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© 2016 Grant Thornton India LLP. All rights reserved.
Ind AS: Issues and challenges in implementation
Mumbai12 February 2016
© 2016 Grant Thornton India LLP. All rights reserved.
Agenda
1. Business combinations – Ind AS 1032. Financial instruments – Ind AS 32 and 1093. Consolidation – Ind AS 110 and 1114. Income taxes – Ind AS 12 and ICDS5. First time adoption: exemptions and exceptions – Ind
AS 101
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Summary of transition from existingIndian GAAP to Ind AS
• Dispersed guidance – AS 10, 14 & 21
• Book-values based accounting in case of mergers and share acquisitions; fair value based accounting in case of amalgamation in nature of acquisitions and business acquisitions
• Goodwill can be amortised
• Intangible assets not recognised by acquiree, are not recognised in the consolidated financial statements also
• Single, principles-based model
• Fair value based accounting –purchase price allocation is a tedious and onerous exercise
• Goodwill can only be tested for impairment
• All identifiable assets and liabilities of acquiree are recognised, even if they were not recognised by acquiree
Existing IGAAP Ind-AS
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Business Combination
Business combinationA transaction or other event in which an acquirer obtains control of one or more businesses.
ControlAn investor controls an investee if and only if the investor has all the following:• power over the investee • exposure, or rights, to variable returns from its involvement with the investee; and• the ability to use its power over the investee to affect the amount of the investor's returns.
If the transaction/ assets acquired are not a busin ess, the reporting entity shall account for the transaction or other event as an asset acquisition
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Comprehensive example
• On 1 January 20X1, Entity A acquired 10% of the voting ordinary shares of Entity B (a pharmaceutical company) for INR 100,000.
• On 31 December 20X2, Entity A acquires 80% of Entity B for cash consideration of INR 2.4 million.
• Fair and book value information is as follows as of 31 December 20X2:– Fair value of the 10% interest of Entity B already owned by Entity A: INR 250,000– Fair value of Entity B's identifiable net assets: INR 4 million, including intangible assets not
recognised by Entity B, INR 0.5 million; book value in books of Entity B: INR 1 million– Fair value of non-controlling interests: INR 200,000
• An additional INR 250,000 to be paid after 2 years if a specified drug receives regulatory approval
• On 31 December 20X2, Entity B has a dispute with the income-tax authorities for a potential tax demand of INR 500,000. Entity B's legal advisors expect a 70% probability of winning the case.
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Accounting under existing Indian GAAP(AS 21)
A's consolidated financial statements INR INR
DR Identifiable net assets of Entity B 1,000,000
DR Goodwill 1,850,000
CR Cash 2,400,000
CR Investment in Entity B 100,000
CR Liability for consideration payable* 250,000
CR Minority interest 100,000
*Paragraph 15 of AS-14:"Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon asthe amount is determinable."
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Determine the consideration transferred
consideration transferred is the sum of the acquisition-date fair values of: – the assets transferred by the acquirer– the liabilities incurred by the acquirer to former owners of the target company and – equity interests issued by the acquirer
in exchange for the acquiree
(includescontingent
consideration)
(excludesacquisition
costs)
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Determine the consideration transferredContingent consideration
contingent consideration: an obligation of the acquirer to transfer additional assets or equity interest to the acquiree's former owners if specified future events occur or conditions are met
recognised and measured at fair value on the
acquisition date
apply Ind AS 32 to determine classification as financial liability or equity
• directly impacts goodwill and reported liabilities or equity
• liability subsequently remeasured (FVTPL) until settled
• equity not remeasured
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contractual purchase price (based on the
SPA)
adjustments for transactions
not part of the business
combination
consideration transferred in exchange for the acquiree
Determine the consideration transferred
or
• remuneration for employees or former owners for future services• reimbursement of the acquiree or former owners for paying the acquirer's acquisition-related costs• settlement of pre-existing relationships• replacement of acquiree share-based payment awards • contracts to acquire shares from non-selling shareholders
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Recognising and measuring any non-controlling interest (NCI)
Category Description Example Measurement option?
present ownershipinstrument
acquiree's shares held by non-selling shareholders that entitle them to a proportionate share of the acquiree's net assets in the event of liquidation
common or ordinary shares
yes - fair value orproportionate share of recognised assets and liabilities
other componentsof NCI
other financial instruments issued by the acquiree that meet Ind AS 32's definition of equity
warrants or call options (on fixed-for-fixed terms)
no - fair value
non-controlling interest: the equity in a subsidiary not attributable, directly or indirectly, to a parent
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Measurement of identifiable assets acquired/liabilities assumed
Assets acquired and liabilities assumed are recognised at fair value if:
– meet the definition of an asset or liability at the acquisition date– are part of exchange in the business combination
Exception to recognition principles in a business c ombination:
Ind AS 37
• a contingent liability is…a present obligation that arises from past events but is not recognised because: (i) it is not probable …or (ii) the amount of the obligation cannot be measured with sufficient reliability
Ind AS 103
• recognised only if a present obligation exists and fair value can be measured reliably • recognised even if an outflow of economic benefits is not probable (uncertainty is
considered in the determination of fair value)
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Accounting for business combinations
consideration transferred
plus amount of Non Controlling Interest (NCI)
plus Fair Value of previously held equity interest
less net of assets acquired and liabilities assumed
equals goodwill (or gain on bargain purchase)
Double check accounting if bargain gain; recognise in OCI
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Accounting under Ind AS 103
A's consolidated financial statements INR INR
DR Identifiable net assets of Entity B (including intangible assets, net of fair value of contingent liability, INR 500,000 * 30%)
3,850,000
CR Cash 2,400,000
CR Investment in Entity B 100,000
CR Gain on fair valuation of previously held equity interest (P&L) 150,000
CR Liability for consideration payable 250,000
CR Non-controlling interest (either at fair value, INR 200,000 or proportionate fair value of net assets, INR 385,000)
385,000
CR Gain on bargain purchase (other comprehensive income or directly in reserves) – balancing figure
565,000
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Measurement period Initial accounting incomplete at the reporting date
Measurement period adjustments
• limited to those that arise from new information obtained about facts and circumstances that existed at the acquisition date
Accounting:• retrospectively adjust the
provisional amounts and/or recognise new assets/liabilities to reflect the new information
• adjust goodwill
Other adjustments during measurement period
• include adjustments for developments after the acquisition date but during the measurement period (eg changes in estimates)
Accounting:• prospectively adjust
provisional amounts to reflect new information arising after the acquisition date
• no adjustment to goodwill • correct errors retrospectively
in accordance with Ind AS 8
Post-measurement period adjustments
Accounting:
• no adjustment to the accounting for the business combination allowed except for the correction of an error in accordance with Ind AS 8
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Common control
Common control A business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory .
Accounting of common control transactions :• assets and liabilities are recorded at book value and • any expenses of the combination are written off immediately in the P&L• comparative amounts are restated as if the combination had taken place at the beginning of the earliest
comparative period presented• adjustment are allowed only to harmonise accounting policies, no other adjustment allowed• consideration to be recorded as follows: Securities – at nominal value and asset other than cash – at fair value• balance of retained earning – to be aggregated with transferee or to be transferred to general reserve• The difference, if any, between the amount recorded as share capital issued plus any additional consideration
in the form of cash or other assets and the amount of share capital of the transferor shall be transferred to capital reserve
Additional guidance is given in Ind AS 103 regarding accounting for business combinations under Common control
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Impact of new guidance
• Significant involvement of fair valuation specialists and correspondingly, impact on the size of balance sheets
• Since adjustments relating to business combination transactions are not pushed down to the subsidiary, parallel financial records are required to be maintained
• Accounting for business combination transactions also affects deferred tax balances
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Summary of transition from existingIndian GAAP to Ind AS
• Effective guidance in respect of selective financial instruments -investments (AS 13) and foreign currency forward contracts (AS 11)
• Accounting driven by conservatism:
– Investments valued at lower of cost and fair value
– Gains on fair valuation of derivatives are not recognised
• Detailed guidance is available on all aspects of various financial instruments
• Fair value based accounting on initial recognition; extensive guidance on impairment of financial assets
• Guidance on accounting for financial liabilities
• Derivative and embedded derivative accounting
• Hedge Accoutning
Existing IGAAP Ind-AS
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Definition – Financial Instrument
Financial instrument is
Any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
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Definition – Financial Asset
Financial asset is• cash
• an equity instrument of another entity
• a contractual right: – to receive cash or another financial asset from another entity– to exchange financial assets or financial liabilities under favourable conditions
• a contract that will or may be settled in the entity's own equity instruments and is– a non-derivative for which the entity is or may be obliged to receive a variable number of
the entity's own equity instruments; or– a derivative that will or may be settled other than by the exchange of a fixed amount of
cash or another financial asset for a fixed number of the entity's own equity instruments
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Definition – Financial Liability
Financial liability is
• A contractual obligation
– to deliver cash or other financial assets to another entity
– to exchange financial assets/ liabilities under potentially unfavourable conditions ; or
• a contract that will or may be settled in the entity’s own equity instruments and is:
– a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or
– a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed numb er of the entity’s own equity instruments
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Case study 1
1. Shares of subsidiary companies-
Yes. However, investment in subsidiary is not covered under IAS 39
2. Advance given for purchase of goods
No. There is no contractual right to receive cash/ other financial assets
3. Perpetual debt carrying interest at fixed rate
Yes. Instrument contains contractual right to receive interest at stated rate
4. Prepaid expense
No. There is no contractual right to receive cash/ other financial assets
5. Deferred tax asset
No. Not arising because of contractual arrangement
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Case study 1
6. CENVAT credit receivable
No. Not arising because of contractual arrangement
7. Lease deposit paidYes. Lessee has contractual right to receive deposit at the end of term
8. USD-INR option held by the entity. The entity is buyer of the option Yes. Financial instruments also include derivatives instruments. Since the entity is option buyer, it is potentially favourable to the entity
9. Tax liabilityNo. Tax liability arises as per the law and not contractually
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Categories of financial assets – based on subsequent measurement
1Amortised
cost
2Fair Value
2AFair value
through OCI
2BFair value
through P&L
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Application to investments in debt securities
Debt investments
Contractual cash flows solely payments of principal and interest
Business model (BM) test(at entity level)
Fair value option elected?
Amortised cost
FVOCI (with recycling)
FVPL
FailPass
1Hold to collect contractual cash flows
2BM to collect contractual cash flows and sell asset
No No
Yes
Derivative investments Equity investments
Held for trading?
FVOCI option elected?
FVOCI (no recycling)
Fail Fail
Yes
No
No
Yes
3 -Neither 1 or 2
(A)
(B)
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Application to derivatives
Debt investments Derivative investments Equity investments
Contractual cash flows solely payments of principal and interest
Business model (BM) test(at entity level)
Held for trading?
Fair value option elected? FVOCI option elected?
Amortised cost
FVOCI (with recycling)
FVOCI (no recycling)
FVPL
Fail Fail FailPass
1Hold to collect contractual cash flows
2BM to collect contractual cash flows and sell asset
No No
Yes
Yes
No
No
Yes
Neither 1 or 2
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Application to equity investments
Debt investments Derivative investments Equity investments
Contractual cash flows solely payments of principal and interest
Business model (BM) test(at entity level)
Held for trading?
Fair value option elected? FVOCI option elected?
Amortised cost
FVOCI (with
recycling)
FVOCI (no recycling)
FVPL
Fail Fail FailPass
1 Hold to collect contractual cash flows
2BM to collect contractual cash flows and sell asset
No No
Yes
Yes
No
No
Yes
Neither 1 or 2
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'Solely payment of principal and interest' ('SPPI') test – (A)
• Contractual cash flows that are SPPI are consistent with a basic lending arrangement
• Principal is the fair value of the financial asset at initial recognition – principal amount may change over the life of the financial asset (for example, if there are repayments of principal)
• Interest elements – consideration consistent with basic lending arrangement:‒ time value of money‒ credit risk‒ other basic lending risks (example, liquidity risk)‒ costs associated with holding the financial asset for a particular period of time‒ profit margin that is consistent with a basic lending arrangement
• Assessment done in the currency in which financial asset is denominated
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Business model
What it is…• a matter of fact and not merely an assertion• determined by entity’s key management personnel (KMP)• determined at a level that reflects how groups of financial assets are managed together
to achieve a particular business objective• observable through the activities that the entity undertakes to achieve the objective of the
business model• a single entity may have more than one business model for managing its financial
instruments
What it is not…• does not depend on management’s intentions for an individual instrument• need not be determined at the reporting entity level• not determined on the basis of scenarios that the entity does not reasonably expect to occur
(‘worst case’ or ‘stress case’ scenarios)
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'Hold to collect' business model (B - 1)
• collect contractual payments over life of the instrument• entity manages the assets held within the portfolio to collect those particular
contractual cash flowsObjective
• policy to sell assets when there is an increase in the asset's credit risk or to manage credit concentration risk
• sales close to maturity of the assets where proceeds approximate remaining contractual cash flows
• increased sales in a particular period if the entity can explain the reasons for the sales
Examples of exceptions
Factors to consider
Frequency of sales in prior
periods
Value of sales in prior periods
Timing of sales in prior periods
Reason for such sales
Expectations about future
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'Hold to collect and sell' business model (B-2)
• KMP's decision – both:‒ collecting contractual cash flows and ‒ selling financial assets are integral to achieving the objective of the business model
• compared to 'hold to collect' business model, this business model will typically involve greater frequency and value of sales
• no threshold for the frequency or value of sales
• Examples of objectives consistent with 'hold to collect and sell' business model:‒ manage everyday liquidity needs‒ maintain a particular interest yield profile‒ match the duration of the financial assets to the duration of the liabilities that those
assets are funding
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'Other' business models – the residual category (B – 3)
• Financial assets are measured at fair value through profit or loss if they are not held within a business model whose objective is:
‒ to hold assets to collect contractual cash flows, or‒ achieved by both collecting contractual cash flows and selling financial assets
• Examples
− assets managed with the objective of realising cash flows through sale
− a portfolio that is managed, and whose performance is evaluated, on a fair value basis
− a portfolio that meets the definition of ‘held-for-trading’
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Subsequent measurement –financial liabilities
Sub
sequ
ent m
easu
rem
ent -
finan
cial
liab
ilitie
s
At fair value through Profit or loss
Carried at fair value, changes taken to income statement
Other Liabilities Carried at amortisedcost
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Initial measurement – transaction costs
Transaction costs
Financial instruments carried at other than FVTPL
Financial assetsTo be added to the amount originally
recognised
Financial liabilitiesTo be deducted from
amount originally recognised
Financial instruments Measured at FVTPL
Immediately recognised in profit or loss on initial
recognitionan entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to theacquisition or issue of the financial asset or financial liability.
Transaction costs are incremental costs that are directly attributabl e to the acquisition or issue or disposal of a financial asset or financial liability.
Example of transaction cost are regulatory and registration fees, loan processing fees, brokerage, etc.
Note : Transaction costs expected to be incurred on a financial instrument's transfer or disposal are not included in the financial instrument's measurement.
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Definition of a derivative
'underlying'
• value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable
• exception for a non-financial variable that the variable is not specific to a party to the contract
initial net investment
future
Settlement
• requires:‒ no initial net investment; or ‒ initial net investment smaller than would be required for other types of contracts that
would be expected to have a similar response to changes in market factors
• settled at a future date
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Embedded derivatives –where can they arise?
• Contracts may not meet the definition of a derivative on standalone basis, but may have features of both financial instruments as well as embedded derivatives.
• An embedded derivative is a component of a hybrid financial instrument that includes both– a derivative and – a host contract
• For example – Convertible bond– Host contract The bond– Embedded derivative Call option on shares
• Effect of embedded derivatives– Some of the cash flows of the combined instrument vary in a similar way to a stand-
alone derivative.
HostEmbedded
derivative
Hybrid
instrument+ =
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Credit losses increase as credit risk increases
Stage 1Deterioration in credit quality
Stage 2 Stage 3
12-month expected credit losses when asset originated or purchased
lifetime expected credit losses when credit quality deteriorates significantly
lifetime expected credit losses when credit losses are incurred or asset is credit impaired
Interest based on gross carrying amount of asset
Interest based on gross carrying amount of asset
Interest based on net carrying amount of asset
Recognition of expected credit losses
Recognition of interest
Performing Under-performing Non-performing
Credit qualityNot deteriorated significantly since initial recognition or have low credit risk at reporting date
deteriorated significantly in credit quality since initial recognition but that do not have objective evidence of a credit loss event
have objective evidence of impairment at the reporting date
if the financial instrument is determined to have l ow credit risk at reporting date, it may be assumed that the credit risk on a financial inst rument has not increased significantly
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The new impairment model
Is the asset credit impaired at initial recognition
nIs the asset a trade receivable / contract asset with
significant financing component / lease receivable, for which the lifetime expected credit loss measurement has been
elected
nIs the asset a trade receivable / contract asset without a
significant financing component
Has there been a significant increase in credit risk since initial recognition
Recognise 12 months credit losses
Recognize lifetime expected credit losses
y
y
y
y
Recognise changes in lifetime expected credit losses
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Summary of transition from existingIndian GAAP to Ind AS
• Control evaluated based on ownership interest or governance indicators
• If less than a majority of voting rights are held, control does not exist, unless control over governing body
• Exclusion from consolidation if control is temporary or subsidiary under severe long-term restrictions
• No guidance available for change in ownership interest without loss of control
• Principles-based evaluation of control –may enhance scope of consolidation
• Considers potential voting rights and de facto control (eg. single largest shareholder with dispersed minority)
• No exceptions to consolidation
• Impact of change in ownership interest without loss of control is accounted for in equity
Existing IGAAP Ind-AS
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The definition of control
Control
Power over the investee
Ability to use its power over the investee to affect returns
Exposure, or rights, to variable returns from its
involvement with the investee
All three elements of control must be present to conclude that an investor controls an investee
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Applying the control model - focus on 'power'
Control
Power over the investee
Ability to use its power over the
investee to affect returns
Exposure, or rights, to variable returns from its
involvement with the investee
Power = Existing rights that give the current ability to direct the relevant activities
Current ability does not necessarily require the rights to be exercisable immediately. Instead, the key factor is whether the rights can be exercised before decisions about relevant activities need to be taken.
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Identifying relevant activities
Relevant Activities
Major capital expenditures
Acquiring/ Disposing
subs
Approving budgets /
determining funding
Dividend and remuneration
decisions
Selling/ buying goods and
services
Appointing Board
members
Who appoints the Board and
key management personnel?
Who can change the strategic direction of
the entity?
Relevant activities are those activities that significantly affect the investee's return.
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Rights that can give an investor power over an investee
Voting rights
Potential voting rights
Rights to appoint/remove KMP/Board
Rights to enter into/veto transactions
Other rights
To have power over an investee, an investor must have existing rights that give it the current ability to direct the relevant activities .
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De facto control(In reality, actually, from the fact)
More likely that investor has control of investee
Number of voting rights held by investor
Size of investor’s holding of voting rights relative to other
vote-holders
Number of other parties that would have to act
together to outvote investor
Less likely that investor has control of investee
Increasing size/number
Decreasing size/number
Investor with less than a majority of voting rights may have defacto control
---
Indi
cato
rs -
--
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Potential voting rights
Rights to obtain voting rights of an investee
Substantive or
protective?
Purpose and design of
instrument and
involvement
Potential voting rights
Other voting or decision
rights
• Practical ability to exercise ‒ (in/out of money
options)
• Non-currently exercisable rights
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Applying the control model -- exposure or rights to variable returns
Control
Power over the investee
Ability to use its power over the investee to affect returns
Exposure, or rights, to variable returns from its
involvement with the investee
All three elements of control must be present to conclude that an investor controls an investee.
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Variable returns
Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of an investee . Variable returns can be only positive , only negative or both positive and negative.
'returns' not 'benefits'…think
broadly
look again! substance over form
existence vs amount
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Applying the control model -- ability to use its power over the investee to affect returns
Control
Power over the investee
Ability to use its power over the investee to affect returns
Exposure, or rights, to variable returns from its
involvement with the investee
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Principal vs. agent considerations
An agent is a party primarily engaged to act on behalf of and for the benefit of another party or parties (the principal(s)) and therefore does not control the investee when it exercises its
decision-making authority.
principal vs. agent
rights held by other parties
remunerationscope of decision-making authority
over investee
exposure to variable returns
from other interests that it
holds in the investee
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Accounting requirements
• Line by line addition, intercompany elimination, translation of foreign operations
Consolidation procedures
• Accounting policies of all entities consolidated need to be harmonisedUniform accounting
policies
• Profit/loss allocation is between controlling and non-controlling interest is based on actual share ownership
Profit / loss allocation
• NCI is shown separately within equity• Loss is allocated even if NCI balance is negative
Non-controlling interest (NCI)
• Gain/loss arising on loss of control is recognised in income statement• No P&L impact where no loss of control
Loss of control
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Income taxes (Ind AS 12)
• Income statement approach to deferred tax recognition; deferred tax not recognised for permanent differences.
• No deferred tax recognised on difference in investment amount in subsidiaries, joint ventures and associates and parent/investor's share in their net assets
• Deferred tax on unrealised intragroup profits is not recognised
• Balance sheet approach to deferred tax recognition; barring few defined exceptions, deferred taxes are always recognised
• Barring a defined exception, deferred tax is recognised in respect of such differences
• Deferred taxes on elimination of intragroup profits and losses are calculated with reference to the tax rate of the buyer
Existing IGAAP Ind-AS
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Scope and applicability
Ind AS 101 shall be applied in the following instan ces:
• when the entity is preparing its first Ind AS financial statements
• for interim financial statements covered by the first period for which Ind AS financial statements are being prepared
First Ind AS financial statements are the first annual financial statements in which the entity adopts Ind AS and makes an explicit and unreserved statement of compliance with Ind AS
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Transition Date
• Transition date refers to:
‒ The beginning of the earliest period for which an entity presents full comparative information under Ind AS in its first Ind AS financial statements
• As on the transition date, an entity shall:
‒ prepare and present an opening Ind AS statement of financial position
‒ apply optional exemptions and mandatory exceptions of Ind AS 101
‒ recognise / derecognise all assets and liabilities as required by Ind AS
‒ reclassify items that are recognised in accordance with previous GAAP *, where required
‒ apply Ind AS in measuring all recognised assets and liabilities
* the basis of accounting that a first-time adopter used immediately before adopting Ind AS for complying with the reporting requirements in India.
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Group Question – Determination of transition date
Entity A decides to commence preparation of financial statements as per Ind AS.
The first financial statements will be prepared for the year ended 31 March 2017.
What will be the date of transition for Entity A?
The first Ind AS financials: 31 March 2017
Comparative information: 31 March 2016
Date of transition to Ind AS: 1 April 2015
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Optional exemptions
Exemption Impact
Business combinations For all transactions qualifying as business combinations under Ind AS 103, a company can choose to:• not restate business combinations before the date of transition.• restate business combinations before the date of transition.• restate a particular business combination, in which case all subsequent business
combinations must also be restated
Changes in existingdecommissioning,restoration (AROs),and similar liabilitiesincluded in the costof property, plant andEquipment
For AROs, first-time adopter may elect to:• measure the liability at transition date in accordance with Ind AS 37.• estimate the amount of the liability that would have been included in the cost of
the related asset when the liability first arose.• calculate the accumulated depreciation on that discounted amount, as of the
date of transition to Ind AS.
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Optional exemptions
Exemption Impact
Fair value as deemed cost for property, plant and equipment (PP&E), investment property and intangible assets
An entity can choose to measure PP&E at the transition date, as per:• fair value at the date of transition as deemed cost.• a revaluation carried out at a previous date (like a IPO) less accumulated
depreciation till the date of transition as deemed cost, subject to certain conditions.
• carrying value as on the date of transitionThe exemption can also be applied to intangible assets that meet the criteria for recognition and revaluation as per Ind AS 38 and to investment properties meeting the criteria for Ind AS 40
Cumulative translation differences
The cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Ind AS• The gain or loss on a subsequent disposal of any foreign operations shall
exclude translation differences that arose before the date of transition to Ind AS and shall include later translation differences
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Optional exemptions
Exemption Impact
Assets and liabilities of subsidiaries, associates and joint ventures
A subsidiary, that adopts Ind AS later than its parent, can elect to apply Ind AS 101 to use either:• the carrying amounts of its assets and liabilities included in the consolidated
financial statements, subject to eliminating any consolidation adjustments based on parent's date of transition, or
• carrying amount based on subsidiaries date of transitionIf a parent adopts Ind AS later than its subsidiary, the parent, in its consolidated financial statements, must measure the assets and liabilities of the subsidiary at the same carrying amounts as in the Ind AS financial statements of the subsidiary, adjusting for normal consolidation entries.
Compound instruments A compound financial instrument does not need to be bifurcated if the liability component is not outstanding at the transition date.
Employee benefits An entity can recognize all cumulative actuarial gains and losses subsequent to the date of transition to Ind AS in other comprehensive income.
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Optional exemptions
Exemption Impact
Investments in subsidiaries, jointly controlled entities and associates
In the separate financial statements, entities can measure investments in subsidiaries, jointly controlled entities and associates at either:• cost, determined in accordance with Ind AS;• deemed cost, defined as fair value (determined in accordance with Ind AS 39) at
the company’s Ind AS transition date, or• deemed cost, defined as previous GAAP carrying amount at the Ind AS
transition date.
Leases A company may elect to assess whether an arrangement contains a lease at the date of transition, rather than at the inception of the arrangement.
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Optional exemptions
Exemption Impact
Designation of previously recognized financial instruments
• A company may choose to designate a financial instrument as “at fair value through profit or loss” or may designate a financial asset as available-for-sale at its transition date.
• Financial instruments carried at amortized cost should be measured in accordance with Ind AS 109 from the date of recognition unless impracticable.‒ If impracticable then the fair value at the date of transition to Ind AS shall
be the new amortised cost
Service concessionArrangements
Companies may, if impracticable:• recognise financial assets and intangible assets that existed at the date of
transition• use their previous carrying amounts as carrying amount on date of transitionHowever, the financial and intangible assets recognized at that date shall be tested for impairment.
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Estimates
Non controlling interest
De-recognition of Financial Asset /Liability
Hedge Accounting
Mandatory exceptions
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Mandatory exceptions - Estimates
• Estimates under Ind AS as on date of transition :
‒ shall be consistent with previous GAAP, unless there were errors‒ after adjusting the differences in accounting policies‒ shall be made in accordance with Ind AS requirement if not required under previous GAAPs
Estimate required by previous GAAP Any evidence of error under
previous GAAPConsistent with Ind AS
Make estimate reflecting conditions at transition date Use previous estimate
Use previous estimate and make adjustments to reflect
Ind AS
No
Yes No
Use previous estimate Yes Yes
No
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Non – controlling interests
An entity shall apply the following prospectively:
• total comprehensive income is attributed even if it results in the non-controlling interests having a deficit balance;
• accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control
Mandatory exceptions (Contd.)
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Other requirements – Comparative information
The first Ind AS financial statements shall include:
• 3 statements of financial position
‒ including the opening statement of financial position as on the transition date
• two statements of profit or loss
• two statements of cash flows
• two statements of changes in equity and related notes
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Other requirements - reconciliation
The financial statements shall contain the following reconciliation:
• equity reported as per previous GAAP to equity as per Ind AS as on:
‒ transition date
• profit and loss reported as per previous GAAP to total comprehensive income as per Ind AS
• material adjustments to the statement of cash flows
• in case of company voluntarily adopting Ind AS - comparatives are provided as per Ind AS and reconciliation to be provided
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