ind as 101 crs part 2
TRANSCRIPT
AKGVG & Associates
INDIAN ACCOUNTING STANDARD (IND AS)-101
FIRST-TIME ADOPTION OF INDIAN ACCOUNTING STANDARDS
(PROHIBITION ON RETROSPECTIVE APPLICATION & EXEMPTIONS OF SOME ASPECTS OF SOME IND AS)
Part 2
Presented by
Chitranshu Rahul SrivastavaACA, IFRS
AKGVG & AssociatesChartered AccountantsMumbai
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IND AS 101 PROHIBITS RETROSPECTIVE APPLICATION OF SOME ASPECTS OF OTHER IND AS
These prohibitions are described in Appendix-B as mentioned below.
(a) De-recognition of financial assets and financial liabilities Paragraphs - B2 & B3
(b) Hedge accounting Paragraphs - B4 - B6
(c) Non-controlling interests Paragraphs - B7
(d) Classification and measurement of financial assets Paragraphs - B8 - B8C
(e) Impairment of financial assets Paragraphs - B8D - B8G
(f) Embedded derivatives and Paragraphs - B9
(g) Government loans Paragraphs - B10 – B12
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DE-RECOGNITION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES PARAGRAPHS - B2 & B3
* An entity may choose the date for retrospective de-recognition of financial assets/liabilities which is in “IND AS 109 Financial Instruments”. provided that the information needed as a result of past transactions was obtained at the time of initially accounting for those transactions.
* Transaction occurring after the transition date, the de-recognition in IND AS 109 would apply prospectively.
HEDGE ACCOUNTING PARAGRAPHS - B4 - B6
* At the date of transition, entity shall measure all the derivatives at fair value and eliminate all deferred gain/loss on derivatives that were reported under previous GAAP.
* Any hedge relationship which is not qualify for hedge accounting in accordance with the IND AS 109 shall not be reflect on opening IND AS Balance Sheet.
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NON-CONTROLLING INTERESTS
PARAGRAPHS B7
Below mentioned Requirements of “IND AS 110 Consolidated Financial Statements” apply prospectively from the date of transition.
(a) comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance;
(b) the requirements for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and
(c) the requirements for accounting for a loss of control over a subsidiary, and the related requirements under “IND AS 105 Non-current Assets Held for Sale and Discontinued Operations.”
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CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS
PARAGRAPHS - B8 - B8C
* An entity shall assess whether a financial asset will be measured at amortized cost or Fair value under “IND AS 109 Financial Instruments” on the basis of the facts and circumstances that exist at the date of transition to IND ASs.
* If it is impracticable to assess a modified time value of money element in accordance with IND AS 109 Or whether the fair value of a prepayment feature is insignificant in accordance with INDAS 109
Then the entity shall assess the contractual cash flow characteristics of that financial asset on the basis of the facts and circumstances that existed at the date of transition to IND-AS without taking into account the exception for requirements related to the modification of the time value of money element or prepayment features in IND AS 109.And disclose the carrying amount of such financial assets.
* If it is impracticable for an entity to apply retrospectively the effective interest method in IND AS 109, the fair value of the financial asset or the financial liability at the date of transition to IND AS shall be the new gross carrying amount of that financial asset or the new amortized cost of that financial liability at the date of transition to IND ASs.
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IMPAIRMENT OF FINANCIAL ASSETSPARAGRAPHS - B8D - B8G
An entity shall apply the impairment requirements in “IND AS 109 Financial Instruments” retrospectively only when at the date of transition, reasonable and supportable information is available without undue cost or effort to determine the credit risk at the date that financial instruments were initially recognized and compare that to the credit risk at the date of transition to IND ASs.
EMBEDDED DERIVATIVESPARAGRAPHS - B9
A first-time adopter shall assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed at the later of the date it first became a party to the contract and the date a reassessment is required by “IND AS 109 Financial Instruments”.
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GOVERNMENT LOANSPARAGRAPHS - B10 – B12
* An entity may apply the requirements in “IND AS 109 Financial Instruments” and “IND AS 20 Accounting for Government Grants and Disclosure of Government Assistance” retrospectively to any government loan originated before the date of transition to IND ASs, provided that the information needed to do so had been obtained at the time of initially accounting for that loan.
* A first-time adopter shall classify all government loans received as financial liability or an equity instrument in accordance with “IND AS 32 Financial Instruments: Presentation” except as described in above Para, a first-time adopter shall apply the requirements in “IND AS 109, Financial Instruments” and “IND AS 20 Accounting for Government Grants and Disclosure of Government Assistance” prospectively to government loans existing at the date of transition to IND ASs and shall not recognize the corresponding benefit of the government loan at a below-market rate of interest as a government grant. Consequently, if a first-time adopter did not, under its previous GAAP, recognize and measure a government loan at a below-market rate of interest on a basis consistent with IND AS requirements, it shall use its previous GAAP carrying amount of the loan at the date of transition to IND ASs as the carrying amount of the loan in the opening IND AS Balance Sheet. An entity shall apply IND AS 109 to the measurement of such loans after the date of transition to IND ASs.
EXEMPTIONS FROM SOME REQUIREMENT OF SOME OTHER IND AS Exemptions for business combinations
As on IND AS transition date, there are some exemptions for IND AS 103 Business Combination. Detail in Appendix C.
Exemptions from other IND-ASs
An entity may elect to use one or more of the exemptions which is available in INS AS 101. Listing of topics in which such exemptions are available is as below :-
(a) Share-based payment transactions (b) Insurance contracts (c) Deemed cost (d) Leases (e) Cumulative translation differences (f) Investments in subsidiaries, joint ventures and associates (g) Assets and liabilities of subsidiaries, associates and joint ventures (h) Compound financial instruments
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(i) Designation of previously recognized financial instruments(j) Fair value measurement of financial assets or financial liabilities at initial ….. recognition(k) Decommissioning liabilities included in the cost of property, plant and
equipment(l) Financial assets or intangible assets accounted for in accordance with
Appendix C to IND AS 115 Service Concession Arrangements (m) Borrowing costs (n) Extinguishing financial liabilities with equity instruments (o) Severe hyperinflation (p) Joint arrangements (q) Stripping costs in the production phase of a surface mine (r) Designation of contracts to buy or sell a non-financial item (s) Revenue from contracts with customers ; AND(t) Non-current assets held for sale and discontinued operations
Note :- An entity shall not apply these exemptions by analogy to other items.
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EXEMPTIONS FOR BUSINESS COMBINATIONSAPPENDIX C
* A first-time adopter may elect not to apply IND AS 103 retrospectively to past business combinations occurred before the date of transition.
* However if opt to apply IND AS 103 then IND AS 110 also need to comply and whatever the date has been choose the IND AS 103 would be applicable in all the business combinations occurred after that date.
* For Fair Value adjustment & Goodwill, entity need not the comply with “IND AS 21 The Effects of Changes in Foreign Exchange Rates” retrospectively.And in such case treat them as assets & liabilities of the entity rather then of the acquiree.
* Entity has the option to apply IND AS 21 retrospectively either for all the business combinations or from the date onwards where entity opt for IND AS 103 retrospectively.
* If entity opt for not to apply IND AS 103 retrospectively then # All the classification should be same as of previous GAAP.# Not to recognize those assets & liabilities which are derecognized in accordance with the previous GAAP # Not recognize those assets & liabilities which are not qualify to recognize as per IND AS in the stand alone balance sheet of acquiree.
* All the changes would be routed through retained earnings account.
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* Immediately after the business combinations, The carrying amount as per the previous GAAP for the assets / liabilities would be deemed cost accordance with the IND AS at that date.
* However if any assets / liabilities was not recognized in the previous GAAP, it doesn't mean that deemed cost is Zero in opening IND AS Balance Sheet. In such case value of these assets & liabilities need to recognize & measure for its CFS on the basis that IND AS would require in the balance sheet of acquiree.
* Any Intangible assets which are recognized in accordance with the previous GAAP but not qualify to recognize as per “IND AS 38 Intangible Assets” then need to reclassify in Goodwill or Capital Reserve by increasing or decreasing the same.* And in case where Intangible assets need to recognize in accordance with the IND AS 38 but was not recognized in accordance with the previous GAAP the adjustment require through goodwill or capital reserve by decreasing or increasing the same.
* Whether there is any indication or not, but Goodwill need to test for impairment as per IND AS 36 as on the date of transition on the basis of the condition existed on the date of transition.
* No other adjustment should be made in goodwill / capital reserve except the explained above i.e. intangible assets and impairment. * The exemption for past business combination also applies to past acquisitions of investments in associates, interests in joint ventures and interests in joint operations, as defined in IND AS 103
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SHARE-BASED PAYMENT TRANSACTIONS PARAGRAPHS D2 AND D3
For Equity Instruments
* Vested before the date of transition then it is optional to apply IND AS 102 Shared Based Payments.
* However if opted for applying IND AS 102 entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in IND AS 102.
* Equity instruments vested but not settled before date of transition to IND ASs, a first time adopter shall nevertheless disclose the information required by paragraphs 44 and 45 of IND AS 102.
For Liabilities arising from Share based payment transaction
* transactions which were settled before transition date, need not to apply IND AS 102.
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INSURANCE CONTRACTSPARAGRAPH D4* Application of “IND AS 104 Insurance Contract” for the period before transitions date is not mandatory however encouraged.
* If Entity choose to apply for the period before transition date then need to disclose the fact.
* Disclosure of information about claims development that occurred earlier than five years before the end of the first IND AS financial year is not require.
* If it is impracticable to prepare information about Claim Development that occurred the before the transition date then disclose the fact.
* Changes in accounting policy is permitted.
* Reclassification of some or all financial assets as ‘ at fair value through profit or Loss’ is only permitted when changes in accounting policy has been done when first time apply IND AS 104.
* In case of subsequent accounting policy changes, reclassification of financial assets is again permitted but only when such changes were made on account of more relevancy and more reliability of financial statements.
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DEEMED COST PARAGRAPHS D5–D8B
* An entity may measure the item of “IND AS 16 PPE”, “IND AS 40 Investment property” & “IND AS 38 intangible assets” either at Fair Value or at carrying value of previous GAAP as deemed cost at the date of transition. * If revaluation has been done in previous GAAP numbers then use these carrying amounts only when it is broadly comparable to fair value or cost or depreciated cost in accordance with IND ASs, adjusted to reflect, for example, changes in a general or specific price index.
* Where there is no change in functional currency on the date of transition carrying value of the PPE, Investment property, or intangible assets would be consider only after adjustment as per IND AS regarding “Decommissioning liabilities included in the cost of property, plant and equipment.
LEASES PARAGRAPHS D9 AND D9AA
* Apply “IND AS17 Leases” to determine whether an arrangement existing on the date of transition contain a lease.
* When a lease includes both land and building elements, a first time adopter may assess the classification of each element as finance or an operating lease at the date of transition.
* If there is any land lease newly classified as finance lease then the first time adopter may recognize assets and liability at fair value on that date; and any difference between those fair values is recognized in retained earnings.
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CUMULATIVE TRANSLATION DIFFERENCES PARAGRAPHS D12 AND D13* First Time Adopter need not to comply with the below two requirement of the “IND AS 21 The Effects of Changes in Foreign Exchange Rates” :-
(a) to recognize some translation differences in other comprehensive income and accumulate these in a separate component of equity; and
(b) on disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) from equity to profit or loss as part of the gain or loss on disposal.
* Entity may continue the policy for accounting of exchange difference in long term foreign currency monetary item as per the previous GAAP.
INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATESPARAGRAPHS D14 AND D15
* “IND AS 27 Separate Financial Statements” require to account for its investment in subsidiary, JV or associates at cost or in accordance with the IND AS 109.* However IND AS 101 provide options for :-
Either at COST i.e. IND AS 27 or at Fair Value on transition Date or at Previous GAAP carrying amount
i.e. Deemed Cost
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ASSETS AND LIABILITIES OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURESPARAGRAPHS D16 AND D17
* If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall measure its assets & liabilities at either
# Carrying amount that would be included in its parent CFS (but not consider adjustments for CFS or for business combination) # carrying amount in accordance with IND AS 101 considering any exemptions in IND AS 101 or any change in accounting policies.
* If an entity becomes a first-time adopter later than its subsidiary the entity shall, in its CFS measure the assets and liabilities at carrying amount in FS of subsidiary. Obviously adjustment for CFS and/or business combination would be done on this carrying amount.
COMPOUND FINANCIAL INSTRUMENTSPARAGRAPH D18
* First time adopter need not separate the compound financial instruments into two portion of equity (i.e. retained earning & original equity) if there is no liability component. However CFI need to separate into Equity portion & Liability portion.
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DESIGNATION OF PREVIOUSLY RECOGNIZED FINANCIAL INSTRUMENTSPARAGRAPHS D19–D19CIND AS 109 permit to designate a
* Financial liability as measured at fair value thru P/L .* Financial Assets as measured at fair value thru P/L .* Investment in an equity instrument at fair value thru comprehensive income.
on the basis of the facts and circumstances that exist at the date of transition to IND ASs.
FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS OR FINANCIAL LIABILITIES AT INITIAL RECOGNITIONPARAGRAPH D20
* The best evidence for Fair value measurement is the transaction price of financial instruments at initial recognition.* If entity determine another fair value then it should be supported by proper evidence.* Difference between fair value at initial recognition and transaction price need to recognize in gain or loss.
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DECOMMISSIONING LIABILITIES INCLUDED IN THE COST OF PROPERTY, PLANT AND EQUIPMENTPARAGRAPHS D21 AND D21AIn respect of liabilities occurred before transition date, the First time adopter need not to comply with the requirement of “Appendix A to IND AS 16 Changes in Existing Decommissioning, Restoration and Similar Liabilities” which require specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life.
FINANCIAL ASSETS OR INTANGIBLE ASSETS ACCOUNTED FOR IN ACCORDANCE WITH APPENDIX C, SERVICE CONCESSION ARRANGEMENTS TO IND AS 115PARAGRAPH D22
* “IND AS 8 Accounting Policies, Changes in Accounting Estimates and Errors” require changes in accounting policies retrospectively except amortization of intangible assets from the service concession arrangements relating to toll road for the period before the first IND AS Financial reporting.* However if it is impracticable to apply changes in accounting policies retrospectively then :-# Recognize the financial assets & Intangible assets at carrying amount of previous GAAP. # And test financial assets & intangible assets for impairment.
* There are two aspect to retrospective determination 1st is reclassification & 2nd is re-measurement.It is always not an issue in case of re-classification but in case of re-measurement if not practicable then leave it. However fact should be disclose.
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EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY INSTRUMENTSPARAGRAPH D25
A first-time adopter may apply the Appendix E of IND AS 109 Extinguishing Financial Liabilities with Equity Instruments from the date of transition to IND ASs.
SEVERE HYPERINFLATIONPARAGRAPHS D26–D30
If an entity has a functional currency that was, or is, the currency of hyperinflationary economy, it shall determine whether it was subject to severe hyperinflation before the date of transition to IND ASs. This applies to entities that are adopting IND ASs for the first time, as well as entities that have previously applied IND ASs.
JOINT ARRANGEMENTSPARAGRAPH D31-D31AL
A first-time adopter shall test investment in joint venture for impairment in accordance with “IND AS 36 Impairment of Assets” at the date of transition to IND ASs, regardless of whether there is any indication that the investment may be impaired. Any resulting impairment shall be recognized as an adjustment to retained earnings at the date of transition to IND ASs.
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STRIPPING COSTS IN THE PRODUCTION PHASE OF A SURFACE MINE PARAGRAPH D32* A first-time adopter may apply the Appendix B of “IND AS 16 PPE” Stripping Costs in the Production Phase of a Surface Mine from the date of transition to IND AS.
* As at transition date to IND AS, any stripping assets shall be reclassified as a part of an existing asset to which the stripping activity related, to the extent that there remains an identifiable component of the ore body.
* Such balances shall be depreciated or amortized over the remaining expected useful life of the identified component of the ore body to which each predecessor stripping asset balance relates.
* If no identifiable component of the ore body to which that predecessor stripping asset relates, it shall be recognized in opening retained earnings at the transition date to IND ASs.
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DESIGNATION OF CONTRACTS TO BUY OR SELL A NON-FINANCIAL ITEMPARAGRAPH D33* IND AS 109 permits some contracts to buy or sell a non-financial item to be designated at inception as measured at fair value through profit or loss.
* Despite this requirement an entity is permitted to designate contracts that already exist on transition date as measured at fair value through profit or loss.
REVENUE FROM CONTRACTS WITH CUSTOMERSPARAGRAPH D34 - D35
* A first-time adopter may use one or more of the following practical expedients when applying “IND AS 115 Revenue from Contracts with Customers” retrospectively
# No need to restate the completed contracts which are begin & end within the same annual reporting period.# Any variable consideration in contract, then transaction price on the date of completion of contract may be considered instead of estimating in the comparative periods.# No need of disclosure of transaction price allocated to performance obligation and an explanation when to expect to recognize as revenue for the reporting periods before the 1st IND AS reporting period.
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* Any expedient uses by entity need to apply consistently to all the contracts for all the reporting period presented.
* In Addition disclosure require
# Expedients that have been used# Qualitative assessment of the estimated effect of applying each those expedients.
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONSPARAGRAPH D35AA
* First time adopter can measure non currents assets held for sell and discontinue operations as per IND AS 105.i.e. Lower of Carrying amountor Fair value – cost to sell
* Recognize any difference between carrying amount as per previous GAAP & measured amount under IND AS directly to the retained earnings.
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ThankyouIn case of any query or suggestions please contact
Chitranshu Rahul Srivastava
CA, IFRSEmail IDs
[email protected]@gmail.com