Ind AS Bullet Points Summary

Bullet Points Summary on Indian Accounting Standards

Table of Contents

Ind AS 101: First – time Adoption of Indian Accounting Standards

  • Indian Accounting Standard (Ind AS) 101, First-time Adoption of Indian Accounting Standards is applied by the entity in its first Ind AS financial statements and each interim financial report, if any, that it presents in accordance with Ind AS 34, Interim Financial Reporting, for part of the period covered by its first Ind AS financial statements.
  • The entity’s first Ind AS financial statements are the first annual financial statements in which the entity adopts Ind AS notified under the Companies Act, 2013 and makes an explicit and unreserved statement in those financial statements of compliance with Ind AS.
  • Ind AS 101 sets out specific transition requirements and exemptions available on the first-time adoption of Ind AS.
  • An opening balance sheet is prepared at the date of transition, which is the starting point for accounting in accordance with Ind AS.
  • The date of transition is the beginning of the earliest comparative period presented on the basis of Ind AS.
  • At least one year of comparatives is presented on the basis of Ind AS, together with the opening balance sheet.
  • The transition requirements and exemptions on the first-time adoption of Ind AS apply to both annual and interim financial statements.
  • Accounting policies are chosen from Ind AS effective at the first annual Ind AS reporting date.
  • Generally, those accounting policies are applied retrospectively in preparing the opening balance sheet and in all periods presented in the first Ind AS financial statements, unless there is an explicit exemption or option provided under the standard.
  • Ind AS 101 requires the entity to do the following in the opening Ind AS statement of financial position that it prepares as a starting point for its accounting under Ind AS:
    • Recognise all assets and liabilities whose recognition is required by Ind AS
    • Not recognise items as assets or liabilities if Ind AS do not permit such recognition
    • Reclassify items that it recognised in accordance with previous GAAP (Indian GAAP) as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind AS and
    • Apply Ind AS in measuring all recognised assets and liabilities.
  • This standard grants exemptions (either mandatory or as an option) from the Ind AS requirements in specified areas where the cost of complying with them would be likely to exceed the benefits to users of financial statements.
  • This Ind AS prohibits retrospective application of some aspects of other Ind AS.
  • Detailed disclosures on the first-time adoption of Ind AS including reconciliations of equity and profit or loss from previous GAAP (Indian GAAP) to Ind AS will be required in the entity’s annual financial statements as well as some disclosures in its interim financial statements.

 

Ind AS 102: Share-based Payment

  • Indian Accounting Standard (Ind AS) 102, Share-based Payment requires goods or services received in a share-based payment transaction to be measured at fair value unless that fair value cannot be estimated reliably.
  • Equity-settled transactions with employees are generally measured based on the grant date fair value of the equity instruments granted.
  • Equity-settled transactions with non-employees are generally measured based on the fair value of the goods or services obtained.
  • For equity-settled transactions, an entity recognises a cost and a corresponding increase in equity. The cost is recognised as an expense unless it qualifies for recognition as an asset.
  • Initial estimates of the number of equity-settled instruments that are expected to vest are adjusted to current estimates and ultimately to the actual number of equity-settled instruments that vest unless differences are due to market conditions.
  • For cash-settled share-based payment transactions, the entity recognises a cost and a corresponding liability. The cost is recognised as an expense unless it qualifies for recognition as an asset. At each reporting date and at settlement date, the recognised liability is remeasured at fair value. The remeasurements are recognised in the statement of profit and loss.
  • While computing the number of awards to be included in the measurement of the liability arising from a cash settled share-based payment transaction, the best available estimate of the number of awards expected to vest would be considered and re-estimated on a periodic basis, where necessary, taking into account vesting conditions other than market conditions.
  • Modification of a share-based payment results in the recognition of any incremental fair value but not any reduction in fair value. Replacements are accounted for as modifications.
  • If the terms of a cash-settled share-based payment transaction are modified, with the result that it becomes an equity-settled share-based payment transaction, the liability for the original cash-settled share-based payment is derecognised. The equity-settled share-based payment is measured with reference to the fair value of the equity instruments granted as at the modification date and recognised in equity to the extent that goods or services have been received up to that date. Any difference between the carrying amount of the liability derecognised and the amount recognised in equity, is recognised in profit or loss.
  • Cancellation of a share-based payment results in accelerated recognition of any unrecognised expense.
  • Grants in which the counterparty has the choice of equity or cash-settlement are accounted for as compound instruments. Therefore, the entity accounts for a liability component and a separate equity component.
  • The classification of grants in which the entity has the choice of equity or cash-settlement depends on whether the entity has the ability and intent to settle in shares.
  • A share-based payment transaction in which the entity that receives the goods or services, the reference entity and the entity that settles the share-based payment transaction are in the same group from the perspective of the ultimate parent, is a group share-based payment transaction and is accounted for as such by both the receiving and the settling entities.
  • A share-based payment transaction that is settled by a shareholder external to the group is also in the scope of the standard from the perspective of the receiving entity, as long as the reference entity is in the same group as the receiving entity.
  • A receiving entity that has no obligation to settle the transaction accounts for the share-based payment transaction as equity-settled.
  • A settling entity classifies a share-based payment transaction as equity-settled if it is obliged to settle in its own equity instruments, otherwise it classifies the transaction as cash-settled.
  • For share-based payments with non-employees, goods are recognised when they are obtained and services are recognised over the period in which they are received.

 

Ind AS 103: Business Combinations

  • Indian Accounting Standard (Ind AS) 103, Business Combinations provides guidance on accounting for business combinations under the acquisition method (acquisition accounting), with limited exceptions.
  • A business combination is a transaction or other event in which an acquirer obtains control of one or more business.
  • A ‘business’ is an integrated set of activities and assets that is capable of being conducted and managed to provide a return to investors by way of dividends, lower costs or other economic benefits.
  • The acquirer in a business combination is the combining entity that obtains control of the other combining business or businesses. The date of acquisition is the date on which the acquirer obtains control of the acquiree.
  • Consideration transferred by the acquirer, which is generally measured at fair value at the date of acquisition, may include assets transferred, liabilities incurred by the acquirer to the former owners of the acquiree and equity interests issued by the acquirer. Acquisition related costs are excluded from the consideration transferred and expensed when incurred.
  • The identifiable assets acquired and the liabilities assumed are recognised separately from goodwill at the date of acquisition if they meet the definition of assets and liabilities and are exchanged as part of the business combination. They are measured at the date of acquisition at their fair values, with limited exceptions.
  • The acquirer in a business combination can elect, on a transaction-by-transaction basis, to measure ‘ordinary’ Non-Controlling Interests (NCI) at fair value, or at their proportionate interest in the net assets of the acquiree, at the date of acquisition. All other components of NCI (such as equity components of convertible bonds and options under share-based payments arrangements) shall be measured at fair value or in accordance with other relevant Ind ASs.
  • Goodwill is recognised at the date of acquisition, measured as a residual. Goodwill previously recorded by the acquiree is not recorded as a separate asset by the acquirer. When the residual is a deficit (gain on a bargain purchase), it is recognised in other comprehensive income and accumulated in equity as capital reserve after reassessing the values used in the acquisition accounting.
  • If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. This is referred to as a measurement period.
  • Adjustments to acquisition accounting during the measurement period reflect additional information about facts and circumstances that existed at acquisition date. The measurement period cannot exceed one year. In general, items recognised in the acquisition accounting are measured and accounted for in accordance with the relevant Ind AS subsequent to the business combination.
  • This standard provides additional guidance on accounting for common control business combinations.
  • Transitional provisions are not provided in this standard since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards.

 

Ind AS 104: Insurance Contracts

  • Indian Accounting Standard (Ind AS) 104, Insurance Contracts describes an insurance contract as a contract that transfers significant insurance risk. Insurance risk is ‘significant’ if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding those that lack commercial substance.
  • A financial instrument that does not meet the definition of an insurance contract (including investments held to back insurance liabilities) is accounted for under the general recognition and measurement requirements for financial instruments specified in Ind AS 109, Financial Instruments.
  • Financial instruments that include discretionary participation features are in the scope of the standard-i.e. existing accounting policies may be applied, although these are subject to the general financial instrument disclosures.
  • Generally, entities that issue insurance contracts are required to continue their existing accounting policies with respect to insurance contracts except when the standard requires or permits changes in accounting policies.
  • Changes in existing accounting policies for insurance contracts are permitted only if the new policy or a combination of new policies, results in information that is more relevant or reliable, or both, without reducing either relevance or reliability.
  • The recognition of catastrophe and equalisation provisions is prohibited for contracts not in existence at the reporting date.
  • A liability adequacy test is required to ensure that the measurement of the entity’s insurance liabilities considers all contractual cash flows, using current estimates.
  • The application of ‘shadow accounting’ for insurance liabilities is permitted for consistency with the treatment of unrealised gains or losses on assets.
  • An expanded presentation of the fair value of insurance contracts acquired in a business combination or portfolio transfer is permitted.
  • Significant disclosures are required of the terms, conditions and risks related to insurance contracts, consistent in principle with those required for financial assets and financial liabilities.

 

Ind AS 105: Non-current Assets Held for Sale and Discontinued Operations

  • Indian Accounting Standard (Ind AS) 105, Non-current Assets Held for Sale and Discontinued Operations requires non-current assets and some groups of assets and liabilities (known as disposal groups) to be classified as held for sale when their carrying amounts will be recovered principally through sale rather than through their continuing use.
  • Assets classified as held for sale are not amortised or depreciated.
  • Non-current assets and disposal groups held for sale are generally measured at the lower of their carrying amount and fair value less cost to sell, and are presented separately on the face of the balance sheet.
  • The comparative balance sheet is not re-presented when a non-current asset or disposal group is classified as held for sale.
  • The classification, presentation and measurement requirements that apply to items that are classified as held for sale also apply to a non-current asset or disposal group that is classified as held for distribution.
  • A discontinued operation is a component of the entity that either has been disposed off or classified as held for sale.
  • Discontinued operations are limited to those operations that are a separate major line of business or geographical area, and to subsidiaries acquired exclusively with a view to resell.
  • Discontinued operations are presented separately on the face of the statement of profit and loss.
  • The comparative statement of profit and loss is restated for discontinued operations.

 

Ind AS 106: Exploration for and Evaluation of Mineral Resources

  • The objective of Indian Accounting Standard (Ind AS) 106, Exploration for and Evaluation of Mineral Resources is to specify the financial reporting for the exploration for and evaluation of mineral resources. Entities identify and account for pre-exploration expenditure, Exploration and Evaluation (E&E) expenditure and development expenditure separately.
  • The entity may determine an accounting policy to specify which type of E&E costs are recognised as exploration and evaluation assets and those that can be expensed as incurred.
  • There is no industry-specific guidance on the recognition or measurement of pre-exploration expenditure or development expenditure. Pre-exploration expenditure is generally expensed as it is incurred.
  • Typically, the more closely that expenditure relates to a specific mineral resource, the more likely that its capitalisation will result in relevant and reliable information.
  • Capitalised E&E expenditures are classified as either tangible or intangible assets, according to their nature. If the entity elects to capitalise E&E expenditure as an E&E asset, then that asset is measured initially at cost.
  • After recognition, the entity shall apply either the cost model or the revaluation model to the exploration and evaluation assets. If the revaluation model is applied (either the model in Ind AS 16, Property, Plant and Equipment, or the model in Ind AS 38, Intangible Assets) it shall be consistent with the classification of the assets.
  • The entity may change its accounting policies for E&E expenditures if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs.
  • An E&E asset shall no longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. E&E assets shall be assessed for impairment, and impairment losses (if any) shall be recognised before reclassification.
  • E&E assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an E&E asset may exceed its recoverable amount. Some relief is provided from the general requirements of Ind AS 36, Impairment of Assets in assessing whether there is any indication of impairment of E&E assets. The test for recoverability of E&E assets can combine several cash-generating units, as long as the combination is not larger than an operating segment.

 

Ind AS 107: Financial Instruments Disclosures

  • Indian Accounting Standard (Ind AS) 107, Financial Instruments: Disclosures, specifies comprehensive disclosure requirements for financial instruments in the financial statements.
  • The entity shall provide disclosures in the financial statements that enable users to evaluate:
    • The significance of financial instruments for the entity’s financial position and performance, and
    • The nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manage those risks.
  • The principles in this standard complement the principles for recognising, measuring and presenting financial assets and financial liabilities in Ind AS 32, Financial Instruments: Presentation, and Ind AS 109, Financial Instruments.
  • A financial asset and a financial liability are offset only when the entity:
    • Currently has a legally enforceable right to offset, and
    • Has an intention to settle net or to settle both amounts simultaneously.
  • Specific disclosure requirements include information on the following:
    • Carrying amounts,
    • Fair values,
    • Items designated at Fair Value Through Profit or Loss (FVTPL),
    • Investments in equity instruments designated at Fair Value Through Other Comprehensive Income  (FVOCI),
    • Reclassification of financial assets between categories,
    • Offsetting of financial assets and financial liabilities and the effect of potential netting arrangements;
    • Collateral,
    • Loss allowance for expected credit losses, and
    • Hedge accounting.
  • Disclosures of both quantitative and qualitative information are required.
  • Qualitative disclosures describe management’s objectives, policies and processes for managing risks arising from financial instruments.
  • Quantitative data about the exposure of risks arising from financial instruments should be based on information provided internally to key management. However, certain disclosures about the entity’s exposures to credit risk, liquidity risk and market risk arising from financial instruments are required, irrespective of whether this information is provided to management.
  • Information is provided about financial assets that are not derecognised in their entirety.
  • Information is provided about financial assets that are derecognised in their entirety but in which the entity has a continuing involvement.

 

Ind AS 108: Operating Segments

  • Indian Accounting Standard (Ind AS) 108, Operating Segments applies to companies to which Ind AS apply as notified under the Companies Act, 2013. The core principle underlying this standard is that the entity shall disclose information to enable users of its financial statements to evaluate the nature and the financial effects of the business activities in which it engages and the economic environment in which it operates.
  • Segment disclosures are provided for those components of the entity that engage in business activities from which they may earn revenues and incur expenses, whose operating results are regularly reviewed by management in making operating decisions and for which discrete financial information is available.
  • Such components (operating segments) are identified on the basis of internal reports that the entity’s Chief Operating Decision Maker (CODM) regularly reviews in allocating resources to segments and in assessing their performance.
  • The aggregation of operating segments is permitted only when the operating segments have characteristics so similar that they can be expected to have essentially the same future prospects (i.e. meeting the specified aggregation criteria).
  • Reportable segments are identified based on quantitative thresholds of revenue, profit/loss, or assets.
  • The amounts disclosed for each reportable segment are the measures reported to the CODM, which are not necessarily based on the same accounting policies as the amounts recognised in the financial statements.
  • Because segment profit or loss, segment assets and segment liabilities are disclosed as they are reported to the CODM, rather than as they would be reported under Ind AS, disclosure of how these amounts are measured for each reportable segment is also required.
  • Reconciliations between total amounts for all reportable segments and financial statement amounts are disclosed with a description of all material reconciling items.
  • The entity would also be required to carry out a reconciliation between policies applied in computing information for management systems (MIS) and those used for segment reporting. Hence, the entity will need to devise or upgrade systems to ensure comparability between the MIS and the accounting system.
  • General and entity-wide disclosures include information about products and services, geographical areas – including country of domicile and individual foreign countries, if material – major customers, and factors used to identify the entity’s reportable segments. Such disclosures are required even if the entity has only one segment.
  • Comparative information is normally restated for changes in reportable segments.
  • If a financial report contains both the consolidated financial statements of a parent that is within the scope of this Ind AS as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements.

 

Ind AS 109: Financial Instruments

  • Indian Accounting Standard (Ind AS) 109, Financial Instruments establishes principles for the financial reporting of financial assets and financial liabilities.
  • Ind AS 109 shall be applied by the entity to all types of financial instruments except for interests in subsidiaries, associates and joint ventures, rights and obligations under leases, employers’ rights and  obligations under employee benefit plans, financial instruments issued by the entity that are classified as equity instruments, rights and obligations under insurance contracts, forward contracts to buy or sell an acquiree in a business combination, loan commitments, share based payment transactions and certain  reimbursement rights.
  • The entity shall recognise a financial asset or a financial liability in its balance sheet when, and only when, the entity becomes party to the contractual provisions of the instrument.
  • A derivative is a financial instrument or other contract (within the scope of the standard), the value of which changes in response to some underlying variable (other than a non-financial variable specific to a party to the contract), that has an initial net investment smaller than would be required for other instruments that have a similar response to the variable and that will be settled at a future date.
  • An embedded derivative is a component of a hybrid contract that affects the cash flows of the hybrid contract in a manner similar to a stand-alone derivative instrument. An embedded derivative is not accounted for separately from the host contract if it is closely related to the host contract, if a separate instrument with the same terms as the embedded derivative would not meet the definition of a derivative or if the entire contract is measured at fair value through profit or loss. An embedded derivative in a financial asset is also not separated and the hybrid contract is measured at fair value through profit or loss. In other cases, an embedded derivative is accounted for separately as a derivative. All derivatives (including separated embedded derivatives) are measured at fair value with changes in fair value recognised in profit or loss.
  • When the entity first recognises a financial asset, it shall measure it at its fair value and classify it as a financial asset measured at:
    • Amortised cost, if the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise  on specified dates to cash flows that are solely payments of principal and interest on the principal amount  outstanding,
    • Fair Value Through Other Comprehensive Income (FVOCI), if the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets  and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely  payments of principal and interest on the principal amount outstanding,
    • FVOCI, if the financial asset is an investment in an equity instrument within the scope of this standard, that is neither held for trading nor contingent consideration recognised by an acquirer in a business combination, for which the entity makes an irrevocable election to present subsequent changes in fair value in other comprehensive income, or
    • Fair Value Through Profit or Loss (FVTPL).
  • When the entity first recognises a financial liability, it shall classify it as a financial liability measured at amortised cost, or FVTPL and measure it at fair value.
  • The entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at FVTPL, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.
  • When, and only when, the entity changes its business model for managing financial assets it shall reclassify all affected financial assets prospectively. The entity shall not reclassify any financial liability.
  • The entity has to determine whether derecognition should be applied to a part of a financial asset (or a part of a group of similar financial assets) or a financial asset (or a group of similar financial assets) in its entirety. The entity shall derecognise a financial asset when, and only when: (a) the contractual rights to the cash flows from the financial asset expire, or (b) it transfers the financial asset and the transfer qualifies for derecognition.
  • The entity shall remove a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it is extinguished—i.e. when the obligation specified in the contract is discharged or cancelled or expires. The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, shall be recognised in profit or loss.
  • Financial assets are subsequently measured at fair value or amortised cost. Changes in the fair value of financial assets are recognised as follows:
    • Debt financial assets measured at FVOCI: Changes in fair value are recognised in other comprehensive income except for foreign exchange gains and losses and expected credit losses, which are recognised in profit or loss. On derecognition, any gains or losses accumulated in other comprehensive income are reclassified to profit or loss,
    • Equity financial assets measured at FVOCI: All changes in fair value are recognised in other comprehensive income and not reclassified to profit or loss, and
    • Financial assets at FVTPL: All changes in fair value are recognised in profit or loss.
  • Financial liabilities, other than those classified as FVTPL are generally measured at amortised cost.
  • Impairment is recognised using an expected credit loss model, which means that it is not necessary for a loss event to occur before an impairment loss is recognised.
  • The general approach to impairment uses two measurement bases: 12-month expected credit losses and lifetime expected credit losses, depending on whether the credit risk on a financial asset has increased significantly since initial recognition.
  • Hedge accounting is voluntary and allows an entity to measure assets, liabilities and firm commitments selectively on a basis different from that otherwise stipulated in Ind AS or to defer the recognition in profit or loss of gains or losses on derivatives.
  • The objective of hedge accounting is to represent, in the financial statements, the effect of the entity’s risk management activities that use financial instruments to manage exposures arising from particular risks that could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which the entity has elected to present changes in fair value in other comprehensive income).
  • There are three hedge accounting models:
    • Fair value hedges of fair value exposures,
    • Cash flow hedges of cash flow exposures, and
    • Net investment hedges of currency exposures on net investments in foreign operations.

 

Ind AS 110: Consolidated Financial Statements

  • The objective of Indian Accounting Standard (Ind AS) 110, Consolidated Financial Statements is to establish principles for the presentation and preparation of consolidated financial statements when the entity controls one or more entities.
  • Ind AS 110 requires the entity that controls one or more entities presents consolidated financial statements unless it is a qualifying investment entity or specific exemption criteria are met.
  • An investor controls an investee when the investor is exposed to (has rights to) variable returns from its involvement with the investee, and has the ability to affect those returns through its power over the investee. Control involves power, exposure to variability of returns and a linkage between the two
  • Step 1: Understanding the investee:
    • Control is generally assessed at the level of the legal entity. However, an investor may have control over only specified assets and liabilities of the legal entity (referred to as a silo), in which case control is assessed at that level.
    • The purpose and design of the investee does not in itself determine whether the investor controls the investee. However, it plays a role in the judgement applied by the investor in areas of the control model. Assessing purpose and design includes considering the risks that the investee was designed to create and to pass on to the parties involved in the transaction, and whether the investor is exposed to some or all of those risks.
    • The ‘relevant activities’ of the investee -i.e. the activities that significantly affect the investee’s returns- need to be identified. In addition, the investor determines whether decisions about the relevant activities are made based on voting rights.
  • Step 2: Power over relevant activities:
    • Only substantive rights are considered in assessing whether the investor has control over the relevant activities.
    • If voting rights are relevant for assessing power, then the investor considers potential voting rights that are substantive, rights arising from other contractual arrangements and factors that may indicate de facto power e.g. the investor has a dominant shareholding and the other vote holders are sufficiently dispersed.
    • If voting rights are not relevant for assessing power, then the investor considers evidences of the practical ability to direct the relevant activities, indicators of special relationship (more than passive interest) with the investee, and the size of the investor’s exposure to variable returns from its involvement with the investee.
  • Step 3: Exposure to variability: An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both. Returns should be interpreted broadly and it could be said to encompass synergistic returns as well as direct returns.
  • Step 4: Linkage: If the investor is an agent, then the link between power and returns is absent and the decision maker’s delegated power is treated as if it were held by the principal. The entity takes into account the rights of parties acting on its behalf in assessing whether it controls an investee.
  • To determine whether it is an agent, the decision maker considers:
    • Substantial removal and other rights held by a single or multiple parties,
    • Whether its remuneration is on arm’s length terms,
    • Whether its remuneration is on arm’s length terms,
    • Its other economic interests, and
    • The overall relationship between itself and other parties.
  • The entity takes into account the rights of parties acting on its behalf in assessing whether it controls an investee.
  • The difference between the reporting date of a parent and its subsidiary cannot be more than three months. Adjustments are made for the effects of significant transactions and events between two dates.
  • Uniform accounting policies are used throughout the group.
  • Ind AS 110, requires losses relating to subsidiaries to be attributed to Non-Controlling Interests (NCI) even if it results in a negative balance.
  • Intra-group transactions are eliminated in full.
  • On loss of control of a subsidiary, the assets and liabilities of the subsidiary and the carrying amount of the NCI are derecognised. The consideration received and any retained interests (measured at fair value) are recognised. Amounts recognised in Other Comprehensive Income (OCI) are reclassified as required by other Ind ASs. Any resultant gain or loss is recognised in profit or loss.
  • Ind AS 110, requires that changes in the ownership interest of equity holders of the parent in a subsidiary, that do not result in a loss of control are accounted for as equity transactions (transactions between shareholders).

 

Ind AS 111: Joint Arrangements

  • Indian Accounting Standard (Ind AS) 111, Joint Arrangements establishes principles for financial reporting by entities that have an interest in arrangements that are controlled jointly.
  • A joint arrangement is an arrangement over which two or more parties have joint control and can be either in the form of a joint operation or a joint venture depending upon the rights and obligations of the parties to the arrangement.
  • In a joint operation, the parties to the arrangement have rights to the assets and obligations for the liabilities related to the arrangement.
  • In a joint venture, the parties to the arrangement have rights to the net assets of the arrangement.
  • A joint arrangement not structured through a separate vehicle is a joint operation.
  • A joint arrangement structured through a separate vehicle may be either a joint operation or a joint venture. Classification depends on the legal form of the vehicle, contractual arrangement and an assessment of ‘other facts and circumstances’.
  • A joint venturer accounts for its interest in a joint venture in the same way as an investment in an associate – i.e. generally under the equity method.
  • A joint operator recognises its assets, liabilities and transactions – including its share in those arising jointly – in both its consolidated and separate financial statements. These assets, liabilities and transactions are accounted for in accordance with the relevant Ind ASs.
  • A party to a joint venture that does not have joint control accounts for its interest as a financial instrument, or under the equity method if significant influence exists.
  • A party to a joint operation that does not have joint control recognises its assets, liabilities and transactions – including its share in those arising jointly – if it has rights to the assets and obligations for the liabilities of the joint operation.

 

Ind AS 112: Disclosure of Interest in Other Entities

  • Indian Accounting Standard (Ind AS) 112, Disclosure of Interest in Other Entities requires the entity to provide users with information that enables them to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.
  • This Ind AS shall be applied by an entity that has an interest in any of the following:
    • Subsidiaries,
    • Joint arrangements (i.e. joint operations or joint ventures),
    • Associates, and
    • Unconsolidated structured entities.
  • All requirements of this Ind AS (except with respect to disclosure of summarised financial information) would also apply to subsidiaries, joint arrangements, associates and unconsolidated structured entities that are classified (or included in a disposal group that is classified) as held for sale or discontinued operations in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations.
  • If an entity has consolidated subsidiaries, then it provides information in its consolidated financial statements that helps users to understand the composition of the group and the interests of Non-Controlling Interests (NCI) in the group’s activities and cash flows. This includes:
    • The nature and extent of significant restrictions on the entity’s ability to access or use assets or settle liabilities of the group,
    • Specific information on any subsidiaries with material NCI, such as financial information for the subsidiary and information about the proportion of NCI and accumulated NCI,
    • The consequences of changes in its ownership in a subsidiary and of losing control, and
    • The nature of and any changes in the risk associated with the interests in consolidated structured entities.
  • If the entity holds interests in joint arrangement and associates, then it provides information in its consolidated financial statement that helps users to understand the nature and risks associated with these interests. This includes:
    • Significant restrictions on a joint arrangement’s ability to transfer cash dividends or to repay loans and advances,
    • The nature, extent and financial effect of holding an interest in a joint arrangement or an associate, and
    • Any commitments and contingent liabilities towards a joint arrangement or an associate.
  • If the entity holds interests in consolidated structured entities, then it discloses the terms of any contractual arrangement that could require it to provide financial support to the consolidated structured entity.
  • If the entity holds interests in unconsolidated structured entities, then it provides disclosures that enable users to understand the specific risks arising from holding these interests and the nature of these interests. The required disclosures include:
    • General information about interests in unconsolidated entities – such as the nature, purpose, size and activities of an unconsolidated structured entity, and
    • Information about the nature of risk –such as carrying amounts of assets and liabilities recognised in the consolidated financial statements, maximum exposure to loss from the holding and any commitments to provide financial support.
  • If the entity does not hold an interest in an unconsolidated structured entity, but has sponsored such an entity, then it discloses the following:
    • The method for determining how a sponsored entity has been identified,
    • Income from the structured entity in the reporting period, and
    • The carrying amount of all the assets transferred to the structured entity during the reporting period.
  • An investment entity discloses quantitative data about its exposure to risks arising from unconsolidated subsidiaries.
  • To the extent that an investment entity does not have ‘typical’ characteristics, it discloses the significant judgements and assumptions made in concluding that it is an investment entity.

 

Ind AS 113: Fair Value Measurement

  • Indian Accounting Standard (Ind AS) 113 Fair Value Measurement, applies to most fair value measurements and disclosures that are required or permitted under Ind AS.
  • Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date i.e. an exit price. Market participants are independent of each other, they are knowledgeable and have a reasonable understanding of the asset or liability, and they are willing and able to transact.
  • Fair value measurement assumes that a transaction takes place in the principal market (i.e. the market with the greatest volume and level of activity) for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability.
  • There are three general approaches to valuation, with various techniques applied under those approaches:
    • The market approach e.g. quoted prices in an active market,
    • The income approach e.g. discounted cash flows, and
    • The cost approach e.g. depreciated replacement cost
  • A fair value hierarchy is established based on the inputs to valuation techniques used to measure fair value.
  • A premium or discount (e.g. a control premium) may be an appropriate input to a valuation technique, but only if it is consistent with the relevant unit of account.
  • The inputs are categorised into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority given to unobservable inputs. Appropriate valuation technique(s) should be used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
  • Fair value on initial recognition generally equals the transaction price.
  • Non- financial assets are measured based on their ‘highest and best use’- i.e. the use that would maximise the value of the asset (or group of assets) for a market participant.
  • In the absence of quoted prices for the transfer of the instrument, a liability or an entity’s own equity instruments is valued from the perspective of a market participant that holds the corresponding asset. Failing that, other valuation techniques are used to value the liability or own equity instrument from the perspective of a market participant that owes the liability or has issued the equity instrument.
  • The fair value of a liability reflects non-performance risk, which is assumed to be the same before and after the transfer of the liability.
  • Certain groups of financial assets and financial liabilities with offsetting market or credit risks may be measured based on the net risk exposure.
  • For assets or liabilities with bid and ask prices, the entity uses the price within the bid-ask spread that is most representative of fair value in the circumstances. The use of bid prices for assets and ask prices for liabilities is permitted.
  • Guidance is provided on measuring fair value when there has been a decline in the volume or level of activity in a market, and when transactions are not orderly.
  • A comprehensive disclosure framework is designed to help users of financial statements assess the valuation techniques and inputs used in fair value measurements, and the effect on profit or loss or other comprehensive income of recurring fair value measurements that are based on significant unobservable inputs.

 

Ind AS 114: Regulatory Deferral Accounts

  • Indian Accounting Standard (Ind AS) 114, Regulatory Deferral Accounts specifies the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.
  • The entity is eligible to apply the standard only if it:
    • Is subject to oversight and/or approval from an authorised body (the rate regulator),
    • Accounted for regulatory deferral account balances in its financial statements under its previous GAAP immediately before adopting Ind AS, and
    • Elects to apply the requirements of the standard in its first Ind AS financial statements.
  • Adoption of the standard is optional for eligible entities, but the decision to apply it has to be taken in the entity’s first Ind AS financial statements.
  • The standard permits an eligible entity to continue to recognise and measure regulatory deferral account balances in accordance with its previous GAAP when it adopts Ind AS. Under Ind AS 114, Guidance Note on Accounting for Rate Regulated Activities issued by The Institute of Chartered Accountants of India (ICAI) would be considered as previous GAAP.
  • Regulatory deferral account balances are presented separately from assets, liabilities, income and expenses that are recognised in accordance with other Ind ASs.
  • The normal requirements of other Ind ASs apply to regulatory deferral account balances, subject to some exceptions, exemptions and additional requirements that are specified in the standard, including:
    • Presentation of earnings per share both including and excluding the net movement in regulatory deferral account balances,
    • Application of the requirements of the impairment standard to a cash-generating unit that includes regulatory deferral account balances,
    • Exclusion from the measurement requirements of the standard on non-current assets held for sale and discontinued operations,
    • Application of uniform accounting policies to the regulatory deferral account balances of all of an entity’s subsidiaries, associates and joint ventures in its consolidated financial statements, regardless of whether those investees account for those balances,
    • Application of business combinations guidance, with an exception for the recognition and measurement of an acquiree’s regulatory deferral account balances,
    • Additional disclosure requirements if an entity’s interests in its subsidiaries, associates or joint ventures contain regulatory deferral account balances, and
    • The option to use the deemed cost exemption on transition to Ind AS for items of property, plant and equipment or intangible assets that are, or were previously, used in operations that are subject to rate regulation.
  • The entity shall provide disclosures that enable users of the financial statements to evaluate the nature of risks associated with and effects of rate regulation.

 

Ind AS 115: Revenue from Contracts with Customers

  • Ind AS 115, Revenue from Contracts with Customers (the standard), is based on the core principle that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services.
  • The standard provides the following five step model for recognition of revenue from contracts with customers:
    • Step 1: Identify the contract with customer
    • Step 2: Identify the performance obligations in the contract
    • Step 3: Determine the transaction price
    • Step 4: Allocate the transaction price to the performance obligation
    • Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

Step 1: Identify the contract with customer

  • A contract is an agreement between two or more parties that creates enforceable rights and obligations. It may be written, oral or implied by customary business practices and needs to meet all of the following criteria:
    • It is legally enforceable
    • It is approved and all the parties are committed to their obligations
    • Rights to goods or services and payment terms can be identified
    • Collection of consideration is considered probable and
    • It has commercial substance i.e., the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract.

Step 2: Identify the performance obligations in the contract

  • At contract inception, entities are required to identify as a performance obligation an implicit or an explicit promise to transfer to the customer a distinct good or service (or bundle of goods or services)
  • A good or service that is promised to a customer is distinct if both the following criteria are met:
    • The good or service is capable of being distinct: Customers can benefit from the good or service on its own or with other readily available resources. Various factors may provide such evidence, such as when the good or service can be used, consumed, sold for an amount that is greater than scrap value or held in a way that generates economic benefits
    • The promise to transfer the good or service is distinct within the context of the contract: The promise to transfer the good or service is separately identifiable from other promises in the contract.

Step 3: Determine the transaction price

  • Determination of transaction price is done by considering all amounts to which an entity expects to be entitled in exchange for transferring promised goods or services excluding amounts collected on behalf of third parties (for example, some sales taxes). Additionally, the consideration may include fixed amounts, variable amounts, or both.

Step 4: Allocating the transaction price to performance obligation

  • The objective of allocating transaction price is for an entity to allocate transaction price to each performance obligation in an amount that depicts expected entitlement for transferring the promised goods or services.
  • The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. Entities shall allocate the transaction price in proportion to the stand-alone selling price of each distinct good or service (determined at contract inception). The stand-alone selling price is determined as below:
    • Observable price: the best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers,
    • Estimated price: if a stand-alone selling price is not directly observable, an entity shall estimate it by considering all information available to the entity, maximise the use of observable inputs and apply estimation methods consistently in similar circumstances. Some of the estimation methods are:
      • Adjusted market assessment approach
      • Expected cost plus a margin approach and
      • Residual approach.

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

  • Revenue is required to be recognised when (i.e. at a point in time) or as (i.e. over a period of time) the entity satisfies a performance obligation by transferring the control of a promised good or service to the customer.
  • A performance obligation is satisfied over time if either:
    • Customer simultaneously receives and consumes the benefits as the entity performs
    • Customer controls the asset as the entity creates or enhances it or
    • The entity’s performance does not create an asset with an alternative use and there is right to payment for performance to date.
  • If a performance obligation is not satisfied over time, an entity satisfies the. performance obligation at a point in time.
  • Measurement of revenue is dependent upon the determination of the transaction price allocated to that performance obligation.

Costs

  • The standard includes guidance on accounting for incremental costs to obtain and costs to fulfil a contract that are not in the scope of another standard.

Presentation

  • An entity recognises a contract asset when it transfers goods or services before it has unconditional right to payment, and a contract liability when the customer makes a payment before it receives the goods or services.

Disclosures

  • An entity provides specific quantitative and qualitative disclosures to enable users of the financial statements to understand the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers.

 

Ind AS 116: Leases

  • Ind AS 116, Leases requires an entity to assess at the inception of the contract, whether the contract is, or contains, a lease.
  • A contract is, or contains, a lease if it conveys the right to control the use of an identified asset (explicitly or implicitly specified in the contract) for a period of time in exchange for a consideration.
  • The standard lays emphasis on which party controls the use of the identified asset. A customer has the right to control the use of an identified asset, if it has the:
    • Right to obtain substantially all of the economic benefits from use of the identified asset and
    • Right to direct the use of the identified asset i.e. it has the right to direct how and for what purpose the asset is used throughout the period of use.
  • Once a lease is identified, a lessee is required to recognise a Right-Of-Use (ROU) asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments on the balance sheet.
  • ROU asset will be measured at cost and the lease liability will be measured at the present value of the lease payments that are not paid at that date.
  • The cost of the ROU asset will include following amounts:
    • Initial measurement of lease liability
    • Prepaid lease payments less any lease incentives received
    • Initial direct costs incurred by the lessee and
    • Estimated costs to dismantle, remove or restore the underlying asset.
  • The lease payments to be included in the measurement of lease liability comprise the following payments:
    • Fixed payments (including in-substance fixed payments)
    • Variable lease payments that depend on an index or a rate
    • Amounts expected to be payable by the lessee under residual value guarantees
    • The exercise price of a purchase option if the lessee is reasonably certain to exercise that option
    • Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
  • For calculating the amount of lease liability, the lease payments will be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee is required to use its incremental borrowing rate.
  • While determining the lease term, termination options held by the lessor only are not considered. Termination options held by the lessee will also be considered.
  • Subsequently, the lease liability is measured at amortised cost using the effective interest method. A ROU asset will be measured at cost less accumulated depreciation and accumulated impairment.
  • A lessee is required to remeasure the lease liability by discounting the revised lease payments based on either unchanged discount rate or a revised rate depending upon the facts and circumstances of a case.
  • A lessee may elect not to apply the lease accounting model to:
    • Leases with a lease term of 12 months or less that do not contain a purchase option i.e. short term leases.
    • Leases for which the underlying asset is of low value when it is new – even if the effect is material in aggregate.
  • If a lessee sub-leases an asset, or expects to sub-lease an asset, the head lease does not qualify as a lease of a low-value asset.
  • A lessor will classify each of its leases as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying asset. A lease is classified as an operating lease if it does not transfers substantially all the risks and rewards incidental to the ownership of an underlying asset. The lease classification test is based on Ind AS 17, Leases classification criteria.
  • A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease will be accounted for as a lease modification by a lessor and a lessee.
  • In a sale-and-leaseback transaction, an entity is required to apply the requirements for determining when a performance obligation is satisfied in Ind AS 115 to determine whether the transfer of an asset is accounted for as a sale of that asset.

 

Ind AS 1: Presentation of Financial Statements

  • Indian Accounting Standard (Ind AS) 1, Presentation of Financial Statements prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of both consolidated and separate financial statements, guidelines for their structure and minimum requirements for their content.
  • For entities that operate in sectors such as banking, insurance, electricity, etc., specific formats may be prescribed under relevant regulations for presentation of financial statements and Ind AS 1 may not be applicable to that extent.
  • Any entity claiming that a set of financial statements is in compliance with Ind AS complies with all such standards and related interpretations. The entity is not allowed to claim that its financial statements are, for example, ‘materially’ in compliance with Ind AS, or that it has complied with ‘substantially all’ requirements of Ind AS. Compliance with Ind AS encompasses disclosure as well as recognition and measurement requirements.
  • For financial information to be useful, it needs to be relevant to users and faithfully represent what it purports to represent. The usefulness of financial information is enhanced by its comparability, verifiability, timeliness and understandability. The overriding requirement of Ind AS is for the financial statements to give a true and fair view. Compliance with Ind AS, including additional disclosure when necessary, is presumed to result in a true and fair view.
  • The entity shall prepare financial statements on a going concern basis unless management intends to either liquidate the entity or to cease trading, or has no realistic alternative but to do so.
  • A complete set of financial statements comprises the following:
    • A balance sheet,
    • A statement of profit and loss,
    • A statement of changes in equity,
    • A statement of cash flows,
    • Notes, including accounting policies,
    • Comparative information, and
    • A balance sheet as at the beginning of the preceding period in certain circumstances.
  • The standard requires specific disclosures in the balance sheet, the statement of profit and loss, or the statement of changes in equity and requires disclosure of other line items either in those statements or in the notes.
  • The standard requires the entity to recognise items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework. The standard also requires the entity to consider aspects surrounding materiality, reporting and other presentation considerations.
  • Financial statements are prepared on a modified historical cost basis, with a growing emphasis on fair value.
  • A statement of changes in equity (and related notes) reconciles opening to closing amounts for each component of equity.
  • All owner- related changes in equity are presented in the statement of changes in equity separately from non-owner changes in equity.
  • Entities that have no equity as defined in Ind AS may need to adopt the financial statement presentation of members ‘or unit holders’ interests.
  • The entity presents separately in the statements of changes in equity:
    • The total adjustment resulting from changes in accounting policies, and
    • The total adjustment resulting from the correction of errors.
  • Generally, the entity presents its balance sheet classified between current and non-current assets and liabilities.
  • An asset is classified as current if it is expected to be realised in the normal operating cycle or within 12 months, it is held for trading or is cash or a cash equivalent.
  • A liability is classified as current if it is expected to be settled in the normal operating cycle, it is due within 12 months, or there are no unconditional rights to defer its settlement for at least 12 months.
  • A liability that is payable on demand because certain conditions are breached is not classified as current if the lender has agreed, after the reporting date but before the financial statements are authorised for issue, not to demand repayment.
  • The presentation of alternative earnings measures (e.g. Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) in the statement of profit and loss and Other Comprehensive Income (OCI) is not generally prohibited, although national regulators may have more restrictive requirements.

 

Ind AS 2: Inventories

  • Indian Accounting Standard (Ind AS) 2, Inventories defines inventories as assets:
    • Held for sale in ordinary course of business (finished goods),
    • In the process of production for such sale (work in progress), or
    • In the form of materials or supplies to be consumed in the production process or in the rendering of services (raw material and consumables).
  • Generally, inventories are measured at the lower of cost and Net Realisable Values (NRV).
  • Cost includes all direct expenditure to bring inventories to their present location and condition, including allocated overheads.
  • The cost of inventory is generally determined under the First-In, First-Out
  • (FIFO) or weighted average method. The use of the Last-In, First-Out (LIFO) method is prohibited.
  • Inventory costing methods may include standard cost or retail method if they approximate the actual cost.
  • NRV is the estimated realisable value of inventories less estimated cost to be incurred to make the sale.
  • If the NRV of an item that has been written down subsequently increases, then the write-down is reversed.
  • The cost of inventory is recognised as an expense when the inventory is sold.

 

Ind AS 7: Statement of Cash Flows

  • Indian Accounting Standard (Ind AS) 7, Statement of Cash Flows requires the entity to provide information about historical changes in its cash and cash equivalents in a statement of cash flows. The statement of cash flows classifies cash flows during the period into those from operating, investing and financing activities.
  • Cash and cash equivalents for the purposes of the statement of cash flows include certain short-term investments and in some cases, bank overdrafts.
  • Taxes paid are separately disclosed and classified as operating activities unless it is practicable to identify them with, and therefore, classify them as, financing or investing activities.
  • Cash flows from operating activities may be presented under either the direct method or the indirect method. However, in case of listed entities, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 require the use of the indirect method in preparing the cash flow statement.
  • The entity presents its cash flows in the manner most appropriate to its business.
  • Foreign currency cash flows are translated at the exchange rates at the date of the cash flows (or using averages when appropriate).
  • Generally, all financing and investing cash flows are reported gross. Cash flows are offset only in limited circumstances.
  • For annual reporting periods beginning on or after 1 April 2017, an entity is required to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

 

Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors

  • Indian Accounting Standard (Ind AS) 8 Accounting Policies, Changes in Accounting Estimates and Errors prescribes the criteria for selecting and changing accounting policies, accounting treatment and disclosure of changes in accounting policies, estimates and correction of errors.
  • Accounting policies are the specific principles, bases, conventions, rules and practices that an entity applies in preparing and presenting financial statements.
  • If Ind AS does not cover a particular issue, then the entity uses its judgement based on a hierarchy of accounting literature.
  • The entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless an Ind AS specifically requires or permits categorisation of items for which different policies may be appropriate. If an Ind AS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category.
  • The entity shall change an accounting policy only if the change is required by an Ind AS or results in the financial statements providing reliable and more relevant information.
  • When initial application of an Ind AS has an effect on the current period or any prior period, the entity shall disclose the title of the Ind AS, the nature of change in accounting policy and that it is based on transitional provisions, a description of the transitional provisions including those that might have an effect on future periods and the amount of adjustment for the current and each prior period presented to the extent applicable. When an entity has not applied a new Ind AS that has been issued but is not yet effective, the entity shall disclose this along with known or reasonably estimable information to assess the possible impact that its initial application will have on the entity’s financial statements.
  • The entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods. If it is impracticable to disclose the amount of effect in future periods, this fact would be disclosed by the entity.
  • Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Generally, accounting policy changes and correction for errors are made retrospectively by adjusting opening equity and restating comparatives unless impracticable.
  • The entity should account for change in accounting estimate prospectively and where it is difficult to determine whether a change is change in accounting policy or a change in estimate, then it is treated as change in estimate.
  • If the classification and presentation of items in the financial statements is changed, then the entity should restate the comparatives unless this is impracticable.
  • Disclosure is required for judgements that have a significant impact on the financial statements and for key sources of estimation uncertainty.

 

Ind AS 10 Events after the Reporting Period

  • Indian Accounting Standard (Ind AS) 10, Events after the Reporting Perioddeals with events that occur after the end of the reporting period but before the financial statements are authorised for issue.
  • The financial statements are adjusted to reflect events that occur after the end of the reporting period, but before the financial statements are authorised for issue by management, if those events provide evidence of conditions that existed at the end of the reporting period.
  • Financial statements are not adjusted for events that are a result of conditions that arose after the reporting period, except when the going concern assumption is no longer appropriate.
  • It is necessary to determine the underlying clauses of an event and its timing to determine whether the event is adjusting or non-adjusting.
  • The classification of liabilities as current or non-current is based generally on circumstances at the reporting date.
  • Earnings per share are restated to include the effect on the number of shares of certain share transactions that happen after the reporting date.
  • If management determines that the entity is not a going concern after the reporting date but before the financial statements are authorised for issue, then the financial statements are not prepared on a going concern basis. (Also refer to checklist on Ind AS 1, Presentation of Financial Statements).

 

Ind AS 12: Income Taxes

  • Indian Accounting Standard (Ind AS) 12, Income Taxes are taxes based on taxable profits, and taxes that are payable by a subsidiary, associate or joint arrangement on distribution to investors.
  • Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (loss) for a period.
  • Deferred tax is the amount of income taxes payable (recoverable) in future periods as a result of past transactions or events.
  • Deferred tax is recognised for the estimated future tax effects of temporary differences, unused tax losses carried forward and unused tax credits carried forward.
  • A deferred tax liability is not recognised if it arises from the initial recognition of goodwill.
  • A deferred tax asset or liability is not recognised if:
    • It arises from the initial recognition of an asset or liability in a transaction that is not a business combination, and
    • At the time of the transaction, it affects neither accounting profit nor taxable profit.
  • Deferred tax liability is not recognised in respect of temporary differences associated with investments in subsidiaries, branches and associates and joint arrangements if certain conditions are met. (For example, in the case the investor is able to control the timing of the reversal of the temporary differences, and it is probable that the temporary difference will not reverse in the foreseeable future).
  • A deferred tax asset is recognised to the extent that it is probable that it will be realised.
  • Current and deferred taxes are measured based on rates that are enacted or substantively enacted at the reporting date.
  • Deferred tax is measured based on the expected manner of settlement (liability) or recovery (asset).
  • Deferred tax is not discounted.
  • The total income tax expense (income) recognised in a period is the sum of current tax plus the change in deferred tax assets and liabilities during the period, excluding tax recognised outside profit or loss – i.e. in other comprehensive income or directly in equity – or arising from a business combination.
  • Income tax related to items recognised outside profit or loss is itself recognised outside profit or loss.
  • Deferred tax is classified as non-current in the balance sheet.
  • The entity offsets current tax assets and current tax liabilities only when it has a legally enforceable right to set off current tax assets against current tax liabilities, and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.
  • The entity offsets deferred tax assets and deferred tax liabilities only when it has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity, or different taxable entities that intend either to settle on a net basis or to realise the asset and settle the liability simultaneously.

 

Ind AS 16: Property, Plant and Equipment

  • Indian Accounting Standard (Ind AS) 16, Property, Plant and Equipment is applied in the accounting for Property, Plant and Equipment (PPE).
  • PPE is initially recognised at cost.
  • Cost includes all expenditure directly attributable to bringing the asset to the location and working condition for its intended use.
  • Cost includes the estimated cost of dismantling and removing the asset and restoring the site.
  • Subsequent expenditure is capitalised if it is probable that it will give rise to future economic benefits.
  • Changes to an existing decommissioning or restoration obligation are generally added to or deducted from the cost of the related asset.
  • The carrying amount of PPE may be reduced by government grants in accordance with Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance.
  • PPE is depreciated over its expected useful life.
  • Estimates of useful life and residual value, and the method of depreciation, are reviewed as a minimum at each reporting date. Any changes are accounted for prospectively as a change in estimate.
  • When an item of PPE comprises individual components for which different depreciation methods or rates are appropriate, each component is depreciated separately.
  • PPE may be revalued to fair value if fair value can be measured reliably. All items in the same class are revalued at the same time, and the revaluations are kept up to date.
  • When the revaluation model is chosen, changes in fair value are generally recognised in Other Comprehensive Income (OCI).
  • The gain or loss on disposal is the difference between the net proceeds received and the carrying amount of the asset.
  • Compensation for the loss or impairment of PPE is recognised in the statement of profit and loss when it is receivable.

 

Ind AS 19: Employee Benefits

  • Indian Accounting Standard (Ind AS) 19, Employee Benefits specifies the accounting for various types of employee benefits, including:
    • Benefits provided for services rendered – e.g. pensions, lump-sum payments on retirement, paid absences and profit-sharing arrangements, and
    • Benefits provided on termination of employment.
  • Post-employment plans are classified as:
    • Defined contribution plans – plans under which the entity pays a fixed contribution in to a fund and will have no further obligation, and
    • Defined benefit plans – all other plans.
  • Liabilities and expenses for employee benefits that are provided in exchange for services are generally recognised in the period in which the services are rendered.
  • The costs of providing employee benefits that are recognised in profit or loss or Other Comprehensive Income (OCI), unless other Ind ASs permit or require capitalisation.
  • To account for defined benefit post-employment plans, the entity:
    • Determines the present value of a defined benefit obligation by applying an actuarial valuation method,
    • Deducts the fair value of any plan assets,
    • Adjusts for any effect of the asset ceiling, and
    • Determines services costs and net interests (recognised in profit or loss) and remeasurements (recognised in OCI).
  • If insufficient information is available for multi-employer defined benefit plan to be accounted for as a defined benefit plan, then it is treated as a defined contribution plan and additional disclosures are required.
  • If the entity applies defined contribution plan accounting to a multi-employer defined benefit plan and there is an agreement that determines how a surplus in the plan would be distributed or a deficit in the plan funded, then an asset or a liability that arises from the contractual agreement is recognised.
  • If there is a contractual agreement or stated policy for allocating a group’s net defined benefit cost, then participating group entities recognise the cost allocated to them.
  • If there is no agreement or policy in place, then the net defined benefit cost is recognised by the entity that is the legal sponsor, and other participating entities expense their contribution payable for the period.
  • Short term employee benefits – i.e. those that are expected to be settled wholly within 12 months after the end of the annual reporting period in which the employees render the related service – are expensed as they are incurred, except for termination benefits.
  • The expenses for long-term employee benefits, calculated on discounted basis, is usually accrued over the service period
  • A termination benefit is recognised at the earlier of:
    • The date on which the entity recognises costs for a restructuring in the scope of the provisions standard that includes the payment of termination benefits, and
    • The date on which the entity can no longer withdraw the offer of the termination benefits.

 

Ind AS 20: Accounting for Government Grants and Disclosure of Government Assistance

  • Indian Accounting Standard (Ind AS) 20, Accounting for Government Grants and Disclosure of Government Assistance shall be applied in accounting and disclosure of government grants and for disclosure of other forms of government assistance.
  • Government grants, including non-monetary grants at fair value, are recognised only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received.
  • If government grant is in the form of a non-monetary asset, then both the asset and the grant are either recognised at the fair value of the non-monetary asset or at a nominal amount.
  • Unconditional government grants related to biological assets measured at fair value less cost to sell are recognised in profit or loss when they become receivable, conditional grants for such assets are recognised in profit or loss when the required conditions are met.
  • Government grants that relate to the acquisition of an asset, other than a biological asset measured at fair value less cost to sell, are recognised in profit or loss as the related asset is depreciated or amortised. In case of a non-depreciable assets, the related grants are recognised in profit or loss over the periods that bear the cost of meeting the obligations.
  • Other government grants are recognised in profit or loss when the entity recognises as expenses the related costs that the grants are intended to compensate.
  • A forgivable loan from government is treated as a government grant when there is a reasonable assurance that the entity will meet the terms for forgiveness of the loan.
  • Low-interest loans from government may include components that need to be treated as government grants.
  • Non-monetary government grants are either to be measured at fair value or at a nominal amount.
  • Government grants related to assets are presented in the balance sheet either as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
  • Government grants related to income are presented separately in profit or loss or as deduction from the related expense.
  • Government grants that become repayable would be accounted for as a change in an accounting estimate.
  • Repayment of a government grant related to income would be applied first against any unamortised deferred credit recognised in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment would be recognised immediately in profit or loss.
  • Repayment of a grant related to an asset would be recognised by either:
    • Reducing the deferred income balance by the amount repayable, or
    • Increasing the carrying amount of the related asset, if the grant was previously deducted from the carrying amount of the asset. In this case, the cumulative additional depreciation on the new carrying amount of the asset would be recognised immediately in the statement of profit and loss.

 

Ind AS 21: The Effects of Changes in Foreign Exchange Rates

  • Indian Accounting Standard (Ind AS) 21, The Effects of Changes in Foreign Exchange Rates shall be applied:
    • In accounting for transactions and balances in foreign currencies, except for those derivative transactions and balances that are within the scope of Ind AS 109, Financial Instruments,
    • In translating the results and financial position of foreign operations that are included in the financial statements of the entity by consolidation or the equity method, and
    • In translating the entity’s results and financial position into a presentation currency.
  • The entity measures its assets, liabilities, income and expenses in its functional currency, which is the currency of the primary economic environment in which it operates.
  • The entity needs to determine its functional currency based on the primary economic environment in which it operates. The primary economic environment is normally the one in which the entity primarily generates and expends cash.
  • While determining the functional currency of its Foreign Operation (FO), the entity needs to consider certain additional factors, including the degree of autonomy with which the FO operates, the significance of the transactions and cash flows of the FO to the entity and the dependability of FO on the entity for servicing its debts.
  • Transactions that are not denominated in the entity’s functional currency are foreign currency transactions. They are translated at actual rates or appropriate averages, exchange differences arising on translation are generally recognised in the statement of profit and loss.
  • The financial statements of foreign operations are translated as follows:
    • Assets and liabilities are translated at the closing rate,
    • Income and expenses are translated at the exchange rates or appropriate averages, and
    • Equity components are translated at the exchange rates at the date of the relevant transactions.
  • Exchange differences arising on the translation of the financial statements of a foreign operation are recognized in Other Comprehensive Income (OCI) and accumulated in a separate component of equity. The amount attributable to any Non-Controlling Interests (NCI) is allocated to, and recognised as part of NCI.
  • The entity may present its financial statements in a currency other than its functional currency (presentation currency). The entity that translates its financial statements into a presentation currency other than its functional currency uses the same method as for translating the financial statements of a foreign operation.
  • If the functional currency of a foreign operation is the currency of a hyperinflationary economy, then its financial statements are first adjusted to reflect the purchasing power at the current reporting date and then translated into a presentation currency using the exchange rate at the current reporting date. If the presentation currency is not the currency of a hyperinflationary economy, then comparative amounts are not restated.
  • If the entity disposes of its entire interest in a foreign operation, or loses control over a foreign subsidiary or retains neither joint control nor significant influence over an associate or joint arrangement as a result of a partial disposal, then the cumulative exchange differences recognised in OCI are reclassified to the statement of profit and loss.
  • A partial disposal of a foreign subsidiary without the loss of control leads to a proportionate reclassification of the cumulative exchange differences in OCI to NCI.
  • A partial disposal of a joint arrangement or an associate with retention of either joint control or significant influence results in a proportionate reclassification of the cumulative exchange differences recognised in OCI to profit or loss.
  • The entity may present supplementary financial information in a currency other than its presentation currency if certain disclosures are made.

 

Ind AS 23: Borrowing Costs

  • Indian Accounting Standard (Ind AS) 23, Borrowing Costs is applied in the accounting for borrowing costs. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds. These include:
    • Interest expense calculated using the effective interest method as described in Ind AS 109, Financial Instruments
    • Interest in respect of lease liabilities recognised in accordance with Ind AS 116, Leases1 and
    • Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.
  • The standard requires that borrowing costs directly attributable to the acquisition, construction or production of a ‘qualifying asset’ are included in the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably.
  • Borrowing costs are reduced by interest income from the temporary investment of borrowings.
  • Capitalisation begins when an entity meets all of the following conditions:
    • Expenditure for the asset is being incurred
    • Borrowing costs are being incurred and
    • Activities that are necessary to prepare the asset for its intended use or sale have commenced.
  • Capitalisation ceases when the activities necessary to prepare the asset for its intended use or sale are substantially complete.

 

Ind AS 24: Related Party Disclosures

  • The objective of Indian Accounting Standard (Ind AS) 24, Related Party Disclosures is to ensure that the entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.
  • Related party relationships include those involving control (direct or indirect), joint control or significant influence.
  • Key management personnel and their close family members are also parties related to the entity.
  • There are no special recognition or measurement requirements for related party transactions.
  • The disclosure of related party relationships between a parent and its subsidiaries is required, even if there have been no transactions between them.
  • No disclosure is required in consolidated financial statements of intra-group transactions eliminated in preparing those statements.
  • Comprehensive disclosures of related party transactions are required for each category of related party relationship.
  • Key management personnel compensation is disclosed in total and is analysed by component.
  • In certain instances, government-related entities are allowed to provide less detailed disclosures on related party transactions.

 

Ind AS 27: Separate Financial Statements

  • Indian Accounting Standard (Ind AS) 27, Separate Financial Statements provides guidance on accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the entity elects, or is required by law, to present separate financial statements.
  • Separate financial statements are those presented by:
    • A parent (i.e. an investor with control of a subsidiary), or
    • An investor with joint control of, or significant influence over, an investee in addition to financial statements in which investments in associates or joint ventures are accounted for using the equity method.
  • A parent, an investor in an associate, or a venturer in a joint venture that is not required to prepare consolidated or individual financial statements is permitted, but not required, to present Separate Financial Statements (SFS). Alternatively, SFS may be prepared in addition to consolidated or individual financial statements.

 

Ind AS 28: Investments in Associates and Joint Ventures

  • Indian Accounting Standard (Ind AS) 28, Investments in Associates and Joint Ventures is applied by all entities that are investors with joint control of, or significant influence, over an investee.
  • The definition of an associate is based on significant influence, which is the power to participate in the financial and operating policy decisions of the entity.
  • There is a rebuttable presumption of significant influence if an entity holds 20 percent or more of the voting rights of another entity.
  • Potential voting rights that are currently exercisable are considered in assessing significant influence.
  • Generally, associates and joint ventures are accounted for using the equity method in the consolidated financial statements.
  • Entities that are, or that hold investments in associates or joint ventures indirectly through venture capital organisations, mutual funds, unit trusts and similar entities, may elect to account for investments in associates and joint ventures at Fair Value Through Profit or Loss (FVTPL) in accordance with Ind AS 109, Financial Instruments. This election is required to be made on an investment-by-investment basis, at initial recognition of the associate or joint venture.
  • Equity accounting is not applied to an investee that is acquired with a view to its subsequent disposal if the criteria are met for classification as held for sale.
  • The entity’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances unless, in case of an associate, it is impracticable to do so.
  • The investee’s reporting date cannot differ from that of the investor by more than three months, and should be consistent from period to period. Adjustments are made for the effects of significant events and transactions between the two dates.
  • If an equity accounted investee incurs losses, then the carrying amount of the investor’s interest is reduced but not to below zero. Further losses are recognised as a liability by the investor only to the extent that the investor has an obligation to fund the losses or has made payments on behalf of the investee.
  • Unrealised profits and losses on transactions with associates are eliminated to the extent of the investor’s interest in the investee.
  • On the loss of significant influence or joint control, the fair value of any retained investments is taken into account in calculating the gain or loss on the transaction that is recognised in profit or loss. Amounts recognised in other comprehensive income are reclassified to profit or loss or transferred within equity as required by other Ind ASs.
  • A joint arrangement is an arrangement over which two or more parties have joint control. There are two types of joint arrangement: a joint operation and a joint venture.
  • In joint venture, the parties to the arrangement have rights to the net assets of the arrangement.
  • A joint venturer accounts for its interest in a joint venture in the same way as an investment in an associate – i.e. generally using the equity method.
  • A party to a joint venture that does not have joint control accounts for its interest as a financial instrument, or under the equity method, if significant influence exists.

 

Ind AS 29: Financial Reporting in Hyperinflationary Economies

  • Indian Accounting Standard (Ind AS) 29, Financial Reporting in Hyperinflationary Economies shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyperinflationary economy.
  • When the entity’s functional currency is hyperinflationary, its financial statements are restated to express all items in terms of the measuring unit current at the end of the reporting period.
  • The standard prescribes the following steps in restating the financial statements:
    • Step 1: Restate the balance sheet at the beginning of the reporting period by applying the change in the price index during the current period to all items.
    • Step 2: Restate the balance sheet at the end of the reporting period by adjusting non-monetary items to current purchasing power terms.
    • Step 3: Restate the statement of profit and loss (including other comprehensive income).
    • Step 4: Calculate the gain or loss on the net monetary position.
  • If the entity’s functional currency ceases to be hyperinflationary, then the amounts reported in the latest financial statements restated for hyperinflation are used as the basis for the carrying amounts in subsequent financial statements.
  • If the entity presents financial statements restated for hyperinflation, then it is generally not appropriate to present additional supplementary financial information prepared on a historical cost basis.

 

Ind AS 32: Financial Instruments: Presentation

  • Indian Accounting Standard (Ind AS) 32, Financial Instruments: Presentation, establishes the principles for the presentation of financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities.
  • It applies to the classification of financial instruments from the perspective of the issuer, into financial assets, financial liabilities and equity instruments, the classification of related interest, dividend, losses and gains and the circumstances in which financial assets and financial liabilities should be offset.
  • The principles in this standard complement the principles for recognising and measuring financial assets and financial liabilities in Ind AS 109, Financial Instruments, and for disclosing information about them in Ind AS 107, Financial Instruments: Disclosures.
  • Financial instruments are contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. On initial recognition, financial instruments are classified as a financial liability or equity instrument in accordance with the substance of the contractual arrangement, (and not its legal form), and the definitions of financial liabilities and an equity instrument. If a financial instrument has both equity and liability components (compound financial instrument), then they are classified separately based on the contractual terms at issuance.
  • Puttable instruments and instruments that impose an obligation on the entity to deliver a pro rata share of net assets only on liquidation, are classified as equity instruments only if they are subordinate to all other classes of instruments, and meet all additional criteria specified in the standard.
  • Rights, options or warrants issued by the entity to acquire a fixed number of its own equity instruments for a fixed amount of cash are classified as equity, if the entity offers such rights, options, or warrants on a pro rata basis to all existing holders of the same class of its equity instruments.
  • An equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of the entity’s own equity instruments is an equity instrument if the exercise price is fixed in any currency.
  • Dividends on financial instruments classified as financial liabilities are recognised as an interest expense in the statement of profit or loss. Hence if preference shares meet the definition of a financial liability, the dividend is treated as an interest expense. Dividends and other distributions to the holders of equity instruments are recognised directly in equity.
  • Gains and losses on transactions in an entity’s own equity instruments are recognised directly in equity. Incremental costs that are directly attributable to equity transactions such as issuing or buying back own equity instruments or distributing dividends are recognised directly in equity.
  • A financial asset and financial liability can only be offset if the entity currently has a legally enforceable right to set off the recognised amounts and intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

 

Ind AS 33: Earnings Per Share

  • Indian Accounting Standard (Ind AS) 33, Earnings per Share is applicable to companies that have issued ordinary shares.
  • When the entity presents both consolidated financial statements and separate financial statements prepared in accordance with Ind AS 110, Consolidated Financial Statements and Ind AS 27, Separate Financial Statements respectively, the disclosures required by this standard shall be presented both in the consolidated financial statements and separate financial statements. In consolidated financial statements such disclosures shall be based on consolidated information and in separate financial statements such disclosures shall be based on information given in separate financial statements.
  • When any item of income or expense which is otherwise required to be recognised in profit and loss in accordance with Ind AS is debited or credited to securities premium account/other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic Earnings per Share (EPS).
  • Basic EPS is calculated by dividing the earnings attributable to holders of ordinary equity of the parent by the weighted average number of ordinary shares outstanding during the period.
  • Diluted EPS is calculated by adjusting profit or loss attributable to ordinary equity holders and the weighted average number of shares outstanding for the effects of all dilutive potential ordinary shares.
  • Potential ordinary shares are considered dilutive only if they decrease EPS or increase loss per share from continuing operations. In determining whether potential ordinary shares are dilutive, each issue or series of potential ordinary shares is considered separately.
  • Contingently issuable ordinary shares are included in basic EPS only from the date when all the necessary conditions are satisfied (i.e. the events have occurred). If the conditions are not satisfied, the number of contingently issuable shares included in the diluted EPS is based on the number of shares that would be issuable if the end of the reporting period were the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency period expires.
  • Outstanding ordinary shares that are subject to recall are not treated as outstanding and are excluded from the calculation of basic EPS until the date the shares are no longer subject to recall.
  • If a contract may be settled in either cash or shares at the entity’s option, then it is presumed that it will be settled in ordinary shares and the resulting potential ordinary shares are used to calculate diluted EPS.
  • If a contract may be settled in either cash or shares at the holder’s option then the more dilutive of cash and share settlement is used to calculate diluted EPS.
  • For diluted EPS, diluted potential ordinary shares are determined independently for each period presented.
  • If the number of ordinary shares outstanding, changes without a corresponding change in resources, then the weighted average number of ordinary shares outstanding during all period presented is adjusted retrospectively for both basic and diluted EPS.
  • Basic and diluted EPS for profit or loss from continuing operations and profit or loss for the period for each class of ordinary shares that has a different right to share in profit for the period, should be presented in the statement of profit and loss with equal prominence for all the periods presented.
  • Information on basic and diluted EPS is required to be disclosed for discontinued operations either in the statement of profit and loss or in the notes for entities that report discontinued operations.
  • Adjusted basic and diluted EPS based on alternative earnings measures may be disclosed and explained in the notes to the financial statements.
  • If an entity discloses, in addition to basic and diluted earnings per share, amounts per share using a reported component of the statement of profit and loss other than one required by this standard, such amounts shall be calculated using the weighted average number of ordinary shares determined in accordance with this standard.

 

Ind AS 34: Interim Financial Reporting

  • Indian Accounting Standard (Ind AS) 34, Interim Financial Reporting is applicable if the entity is required to or elects to publish an interim financial report in accordance with Ind ASs. The standard does not mandate which entities would be required to publish interim financial reports, how frequently, or how soon after the end of an interim period.
  • While unaudited financial results prepared and presented under Regulation 33 of the Securities Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations) with stock exchanges are not an ‘Interim Financial Report’ as defined in this standard, the recognition and measurement guidance in this standard should be complied with while following the disclosure requirements prescribed by SEBI.
  • Interim financial statements contain either a complete or a condensed set of financial statements for a period shorter than an annual reporting period.
  • The following, as a minimum, are presented in condensed interim financial statements:
    • A condensed balance sheet,
    • A condensed statement of profit and loss,
    • A condensed statement of changes in equity,
    • A condensed statement of cash flows, and
    • Select explanatory notes.
  • If the entity publishes a set of condensed financial statements in its interim financial report, those condensed statements shall include, at a minimum, each of the headings and subtotals that were included in its most recent annual financial statements and the selected explanatory notes as required by this standard. Additional line items or notes shall be included if their omission would make the condensed interim financial statements misleading.
  • Items are generally recognised and measured as if the interim period were a discrete period. As an exception, income tax expense for an interim period is based on an estimated average annual effective income tax rate.
  • In the statement that presents the components of profit or loss for an interim period, the entity shall present basic and diluted earnings per share for that period when the entity is within the scope of Ind AS 33, Earnings per Share.
  • Generally, the accounting policies applied in the interim financial statements are those that will be applied in the next annual financial statements.
  • The interim financial report should provide an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period by disclosing the update on the relevant information presented in the most recent annual financial report in relation to such events and transactions. Since a user of the entity’s interim financial report will have access to the most recent annual financial report of that entity, the notes to the interim financial report need not provide relatively insignificant updates to the information that was reported in the notes in the most recent annual financial report. Two examples of significant events include:
    • The write-down of inventories to net realisable value and the reversal of such a write-down, or
    • The reversal of any provisions for the costs of restructuring.
  • The recognition and measurement guidance in this standard applies also to complete financial statements for an interim period, and such statements would include all of the disclosures required by this standard.

 

Ind AS 36: Impairment of Assets

  • Indian Accounting Standard (Ind AS) 36, Impairment of Assets prescribes the procedures that the entity should apply to ensure that its non-financial assets are carried at no more than their recoverable amount. A non-financial asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and Ind AS 36 requires the entity to recognise an impairment loss.
  • The impairment standard covers a variety of non-financial assets, including:
    • Property, plant and equipment,
    • Intangible assets and goodwill, and
    • Investments in subsidiaries, associates and joint ventures.
  • Whenever possible, an impairment test is performed for an individual asset, unless the asset does not generate cash flows that are largely independent. Otherwise, assets are tested for impairment in Cash-Generating Units (CGUs). Goodwill is always tested for impairment at the level of a CGU or a group of CGUs.
  • A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof.
  • Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. The allocation is based on the level at which goodwill is monitored internally, restricted by the size of the entity’s operating segments before aggregation.
  • Impairment testing is required when there is an indication of impairment.
  • Annual impairment testing is required for goodwill and intangible assets that either are not yet available for use or have an indefinite useful life. This impairment test may be performed at any time during the year, provided that it is performed at the same time each year.
  • An impairment loss is recognised if an asset’s or CGU’s carrying amount exceeds the greater of its fair value less costs to sell and value in use.
  • Estimates of future cash flows used in the value in use calculation are specific to the entity, and need not be the same as those of market participants. The discount rate used in the value in use calculation reflects the market’s assessment of the risks specific to the asset or CGU, as well as the time value of money.
  • An impairment loss for a CGU is allocated first to any goodwill and then pro rata to other assets in the CGU that are in the scope of the standard.
  • An impairment loss is generally recognised in the statement of profit and loss, except where required to be recognised in reserves by this standard.
  • Reversals of impairment are recognised, other than for impairments of goodwill.
  • A reversal of an impairment loss is generally recognised in the statement of profit and loss, except to the extent it is a reversal of an impairment loss previously recognised in reserves.

 

Ind AS 37: Provisions, Contingent Liabilities and Contingent Assets

  • Indian Accounting Standard (Ind AS) 37, Provisions, Contingent Liabilities and Contingent Assets is applied in accounting for provisions, contingent liabilities and contingent assets, except for those resulting from executory contracts (except where the contract is onerous) and those covered by other standards.
  • A provision is a liability of uncertain timing or amount that arises from a past event that is expected to result in an outflow of the entity’s resources.
  • A contingent liability is a present obligations with uncertainties about either the probability of outflow of resources or the amount of the outflows, and possible obligations whose existence is uncertain.
  • A contingent asset is a possible asset whose existence is uncertain.
  • A provision is recognised for a legal or constructive obligation, if there is a probable outflow of resources and the amount can be estimated reliably. Probable in this context means more likely than not.
  • A constructive obligation arises when the entity’s actions create valid expectations of third parties that it will accept and discharge certain responsibilities.
  • A provision is not recognised for future operating losses.
  • A provision for restructuring costs is not recognised until there is a formal plan and details of the restructuring have been communicated to those affected by the plan.
  • Provisions are not recognised for repairs or maintenance of own assets or for self-insurance before an obligation is incurred.
  • A provision is recognised for a contract that is onerous.
  • Contingent liabilities are recognised only if they are present obligations assumed in a business combination-i.e. there is uncertainty about the outflows but not about the existence of an obligation. Otherwise, contingent liabilities are disclosed in the notes to the financial statements.
  • Contingent assets are not recognised in the balance sheet. If an inflow of economic benefits is probable, then details are disclosed in the notes to the financial statements.
  • A provision is measured at the ‘best estimate’ of the expenditure to be incurred.
  • Provisions are discounted if the effect of discounting is material.
  • A reimbursement right is recognised as a separate asset when recovery is virtually certain, capped at the amount of the related provision.

 

Ind AS 38: Intangible Assets

  • Indian Accounting Standard (Ind AS) 38, Intangible Assets, prescribes the accounting treatment for intangible assets that are not dealt with specifically in another standard. It requires the entity to recognise an intangible asset if, and only if, specified criteria are met. The standard also specifies how to measure the carrying amount of intangible assets and requires specific disclosures about intangible assets.
  • This standard shall be applied in accounting for intangible assets, except:
    • Intangible assets that are within the scope of another standard,
    • Financial assets, as defined in Ind AS 32, Financial Instruments: Presentation,
    • The recognition and measurement of exploration and evaluation assets, and
    • Expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources.
  • An intangible asset is identifiable if it either:
    • Is separable, i.e. is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so, or
    • Arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
  • An intangible asset shall be recognised if, and only if:
    • It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, and
    • The cost of the asset can be measured reliably.
  • An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life of the asset.
  • An intangible asset shall be measured initially at cost.
  • Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.
  • An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
  • The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset.
  • The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the date that the asset is classified as held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations and the date that the asset is derecognised.
  • The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
    • There is a commitment by a third party to purchase the asset at the end of its useful life, or
    • There is an active market for the asset and:
      • Residual value can be determined by reference to that market, and
      • It is probable that such a market will exist at the end of the asset’s useful life.
    • The amortisation period and the amortisation method for an intangible asset with a finite useful life shall be reviewed at least at each financial year-end.
    • An intangible asset with an indefinite useful life shall not be amortised. The useful life of an intangible asset that is not being amortised shall be reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset.
    • An intangible asset shall be derecognised:
      • On disposal, or
      • When no future economic benefits are expected from its use or disposal.

 

Ind AS 40: Investment Property

  • Investment property is property (land or building) held to earn rentals or for capital appreciation, or both.
  • A portion of a dual-use property is classified as investment property only if that portion could be sold or leased out under a finance lease. Otherwise, the entire property is classified as property, plant and equipment unless the portion of the property used for own use is insignificant.
  • If a lessor provides ancillary services and those services are a relatively insignificant component of the arrangement as a whole, then the property is classified as investment property.
  • An owned investment property is initially recognised at cost. Transaction costs shall be included in the initial measurement.
  • After initial recognition, an investment property is measured as follows:
    • In accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, where it meets the criteria to be classified as held for sale (or are included in a disposal group that is classified as held for sale)
    • In accordance with Ind AS 116, Leases1 where it is held by a lessee as a Right-Of-Use (ROU) asset and is not held for sale in accordance with Ind AS 105
    • In accordance with requirements of Ind AS 16, Property, Plant and Equipment for cost model in all other cases.
  • Subsequent expenditure is capitalised only if it is probable that it will give rise to future economic benefits.
  • Transfers to or from investment property are made only if there has been a change in the use of the property.
  • The intention to sell an investment property without redevelopment does not justify reclassification from investment property into inventory, the property continues to be classified as investment property until disposal unless it is classified as held-for-sale.
  • Disclosure of the fair value of all investment property is required.

 

Ind AS 41: Agriculture

  • Indian Accounting Standard (Ind AS) 41, Agriculture shall be applied to account for the following when they relate to agricultural activity:
    • Biological assets,
    • Agricultural produce at the point of harvest, and
    • Conditional and unconditional government grants relating to a biological asset.
  • Living animals or plants are in the scope of the standard if they are subject to a process of management of biological transformation.
  • Biological assets are measured at Fair Value Less Costs To Sell (FVLCTS) unless it is not possible to measure fair value reliably, in which case they are measured at cost.
  • Gains and losses from changes in FVLCTS are recognised in profit or loss.
  • Agriculture produce harvested from a biological asset is measured at FVLCTS at the point of harvest. After harvest, Ind AS 2, Inventories generally applies.

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