gstindas booklet edition 2 jan 17

GSTIndAS

#Self_Learning

This is not just the collection of good thoughts on the subject GSTIndAS, but

also an effort to start with a new of way of learning and we call it Self Learning.

2nd Edition

January 2017

GSTIndAS #SELF_LEARNING

Highlights: Taking the step one

Input Tax Credit under GST

Know about Offenses in GST

Getting Start with IndAS

Strengthen accounting

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©GSTIndAS www.facebook.com/GSTIndAS

Acknowledgement

First edition of the booklet was issued just after the launch of the group

GSTIndAS.

This issue being the second booklet in the series which include more updations

and better presentations in terms of quality of content offerings;

GST & IndAS both reflects something new and thus we call this as CELEBRATE

THE CHANGE.

All beautiful work does start from the scratch and to bring it in perfect shape

much efforts are required, here we extend our heartfelt thanks to

Ms. Nandini Taneja for her selfless service and editing the entire worksheet.

In the designing part a special thank is to be made to Mr. Sharad Dixit for his

excellent contribution in designing the cover and the structure of booklets.

Any product would be wasteful if it doesn’t reach the person for which it is

designed in particular, for this reason a thank is to be made to

Mr. Prateek Mohan Sharma for assisting in this role

A special thank is to be made to those who have came forward for sharing their

knowledge for this good cause.

And last but not the least, the person who is assisting us by not just his active

contribution but also through his guidance being CA Vineet Singhal.

We would like to extend our heartfelt thank to all of you.

CA HIMANSHU RASTOGI

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ABOUT GSTIndAS

This country in which we live has given many brilliant minds for which we

don't even need to give any introduction.

We all know that in today's era, everything is linked with money & education

industry is no more an exception.

Coaching institutes, training institutes etc. are not only spoon feeding

monotonic knowledge but also forcing a rigid way of thinking which retards

development creating the atmosphere of fear WHICH NEEDS A CHANGE.

Here comes the role of our ancient scholars, the 'Eklavya' who set a great

example of self-learning, overcoming every difficulty coming on his way of

learning with a desire of becoming an expert in archery, and he did it.

That is what we want to do with this GSTIndAS; a new start to the beginning

that was made by our ancient tutors, start reading the content and the

knowledge is all yours.

We call this concept as Self Learning and this booklet is a part of that motive.

Thank you,

Happy Learning..!!

Regards

CA HIMANSHU RASTOGI

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INSIDE

The First Step ..................................................................................................................... 5

Input Tax Credit Under GST ......................................................................................... 7

Offences, Penalties, Confiscations under Model GST Law .................................................. 12

IndAS Applicability .................................................................................................. 18

IndAS 1 Presentation of Financial Statement ................................................................. 24

IndAS 16 Property Plant & Equipment ........................................................................... 26

IndAS 105 Non-Current Assets held for sale and Discontinued Operations .................. ...32

IndAS 106 Exploration for and Evaluation of Mineral Resources ................................. ...35

IndAS 41 Agriculture ................................................................................................. 37

IndAS 38 Intangible .................................................................................................. 44

IndAS 40 Investment Property .......................................................................................... 47

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THE FIRST STEP

INSPIRATIONAL NANDINI TANEJA [email protected]

The First Step

‘Setting Goals is the first step in turning the invisible into the visible.’

Tony Robbins

What impression did you form when you see the Cover Page of the booklet?

Ohh Ohh!! You didn’t realize? Go back and have a look!

You saw an athlete in a set position and about to start! He is soon going to take

his first step to complete the race.

Can you relate it with your life? Can you recall the period when you took your

first step in any of the important aspect in your life? It could be your studies,

your career, your passion or anything. Every one of us has a different ecstatic

feeling when we remember that precious moment of our life; that time when we

decided to take that first step!

“The First Step!” But Why? Because the journey of a Thousand Miles begins

with the first step. It is that action when a person is full of confidence and

passionate about something. This step is taken without any fear of failure. You

have your vision in mind and you start working towards it. You did the same

when you entered your profession. No matter how difficult it seems to others,

you had that courage in you, you believed in you, that’s why you are where you

are today!

When I heard the phrase ‘The First Step’ for the first time, it made me remember

‘Neil Armstrong’ who stepped first at the moon. ‘Kalpana Chawla’- First Indian

Lady to enter the space out there. ‘Indira Gandhi’- First lady Indian Prime

Minister. Why did it click me? Because they made their first step so successful

that the world still remembers them.

If you see that athlete in the picture you may realize that he looks alone in his

journey but he is motivated enough to complete it as his own. Similarly, in our

lives, at times, we feel isolated, at that time we should remember our inner will

power.

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This is true not only for a long journey, but also for a short one. I am referring to

goals, tasks and actions and every single thing that requires that you take the first step.

Even a simple action of drinking water from the tap requires that you walk to the kitchen, open the tap, and fill the glass with water. If taking the first step is

essential for such a simple act of filling a glass of water, it is of vital importance

to achieving any goal.

If you wait for things to happen, probably, nothing would happen. You have to

take the initiative and act. You need to take the first step, and then the other

steps would follow.

Waiting, and doing nothing, do not create success, and do not help you achieve

your goals, tasks or chores. You need to act. You need to move toward your goal and not wait for the right time, the right circumstances or the right mood.

Often, laziness and inner resistance prevent you from taking the first step. Once

you take one step in the direction of your goal, the second step would follow. However, you have to take the first one.

You need to start carrying out what you want or need to do, whether it is

sweeping the floor, going to the store to buy milk or bread, learning a new language, finding a new job, starting a business or becoming a writer. The first

step is always important.

Once you make the first step, you gain confidence and your motivation to

succeed would grow. It would then be easier to overcome laziness and inner

resistance.

You have to take the first step, and then the second, the third, and all the steps

that separate you from your goal. This is valid for every goal, small or big, relating to your job, health, finance, self improvement or spirituality.

Remember that not only a long journey begins with one step, the first step, but

also a short one too.

With this, I feel proud to introduce our group GSTIndAS, a venture to

promote SELF LEARNING. It’s an initiative taken up to welcome and

celebrate the most impactful and revolutionary changes of the economy, none other than, GST & Ind AS. We, GSTIndAS, the team, have taken up

the first step to learn and evolve from this revolution and encourage other

fellows to be a part of it where knowledge enhancement is our prime focus.

I hope this first step towards Self Learning proves out be a successful and

everlasting venture with our participants’ and readers’ constant support and encouragement.

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INPUT TAX CREDIT

Under Goods & Services Tax (GST) CA DIWAKAR JHA [email protected]

INTRODUCTION: As we all know that GST is going to be biggest tax reform in the country since

independence.

A much highlighted characteristic of GST is the seamless credit flow across the nation, due to which a dealer will not have to worry about the source from where

he will purchase the inward supplies or the destination where he will be

forwarding his supplies. As per the latest news, the most realistic date for GST rollout is going to be

01/07/2017, and if it is successfully implemented, it will reduce the cascading

effect to almost zero.

ELIGIBILITY FOR INPUT TAX CREDIT: A registered taxable person can, subject to conditions and restrictions as may be

prescribed, avail credit of input tax paid by him on any inward supply received, to be used or intended to be used in business.

No credit will be allowed to taxable person unless-

He has a tax invoice or debit note;

He has received the goods and/or services;

The tax charged for that supply has actually been paid to appropriate

government and

He has furnished the return

The credit of input tax in respect of pipelines and telecommunication tower fixed

to earth by foundation or structural support including foundation and structural

support thereto shall not exceed- a) One-third of total input tax in the financial year in which the said goods

are received,

b) Two-third of the total input tax, including the credit availed in the first financial year, in the financial year immediately succeeding the years

referred to in clause (a) in which said goods are received, and

c) The balance of the amount of credit in any subsequent financial year.

Where the goods against a single invoice are received in lots or installments, the

registered taxable person shall be entitled to take credit upon receipt of the last lot or installment.

mailto:[email protected]

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Where a recipient fails to pay to the supplier of services, the amount towards the

value of supply of services, the amount towards the value of supply of services along with tax payable thereon within a period of three months from the date of

issue of invoice, an amount equal to the input tax credit availed by the recipient

shall be added to his output tax liability, along with interest thereon, in the manner as may be prescribed.

In case of purchase of capital goods, a taxable person can either claim

depreciation or input tax credit for the tax paid on purchase, simultaneously both are not possible as it will lead to double benefit.

If the credit in respect of any invoice is not availed till filing of return for September month of next year or filing of annual return, whichever is earlier,

then credit shall lapse then and there itself and will not be allowed in any case.

APPORTIONMENT OF CREDITS: Where the inward supplies are used by the registered taxable person partly for

the purpose of any business and partly for any other purposes, the amount of

credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Where the inward supplies are used by the registered taxable person partly for effecting taxable supplies including taxable supplies zero-rated supplies and

partly for effecting exempted supplies, the amount of credit shall be restricted to

so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

A banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending

loans or advances shall have the option to either comply with the

aforementioned provisions, or avail of, every month, an amount equal to 50% of

the eligible input tax credit on inputs, capital goods and input services in that month. The option once exercised shall remain valid for balance of the year.

NEGATIVE LIST OF CREDITS: Input tax credit shall not be available in respect of following:

a) Motor vehicles and other conveyances except when they used

i. for making the following taxable supplies, namely

further supply of such vehicles or conveyances; or

transportation of passengers; or

imparting training on driving, flying, navigating such vehicles;

ii. for transportation of goods.

b) Supply of goods and services, namely, i. food and beverages, outdoor catering etc.

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ii. membership of a club, health and fitness centre,

iii. rent-a-cab, life insurance and health insurance, iv. travel benefits extended to employees on vacation

c) Works contract services when supplied for construction of immovable

property, other than plant and machinery, except where it is an input service for further supply of works contract;

d) Goods or services received by a taxable person for construction of

immovable property on his own account, other than plant and machinery,

even when used in course or furtherance of business.

AVAILABILITY OF CREDIT IN SPECIAL CIRCUMSTANCES: A person who has applied for registration within thirty days from the date on which he becomes liable to registration and has been granted such registration

shall be entitled to take credit of input tax in respect of inputs held in stock on

the day immediately preceding the date from which he becomes liable to pay tax under the provisions of GST law.

A person who takes voluntary registration shall be entitled to take credit of input

tax in respect of inputs held in stock on the day immediately preceding the date of grant of registration.

Where any registered taxable person ceases to pay tax under composition scheme, he shall be entitled to take credit of input tax in respect of inputs held

in stock and on capital goods on the day immediately preceding the date from

which he ceases to pay tax under composition scheme.

Where an exempt supply of goods or services by a registered taxable person

becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and on capital goods exclusively used for

such exempt supply on the day immediately preceding the date from which such

supply becomes taxable.

INPUT TAX CREDIT IN RESPECT OF INPUTS AND CAPITAL

GOODS SENT FOR JOB WORK: A principal can avail credit in respect of inputs and capital goods which have been sent to job worker. It will be possible even in case these are sent directly to

job worker without receiving these on the place of principal.

If inputs or capital goods are not received back by principal after completion of

job work or are not supplied from place of business of job worker within 1 year

(3 years for capital goods) from the date of sending these, it shall be deemed that inputs or capital goods had been supplied by the principal to job work on the

date when these were sent out. The condition for receiving back is not applicable

on moulds, dies, jigs, fixtures, tools etc.

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MANNER AND CONDITIONS OF CREDIT DISTRIBUTION BY

INPUT SERVICE DISTRIBUTOR: Where the Input Service Distributor and the recipient of credit are located in

different states, credit can be distributed in following manner-

CGST as CGST;

IGST as IGST or CGST;

SGST as SGST or IGST.

Where the Input Service Distributor and the recipient of credit are located in same state, credit can be distributed in following manner-

CGST as CGST or IGST;

SGST as SGST or IGST.

The following conditions should be fulfilled for credit distribution-

credit should be distributed against a prescribed document;

amount distributed as credit shall not exceed amount available for

distribution;

credit of input service for a particular recipient shall be distributed to him

only;

in case, more than one recipient are availing services, credit will be

distributed to only those recipients to whom the input service is attributable and such distribution shall be pro rata on basis of the

turnover in a state of such recipient, during the relevant period, to the

aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the

said relevant period.

MANNER OF RECOVERY OF CREDIT: When an Input Service Distributor distributes credit in excess of the credit it is

eligible to distribute, the excess credit distributed shall be recovered from the

recipients along with interest.

When credit has been availed wrongly, same shall be recovered from registered

taxable person in accordance with GST law.

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CONCLUSION: It can be clearly figured out that the credit regime under GST will be much

simpler as of now, when there are number of taxes and separate bucket of credits form them.

The credit which will be carried forward in return for immediately preceding period before appointed day can be utilized to pay output tax under GST.

In GST, credit will be allowed for almost each penny of tax paid on inward supplies.

At the end, it can be said that the result will be abolition of cascading effect and

will ensure seamless flow of credit, due to which India will be converted into a common national market.

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Offences, Penalties, Detentions & Confiscations UNDER MODEL GST LAW VIPUL BANSAL [email protected]

CONTENTS: Section 66- Offences and penalties.

Section 67- General penalty.

Section 68- General disciplines related to penalty.

Section 69- Detention of goods and conveyances, and levy of penalty.

Section 70- Confiscation of goods and levy of penalty.

Section 71- Confiscation of conveyances.

Section 72- Confiscation or penalty not to interfere with other

punishments.

OFFENCES AND PENALTIES (SECTION 66): Offences have been prescribed under GST Law on which penalties may be

imposed by departmental authorities in terms of Section 66(1) of the Model GST

Law.

It consist list of 21 offences. The said offences are as follows:-

Making a supply of goods and/ or services without invoice or with false/

incorrect invoice.

Issuing an invoice without making supply of goods and/ or services.

Collects tax but fails to deposit a period of three months from the date on

which such payment becomes due.

Collects tax in contravention of the provision of this act but fails to deposit

a period of three months from the date on which such payment becomes

due

Non deduction or lower deduction of tax deducted at source or not

depositing tax deducted at source u/s 37 (Tax deducted at source).

Non collection or lower collection of or nonpayment of tax collectible at

source under section 43C

Availing/utilizing input tax credit without actual receipt of goods and/or

services either fully or partially.

Fraudulently obtaining any refund of CGST or SGST.

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Avail /distributes input tax credit in violation of section 17 (related to

manner of distribution of credit by Input Service Distributor), or the rules

made there under

Furnishing false information or falsification of financial records or

furnishing of fake accounts/ documents with intention to evade payment

of tax

Failure to register despite being liable to be registered.

Furnishing false information regarding mandatory fields for registration.

Obstructs or prevents any officer in discharge of his duties under the Act;

Transporting taxable goods without prescribed documents as specified

Suppresses his turnover leading to evasion of tax.

Fails to keep, maintain or retain books of account and other documents in

accordance with the provisions of this Act or the rules.

Fails to or false furnishing of information and/or documents called by

CGST/SGST officer during any proceeding in accordance with the

provisions of this Act or rules made.

Supplies, transports or stores any goods which he has reason to believe

are liable to confiscation under this Act;

Issuing invoice or document using GSTIN of another person;

Tampers (unauthorized access) with, or destroys any material evidence;

Disposes off or tampers with any goods that have been detained, seized, or

attached under this Act;

Shall be liable to a penalty of rupees ten thousand or an amount equivalent to

the tax evaded or the tax not deducted or short deducted or deducted but not

deposited or input tax credit availed of or passed on or distributed irregularly, or

the refund claimed fraudulently, as the case may be, whichever is higher.

SECTION-66(2) PENALTY FOR REPEATEDLY MAKING SHORT

PAYMENTS:

Any registered taxable person who repeatedly makes short payment of tax shall

be liable to a penalty of rupees ten thousand or ten percent of the tax short paid,

whichever is higher.

Explanation- A taxable person shall be deemed to have made short payments

‘repeatedly’, if there were short payments in three returns during any six

consecutive tax periods.

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SECTION-66(3) OFFENCE OF AID AND ABATEMENT

Further a penalty of rupees twenty five thousand has been prescribed for any

person who:

Aids or abates any of the 21 offences as mentioned in clause 1 of Section

66.

Acquires possession of, or in any way concerns himself in transporting,

removing, depositing, keeping, concealing, supplying, or purchasing or in

any other manner deals with any goods which he knows or has reason to

believe are liable to confiscation.

Receives or is in any way concerned with the supply of, or in any other

manner deals with any supply of services which he knows or has reason to

believe are in contravention.

Fails to appear before the CGST/SGST officer, when issued with a

summon for appearance to give evidence or produce a document in an

enquiry.

Fails to issue invoice in accordance with the provisions of this Act or rules

made there under, or fails to account for an invoice in his books of

account.

SECTION -67 GENERAL PENALTIES:

Any person

who contravenes any of the provisions of this Act

or any rules made thereunder

for which no penalty is separately providedfor in this Act,

Shall be liable to a penalty which may extend to rupees twenty five

thousand.

SECTION-68 GENERAL DISCIPLINES RELATED TO PENALTY:

No penalty without notice and hearing-

No penalty without giving a notice to show cause and

Reasonable opportunity of being heard.

Penalty to be commensurate with severity of breach-

Penalty imposed shall depend on the facts and circumstances of the case.

Penalty shall be commensurate with the degree and severity of the breach.

No penalty for minor breaches –

Imposition of substantial penalties for minor breaches of tax regulations or

procedural requirements has been restricted, i.e., a breach where amount of

tax involved is less than Rs. 5,000/-

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No penalty in respect of any omission or mistake in documentation which is

easily rectifiable and obviously made without fraudulent intent or gross

negligence, i.e., errors apparent on record.

Reason to be given for imposing penalty-

The tax authority shall ensure provision of an explanation to the persons

upon whom the penalty is imposed.

Nature of breach and the laws, regulations or procedural requirements to be

informed.

Applicable law, regulation or procedure under which the amount or range of

penalty for the breach has been prescribed.

Lower penalty if breach voluntarily disclosed-

On voluntary disclosure to tax authority the circumstances of a breach of

the tax law, regulation or procedural requirement prior to the discovery of

the breach by the tax authority,

The tax authority may consider this fact as a potential mitigating factor

when establishing a penalty for that person.

Provisions not applicable when law specifies fixed penalty.

SECTION-69 DETENTION OF GOODS AND CONVEYANCES, AND LEVY OF

PENALTY:

Where any person –

• transports any goods or stores such goods while they are in transit

in violation of the provisions of this Act; or

• or stores or keeps in stock goods or supplies goods

• which have not been accounted for in the books or records

maintained by him in prescribed manner

• all such goods and the conveyance used as a means of transport for

carrying the said goods

• shall be liable to detention,

• release shall be made only after payment of applicable tax, interest

and penalty

or upon furnishing a security, equivalent to the amount of the applicable

tax, interest and penalty.

No tax, interest or penalty shall be determined without giving a notice to

show cause and without giving the person a reasonable opportunity of

being heard

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SECTION-70 CONFISCATION OF GOODS AND LEVY OF

PENALTY:

(1) If any person –

(i) Supplies any goods in contravention of any of the provisions of this Act or

rules made there under leading to evasion of tax; or

(ii) Does not account for any goods on which he is liable to pay tax; or

(iii) Supplies any goods liable to tax under this Act without having applied for the

registration; or

(iv) contravenes any of the provisions of this Act or rules made thereunder with

intention to evade payment of tax, then, all such goods shall be liable to

confiscation and the person shall be liable to penalty under section 66 (rupees

ten thousand or other).

(2) Whenever confiscation of any goods is authorized by this Act, the

CGST/SGST officer consider- it shall give to the owner of the goodsor, where

such owner is not known, the person from whose possession or custody such

goods have been seized, an option to pay in lieu of confiscation such fine as the

said officer thinks fit:

Provided that such fine shall not exceed the market price of the goods

confiscated, less the tax chargeable thereon.

(3) Where any fine in lieu of confiscation of goods is imposed under sub-section

(2), the owner of such goods or the person referred to in sub-section (1), shall, in

addition, be liable to any tax and charges payable in respect of such goods.

(4) No order of confiscation of goodsand/orimposition of penalty shall be issued

without giving a notice to show cause and without giving the person a

reasonable opportunity of being heard.

(5) Where any goods are confiscated under this Act, the title of such goods shall

thereupon vest in the appropriate Government.

(6) The proper officer adjudging confiscation shall take and hold possession of

the things confiscated and every Officer of Police, on the requisition of such

proper officer, shall assist him in taking and holding such possession.

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SECTION-71 CONFISCATION OF CONVEYANCES:

Any conveyance used as a means of transport for carriage of taxable goods

without the cover of documents as may be prescribed in this behalf shall be

liable to confiscation, unless the owner of the conveyance proves that it was so

used without the knowledge or connivance of the owner himself, his agent, if

any, and the person in charge of the conveyance:

Provided that where any such conveyance is used for the carriage of the goods or

passengers for hire, the owner of the conveyance shall be given an option to pay

in lieu of the confiscation of the conveyance a fine equal to the tax payable on

the goods being transported thereon.

SECTION-72 CONFISCATION OR PENALTY NOT TO INTERFERE

WITH OTHER PUNISHMENTS:

No confiscation made or penalty imposed under the provisions of this Act or the

rules made there under shall prevent the infliction/ punishment of any other

punishment to which the person affected thereby is liable under the provisions

of this Act or under any other law.

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IndAS Introduction and IndAS 1 GETTING START WITH INDIAN ACCOUNTING STANDARDS CA HIMANSHU RASTOGI [email protected]

IndAS INTRODUCTION: ACCOUNTING STANDARDS IN INDIA:

The ICAI, established Accounting Standards Board (ASB) in 1977, to issue

Accounting Standards (AS) in India

IndAS are issued under control and supervision of ASB.

In the year 1999, the Companies Act 1956, was amended to make AS

mandatory to companies

In 2006, Central Government notified 28 Accounting Standards, as

recommended by ICAI under Companies (Accounting Standards) Rules

2006 with recommendation of NACAS.

NEED FOR CONVERGENCE TOWARDS GLOBAL STANDARDS:

International Accounting Standards (IAS)/International Financial

Reporting Standards (IFRS) (collectively referred to as IFRS), issued by International Accounting Standards Board (IASB) in 1973 are now widely

recognized as Global Accounting Standards.

More than 130 countries and reporting jurisdictions currently require or

permit the use of or have a policy of convergence/adoption of IFRS.

For increasing the comparability of Indian companies with their

international counterparts.

ROADMAP OF IMPLEMENTATION OF INDAS:

Phase I

• Voluntary

• 1 April 2015

Phase I

• Mandatory

• 1 April 2016

Phase II

• Mandatory

• 1 April 2017

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Phase I

1st April 2015 or thereafter: Voluntary Basis for all companies

1st April 2016: Mandatory Basis

Companies listed on Stock Exchange having net worth > Rs. 500 Crore

Unlisted Companies having net worth > Rs. 500 Crore

Parent, Subsidiary, Associate and Joint venture of above

Phase II 1st April 2017 (Mandatory basis) All Listed Companies

Unlisted Companies having net worth > Rs. 250 Crore

Parent, Subsidiary, Associate and Joint venture of above

Other companies will continue to follow existing AS

For the purposes of calculation of net worth of companies, the following

principles shall apply, namely:-

a) The net worth shall be calculated in accordance with

i. The stand alone Financial Statements of the company as on 31st

March, 2014; or

ii. The first audited Financial Statement for the accounting period

which ends after 31st March, 2014

b) For companies falling under any of the thresholds specified in Phase I and

Phase II above for the first time after 31st March, 2014, the net worth shall

be calculated on the basis of the first audited financial statements ending

after that date in respect of which it meets the thresholds.

ROADMAP FOR BANKING & INSURANCE COMPANIES:

(I)Scheduled commercial banks (excluding RRBs) and Insurer/Insurance

Companies:

a) Scheduled commercial banks (excluding Regional Rural Banks (RRBs), All-

India Term-lending Refinancing Institutions (i.e. Exim Bank, NABARD, NHB and

SIDBI) and Insurers/Insurance companies would be required to prepare IndAS

based financial statements for accounting periods beginning from April 1, 2018

onwards, with comparatives for the periods ending March 31, 2018 or thereafter.

IndAS would be applicable to both consolidated and individual financial

statements.

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b) Notwithstanding the roadmap for companies, the holding, subsidiary, joint

venture or associate companies of Scheduled commercial banks (excluding

RRBs) would be required to prepare IndAS based financial statements for

accounting periods beginning from April 1, 2018 onwards, with comparatives for

the periods ending March 31, 2018 or thereafter.

c) Urban Coorperative Banks (UCBs) and Regional Rural Banks (RRBs) shall not

be required to apply IndAS and shall continue to comply with the existing

Accounting Standards, for the present.

ROADMAP FOR NBFCs:

NBFCs will be required to prepare Ind-AS based financial statements in two

phases:

Under Phase I, the following categories of NBFCs shall be required to

prepare IndAS based financial statements for accounting periods

beginning from April 1, 2018 onwards with comparatives for the periods

ending March 31, 2018 or thereafter. IndAS would be applicable to both

consolidated and individual financial statements.

i. NBFCs having net worth of Rs.500 crores or more.

ii. Holding, subsidiary, joint venture or associate companies of

companies covered under (a)(i) above, other than those companies

already covered under the corporate roadmap announced by the

Ministry of Corporate Affairs (MCA), Government of India (GOI).

Under Phase II, the following categories of NBFCs shall be required to

prepare Ind AS based financial statements for accounting periods

beginning from April 1, 2019 onwards with comparatives for the periods

ending March 31, 2019 or thereafter. IndAS would be applicable to both

consolidated and individual financial statements.

i. (i) NBFCs whose equity and/or debt securities are listed or are in the

process of listing on any stock exchange in India or outside India

and having net worth less than Rs.500 crores.

ii. (ii) NBFCs other than those covered in (a)(i) and (b)(i) above, that are

unlisted companies, having net worth of Rs.250 crores or more but

less than Rs.500 crores.

iii. (iii) Holding, subsidiary, joint venture or associate companies of

companies covered under (b) (i) and (b)(ii) above, other than those

21


companies already covered under the corporate roadmap announced

by the MCA, GOI.

NBFCs having net worth below Rs. 250Crores and not covered under the above

provisions shall continue to apply Accounting Standards specified in Annexure

to Companies (Accounting Standards) Rules, 2006.

Prohibition for Voluntary Adoption of IndAS

Scheduled commercial banks (excluding RRBs) /NBFCs/insurance companies/insurers

shall apply Indian Accounting Standards (Ind AS) only if they meet the specified

criteria, they shall not be allowed to voluntarily adopt Indian Accounting Standards

(Ind AS).

This, however, does not preclude an insurer/insurance company/NBFC from providing

IndAS compliant financial statement data for the purposes of preparation of

consolidated financial statements by its parent/investor, as required by the

parent/investor to comply with the existing requirements of law.

FEATURES OF IFRS-CONVERGED INDAS:

IT gives more importance to concept of ‘substance over form’, i.e.,

economic reality of a transaction.

Rely more on fair valuation approach, and measurements based on time

value of money.

Require more disclosures of all the relevant information and assumptions

used.

Require higher degree of judgment and estimates i.e., demand for

valuation experts set to increase.

IT applies on separate as well as consolidated financial statements.

UNDERSTANDING INDAS FROM AS:

IndAS are based more on substance over form (as discussed ABOVE)

Sale of Goods on Extended Credit Terms, i.e., goods sold on terms

extending more than normal credit period.

Financing element inbuilt in price is segregated and considered as ‘interest’ income.

Say, goods normally sold at price at Rs. 100 for 3 months credit

If sold for Rs. 110 for 15 months credit: Rs. 10 considered as ‘interest’

income

Fixed assets or inventories purchased on deferred credit terms having

financing element:

Financing element i.e., interest to be segregated from the ‘purchase price’.

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FAIR VALUE IMPLICATIONS:

Certain investments (e.g., held for trading in normal course of business)

required under IndAS to be measured at FV and changes in FV, gains and

losses, recognized in profit or loss.

Presently, only FV changes resulting in losses recognized in profit or loss;

gains ignored.

DEPRECIATION IMPLICATIONS;

Component approach and concept of useful life of charging depreciation

IndAS require depreciation to be charged on significant parts of a fixed

asset where useful lives of the parts and the remaining asset are different

Presently, depreciation required to be charged on the complete asset at a

single rate.

OTHER COMPREHENSIVE INCOME (OCI) CONCEPT UNDER

INDAS: OCI mostly comprises unrealized gains & losses.

On realization, with few exceptions, gains & losses are recognized in profit or loss section.

Statement of profit and loss is, divided into two sections:

Profit or loss section: Containing items of revenue/income and expenses

which are normally included in the statement of profit and loss with a few exceptions (e.g. actuarial gains & losses on measurement of defined benefit

obligations now not included)

Other Comprehensive Income (OCI) section contains:

o Revaluation surplus o Actuarial gains & losses

o Fair value changes in equity instruments opted to be measured

through OCI (to be covered separately).

CONVERGENCE WITH INDAS:

Convergence means to achieve harmony with IFRSs.

o In precise terms convergence can be considered “to design and maintain national accounting standards in a way that financial

statements prepared in accordance with national accounting

standards complying all the requirements of IFRS and draw

unreserved statement of compliance with IFRSs”.

Convergence doesn’t mean that IFRS should be adopted word by word,

e.g., replacing the term ‘true & fair’ for ‘present fairly’,

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In IAS-1, ‘Presentation of Financial Statements’ such changes do not lead

to non-convergence with IFRS.

CONVERGED INDIAN ACCOUNTING STANDARDS:

Government of India in consultation with NACAS and ICAI has decided not

to adopt but to Converge IFRS with the following changes- o Additional disclosures

o More Options

o Different Terminologies

Further India has reserved a right to frame that AS shall not overrule the

local laws and law will override the AS.

ENTER FAIR VALUE ACCOUNTING: Fair value accounting is need of the time, because it brings economic

reality and better representation of Net worth.

Fair value is market driven measure that is not affected by the factors

specific to a particular entity.

HOW TO ARRIVE AT FAIR VALUE?

There are various approaches for arriving at fair values.

o Cost approach

o Market approach o Income approach

o Present value approach

An enterprise should select the method which suits to its business environment from sustainability point of view.

IMPACT OF INDAS: Impact:

o ERP- SAP/Oracle/Other ERP

o Financial Analysis and Ratio workings

o Bonus to employees because of change in turnover & related valuations

o Managerial Remuneration- Remuneration based on profits

o Share valuation and market response because of change in profits. o Dividend distribution

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INDAS 1 – PRESENTATION OF FINANCIAL STATEMENT (FS)

IndAS 1 sets out minimum requirements for the content in the Financial

Statements.

What shall be the overall requirements for the presentation of the financial

statements.

BREAKING OF FINANCIAL STATEMENTS:

Balance Sheet

Statement of Change in Equity

Statement of Profit and Loss inclusive of “Other Comprehensive Income”

Cash Flow Statement

Notes to accounts

Other comparative information.

INDAS 1 –REQUIREMENTS:

Statement of Change in Equity: All owner and non owner (i.e., due to

comprehensive income) change in equity.

Profit & loss shall be presented in two parts.

It requires from entity whose FS comply with IndAS must make an explicit

and un-reserved statement of such compliance in the NOTES TO

ACCOUNTS.

Entity shall clearly identify FS and distinguish them from other information in the same published documents.

Other comprehensive income: Income or expenses that are not recognized

in P&L as required or permitted by other IndAS

There shall be Current and Non Current classification for both assets and liability.

OTHER ISSUES: Going Concern

o Entity shall prepare based in GC unless mgmt intends to liquidate,

cease operations etc.

Accrual Basis of Accounting o Except Cash Flow Statement

Materiality & Aggregation

o Separate presentation for each material class of item.

Offsetting o No offsetting between Assets/ Liability or Income/ Expense except

when offsetting reflects substance of the transaction. E.g., doubtful

debts from Bills receivable are not an offsetting.

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Frequency of Reporting

o Complete set of FS at least annually, for a longer or shorter period

disclosure required.

Comparative information: Minimum Requirement

o 2 Balance sheet

o 2 Statement of Profit and Loss o 2 Statement of Cash Flows

o 2 Statement of Change in Equity and

o Related Notes

Change in accounting Policy (AP)

o Third Balance Sheet is to be prepared in addition to comparative if:

Entity applies AP retrospectively; &

Has a material impact on the information at BS of the preceding period.

o Entity shall prepare BS as at

The end of current period e.g., 31.03.2017; The end of the preceding period e.g., 31.03.2016;

The beginning of the preceding period; 01.04.2015

o Entity shall make disclosures

CARVE OUTS AND OTHER MINOR CHANGES:

Loan Liability classified as Non Current if default in .

NOT RESULTING IN CARVE OUT: ELIMINATING OPTIONS:

Single Statement approach with SPL and OCI in two sections

Single Terminology to be used for FS

Only nature-wise classification of expenses

Line item classification, if immaterial no separate line item, change-

Except when required by law

MAJOR CHANGES INDAS 1 & AS 1:

No extraordinary items classification

There shall be explicit statement of compliances of IndAS.

Balance sheet shall be presented as at the beginning of earliest period

when entity applies accounting policy retrospectively.

Long term loan need not to classify as Current, if condition breached not

resulting in re calling of loan.

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IndAS 16 Property Plant & Equipment DECODING INDIAN ACCOUNTING STANDARDS YASH PRIYADARSHI [email protected]

OBJECTIVE: To prescribe the accounting treatment for property, plant

& equipment.

To prescribes recognition requirement of PPE.

To prescribe the determination of carrying amount and depreciation.

NON APPLICABILITY: PPE held for sale ( IndAS 105)

Biological assets, other than bearer plant ( IndAS 41 )

Extraction for an evaluation of mineral resources ( IndAS 106 )

Investment property ( IndAS 40 )

PPE under lease ( IndAS 17 )

MEANING OF PPE:

PPE are tangible items that are

Held for use in production; OR

Supply of goods; OR

For admin purpose; AND

Expected to be used for more than one accounting period.

RECOGNITION:

It is recognize only if

It is probable that future benefit is available AND

Cost can be measured easily.

SPARE PARTS:

If it satisfies the definition of PPE, then it is to be added in cost of PPE.

In other case, treated as inventory, If it is consumed then transfer it to

Profit & Loss statement otherwise it should be added in cost of inventory.

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COST CALCULATION:

1) ACQUIRED THROUGH EXCHANGE:

When there is commercial substance then,

“Value of asset acquired = Fair value of asset given.

EXAMPLE: X ltd purchase a machine by exchange of investment in shares

of Y ltd, held by X Ltd. Book value of investment (4000 shares) = 50,000.

Market value of share is 20/- share.

Journalize:

“Machine A/c Dr. 80000

To Investment A/c 50000

To Profit on exchange 30000 (Bal. fig.)

(Being machine exchanged and difference is booked as profit).

When there is not any commercial substance then,

“Value of asset acquired = Carrying amount of asset given (W.D.V.)

Example:

Building at location X is exchanged by building at location Y.

In substance both have same configuration carrying amount of building X

is 40,00,000.

Journalize.

“Building Y Dr. 40,00,000

To Building X 40,00,000

(Being building exchanged)

NOTE: Commercial substance occurs when configuration of two assets are

DIFFERENT. It means monetary value of two assets is NOT SAME.

Whenever monetary value of two assets is same, then there is no

commercial substance.

2) ACQUIRED THROUGH PURCHASE:

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Following cost is to be added

Purchase price paid

Duties and taxes (Non refundable )

Site preparation cost.

Initial delivery & handling cost

Installation and assembly cost.

Professional fees

Technical staff fees.

Other directly attributable cost.

Initial liability of dismantling and removal.

Borrowing cost as per IndAS 23

Following cost is not to be included

Cost of opening new facilities.

Cost I introducing new product/ services.

Cost of conducting business at new location.

Admin & general overhead.

3) ACQUIRED THROUGH CONSTRUCTION:

Following cost is to be added:

Actual cost of material

Actual cost of labor

Actual cost of overhead

NOTE: Profit and opportunity cost should not be capitalized.

ACCOUNTING FOR PROPERTY PLANT & EQUIPMENT:

Initial recognition: Recorded at COST.

Recurring expenses of improvement and repair is to be transferred to P/L.

Non recurring expenses shall be treated as capital and is added to the cost

of capital

Component approach shall be followed.

ACCOUNTING POLICY

Cost Model

Revaluation Model

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Note:

Entity may follow revaluation model on class by class basis or on entire

PPE.

One class shall either be at cost model or revaluation model. Composite

approach is not permitted.

Cost Model

After recognition as an asset, an item of property , plant and equipment

shall be carried at its Cost Less accumulated depreciation Less any

accumulated impairment losses.

Difference between Sale proceeds and Carrying amount (W.D.V.) is

transferred to Profit & Loss.

Revaluation Model

PPE is classified into following class; Land

Land & Building

Machinery

Ships

Aircraft

Motor Vehicle

Furniture & Fixtures

Office equipment

Bearer plant

After recognition of item, an item of PPE whose fair value can be measured

reliably shall be arrived at REVALUED amount, being its fair value at the

date of revaluation less accumulated dep., subsequent accumulated

impairment loss.

If an asset’s carrying amount is increased as a result of a revaluation, the

increase should be recognized in other comprehensive income and

accumulated in equity under the heading of revaluation surplus. However,

the increase should be recognized in profit or loss to the extent that it

reverses a revaluation decrease of the same asset previously recognized in

profit or loss.

If an asset’s carrying amount is decreased as a result of a revaluation, the

decrease should be recognized in profit or loss.

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However, the decrease shall be recognized in other comprehensive income

to the extent of any credit balance existing in the revaluation surplus in

respect of that asset.

The decrease recognized in other comprehensive income reduces the

amount accumulated in equity under the heading of revaluation surplus.

E.g., Asset Purchased for INR 100

JOURNALIZE

Asset A/c Dr. 100

To Bank X 100

(Being asset purchased at cost)

FIRST REVALUATION:

o Revision at the end of each year: and difference shall be taken

to other comprehensive income (OCI)

E.g., If the upward revaluations of INR 10 are made at the end

of Year 1 i.e., Asset value has been increased from INR 100 to

INR 110.

JOURNALIZE

1) Asset revaluation A/c Dr. 10

To Revaluation reserve A/c 10

(Being upward revision made)

2) Revaluation Reserve A/C Dr. 10

To OCI A/c 10

(Being amount transferred to Other Comprehensive Income)

SECOND REVALUATION:

o Suppose same asset has been now reduced to INR 95 from

INR 110, first balance standing at the revaluation shall be

reversed and remaining shall be charged to profit and loss

account.

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JOURNALIZE:

OCI A/c Dr. 10

Profit and loss A/c Dr. 5

To Asset revaluation A/c 15

(Being asset value reduced at the second revision)

LIABILITY FOR ENVIRONMENTAL DAMAGE:

Liability shall be estimated at each year.

Increase in liability is added in cost and decreased (if only) is deducted

from cost.

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IndAS 105 & 106 DECODING INDIAN ACCOUNTING STANDARDS KAJAL JUNEJA [email protected]

INDAS 105 NON CURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS OBJECTIVE:

a) To specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations.

b) Assets that meet the criteria to be classified as held for sale:-

*To be measured at lower of carrying amount and fair value less costs to

sell, and depreciation on such assets to cease;

*To be presented separately in the balance sheet.

c) The results of discontinued operations to be presented separately in the

statement of profit and loss.

SCOPE: The measurement provisions of this Indian Accounting Standard do not apply to

the following assets:-

a) Deferred tax assets (Ind AS 12 Income Taxes); b) Assets arising from employee benefits(Ind AS 19 Employee Benefits);

c) Financial assets within the scope of Ind AS 39 Financial Instruments;

d) Non-current assets that are measured at fair value costs to sell in accordance with Ind AS 41 Agriculture;

e) Contractual rights under insurance contracts as defined in Ind AS 104

Insurance Contracts.

CLASSIFICATION OF NON-CURRENT ASSETS (OR DISPOSAL

GROUPS) AS HELD FOR SALE OR AS HELD FOR DISTRIBUTION TO OWNERS: An entity shall classify a non-current asset (or disposal group) as held for

sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.

For this, asset must be available for immediate sale in its present condition

subject to usual and customary terms for sale of such assets with high probability. Thus, if an entity intends to sell the asset in distant future, it

cannot be classified as a non-current asset held for sale.

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For sale to be highly probable, appropriate level of management must be committed to a plan to sell the asset, & an active programme to locate a

buyer must have been initiated.

Further, the asset must be actively marketed for sale at a reasonable price. The sale should be expected to qualify as a completed sale within 12

months of classification except for unforeseen circumstances.

A non-current asset (or disposal group) is classified as held for distribution

to owners when the entity intends so.

MEASUREMENT OF A NON-CURRENT ASSET (OR DISPOSAL

GROUP): An entity shall measure a non-current asset classified as held for sale/held

for distribution to owners at the lower of its carrying amount and fair value less costs to sell/fair value less costs to distribute respectively.

When the sale is expected to occur beyond one year, the entity shall

measure the costs to sell at their present value. Any increase in such cost to be presented in P&L as financing cost.

RECOGNITION OF IMPAIRMENT LOSSES AND REVERSALS:

An entity shall recognise an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell.

An entity shall recognise a gain for any subsequent increase in fair value

less costs to sell of an asset, but not in excess of cumulative impairment loss that has been recognised either as per this IndAS or IndAS 36

Impairment of Assets.

CHANGES TO A PLAN FOR SALE:

If an entity has classified an asset as held for sale but the criteria in para 7-

9(discussed above) are no longer met, the entity shall cease to classify the

asset as held for sale.

The entity shall measure a non-current asset that ceases to be as held for

sale, at the lower of:

*Its carrying amt before the asset was classified as held for sale, adjusted for

any depreciation , amortisation or revaluations, and *It’s recoverable amount at the date of subsequent decision not to sell.

34


PRESENTATION AND DISCLOSURE:

An entity shall present a non-current asset classified as held for sale and the

asset of a disposal group classified as held for sale separately from other assets and related liabilities to be classified separately from other liabilities in

the balance sheet.

Those assets and liabilities shall not be offset.

An entity shall disclose the following information in the notes in the period in

which non-current asset has been either classified as held for sale or sold:

*description of the non-current asset (or disposal group) *description of the facts and circumstances of the sale, and the expected

manner and timing of that disposal.

*gain or loss recognised *if applicable, reportable segment as per Ind AS 108 Operating Segments.

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IndAS 106: Exploration for and Evaluation of Mineral Resources

OBJECTIVE: To specify financial reporting for the exploration and the evaluation of

mineral resource.

Limited improvements to existing accounting practices for exploration and

evaluation expenditures. For entities that recognise exploration & evaluation assets, to assess such

assets for impairment as per IndAS 106 and measure any impairment as

per IndAS 36.

SCOPE: An entity shall apply this IndAS to exploration & evaluation expenditures

that it incurs. An entity shall not apply thisIndAS to expenditures incurred:

a) Before the exploration for & evaluation of mineral resources,(such as exp

incurred before the entity obtained legal rights to explore a specific area) b) After the technical feasibility & commercial viability of extracting a mineral

resource are demonstrable (i.e. can be shown or proved).

MEASUREMENT OF EXPLORATION AND EVALUATION ASSETS: Measurement at Recognition: At Cost

Elements of cost of exploration & evaluation assets:An entity shall

determine an accounting policy specifying which expenditures are

recognised as exploration & evaluation assets and apply the policy consistently.

Note: Examples of expenditures that might be included in the initial

measurement of exploration & evaluation assets:

a) Acquisition of rights to explore, b) Topographical, geological, geochemical & geochemical studies.

c) Trenching,

d) Sampling,

Expense relating to development of mineral resources shall not be

recognised as exploration & evaluation assets.

Measurement after Recognition: Either the cost model or the revaluation

model to the exploration & evaluation assets. (Revaluation model applied to be as per IndAS 16 or IndAS 38).

Change in Accounting Policies can be made if the change makes the FS

more relevant to the economic decision-making needs of the users.

36


PRESENTATION: i) Classification of exploration and evaluation assets

*An entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of the assets.

*To the extent that a tangible asset is consumed in developing an intangible

asset, the amount reflecting that consumption is part of the cost of the intangible asset. However, using a tangible asset to develop an intangible

asset does not change the nature of the tangible asset.

ii) Reclassification of exploration and evaluation assets

An exploration and evaluation asset shall no longer be classified as such when

the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.

IMPAIRMENT:

Recognition & Measurement i) Exploration & evaluation assets shall be assessed for impairment when facts

& circumstances suggest that the carrying amount of an exploration &

evaluation asset may exceed its recoverable amount.

ii) Following facts and circumstances indicate that an entity should test

exploration and evaluation assets for impairment:-

a) The period for which the entity has the right to explore in the specific

area has expired or will expire.

b) Substantive exp. on further exploration for & evaluation of mineral resources in the specific area is neither budgeted nor planned.

c) Exploration for mineral resources have not led to the discovery of

quantities of mineral resources. d) Sufficient data exist to indicate that the carrying amt is unlikely to

be recovered in full from successful development or by sale.

An entity shall disclose information explaining the amt recognised in its fin.

St. arising from the exploration for and evaluation of mineral resources.

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IndAS 41 Agriculture DECODING INDIAN ACCOUNTING STANDARDS SHARAD DIXIT [email protected]

NOTE: No Carve Out, No Differences, No Similar AS

INTRODUCTION: There was no specific accounting literature in India (previous GAAP) that

required recognition of biological assets in the past, no accounting for such

items was made in the financial statements.

OBJECTIVES: The objective of this Standard is to prescribe the accounting treatment and

disclosures related to agricultural activity.

SCOPE: This Standard shall be applied to account for the following when they relate to agricultural activity:

(a) biological assets;

(b) agricultural produce at the point of harvest; and

(c) government grants covered by paragraphs 34 and 35.

This Standard does not apply to

(a) Land related to agricultural activity. (Ind AS 16 Property, Plant and Equipment and Ind AS 40 Investment Property);

(b) Bearer plants related to agricultural activity (Ind AS 16). However, this Standard applies to the produce on those bearer plants.

Agricultural produce growing on bearer plants (e.g., fruit growing on a tree) will

remain within the scope of IAS 41. Examples of bearer plants include grape vines, rubber trees and oil palms.

(c) Government grants related to bearer plants. (Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance)

(d) Intangible assets related to agricultural activity (Ind AS 38 Intangible Assets).

This Standard is applied to agricultural produce, which is the harvested

produce of the entity’s biological assets, at the point of harvest. Thereafter,

Ind AS 2 Inventories or another applicable Standard is applied. Accordingly, this Standard does not deal with the processing of agricultural produce

after harvest.

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EXAMPLE – CATTLE FARM Entity A raises cattle, slaughters them at its abattoirs and sells the carcasses to the local meat market. Which of these activities are in the

scope of IND AS 41?

The cattle are biological assets while they are living. When they are slaughtered, biological transformation ceases and the carcasses meet the

definition of agricultural produce.

Hence, entity A should account for the live cattle in accordance with IND

AS 41and the carcasses as inventory in accordance with IND AS 2.

EXAMPLE – VINEYARD Entity B grows vines, harvests the grapes and produces wine. Which of

these activities are in the scope of IND AS 41?

The grapevines are biological assets that continually generate crops of

grapes. When the entity harvests the grapes, their biological

transformation ceases and they become agricultural produce. The

grapevines continue to be living plants and should be recognized as biological assets.

Assets such as wine that are subject to a lengthy maturation period are

not biological assets. These processes are analogous to the conversion of raw materials to a finished product rather than biological transformation.

Therefore, the entity should account for the grapevines in accordance with

IND AS 41 and the harvested grapes and the production of wine, as

inventory in accordance with IND AS 2.

Example of biological assets, agricultural produce, and products that are

the result of processing after.

Definitions

Biological assets

Agricultural produce Products that are the result of processing after harvest

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Agricultural activity is the management by an entity of the biological

transformation (processes of growth, degeneration and production) and harvest of biological assets for sale or for conversion into agricultural

produce or into additional biological assets.

Agricultural produce is the harvested product of the entity’s biological assets.

A bearer plant (refer below images which is named)is a living plant that:

(a) is used in the production or supply of agricultural produce;

(b) is expected to bear produce for more than one period; and

(c) has a remote likelihood of being sold as agricultural produce, except for

incidental scrap sales.

CLASSIFICATION OF BIOLOGICAL ASSETS (Image)

Oil palms

40


CLASSIFICATION OF BIOLOGICAL ASSETS

A biological asset is a living animal or plant.

Consumable biological assetsare those that are to be harvested as agricultural produce or sold as biological assets.

For example, livestock intended for the production of meat, crops such as maize

and wheat etc.

RECOGNITION AND MEASUREMENT: An entity shall recognize a biological asset or agricultural produce when,

and only when:

(a) the entity controls the asset(by giving proof of ownership) as a result of past events;

(b) it is probable that future economic benefits associated with the asset will

flow to the entity; and

(c) the fair value or cost of the asset can be measured reliably.

It shall be measured on initial recognition and at the end of each reporting

period at its fair value less costs to sell,

Fair value measurement of a biological asset or agricultural produce may

Biological Assets

Living plants Living animals

Bearer plants Produce growing on Bearer plants

Ind AS 16 cost or revaluation model

Ind AS 41 fair value model

Direct use (consumption) Indirect use

Direct & indirect use (consumption)

41


be facilitated by grouping biological assets according to significant

attributes; for example, by age or quality etc.

There may be no separate market for biological assets that are attached to

the land but an active market may exist for the combined assets).

FV of Biological Assets = FV of the combined assets less Cost of improvements

An entity does not include any cash flows for financing the assets, taxation, or

reestablishing biological assets after harvest. For example, the cost of replanting trees in a plantation forest after harvest. Basically, it is in the same line with the concept of “PUT TO USE”

GAINS AND LOSSES ON RECOGNITION INITIAL RECOGNITION Gain or loss of a biological asset/= fair value less costs to sell,

agriculture produce =change in fair value less cost to sell

Shall be included in profit or loss for the period in which it arises.

A loss may arise on initial recognition of a biological asset, because costs

to sell are deducted in determining fair value. A gain may arise on initial

recognition of a biological asset, such as when a calf is born.

A gain or loss may arise on initial recognition of agricultural produce as a

result of harvesting.

SUBSEQUENT RECOGNITION

Biological Asset/ agriculture produce will continue to recognition until

disposal. Afterwards, requirement of other Ind AS will be applicable (such as, inventory in accordance with Ind AS 102.)

IndAS 37 applies to onerous contracts (contracts where, cost is higher than economic benefit) if there is a contract of sale was entered, FV will not be adjusted.

INABILITY TO MEASURE FAIR VALUE RELIABLY There is a presumption that fair value can be measured reliably for a

biological asset.

However, quoted market prices are not available or value obtained is

unreliable then,

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Value of biological asset = cost less accumulated depreciation &

impairment losses.

Once the fair value of such a biological asset becomes reliably measurable, an entity shall measure it at its fair value less costs to sell.

An entity that has previously measured a biological asset at its fair value less costs to sell continues to measure the biological asset at its fair value

less costs to sell until disposal.

In all cases, an entity measures agricultural produce at the point of

harvest, fair value less costs to sell. This Standard reflects the view that the fair value of agricultural produce at the point of harvest can always be measured reliably.

Cost may sometimes approximate fair value, when little biological

transformation has taken place. For example, seedlings planted immediately prior to the end of a reporting period or newly acquired livestock. Meaning thereby, estimate base FV is allowed

. In determining cost, considers Ind AS 2, Ind AS 16 and Ind AS 36 for

accumulated depreciation and accumulated impairment losses

respectively.

GOVERNMENT GRANTS: An unconditional government grant related to a biological asset shall be

recognized in profit or loss when grant becomes receivable.

If a government grant is conditional, an entity shall recognize when, the conditions attaching to the government grant are met. In the line of the

same concept of existing AS 9 revenue recognition.

Terms and conditions of government grants vary.

For example, a grant may require an entity to farm in a particular location

for five years and require the entity to return all of the grant if it farms for a

period shorter than five years.

In this case, the grant is not recognized in profit or loss until the five years have passed.

However, if the terms of the grant allow part of it to be retained according to

the time that has elapsed, the entity recognizes that part in profit or loss as time passes.

It means proportional recognition allowed subject to conditions of particular

43


grant.

If a government grant relates to a biological asset measured at its cost less anyaccumulated depreciation & Impairment losses, i.e. the cases where FV

is not reliably measured, Ind AS 20 is applied.

DISCLOSURE REQUIREMENTS:

General

The aggregate gain or loss arising during the current period on initial

recognition of biological assets/ agricultural produce and from the change

in fair value less costs to sell of biological assets.

An entity shall provide a description of each group of biological assets.

If not disclosed elsewhere in information published with the financial

statements, an entity shall describe:

(a) the nature of its activities involving each group of biological assets;

and

(b) non-financial measures or estimates of the physical quantities of:

(i) each group of the entity’s biological assets at the end of the period; and

(ii) output of agricultural produce during the period.

An entity shall disclose the carrying amount of biological assets whose title is restricted (such as pledged as security for liabilities etc.)

An entity shall present a reconciliation of changes in the carrying

amount of biological assets between the beginning and the end of the current period.

Additional disclosures

For biological assets where fair value cannot be measured reliably.

Related to government grant

the nature and extent of grants recognized in the financial statements;

unfulfilled conditions and other contingencies attaching to grants; and

Significant decreases expected in the level of government grants.

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IND AS 38 & 40

DECODING INDIAN ACCOUNTING STANDARDS CA DIWAKAR JHA [email protected]

IndAS 38: Intangible Assets INTRODUCTION:

The objective of IndAS 38 is to prescribe the accounting treatment for

intangible assets that are not dealt with specifically in another Ind AS.

The standard requires an entity to recognize an intangible asset, if and only if, certain criteria are met.

The standard also specifies how to measure the carrying amount of

intangible assets and requires certain disclosures regarding intangible assets.

SCOPE: Ind AS 38 applies to all intangible assets other than:

Financial assets

Exploration and evaluation assets

Expenditure on the development and extraction of minerals, oil, natural gas, and similar resources

Intangible assets arising from insurance contracts issued by insurance

companies Intangible assets covered by another Ind AS, such as:

o Intangibles held for sale

o Deferred tax assets o Lease assets

o Assets arising from employee benefits plan

o Goodwill acquired under business combination.

DEFINITION OF INTANGIBLE ASSETS: An identifiable non-monetary asset without physical substance controlled by the

entity, from which future economic benefits are expected to flow towards the entity.

RECOGNITION CRITERIA:

Ind AS 38 requires an entity to recognize an intangible asset, when purchased or self-created if, and only if:


45


It is probable that the future economic benefits that are attributable to the

asset will flow to the entity; and The cost of the asset can be measured reliably.

If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, Ind AS 38 requires the expenditure on this

item to be recognized as an expense when it is incurred.

If asset is acquired separately, then it shall be recognized at acquisition cost. If asset is acquired in a business combination or through a government grant,

then recognition shall be at fair value of the asset.

If asset is generated internally, then the expenditure incurred in development phase shall be the recognition value.

EFFECTS OF REVALUATION:

The increase in carrying amount to the extent of previous revaluation decrease

shall be recognized in Profit & Loss A/c and the balance amount of revaluation

to Other Comprehensive Income statement.

The decrease in carrying amount to the extent of previous revaluation increase

shall be recognized to Other Comprehensive Income and the balance amount of

revaluation to Profit & Loss A/c.

USEFUL LIFE:

Two types of life have been mentioned in the standard:

Finite Life: A limited period of benefit to the entity from the asset.

Indefinite Life: No foreseeable limit to the period over which the asset is

expected to generate net cash inflows for the entity.

Indefinite life does not mean infinite life at all.

AMORTIZATION AND IMPAIRMENT: In case of finite useful lives, intangible assets should be amortized over their

useful life and test for impairment should be done, when there is an indication.

In case of indefinite useful lives, test for impairment should be made annually

and whenever there is an indication that the intangible asset may be impaired.

DERECOGNITION: An asset should be derecognized:

On disposal or When no future economic benefits are expected from its use or disposal.

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Any gain or loss on de-recognition shall be recognized in Profit & Loss A/c.

DISCLOSURE REQUIREMENTS: For each class of intangible asset, disclose:

Useful life or amortization rate

Amortization method Gross carrying amount

Accumulated amortization and impairment losses

Line items in the income statement in which amortization is included.

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IndAS 40: Investment Property

INTRODUCTION: An investment property is a real estate property that has been purchased with

the intention of earning a return on the investment (purchase) either through

rent (income), the future resale of the property or both. An investment property is like any other investment, the goal is to generate a profit.

The way in which a property is used has a significant impact on its value.

Investors sometimes conduct studies to determine the best and most profitable use of a property. This is often referred to as its highest and best use.

The objective of this standard is to prescribe common accounting treatment for

investment property.

SCOPE: The Standard applies to the measurement in a lessee’s financial statements of

investment property held under a finance lease and to the measurement in the lessor’s financial statements of investment property leased out under an

operating lease.

However this Standard does not apply to: the matter covered in Ind AS-17, leases. biological assets related to agricultural activity (Ind AS-41) or,

mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources.

CLASSIFICATION OF PROPERTY:

Investment Property: It is a land and/or building, or part of a building, or

both, held by the owner or the lessee under a finance lease to earn rentals

and/or for capital appreciation, rather than for:

Use in production or supply of goods and services or Use in administrative purposes or

Sale in the ordinary course of business.

Owner-Occupied Property: It is a property held (by the owner or by the

lessee under finance lease) for use in the production or supply of goods or services or for administrative purposes.

One of the distinguishing characteristics of investment property (compared to

owner-occupied property) is that it generates cash flows that are largely independent from other assets held by an entity. Owner-occupied property is

accounted for under Ind AS-16, Property, Plant and Equipment.

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EXAMPLES OF INVESTMENT PROPERTY: Land held for long-term capital appreciation rather than for short-term

sale; A building owned by the entity and leased out under one or more

operating leases;

A building that is vacant but is held to be leased out under one or more operating leases;

Property that is being constructed or developed for future use as

investment property.

RECOGNITION CRITERIA: Investment property shall be recognized as an asset if and only if

it is probable that future economic benefits will flow towards entity; and the cost of the investment property can be measured reliably.

INITIAL MEASUREMENT: An investment property shall be measured initially at cost including transaction

charges.

However, property held under a finance lease shall be measured initially using

the principles contained in Ind AS 17, Leases –at the lower of the fair value and the present value of the minimum lease payments.

COST OF PURCHASED INVESTMENT PROPERTY: It comprises its purchase price and any directly attributable expenditure.

Directly attributable expenditure includes, for example, professional fees for legal

services, property transfer taxes and other transaction costs.

However cost of an investment property does not include: Start-up costs

Operating losses incurred before the investment property achieves the

planned level of occupancy, or Abnormal amounts of wasted material, labour or other resources incurred

in constructing or developing the property

Interest cost in case of deferred payment

MEASUREMENT AFTER RECOGNITION: An entity shall also measure subsequently after initial recognition all its

investment property at cost.

This Standard requires all entities to measure the fair value of investment

property, for the purpose of disclosure even though they are required to follow the cost model. An entity is encouraged, but not required, to measure the fair

value of investment property on the basis of a valuation by an independent

49


valuer who holds a recognized and relevant professional qualification and has

recent experience in the location and category of the investment property being valued.

TRANSFERS: Transfers to, or from, investment property shall be made when, and only when, there is a change in use, evidenced by:

Commencement of owner-occupation, for a transfer from investment

property to owner-occupied Property; Commencement of development with a view to sale, for a transfer from

investment property to inventories;

End of owner-occupation, for a transfer from owner-occupied property to investment property;

Commencement of an operating lease to another party, for a transfer from

inventories to investment property.

Transfers between investment property, owner-occupied property and

inventories do not change the carrying amount of the property transferred and

they do not change the cost of that property for measurement or disclosure purposes.

DERECOGNITION: An investment property shall be derecognized:

on disposal or

when no benefit is expected from future use or disposal.

Any gain or loss is determined as the difference between the net disposal

proceeds and the carrying amount is recognized in the income statement.

DISCLOSURE REQUIREMENTS:

Classification criteria (to distinguish owner-occupied investment property,

property held for sale in situations where classification is difficult).

Methods and assumptions used to determine fair value. Extent of involvement of independent, professional and recently

experienced valuers in the determination of fair value

Amounts included in profit or losses for: o Rental income

o Direct operating incomes from rented property

o Direct operating incomes from non-rented property Restrictions on realisability or property or remittance of income/disposal

proceeds.

50


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