash payment to settle such transaction to the extent of fair value of goods and services is treated as payment for share repurchase i.e. equity component is reversed. Any excess payment is over and above the fair value is expensed. 10. In cash settled share-based transaction , an entity recognises liability measured at fair value share options. The fair value of liability is remeasured at every reporting date , and with a corresponding change in fair value of goods and services. Ind AS 102 Share based payment
  41. 41. 11. In share-based transaction with cash settlement option , either the counterparty or the entity may have option to choose the mode of settlement. When the counterparty has the option to choose the mode of settlement, the transaction is treated as compound financial instruments. The excess of fair value of the equity settlement option over the cash settlement option is treated as equity. 12. This standard also covers share-based payment transaction within group entities. Ind AS 102 Share based payment
  42. 42. Ind AS 103 Business Combinations 1. Ind AS 103 is substantially different from AS 14 Accounting for Amalgamations. Ind AS 103 allows fair value accounting for business combinations applying acquisition method. As per AS 14 business combinations are classified into amalgamations in the nature of merger and amalgamations in the nature of purchase. Pooling of interest method is applied in the first case, and purchase method is applied in the second case. 2. Under the pooling of interests method of AS 14 the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts 3. Appendix C to Ind AS 103 prescribes pooling interest method for business combinations of entities under common control which are excluded from the scope of IFRS 3. Thus Ind AS 103 provides guidance for the accounting for business combinations of entities under common control for which no guidance is available in IFRSs. 4. An acquirer of a business recognises the assets acquired and liabilities assumed at their acquisition-date fair values and discloses information that enables users to evaluate the nature and financial effects of the acquisition. There are certain exceptions to the principles . Exceptions are applied to contingent liabilities, income taxes, employee benefits, reacquired rights, indemnification assets, share –based awards and non-current assets held for sale.
  43. 43. 5. Certain assets acquired and liabilities assumed require to be classified as on the date of acquisition , for example financial assets and liabilities, derivatives as hedging instruments and separation of embedded derivatives, based on the facts and circumstances as on the date. However, lease and insurance contracts are classified as per terms and conditions at the inception or at the date of modification. 6. An acquirer may either account for partial goodwill which is excess of fair value of consideration paid over proportionate shares of net assets at fair value. Alternatively, the acquirer may measure full goodwill by measuring non-controlling interest at fair value. 7. Ind AS 103 makes a carve out as regards accounting treatment of bargain purchase gain. Whereas as per IFRS 3 bargain purchase gain is accounted for in the profit or loss, Ind AS 103 requires it to be accounted for in other comprehensive income. 8. No valuation allowance is recognised on assets acquired like receivables , loans and advances because of uncertain cash flows. All assets acquired are measured at acquisition date fair value. 9. Purchase consideration is measured at acquisition date fair value. 10 Purchase consideration includes contingent consideration. Contingent consideration may be in form of remuneration to previous owners of the acquiree or lease rent or many other form. Ind AS 103 Business Combinations
  44. 44. • Ind AS 103 applies to a transaction or other event that meets the definition of a business combination. The following transactions are excluded from the scope of this standards : (a) the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. (b) the acquisition of an asset or a group of assets that does not constitute a business. • In such cases the acquirer would identify and recognise the individual identifiable assets acquired (including those assets that meet the definition of, and recognition criteria for, intangible assets in Ind AS 38, Intangible Assets) and liabilities assumed. The cost of the group of assets is be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the date of purchase. Such a transaction or event does not give rise to goodwill. Ind AS 103 Business Combinations
  45. 45. • Appendix C to Ind AS 103 sets out accounting principles for business combinations between entities under common control which is excluded from the scope of the IFRS 3. • Group restructurings and reorganisations including those related to preparations for initial public offerings are excluded from the scope of IFRS 3 Business Combinations, because the combining entities are controlled by the same party. These restructurings and reorganisations are often described as business combinations under common control (BCUCC). Ind AS 103 Business Combinations
  46. 46. Ind AS 105 Non-current Assets Held for Sale & Discontinuing Operations 1. All non-current assets and disposal group held for sale are identified based on criteria set out in Paragrpahs 7 and 8 of Ind AS 105 : Assets should be available for immediate sale in their present conditions subject to only the terms and conditions which are usual and customary for sales of such assets. Sale must be highly probable 2. Non-current assets held for sale and disposal group are measured at lower of the carrying amount and fair value less costs to sell. 3. Non-current assets held for distribution are measured at lower of the carrying amount and fair value less costs to sell. 4. Assets specified in Paragraph 5 of Ind AS 105 are continued to be measured in accordance with appropriate Ind ASs. 5. Non-current assets held for sale and disposal group are presented in the Balance Sheet as current asset. Any liabilities which are part of disposal group are also separately presented as current liabilities . 6. Single amount post-tax profit of discontinued operations are separately presented in the Statement of Profit and Loss. Cash flows from discontinued operations are also separately presented. Ind AS 33 requires presentation of basic and diluted based on profit of discontinued operations.
  47. 47. Ind AS 108 Operating Segment
  48. 48. Meaning of Operating Segment • An operating segment is a component of an entity: (a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. • An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues. [ Ind AS 108.5] • For the purposes of this Ind AS 108 , an entity’s post-employment benefit plans are not operating segments.
  49. 49. Ind AS 108 Operating segment • A cost centre can be operating segment. • One of the criteria used in Ind AS 108.5 for defining an operating segment is ‘component of an entity that engages in business activities from which it may earn revenues and incur expenses’. The expression ‘ may’ used in the criteria allows to consider a cost centre as an operating segment. • Manufacturing entities that are managed by reference to operating cost centres, may not record cost centre revenues because the entity’s total customer revenues are not allocated to each cost centre. In this case the critical determining factor will be whether discrete financial information is prepared and reviewed by the CODM. If a cost centre satisfies these two criteria , it is considered as operating segment as per Ind AS 108.5.
  50. 50. Ind AS 109 Financial Instruments • Classifies financial assets and financial liabilities , and prescribes measurement criteria • Covers accounting principles to be followed for recognition, derecognition and reclassification of financial assets and financial liabilities. • Requires in certain cases that embedded derivative shall be segregated from the host contract by the issuer of financial instruments. • Prescribes methodology for impairment testing • Prescribes principles of hedge accounting.
  51. 51. Ind AS 109 Financial Instruments • Financial assets are classified into – (i) Financial assets at fair value through profit and loss (ii) Financial assets at fair value through other comprehensive income (iii) Financial assets at amortised cost. The classification is carried as per business model of the investing entity.
  52. 52. Ind AS 109 Financial Liabilities • A financial liability is classified into any of the five categories – (1) financial liability as at amortised cost , (2) financial liability as at fair value through profit or loss , (3) financial liability arising out derecognition of financial asset tat does not qualify for derecognition (4) financial guarantee and (5) Commitments to provide a loan at a below- market interest rate.
  53. 53. Ind AS 7 Financial Instruments 1.Ind AS 107 sets out disclosures in respect of financial assets and financial liabilities including inherent risks. It requires disclosures of significant accounting policies including measurement bases and managerial judgements other than those related to estimation. 2.Ind AS 107 disclosures are provided by class of financial assets and financial liabilities which are distinct from various categories of financial assets and financial liabilities classified as per Ind AS 109. Ind AS 107 classes are determined by nature and characteristics of various financial instruments.
  54. 54. • Financial assets and liabilities are classified as follows for the purpose of Ind AS 107 disclosures : (i) Financial assets at fair value through profit or loss : - Credit derivatives measured at fair value through profit and loss as per Paragraph 6.7.1 of Ind AS 109 - Others (ii) Financial liabilities at fair value through profit or loss : - Credit derivatives measured at fair value through profit and loss as per Paragraph 6.7.1 of Ind AS 109 - Others (iii) financial assets at amortised cost (iv) financial liabilities at amortised cost (v) Financial assets at fair value through other comprehensive income : -Debt instruments - Equity instruments Ind AS 7 Financial Instruments
  55. 55. 2. Disclose carrying amounts of financial assets and financial liabilities by classes as stated above. 3. Disclose changes in fair value of financial assets attributable to change in credit risk and maximum credit risk exposures of credit derivatives and other financial assets at fair value through profit or loss. 4. Disclosure of details of financial liabilities designated at fair value through profit or loss by irrevocable choice. 5. Disclosures of details of equity instruments classified as financial assets through other comprehensive income including reasons for classification , dividend and gain or loss on derecognition. 6. Disclosures relating to reclassification include reasons for reclassification. In case of reclassification from financial assets of fair value category to amortised cost category disclosures would include effective interest rate , interest revenue on the reclassified assets . Disclosures would also cover fair value of those reclassified assets and change in fair value that would have included in the profit or loss , or other comprehensive income if the assets were not reclassified. Ind AS 7 Financial Instruments
  56. 56. 7. Quantitative information regarding financial assets and financial liabilities offset, and description of enforceable master netting or other arrangements. 8. Details of collateral offered and held are disclosed. 9. Loss allowance is not presented on the face of the Balance Sheet , It is disclosed in the notes. 10. Separate presentation of gain or loss from various classes of financial assets or financial liabilities, interest revenue and interest expenses, and fees. 11. Quantitative and qualitative disclosures regarding hedging with details of hedging item and hedging instruments. 12. Risk disclosures covering credit risk, liquidity risk and market risk. Ind AS 7 Financial Instruments
  57. 57. Ind AS 110 Consolidated Financial Statements 1. Subsidiaries are defined on the basis of control. Meaning of the term control is different in the Companies Act, 2013 and Ind AS 110. 2. Control is determined applying three criteria – (1) existence of power over the investee; (2) exposure, or rights, to variable returns from its involvement with the investee; and (3) the ability to use its power over the investee to affect the amount of the investor’s returns. In straight forward cases wherein by design of the investee , decision making right for the relevant activities is enjoyed on the basis of voting rights, the investor who holds the majority voting right enjoys the control. In other cases , control is determined evaluating all other facts and circumstances like whether an investor enjoys the right to decide upon relevant activities , he has exposure to variable return and he has the ability to use the power over the investee to affect the return. 3. Control is determined taking into account potential voting right. 4. Non-controlling interest is recognized even if the value is negative.
  58. 58. Scope of Ind AS 110 • All parent entities shall present consolidated financial statements other those are excluded. • Parent entities which are excluded from consolidation of subsidiaries are stated below: (1) Parents which meet all four conditions : (i) it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements; (ii) its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); (iii) it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and (iv) its ultimate or any intermediate parent produces consolidated financial statements that are available for public use and comply with Ind ASs. - An intermediate parent controls a wholly owned subsidiary. The parent is a listed company or it is in the process of listing its securities. It is not exempt from consolidation under Ind AS 110. It shall prepare consolidated financial statements. (2) Post-employment benefit plans or other long-term employee benefit plans to which Ind AS19 Employee Benefits applies. (3) An investment entity which is required under Paragraph 31 of Ind AS 10 to measure all of its subsidiaries at fair value through profit or loss. It may be mentioned that the process of identification of a subsidiary is different in the Companies Act, 2013.
  59. 59. Ind AS 111 Joint Arrangements 1. Joint arrangement is based on contractual arrangement and joint control. Existence of joint control characterized by collective control and unanimous consent. 2. Unanimous consent is characterized by protective right that decision cannot be taken without the consent of the concerned investor and right to take decision on relevant activities. 3. A critical distinguishing feature of joint operation and joint venture is : - In joint operation, the investors ( called joint operators) have right over individual assets and liabilities of the joint arrangement. - In joint venture , the investor ( called joint venturers) have right over net assets of the joint arrangement.
  60. 60. Ind AS 112 Disclosures of Interests in Other Entities • This standards applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. This IFRS has become effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted. • The global financial crisis that started in 2007 inter alia highlighted a lack of transparency about the risks to which a reporting entity was exposed from its involvement with structured entities, including those that it had sponsored. In response to input received from users and others, including the G20 leaders and the Financial Stability Board, the Board decided to address in IFRS 12 the need for improved disclosure of a reporting entity’s interests in other entities when the reporting entity has a special relationship with those other entities.
  61. 61. 1. Ind AS 112 is a disclosure standard. It requires disclosures of relating to interest in subsidiary, associate , joint arrangement and structures entities. 2. A entity would disclose significant judgements and assumptions in determining whether it has control, significant influence , joint control over an investee as the case may be and changes therein. An entity shall disclose significant judgements and assumptions (i) if it determines that it has control over an entity even though it does not hold more than half of the voting rights or (ii) if it determines that it does not have control over an entity even though it holds more than half of the voting rights. Similarly, an entity shall disclose significant judgements and assumptions (i) if it determines that it has significant influence over an entity even though it does not hold twenty per cent or more of the voting rights or (ii) if it determines that it does not have significant influence over an entity even though it holds twenty per cent or more the voting rights. Ind AS 112 Disclosures of Interests in Other Entities
  62. 62. • 4. This standard requires disclosures in respect of subsidiaries and non-controlling interest ( NCI) covering – (i) name, (ii) principal business , (iii) interest of the parent, (iv) share of profit of the NCI during the current period and accumulated balance of NCI, (v) summarized financial information including non-current and current assets, non-current and current liabilities, revenue, profit and total comprehensive income. • The disclosures would also include – (a) significant restrictions in using assets of the Group or settlement of liabilities, (b) protective rights of NCI like repayment of liabilities of subsidiary before repayment of liabilities of the parent, (c ) effect of change in controlling interest without loss of control in subsidiary and (d) accounting effect like gain or loss arising out of loss of control in a subsidiary and presentation thereof. • 5. This standard details out disclosures by investment entity if it opts for not consolidating its subsidiary. The disclosures include – (i) name, (ii) principal business , (iii) interest of the parent, (iv) significant restriction , (v) commitments , (vi) financial support provided without contractual obligation. • An investment entity shall also disclose reasons for financial support provided to a structured entity leading acquisition of controlling interest. Ind AS 112 Disclosures of Interests in Other Entities
  63. 63. 6. This standard requires disclosures relating to interests in joint arrangements and associated . Disclosures include – (i) name, (ii) nature of entity’s relationship , (iii) place of business , (iv) proportion of ownership interest or participating shares held by the entity. Disclosures would also cover – (i) method of accounting adopted in respect of joint ventures or associates, (ii) financial summary , (iii) market value of investments in joint venture or associate if there exists quoted market price. • Aggregate information shall be disclosed separately for immaterial joint ventures or associated. Disclosures are provided on individual entity-basis for each material joint ventures or associated. • Other disclosures include – (i) disclosure of the nature and extent of significant restriction , (ii) reasons for different accounting period , if applicable, by joint ventures or associates, (iii) unrecognized share of losses and (iv) commitments. 7. Disclosures relating to structured entity : (i) disclosures of nature of interests and (ii) nature of risks. Ind AS 112 Disclosures of Interests in Other Entities
  64. 64. Disclosures as per Form No. AOC 1
  65. 65. Disclosures as per Form No. AOC 1
  66. 66. Disclosures as per Form No. AOC 1
  67. 67. Disclosures as per Form No. AOC 1
  68. 68. Ind AS 113 Fair Value Measurement Ind AS 113: (a) defines fair value; (b) sets out in a single IFRS a framework for measuring fair value; and (c) requires disclosures about fair value measurements. • It applies to Ind ASs that require or permit fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances.
  69. 69. Ind AS 114 Regulatory deferral accounts • This standard permits recognition of assets and liabilities out of deferral of expenses and income in respect of a rate regulated entity which has been allowed by a regulator. It describes regulatory deferral account balances as amounts of expense or income that would not be recognised as assets or liabilities in accordance with other Standards, but that qualify to be deferred in accordance with this Ind AS 114 because the amount is included, or is expected to be included, by the rate regulator in establishing the price(s) that an entity can charge to customers for rate-regulated goods or services.
  70. 70. Ind AS 115 Revenue from Contracts with customers • This standard establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. • The core principle of Ind AS 115 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with that core principle by applying the following steps: • Step 1: Identify the contract(s) with a customer • Step 2: Identify the performance obligations in the contract • Step 3: Determine the transaction price • Step 4: Allocate the transaction price to the performance obligations in the contract • Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation. • The corresponding international standard IFRS 15 is effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.
  71. 71. We shall now discuss in details selected Ind ASs

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