www.carrajkumarradukia.com 1 ifrs all about debit and credit by cs. rajkumar s adukia b.com(hons.)...

www.carrajkumarradukia.com 1

IFRSIFRSAll about Debit and All about Debit and

CreditCreditBy By

CS. Rajkumar S AdukiaCS. Rajkumar S AdukiaB.Com(Hons.) B.Com(Hons.) FCA, ACS, MBA, AICWA, FCA, ACS, MBA, AICWA,

LLBLLB ,Dip IFRS(UK) DLL& LW ,Dip IFRS(UK) DLL& [email protected]@gmail.com

www.carajkumarradukia.cwww.carajkumarradukia.comom09820061049/0932306104909820061049/09323061049

2www.carajkumarradukia.com

“He is able ,who

thinks he is able.”-Buddha

ATTITUDEATTITUDE

PAUL CATTS


“ “Not much happens without Not much happens without a dream. And for something a dream. And for something great to happen, there must great to happen, there must be a great dream.” – Robert be a great dream.” – Robert GreenleafGreenleaf

( ICSI Journal – July 2011)( ICSI Journal – July 2011)


Agenda of our SessionAgenda of our Session

We will study about IFRS GAAP/I GAAPWe will study about IFRS GAAP/I GAAP MY DREAM FOR THIS SESSION Make MY DREAM FOR THIS SESSION Make

IFRS as a whole very very simple for all IFRS as a whole very very simple for all of usof us

Overview /principles of IFRSOverview /principles of IFRS Making clear the practical application Making clear the practical application

of IFRSof IFRS The whole gamut on IFRSThe whole gamut on IFRS How to get work on IFRSHow to get work on IFRS

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Professional Professional Opportunities in IFRSOpportunities in IFRS

1.1. ConsultationConsultation

2.2. Convergence in 123 countriesConvergence in 123 countries

3.3. Internal audit of ConvergenceInternal audit of Convergence

4.4. Training India/abroadTraining India/abroad

5.5. Writer of Technical Material Writer of Technical Material

6.6. Training for IPSAS in UN bodies and other Training for IPSAS in UN bodies and other NPONPO

7.7. Research work for various trade bodies like Research work for various trade bodies like IBA/IRDA/RBIIBA/IRDA/RBI

8.8. To become Trustees or assist other countriesTo become Trustees or assist other countries

5

CONCEPTS IN IFRSCONCEPTS IN IFRS

It is a GAAPIt is a GAAP There can be 192 GAAP or more There can be 192 GAAP or more IFRS is global GAAP IFRS is global GAAP We can compare with FEMA or We can compare with FEMA or

FERA , Income tax Act ,1961 or FERA , Income tax Act ,1961 or Direct tax code etc.Direct tax code etc.


What is IFRS?What is IFRS?

IFRS Defined in (IAS 1.7, IAS 8.5 ,IFRS 1 IFRS Defined in (IAS 1.7, IAS 8.5 ,IFRS 1 Appendix A)Appendix A)

Standards and Interpretations adopted by the Standards and Interpretations adopted by the International Accounting Standards Board International Accounting Standards Board (IASB). They comprise (IASB). They comprise

International Financial Reporting StandardsInternational Financial Reporting Standards International Accounting Standards; andInternational Accounting Standards; and Interpretations developed by the International Interpretations developed by the International

Financial Reporting Interpretations Committee Financial Reporting Interpretations Committee (IFRIC) and(IFRIC) and

Former Standing Interpretations Committee Former Standing Interpretations Committee (SIC)(SIC)


IFRS Complete IFRS Complete LiteratureLiterature

Three groupsThree groups Preface , Conceptual Framework & Preface , Conceptual Framework &

GlossaryGlossary IFRS Foundation Constitution, due IFRS Foundation Constitution, due

process Handbook of IASB & due process Handbook of IASB & due process Handbook of IFRS process Handbook of IFRS Interpretation CommitteeInterpretation Committee

65 IFRSs PLUS SME IFRS65 IFRSs PLUS SME IFRS

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Working of IASB Working of IASB Approves trusteesApproves trustees

Reports to Reports to

MonitorsMonitors

Reviews Reviews

effectivenesseffectiveness

Informs fundsInforms funds

Creates Creates

IFRS foundation

IASB

IFRS

Monitoring Board

IFRS interpretation

committee

IFRS advisory committee

appointsappoints

creates


AccountingAccounting Accounting consists of two things Systems Accounting consists of two things Systems

and methods -systems are of two typesand methods -systems are of two types Single entry book keeping/double entry Single entry book keeping/double entry

book keepingbook keeping Method of accounting Cash, Accrual, MixedMethod of accounting Cash, Accrual, Mixed 1494 Italian Economist Luca Pacioli 1494 Italian Economist Luca Pacioli

introduced double entry principalsintroduced double entry principals Every debit has to have equal creditEvery debit has to have equal credit Fair value baring bank 1995 Nick (nicholas) Fair value baring bank 1995 Nick (nicholas)

LeesonLeeson


Principles of AccountingPrinciples of Accounting All account heads have to fall in 3 typesAll account heads have to fall in 3 types Personal, Real and NominalPersonal, Real and Nominal Golden RulesGolden Rules

Personal -Debit the Receiver , Credit the Personal -Debit the Receiver , Credit the GiverGiver

Real -Debit what comes in, Credit what Real -Debit what comes in, Credit what goes outgoes out

Nominal -Debit all expenses and losses, Nominal -Debit all expenses and losses, Credit all gains and incomeCredit all gains and income

12

Major principles of IFRSsMajor principles of IFRSsType of asset / liabilityType of asset / liability Initial MeasurementInitial Measurement Subsequent Subsequent

measurementmeasurement

Inventories IAS 2Inventories IAS 2 CostCost Lower of cost and net Lower of cost and net realizable valuerealizable value

Property, Plant and Property, Plant and Equipment IAS 16Equipment IAS 16

CostCost Cost model or Cost model or revaluation modelrevaluation model

Investment propertyInvestment propertyIAS 40IAS 40

CostCost Fair value model or cost Fair value model or cost modelmodel

Intangible assetsIntangible assetsIAS 38IAS 38


Exploration and Exploration and Evaluation of mineral Evaluation of mineral assetsassetsIFRS 6IFRS 6


Non Monetary Non Monetary Government grants IAS Government grants IAS 2020

Fair Value or Nominal Fair Value or Nominal ValueValue

Fair Value or Nominal Fair Value or Nominal ValueValue

Non-current assets held Non-current assets held for sale & Disposal for sale & Disposal groups groups IFRS 5IFRS 5

lower of carrying lower of carrying value and fair value value and fair value less costs to sellless costs to sell

lower of carrying value lower of carrying value and fair value less costs and fair value less costs to sellto sell

Biological AssetsBiological AssetsIAS 41IAS 41

Fair valueFair value Fair value less costs to Fair value less costs to sellsell


13

Measurement of Measurement of Financial AssetsFinancial Assets

Nature of Nature of Financial AssetsFinancial Assets

Initial recognitionInitial recognition Subsequent Subsequent measurementmeasurement

Held for tradingHeld for trading At fair valueAt fair value At fair value At fair value (through profit or (through profit or loss)loss)

Available for saleAvailable for sale At fair value plus At fair value plus directly attributable directly attributable transaction coststransaction costs

At fair value At fair value (through equity)(through equity)

Held to maturityHeld to maturity At fair value plus At fair value plus directly attributable directly attributable transaction coststransaction costs

At amortised costAt amortised cost

Loans and Loans and ReceivablesReceivables

At fair value plus At fair value plus directly attributable directly attributable transaction coststransaction costs

At amortised costAt amortised cost


1414

Measurement of Financial Measurement of Financial LiabilityLiability

Nature of Financial Nature of Financial LiabilityLiability

Initial recognitionInitial recognition Subsequent Subsequent measurementmeasurement

Financial liabilities at Financial liabilities at fair value through fair value through profit and loss profit and loss includes derivative includes derivative liabilityliability

At fair value directly At fair value directly attributable attributable transaction cost is transaction cost is charged to profit and charged to profit and loss accountloss account

At fair valueAt fair value

Financial liability Financial liability arising out of arising out of continuing continuing involvement assetinvolvement asset

Measured at Measured at amortised cost or fair amortised cost or fair valuevalue

Financial guarantee Financial guarantee contract less contract less cumulative cumulative amortisation amortisation recognisedrecognised

Higher of theHigher of the1.1.Amount initial Amount initial recognitionrecognition2.2.Valuation as per IAS Valuation as per IAS 3737

Other financial Other financial liabilities including liabilities including debentures, bonds, debentures, bonds, preference shares preference shares classified as classified as

At fair value directly At fair value directly attributable attributable transactions cost is transactions cost is included in the fair included in the fair valuevalue

At amortised costAt amortised costwww.carajkumarradukia.com


Components of Financial Components of Financial StatementsStatements

IAS 1 defines a complete set of Financial IAS 1 defines a complete set of Financial Statements to be comprised of the following:Statements to be comprised of the following:

1.1. a statement of financial position as at the end of the perioda statement of financial position as at the end of the period2.2. a statement of comprehensive income for the period; a statement of comprehensive income for the period; 3.3. a statement of changes in equity for the period; a statement of changes in equity for the period; 4.4. a statement of cash flows for the period; a statement of cash flows for the period; 5.5. notes, comprising a summary of significant accounting notes, comprising a summary of significant accounting

policies and other explanatory information; and policies and other explanatory information; and 6.6. a statement of financial position as at the beginning of the a statement of financial position as at the beginning of the

earliest comparative period when an entity applies an earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it restatement of items in its financial statements, or when it reclassifies items in its financial statementsreclassifies items in its financial statements


Elements of Financial Elements of Financial StatementsStatements

The elements of financial statementsThe elements of financial statements Financial position – assets, liabilities and Financial position – assets, liabilities and

equityequity Performance – income, expensePerformance – income, expense Income – Revenue and gainsIncome – Revenue and gains Revenue - sales, fees, interest, dividends, Revenue - sales, fees, interest, dividends,

royalties and rentroyalties and rent Gains – disposal of non current assets, Gains – disposal of non current assets,

revaluation of marketable securities, revaluation of marketable securities, unrealised gainsunrealised gains


AssetsAssets

Conceptual Framework for financial Conceptual Framework for financial reportingreporting

Definition 4.4(a)Definition 4.4(a) An asset is a resource controlled by the An asset is a resource controlled by the

entity as a result of past events and entity as a result of past events and from which future economic benefits from which future economic benefits are expected to flow to the entity are expected to flow to the entity ..


LiabilityLiability

4.4(b)4.4(b) Definition – A present obligation of Definition – A present obligation of

the entity arising from past events, the entity arising from past events, the settlement of which is expected the settlement of which is expected to result in an outflow from the to result in an outflow from the entity of resources embodying entity of resources embodying economic benefitseconomic benefits


IncomeIncome

4.25(a)4.25(a) Definition-Definition-

Income is increases in economic Income is increases in economic benefits during the accounting period in benefits during the accounting period in the form of inflows or enhancement of the form of inflows or enhancement of assets or decreases of liabilities that assets or decreases of liabilities that result in increases in equity other than result in increases in equity other than those relating to contributions from those relating to contributions from equity participants.equity participants.


ExpensesExpenses

4.25(b)4.25(b) Definition – Decreases in economic Definition – Decreases in economic

benefits during the accounting benefits during the accounting period in the form of outflows or period in the form of outflows or depletions of assets or incurrence of depletions of assets or incurrence of liabilities that result in decreases in liabilities that result in decreases in equity, other than those relating to equity, other than those relating to distributions to equity participants.distributions to equity participants.


Elements of Financial Elements of Financial PositionPosition

4.4(c) Equity is the residual interest 4.4(c) Equity is the residual interest in the assets of the entity after in the assets of the entity after deducting all the liabilitiesdeducting all the liabilities

There is no IFRS on equityThere is no IFRS on equity


22

Measurement of Measurement of Elements of Financial Elements of Financial

StatementsStatements 4.55 (a) Historical Cost4.55 (a) Historical Cost

(b) Current Cost(b) Current Cost

(c) Realisable Value ( Settlement)(c) Realisable Value ( Settlement)

(d) Present Value(d) Present Value


Fair Value Measurement Fair Value Measurement – IFRS 13– IFRS 13

The IFRS explains how to measure The IFRS explains how to measure fair value for financial reporting.fair value for financial reporting.

Some IFRSs require or permit Some IFRSs require or permit entities to measure or disclose the entities to measure or disclose the fair value of assets, liabilities or fair value of assets, liabilities or their own equity instruments.their own equity instruments.

Fair value is a market-based Fair value is a market-based measurement, not an entity-specific measurement, not an entity-specific measurement.measurement.


24

Barings BankBarings Bank Barings Bank - 1762 to 26th February 1995Barings Bank - 1762 to 26th February 1995 ING, a Dutch bank, purchased Barings Bank in ING, a Dutch bank, purchased Barings Bank in

1995 for the nominal sum of £1and assumed all 1995 for the nominal sum of £1and assumed all of Barings' liabilities, forming the subsidiary of Barings' liabilities, forming the subsidiary ING Barings ING Barings

The bank lost £827 million ($1.3 billion) the loss The bank lost £827 million ($1.3 billion) the loss is twice the banks available trading capitalis twice the banks available trading capital

It was due to speculative investing, primarily in It was due to speculative investing, primarily in futures contracts, at the bank's Singapore office. futures contracts, at the bank's Singapore office.

Nick Leeson Key Personnel in the Baring Bank Nick Leeson Key Personnel in the Baring Bank (Born on 25(Born on 25ththFebruary 1967 ) (age 44)February 1967 ) (age 44)


PPEPPE Asset Value Rs.100,00,000Asset Value Rs.100,00,000 Depreciation SLM over a period of 5 yearsDepreciation SLM over a period of 5 years At the end of the 4At the end of the 4thth year it was re- year it was re-

determined at a further period of 5 yearsdetermined at a further period of 5 years Carrying amount of Rs.40,00,000 will be Carrying amount of Rs.40,00,000 will be

depreciated at Rs.8,00,000 every year for depreciated at Rs.8,00,000 every year for the next 5 yearsthe next 5 years

Depreciation A/c Dr 8,00,000Depreciation A/c Dr 8,00,000 To PPE A/c 8,00,000To PPE A/c 8,00,000


Financial InstrumentsFinancial Instruments

A Ltd holds Glaxco Ltd shares A Ltd holds Glaxco Ltd shares purchased at Rs.50,000purchased at Rs.50,000

A Ltd sell the shares to B Ltd.A Ltd sell the shares to B Ltd. The Investment has been sold for The Investment has been sold for

Rs.5,00,000Rs.5,00,000 Fair Value on the date of Sale is Fair Value on the date of Sale is

Rs.13,00,000Rs.13,00,000

How do we account for the same?How do we account for the same?


A/c Entry in A LtdA/c Entry in A Ltd

Initial MeasurementInitial Measurement

Fair Value on the date of purchase is Fair Value on the date of purchase is Rs.1,00,000Rs.1,00,000

Shares in Glaxco Ltd A/c Dr 1,00,000Shares in Glaxco Ltd A/c Dr 1,00,000

To Bank A/c To Bank A/c 50,00050,000

To Gain on Purchase To Gain on Purchase 50,00050,000


A/c Entry in A Ltd A/c Entry in A Ltd On the date of sale - Revision of Fair Value On the date of sale - Revision of Fair Value

at Rs.13,00,000at Rs.13,00,000

Shares in Glaxco Ltd A/c Dr 12,00,000Shares in Glaxco Ltd A/c Dr 12,00,000 To Mark to Fair Value To Mark to Fair Value

12,00,00012,00,000

Bank A/c Dr 5,00,000Bank A/c Dr 5,00,000Loss on Sale Dr 8,00,000Loss on Sale Dr 8,00,000 To Shares in Glaxco Ltd A/c 13,00,000To Shares in Glaxco Ltd A/c 13,00,000


A/c Entry in B LtdA/c Entry in B Ltd

On the date of purchaseOn the date of purchase

Shares in Glaxco Ltd A/c Dr 13,00,000Shares in Glaxco Ltd A/c Dr 13,00,000

To Bank A/c To Bank A/c 5,00,0005,00,000

To Gain on Purchase To Gain on Purchase 8,00,000 8,00,000


Agriculture – IAS 41Agriculture – IAS 41

Purchase of LivestockPurchase of Livestock Fair Value – 6000Fair Value – 6000 Purchase Cost 500Purchase Cost 500

Livestock A/c Dr 6000Livestock A/c Dr 6000

To Bank To Bank 500 500

To Gain on Purchase To Gain on Purchase 55005500

( Measurement is at fair value under ( Measurement is at fair value under IAS 41)IAS 41)


Income Taxes – IAS 12Income Taxes – IAS 12

An entity’s PPE Carrying Value – An entity’s PPE Carrying Value – Rs.10,00,000Rs.10,00,000

Revalued at Rs.15,00,000Revalued at Rs.15,00,000

Rate of Tax 20%Rate of Tax 20%

What is the Deferred Tax Liability and What is the Deferred Tax Liability and the entry to be passed? the entry to be passed?


Income TaxIncome Tax

Carrying Value is Rs.15,00,000 after Carrying Value is Rs.15,00,000 after revaluation.revaluation.

Tax Liability – 20%*( 15,00,000-Tax Liability – 20%*( 15,00,000-10,00,000)10,00,000)

Deferred Tax Liability is Rs.1,00,000Deferred Tax Liability is Rs.1,00,000


Income TaxIncome Tax

PPE A/c Dr Rs.5,00,000PPE A/c Dr Rs.5,00,000

To Revaluation Surplus A/c Rs.5,00,000To Revaluation Surplus A/c Rs.5,00,000

Revaluation Surplus A/c Dr Revaluation Surplus A/c Dr Rs.1,00,000Rs.1,00,000

To Deferred Tax Liability A/c To Deferred Tax Liability A/c Rs.1,00,000Rs.1,00,000


Business CombinationBusiness Combination

Complete merger by payment - Complete merger by payment - Purchase of Business Purchase of Business

Fixed Assets 5 croresFixed Assets 5 crores Current Assets – 3 croresCurrent Assets – 3 crores Current Liabilities - 2 croresCurrent Liabilities - 2 crores Contingent Liabilities 1 croresContingent Liabilities 1 crores Payment made 4 croresPayment made 4 crores Fair Value of Fixed Assets – 4.5 Fair Value of Fixed Assets – 4.5

crorescrores


Business CombinationBusiness Combination

Journal Entry for purchase of Journal Entry for purchase of businessbusiness

Non Current Assets A/c Dr 4.5crNon Current Assets A/c Dr 4.5cr

Current Assets A/c Dr. 3crCurrent Assets A/c Dr. 3cr

To Current Liabilities A/c 2crTo Current Liabilities A/c 2cr

To Contingent Liabilities A/c 1crTo Contingent Liabilities A/c 1cr

To Bank A/c 4crTo Bank A/c 4cr

To Gain on Purchase .5cr To Gain on Purchase .5cr


Business CombinationBusiness Combination Future liability of Rs.1crore to be paid to Future liability of Rs.1crore to be paid to

the buyer after two yearsthe buyer after two yearsNon Current Assets A/c Dr 4.5cr Non Current Assets A/c Dr 4.5cr Current Assets A/c Dr 3crCurrent Assets A/c Dr 3crGoodwill A/c Dr .5crGoodwill A/c Dr .5cr To Long Term Liability A/c 1crTo Long Term Liability A/c 1cr To Current Liability A/c 2crTo Current Liability A/c 2cr To Contingent Liability A/c 1crTo Contingent Liability A/c 1cr To Bank A/c 4crTo Bank A/c 4cr

Few other examplesFew other examples

Customer loyalty programmesCustomer loyalty programmes Service concession arrangementsService concession arrangements Part of an item accouting IAS 16.43Part of an item accouting IAS 16.43 Cost model /revaluation modelCost model /revaluation model Concept of financial instrumentConcept of financial instrument Conceptual frameworkConceptual framework Unwinding of interestUnwinding of interest Present value sales, liabilitiesPresent value sales, liabilities

HOW TO GET WORKHOW TO GET WORK

HAVE A DREAM THAT YOU ARE HAVE A DREAM THAT YOU ARE GLOBAL PRACTITIONERGLOBAL PRACTITIONER

PROJECT YOURSELFPROJECT YOURSELF WRITE ARTICLE IN CHAMBER WRITE ARTICLE IN CHAMBER

PERIODICALS,BUSINESS PERIODICALS,BUSINESS NEWSPAPER,ETCNEWSPAPER,ETC

ADDRESS ON THE SUBJECT ADDRESS ON THE SUBJECT TALK ABOUT ITTALK ABOUT IT WWWWWW


Questions/ Suggestions/ Questions/ Suggestions/ Comments???Comments???

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