Ind AS – The Indianised version of IFRS

Meaning of convergence with IFRS

In general terms, convergence with IFRS means to achieve harmony with IFRS. In precise terms
convergence can be considered as ‚to design and maintain national accounting standards in a way
that financial statements prepared in accordance with national accounting standards draw
unreserved statement of compliance with IFRS‛. Thus, ‘convergence with IFRS’ means adoption
of IFRS with certain exceptions, wherever necessary.

Need for convergence with IFRS

In the present era of globalization and liberalization, the World has become an economic village.
The globalization of the business world and the attendant structures and the regulations, which
support it, as well as the development of e-commerce make it imperative to have a single
globally accepted financial reporting system. A number of multi-national companies are
establishing their businesses in various countries with emerging economies and vice versa. The
entities in emerging economies are increasingly accessing the global markets to fulfill their
capital needs by getting their securities listed on the stock exchanges outside their country.
Capital markets are, thus, becoming integrated consistent with this world-wide trend. More and
more Indian companies are also being listed on overseas stock exchanges. Sound financial
reporting structure is imperative for economic well-being and effective functioning of capital
markets.

The use of different accounting frameworks in different countries, which require inconsistent
treatment and presentation of the same underlying economic transactions, creates confusion for
users of financial statements. This confusion leads to inefficiency in capital markets across the
world. Therefore, increasing complexity of business transactions and globalization of capital
markets call for a single set of high quality accounting standards. High standards of financial
reporting underpin the trust investors place in financial and non-financial information. Thus, the
case for a single set of globally accepted accounting standards has prompted many countries to
pursue convergence of national accounting standards with IFRS.

Benefits of achieving convergence with IFRS

There are many beneficiaries of convergence with IFRS such as the economy, investors, industry
and accounting professionals.

Economy: As the markets expand globally, the need for convergence also increases. The
convergence benefits the economy by increasing growth of its international business. It
facilitates maintenance of orderly and efficient capital markets and also helps to increase the
capital formation and thereby economic growth. It encourages international investing and
thereby leads to more foreign capital flows to the country.

Investors: A strong case for convergence can be made from the viewpoint of the investors who
wish to invest outside their own country. Investors want the information that is more relevant,
reliable, timely and comparable across the jurisdictions. Financial statements prepared using a
common set of accounting standards help investors better understand investment opportunities as
opposed to financial statements prepared using a different set of national accounting standards.
Investors’ confidence would be strong if accounting standards used are globally accepted.
Convergence with IFRS contributes to investors understanding and confidence in high quality
financial statements.

Industry: A major force in the movement towards convergence has been the interest of the
industry. The industry is able to raise capital from foreign markets at lower cost if it can create
confidence in the minds of foreign investors that their financial statements comply with globally
accepted accounting standards. With the diversity in accounting standards from country to
country, enterprises which operate in different countries face a multitude of accounting
requirements prevailing in the countries. The burden of financial reporting is lessened with
convergence of accounting standards because it simplifies the process of preparing the individual
and group financial statements and thereby reduces the costs of preparing the financial
statements using different sets of accounting standards.

Accounting professionals: Convergence with IFRS also benefits the accounting professionals in
a way that they are able to sell their services as experts in different parts of the world. It offers
them more opportunities in any part of the world if same accounting practices prevail throughout
the world. They are able to quote IFRS to clients to give them backing for recommending certain
ways of reporting. Also, their mobility to work in different parts of the world increases.
Relevance/Applicability of Ind AS (Converged IFRS) The Ministry of Corporate Affairs
(MCA) notified the Companies (Indian Accounting Standards) Rules, 2015 (the ‘Rules’) on 16th
February, 2015. The Rules specify the Indian Accounting Standards (Ind AS) applicable to
certain class of companies and set out the dates of applicability as follows:

1) Voluntary adoption Companies may voluntarily adopt Ind AS for financial statements for
accounting periods beginning on or after 1 April, 2015, with the comparatives for the periods
ending 31 March, 2015 or thereafter. Once a company opts to follow the Ind AS, it will be
required to follow the same for all the subsequent financial statements.

2) Mandatory adoption The following companies will have to adopt Ind AS for financial
statements from the accounting periods beginning on or after 1 April, 2016:
 Companies whose equity and/or debt securities are listed or are in the process of listing
on any stock exchange in India or outside India (listed companies) and having net worth
of Rs. 500 crores or more.
 Unlisted companies having a net worth of Rs. 500 crores or more.
 Holding, subsidiary, joint venture or associate companies of the listed and unlisted
companiescovered above. Comparatives for these financial statements will be periods
ending 31 March,2016 or thereafter.
The following companies will have to adopt Ind AS for financial statements from the accounting
periods beginning on or after 1 April, 2017:
 Listed companies having net worth of less than Rs. 500 crore.
 Unlisted companies having net worth of Rs. 250 crore or more but less than Rs. 500
crore.
 Holding, subsidiary, joint venture or associate companies of the listed and unlisted
companiescovered above. Comparatives for these financial statements will be periods
ending 31 March,2017 or thereafter. The above mentioned roadmap for adoption will not
be applicable to:
 Companies whose securities are listed or in the process of listing on SME exchanges
(Exchanges meant for small and medium-sized enterprises).
 Companies not covered by the roadmap in the List of IFRS.

List of IFRS 1 – 15
Ind AS 101 (IFRS 1) : First Time Adoption of Indian Accounting Standards
Ind AS 102 (IFRS 2) : Share Based Payments
Ind AS 103 (IFRS 3) : Business Combinations
Ind AS 104 (IFRS 4) : Insurance Contracts
Ind AS 105 (IFRS 5) : Non-Current Assets Held for Sale & Discontinued Operations
Ind AS 106 (IFRS 6) : Exploration and Evaluation of Mineral Resources
Ind AS 107 (IFRS 7) : Financial Instruments: Disclosures
Ind AS 108 (IFRS 8) : Operating Segments
Ind AS 109 (IFRS 9) : Financial Instruments
Ind AS 110 (IFRS 10) : Consolidated Financial Statements
Ind AS 111 (IFRS 11) : Joint Agreements
Ind AS 112 (IFRS 12) : Disclosure of Interests in Other Entities
Ind AS 113 (IFRS 13) : Fair Value Measurement
Ind AS 114 (IFRS 14) : Regulatory Deferral Accounts
Ind AS 115 (IFRS 15) : Revenue from Contracts with Customers
Ind AS 115 (IFRS 15) : Impact on Various Sectors
Ind AS 115 (IFRS 15) : Accounting for Construction and Real Estate

List of International Accounting Standards (IAS) issued by IASB

Ind AS 1 (IAS 1) : Presentation of Financial Statements
Ind AS 2 (IAS 2) : Inventories
Ind AS 7 (IAS 7) : Statement of Cash Flows
Ind AS 8 (IAS 8) : Accounting Policies, Changes in Accounting Estimates & Errors
Ind AS 10 (IAS 10) : Events after the Reporting Period
Ind AS 11 (IAS 11) : Construction Contracts
Ind AS 12 (IAS 12) : Income Taxes
Ind AS 16 (IAS 16) : Property, Plant & Equipment
Ind AS 17 (IAS 17) : Leases
Ind AS 18 (IAS 18) : Revenue
Ind AS 19 (IAS 19) : Employee Benefits
Ind AS 20 (IAS 20) : Government Grants & Government Assistance
Ind AS 21 (IAS 21) : The Effects of Changes in Foreign Exchange Rates
Ind AS 23 (IAS 23) : Borrowing Costs
Ind AS 24 (IAS 24) : Related Parties
Ind AS 27 (IAS 27) : Consolidated and Separate Financial Statements
Ind AS 28 (IAS 28) : Investments in Associates
Ind AS 29 (IAS 29) : Financial Reporting in Hyperinflationary Economics
Ind AS 31 (IAS 31) : Interests in Joint Ventures
Ind AS 32 (IAS 32) : Financial Instruments: Presentation
Ind AS 33 (IAS 33) : Earnings Per Share
Ind AS 34 (IAS 34) : Interim Financial Reporting
Ind AS 36 (IAS 36) : Impairment of Assets

Accounting for Assets and Liabilities

(1) Investment properties (IND AS 40)
The term investment property refers to an investment in land and building held by the
owner with the intension of earning rentals or for capital appreciation or for both.
According to Ind AS 40, investment property includes
1. Land held for long term capital appreciation rather than held for sale in the ordinary
course of business.
2. Land held for an undetermined future use
3. Building owned by the reporting entity under finance lease.
4. Vacant building held by an entity to be leased out under operating leases.
Recognition criteria:
1. It is probable that the future economic benefits that are associated with the investment
property will flow to the entity.
2. The cost of investment property can be measured reliably.
Measurement criteria:
An investment property shall be measured initially at cost. The cost of investment
property comprises of its purchase price and any expenditure directly attributable to such
investment and includes professional fees for legal services, property transfer taxes and other
transaction cost.
Disposal:
An investment property should be derecognized on disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are expected from
its disposal.

(2) GOVT GRANTS (IAS 20)

A Govt grant is a form of govt assistance that involves transfer of resource to an enterprise
in return for past or future compliance of certain conditions relating to its operating activities.
Recognition:
1. The entity shall comply with any conditions attached to the grant
2. Once the grant is received the grant is recognized as income under the period necessary
to match them with the related cost for which they are intended to compensate on a
systematic basis.
(3) BORROWING COSTS (IAS 23)
Borrowing cost means interest and other cost that an entity incurs in connection with
borrowing of funds.
Recognition criteria:
An entity shall recognize and capitalize borrowing cost that are directly attributable to the
acquisition, construction or production of a qualifying asset as part of the cost of that asset.
(4) CONSTRUCTION CONTRACTS (IAS 11)
A construction contract is a contract negotiated for the construction of an asset or a
combination of assets that are closely inter-related or inter-dependant in terms of their design,
technology and function or their ultimate purpose or use.
Recognition:
If the outcome of the construction contract can be estimated reliably, revenue and cost
should be recognized in proportion to the stage of completion of contract activity.
(5) SHARE BASED PAYMENTS (IFRS 2/ Ind AS 1/2):
According to IFRS 2, a share based transaction is a payment in which an entity receives
goods or services as consideration for its equity instruments.
Recognition and measurement criteria:
The issuance of rights to shares is presumed to relate to past service requiring the full
amount of the grant date fair value to be expensed immediately. As a principle, the expense
relating to equity settled share based payment will be calculated by multiplying the total
instruments with the fair value of those instruments on the grant date.
(6) PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS ( IAS 37)
Provision is a liability of uncertain timing or amount. Liability refers to a present obligation
as a result of past events and settlement is expected to result in an outflow of resources.
Contingent liability is a possible obligation as a result of past events depending on some
uncertain future.
Contingent asset is a possible asset that arises from past events and whose existence will
be confirmed only by occurrence or non occurrence of uncertain future events which is not
completely within the control of the entity.

Recognition for provision:

(1) An entity must recognize a provision only if a present obligation has arisen as a result of
past event.
(2) Payment is probable
(3) Amount can be estimated reliably
Recognition for contingent liabilities:
Since the contingent liabilities are on a common ground and very uncertain in nature, the
entity should not recognize contingent liabilities but should disclose them unless the probability
of an outflow of economic resources is remote.
Recognition of contingent assets:
The contingent assets should not be recognized but it should be disclosed where an
inflow of economic benefits is probable. When the realization of income is very certain, then the
related asset can be treated and recognized appropriately.
(7) EVENTS OCCURING AFTER THE REPORTING PERIOD:
According to IAS 10, Events after the reporting period are those events favorable an
unfavorable that occur between the statement of financial position date and the date when the
financial statements are authorized for the issue.
Recognition criteria:
Adjust financial statements only for adjusting events i.e events after the balance sheet that
provides further evidence of conditions that existed at the end of the reporting period. Do not
adjust for non - adjusting events.

(8) PROPERTY, PLANT AND EQUIPMENTS (IAS 16)

According to this standard, PP&E are tangible assets
(A) that are held for use in the production or supply of goods or services, for
rental to others or for administrative purposes
(B) Are expected to be used fir more than one period.
Recognition criteria:
The recognition of PP&E depends on the following two criteria:
1. It is probable that the future economic benefits associated with the asset will flow into the
entity
2. The cost of the asset can be measured reliably.
Measurement criteria:
 The initial measurement is at cost
 Subsequent measurement can be done using cost or revaluation model.

(9) INTANGIBLE ASSETS (IAS38)

Intangible assets are non-monetary assets without physical substance and identifiable or
arising from contractual or other legal rights.
Recognition criteria:
1. An intangible asset must be identifiable in order to distinguish it from the goodwill.
2. It must be under the control of the entity as a result of past event.

(10) INVENTORIES (IAS 2)

It includes the following:
1. Goods held for sale in the ordinary course of business
2. Finished goods
3. Materials and supplies used in the production process (raw materials)

Measurement:
The cost should include:
1. Cost of purchase
2. Cost of conversion
3. Other costs incurred in bringing the inventories to their present location and condition.
(11) LEASES (IAS 17)
A lease is an agreement whereby the lesser conveys to the lessee a right to use an asset for
an agreed period of time in return for a payment or series of payments.
A finance lease is a lease that transfers substantially all the risks and rewards incidental to
ownership of an asset
An operating lease is a lease other than a financial lease.

(12) IMPAIRMENT OF ASSETS (IAS 36)

IAS 36 seeks to ensure that an entity's assets are not carried at more than their
recoverable amount with the exception of goodwill and certain intangible assets for which an
annual impairment test is required.
Recognition of impairment loss:
1. An impairment loss is recognized whenever recoverable amount is below carrying
amount.
2. The impairment loss is recognized as an expenses.
3. Adjust depreciation for future loss.

DISCLOSURE STANDARDS
Ind AS (IAS 24): Related Parties Definition of Related Party The party may be an individual, or
a firm. It may be a shareholder, parent or group company. A party is related to an undertaking if:

(1) directly, or indirectly through one or more intermediaries, the party:

(i) controls, is controlled by, or is under common control with, the undertaking (this includes
parents, subsidiaries and fellow subsidiaries;
(ii) has an interest in the undertaking that gives it significant influence over the undertaking; or
(iii) has joint control over the undertaking;
(2) the party is an associate of the undertaking;
(3) the party is a joint venture in which the undertaking is a venturer;
(4) the party is a member of the key management personnel of the undertaking, or its parent;
(5) the party is a close member of the family of any individual referred to in (1) or (4);
(6) the party is an undertaking that is controlled, jointly controlled or significantly influenced by
or for which significant voting power in such undertaking resides with, directly or indirectly, any
individual referred to in (4) or (5); or
(7) the party is a post-employment benefit plan (pension fund) for the benefit of employees of the
undertaking, or of any undertaking that is a related party of the undertaking.

Under Ind AS, Close members of the family of a person are those family members who may be
expected to influence, or be influenced by, that person in their dealings with the entity including:
(a) that person’s children, spouse or domestic partner, brother, sister, father and mother;
(b) children of that person’s spouse or domestic partner; and
(c) dependants of that person or that person’s spouse or domestic partner.
Adopted children would be included as close family members. Companies, investment vehicles
owned by family members would also be considered as related parties, if they had any
interaction with the undertaking.
Close members are included to avoid related parties disguising their activities by using family
members.

Control is the power to govern the financial and operating policies of an undertaking so as to
obtain benefits from its activities.
Example: The Govt. has a small shareholding in a defence company, but has the right to appoint
and dismiss all directors. The Govt. has control, even if it decides not to exercise it. It may let
the company appoint its own directors, but retains the right to dismiss any directors it chooses.

The benefits the Govt. derives from this structure may be political, rather than economic. The
control may be needed to avoid the company being controlled by a foreign power.
Joint control is the contractually-agreed sharing of control over an economic activity.
Example:
ABC Ltd. has a joint venture agreement with a foreign sales agent. It provides the goods, which
its agent sells in a foreign territory. It shares the profits, with 40% belonging to it and 60% to the
agent. This is an example of joint control.

Key management personnel include all directors and their equivalents. It also includes persons
having authority and responsibility for planning, directing and controlling the activities of the
undertaking, directly or indirectly.
Example: Executives from an enterprise parent company may
give instructions to its staff in important matters, such as strategic planning and treasury
functions. For this enterprise, these are key management personnel.

Significant influence is the power to participate in the financial and operating policy decisions
of an undertaking, but is not control over those policies. It may be gained by share ownership,
statute or agreement.
Example: Significant influence may be reflected in board membership,
and/or a substantial shareholding of between 20% and 50%. A majority shareholding is more
than a significant influence, as it would yield control, in most circumstances.

Related party disclosure Relationships between parents and subsidiaries shall be disclosed,
whether or not there have been transactions between those related parties. An undertaking shall
disclose the name of the undertaking’s parent and, if different, the ultimate controlling party.
If the undertaking’s parent is itself a subsidiary of another company, the parent is not the
controlling party. It is necessary to establish which company is at the top of the group structure
to identify the controlling party.

The identification of related party relationships between parents and subsidiaries is in addition to
the disclosure requirements in Ind AS (IAS) 27, Ind AS (28) and Ind AS (IAS) 31, which require
an appropriate listing and description of significant investments in subsidiaries, associates and
jointly controlled undertakings. If neither the undertaking’s parent nor the ultimate controlling
party produces financial statements available for public use, the name of the next most senior
parent that does so shall be disclosed. The next most senior parent is the first parent in the group
above the immediate parent that produces consolidate financial statements available for public
use.
An undertaking shall disclose key management personnel compensation in total
and for each of the following categories:
(1) Short-term employee benefits, such as wages, salaries and social security contributions, paid
annual leave and paid sick leave, profit-sharing and bonuses (if payable within 12 months of the
end of the period) and non-monetary benefits (such as medical care, housing, cars and free or
subsidized goods or services) for current employees;
(2) Post-employment benefits such as pensions, other retirement benefits, postemployment life
insurance and post-employment medical care;
(3) Other long-term employee benefits, including long-service leave or sabbatical leave, jubilee
or other long-service benefits, long-term disability benefits and, if they are not payable wholly
within 12 months after the end of the period, profitsharing, bonuses and deferred compensation;
(4) Termination benefits; and
(5) Equity compensation benefits (share-based payments).

An undertaking shall also disclose the following if there have been transactions
between related parties.
(1) the amount of transactions;
(2) the amount of outstanding balances and;
(i) their terms and conditions, including whether they are secured, and the nature of the
consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(3) provisions for doubtful debts related to the amount of outstanding balances; and
(4) the expense recognized during the period in respect of bad or doubtful debts due from related
parties.
Example: In addition to the standard compensation recorded for the key management personnel,
three executives have subsidized loans for Rs. 50,000, Rs. 65,000 and Rs. 95,000. These will be
disclosed, with the detailed terms of the loans. Any overdue repayment of any loan will also be
noted. The loans would also be detailed, even if the rates were not subsidized.
Related party transaction is a transfer of resources, services, or obligations between related
parties, regardless of whether a price is charged. Example: A parent company may provide some
of its key staff to a subsidiary without cost. The subsidiary is being subsidized at the expense of
the parent.

The disclosures shall be made separately for each of the following categories:
(1) the parent;
(2) undertakings with joint control or significant influence over the undertaking;
(3) subsidiaries;
(4) associates;
(5) joint ventures in which the undertaking is a venturer;
(6) key management personnel of the undertaking or its parent; and
(7) other related parties, including major shareholders.
The classification of amounts payable to, and receivable from, related parties in the different
categories as required in this paragraph is an extension of the disclosure requirement in Ind AS
(IAS) 1 Presentation of Financial Statements for information to be presented either on the
balance sheet or in the notes. The categories are extended to provide a more comprehensive
analysis of related party balances and apply to related party transactions.

In the Ind AS 24,

disclosures which conflict with confidentiality requirements of
statute/regulations are not required to be made since Accounting Standards cannot override
legal/regulatory requirements. Example: Banks are obliged by law to maintain confidentiality in
respect of their customers’ transactions and this Standard would not override the obligation to
preserve the confidentiality of customers’ dealings.
As per Ind AS 24, disclosure of details of particular transactions with individual related parties
would frequently be too voluminous to be easily understood. Accordingly, items of a similar
nature may be disclosed in aggregate by type of related party.

Ind AS 33 (IAS 33):

Earnings Per Share Disclosure Ind AS 33 requires EPS related information
of the parent company to be disclosed both in consolidated financial statements and separate
financial statements.

An undertaking that discloses EPS, based upon its separate financial statements, shall
present such information only on the face of its separate income statement.

The following disclosures shall be made with respect to EPS:

 Basic and Diluted EPS should be presented on the face of the income statement for each
class of ordinary shares;
 Basic and Diluted EPS are presented with equal prominence;
 If an entity reports a discontinued operation, it should report the basic and diluted
amounts per share for the discontinued operation;
 An entity should report Basic and Diluted EPS even if it is a loss per share;
 The amounts used as the numerators in calculating Basic and Diluted EPS, and
reconciliation of those amounts to profit or loss attributable to the parent for the period;
 The weighted average number of ordinary shares used as the denominator in calculating

Basic and Diluted EPS, and reconciliation of these denominators to each other.
An undertaking shall calculate Basic EPS amounts for profit attributable to ordinary equity
shareholders of the parent undertaking and, if presented, profit from continuing operations,
attributable to those equity share holders. Example: ABC Limited retail business is being sold,
and has been classified as held-for sale (as per IFRS 5). The remaining business is a wholesale
operation. This is the continuing operation. It will show the EPS for the whole business, and a
separate calculation for the EPS, based on the continuing operation alone.
Basic EPS shall be calculated by dividing profit attributable to ordinary shareholders of the
parent undertaking (the numerator) by the weighted average number of ordinary shares
outstanding (the denominator) during the period. Example: ABC Limited follows a calendar
year.
On January 1st there were 400 shares. This rose to 600 on April 1st. The net profit after tax,
preference dividends and minority interests is Rs. 5,50,000. Calculation of weighted average
number of ordinary shares outstanding and Basic EPS is as follows.

Ind AS 34 (IAS 34): Interim Financial Reporting :Interim period is a financial reporting period
shorter than a financial year.

Interim financial report means a financial report containing either a complete set of financial
statements, or a set of condensed financial statements, for an interim period.
Contents of an Interim financial report Ind AS (IAS):
A complete set of financial statements as including the following components:
(i) Balance Sheet;
(ii) Income Statement;
(iii)Statement showing either
 all changes in equity or
 changes in equity, other than those arising from capital transactions with
owners, and distributions to owners;
 Cash Flow Statement; and
 Accounting policies and explanatory notes.

Minimum components of an Interim financial report:

1. Condensed Balance Sheet,
2. Condensed Income Statement,
3. Condensed Cash Flow Statement,
4. Condensed Statement showing changes in equity, and
5. Selected explanatory notes.
Form and content of Interim Financial Statements A complete set of financial statements in an
interim financial report should conform to the requirements of Ind AS (IAS) 1 for a complete set
of financial statements.
Condensed statements should include, at a minimum, each of the headings and subtotals that
were included in its most recent annual statements and the selected explanatory notes as required
by Ind AS (IAS) 34. Additional line items or notes should be included if their omission would
make the condensed interim statements misleading.
Basic and diluted EPS should be presented on the face of an income statement, complete or
condensed, for an interim period. Ind AS (IAS) 1 provides guidance on major headings and
subtotals.
An undertaking follows the same format in its interim statement showing changes in equity as it
did in its most recent annual statement. An interim report is prepared on a consolidated basis if
the undertaking’s most recent annual statements were consolidated statements. The inclusion of
the parent’s separate statements in the interim report is optional.

Ind AS 104 (IFRS 4): Insurance Contracts

Definition of Insurance Contract Insurance contract is defined as a contract under which one
party (the insurer) accepts significant insurance risk from another party (the policy holder) by
agreeing to compensate the policyholder if a specified uncertain future event (the insured event)
adversely affects the policyholder.
Disclosures Information should be disclosed that helps the user to understand the amounts in the
insurer’s financial statements that arise from insurance contracts. Insurers also need to give
details about the insurance risk to which they are exposed, including any concentration of risk
and the impact of changes in variables on the key assumptions that are used.

Information that helps users understand the amount, timing and uncertainty of future cash flows
is required. The terms and conditions of insurance contracts that have a material effect on the
amount, timing and uncertainty of the insurer’s future cash flows also have to be disclosed.
Information about the actual claims as compared with previous estimates needs disclosure and
information about interest rate risk and credit rate risk that IAS 32 would require should be
disclosed. Information about exposures to interest rate risk or market risk under embedded
derivatives contained in a host insurance contract should be shown if the insurer does not show
the embedded derivatives at fair value. However, insurers do not need to disclose the fair value
of their insurance contracts at present but need to disclose the gains and losses from purchasing
reinsurance contracts.

An embedded derivative is a component of a hybrid security that is embedded in a non derivative

instrument. An embedded derivative can modify the cash flows of the host contract because the
derivative can be related to an exchange rate, commodity price, consumer price or some other
variable which frequently changes. Example: Rental contract concluded for several years in
advance with rental price adjustments according to inflation measured as consumer price index
in European Union. Non-derivative part in this case is the rent of some property or facility. An
embedded derivative part is the forward contract indexed to the consumer price index in EU.

Ind AS 108 (IFRS 8): Operating Segments

Definition of Operating Segment: An operating segment is a component of an undertaking:
(1) that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the same
undertaking;
(2) whose operating results are regularly reviewed by the undertaking’s chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance and
(3) for which discrete financial information is available.
An operating segment may engage in business activities for which it is yet to earn revenues, for
example, start-up operations may be operating segments before earning revenues. Not every part
of an undertaking is necessarily an operating segment or part of an operating segment. For
example, a corporate headquarters or some functional departments may not earn revenues or may
earn revenues that are only incidental to the activities of the undertaking and would not be
operating segments. An undertaking’s pension plans are not operating segments.
The term ‘Chief operating decision maker’ identifies a function, not necessarily a manager with
a specific title. That function is to allocate resources to and assess the performance of the
operating segments of an undertaking. Often the chief operating decision maker of an
undertaking is its Chief Executive Officer or Chief Operating Officer but, for example, it may be
a group of executive directors or others.
Reportable Segments An undertaking shall report separately information about each operating
segment that:
(1) has been identified, or results from aggregating two or more of those segments and
(2) exceeds the quantitative thresholds.

Aggregation criteria Operating segments often exhibit similar long-term financial

performance if they have similar economic characteristics. For example, similar long-term
average gross
margins for two operating segments would be expected if their economic characteristics were
similar. Two or more operating segments may be aggregated into a single operating segment if
aggregation is consistent with the core principle of Ind AS 108 (IFRS 8), the segments have
similar economic characteristics and the segments are similar in each of the following respects:
(1) the nature of the products and services; Example: ABC limited group includes
cobblers’, shops and banks. These would not be included in the same segment.
(2) the nature of the production processes;
(3) the type or class of client for their products and services;

Example 1: ABC limited group provides pharmaceuticals to all areas of the world. Countries
where tropical diseases will have different characteristics from those where cold and influenza
dominate would not be included in the same segment.

Example 2: XYZ Limited production facilities are all in the southern hemisphere. Its clients are
all in the northern hemisphere. Its segments can either be based on its production facilities or the
locations of its clients. The group’s reporting structure will indicate which choice to take.

(4) the methods used to distribute their products or provide their services; and
(5) if applicable, the nature of the regulatory environment, for example, banking, insurance or
public utilities.
Quantitative thresholds An undertaking shall report separately information about an operating
segment that meets any of the following quantitative thresholds:
(1) Its reported revenue, including both sales to external clients and intersegment sales or
transfers, is 10% or more of the combined revenue, internal and external, of all operating
segments;
(2) The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute
amount, of
(i) the combined reported profit of all operating segments that did not report a loss and
(ii) the combined reported loss of all operating segments that reported a loss.
(3) Its assets are 10% or more of the combined assets of all operating segments.
Operating segments that do not meet any of the quantitative thresholds may be considered
reportable and separately disclosed, if the management believes that information about the
segment would be useful to users.
Disclosure – General information An undertaking shall disclose the following general
information: (1) factors used to identify the undertaking’s reportable segments, including the
basis of organization (for example, whether management has chosen to organize the undertaking
around differences in products and services, geographical areas, regulatory requirements, or a
combination of factors and whether operating segments have been aggregated) and
(2) types of products and services from which each reportable segment derives its revenues.
Disclosure – Specific information An undertaking shall disclose information to enable users to
evaluate the nature and financial effects of the business activities in which it engages and the
economic environments in which it operates. An undertaking shall disclose the following for
each period for which an income statement is presented:
(1) general information as described above;
(2) information about reported segment profit or loss, including specified revenues and expenses
included in reported segment profit or loss, segment assets, segment liabilities and the basis of
measurement; and
(3) reconciliations of the totals: - of segment revenues, - reported segment profit or loss, -
segment assets, - segment liabilities and - other material segment items to total undertaking
amounts.
Reconciliations of Balance Sheet amounts for reportable segments to the undertaking’s Balance
Sheet amounts are required for each date at which a Balance Sheet is presented. Information for
prior periods shall be restated.
Disclosure – Information about profit or loss, assets and liabilities An undertaking shall report a
measure of profit or loss and total assets for each reportable segment. It shall report a measure of
liabilities for each reportable segment if such an amount is regularly provided to the chief
operating decision maker.
It shall also disclose the following about each reportable segment if the specified amounts are
included in the measure of segment profit or loss reviewed by the chief operating decision
maker,
or are otherwise regularly provided to the chief operating decision maker, even if not included in
that measure of segment profit or loss:
(1) revenues from external clients;
(2) revenues from transactions with other operating segments of the same undertaking;
(3) interest revenue;
(4) interest expense;
(5) depreciation and amortization;
(6) material items of income and expense;
(7) the undertaking’s interest in the profit or loss of associates and joint ventures accounted for
by the equity method;
(8) income tax expense or income; and
(9) material non-cash items other than depreciation and amortization.
An undertaking shall disclose the following about each reportable segment if the specified
amounts are included in the measure of segment assets reviewed by the chief operating decision
maker, or are otherwise regularly provided to the chief operating decision maker, even if not
included in that measure of segment assets:
(1) The amount of investment in associates and joint ventures accounted for
(2) The amounts of additions to non-current assets (assets that include amounts expected to be
recovered more than 12 months after the Balance Sheet date).