UNIT I

Accounting Standards- Objectives, Benefits, Limitations

Financial statements have incredible importance for both internal and external
stakeholders. They basically are a report card for the company. So it is important that they are regulated and
do not report misleading information. And the Accounting Standards (AS) provide us with a framework for
this regulation. Let us take a look.

Accounting Standards (AS)

Accounting Standards (AS) are basic policy documents. Their main aim is to ensure
transparency, reliability, consistency, and comparability of the financial statements. They
do so by standardizing accounting policies and principles of a nation/economy. So
the transactions of all companies will be recorded in a similar manner if they follow
these accounting standards.

These Accounting Standards (AS) are issued by an accounting body or a regulatory

board or sometimes by the government directly. In India, the Indian Accounting
Standards are issued by the Institute of Chartered Accountants of India (ICAI).

Accounting Standards mainly deal with four major issues of accounting, namely

i. Recognition of financial events

ii. Measurement of financial transactions
iii. Presentation of financial statements in a fair manner
iv. Disclosure requirement of companies to ensure stakeholders are not misinformed

Objectives of Accounting Standards

Accounting is often considered the language of business, as it communicates to others

the financial position of the company. And like every language has certain syntax and
grammar rules the same is true here. These rules in the case of accounting are the
Accounting Standards (AS). They are the framework of rules and regulations for
accounting and reporting in a country. Let us see the main objectives of forming these
standards.

1. The main aim is to improve the reliability of financial statements. Now because
the financial statements have to be made following the standards the users can rely
on them. They know that not conforming to these standards can have serious
consequences for the companies.
2. Then there is comparability. Following these standards will allow for inter-firm
and intra-firm comparisons. This allows us to check the progress of the firm and its
position in the market.
3. It also looks to provide one set of accounting policies that include the necessary
disclosure requirements and the valuation methods of various financial
transactions.

Benefits of Accounting Standards

Accounting Standards are the ruling authority in the world of accounting. It makes sure
that the information provided to potential investors is not misleading in any way. Let us
take a look at the benefits of AS.

1] Attains Uniformity in Accounting

Accounting Standards provides rules for standard treatment and recording of

transactions. They even have a standard format for financial statements. These are steps
in achieving uniformity in accounting methods.

2] Improves Reliability of Financial Statements

There are many stakeholders of a company and they rely on the financial statements for
their information. Many of these stakeholders base their decisions on the data provided
by these financial statements. Then there are also potential investors who make their
investment decisions based on such financial statements.

So it is essential these statements present a true and fair picture of the financial situation
of the company. The Accounting Standards (AS) ensure this. They make sure the
statements are reliable and trustworthy.

3] Prevents Frauds and Accounting Manipulations

Accounting Standards (AS) lay down the accounting principles and methodologies that
all entities must follow. One outcome of this is that the management of an entity cannot
manipulate with financial data. Following these standards is not optional, it is
compulsory.

So these standards make it difficult for the management to misrepresent any financial
information. It even makes it harder for them to commit any frauds.

4] Assists Auditors

Now the accounting standards lay down all the accounting policies, rules, regulations,
etc in a written format. These policies have to be followed. So if an auditor checks that
the policies have been correctly followed he can be assured that the financial statements
are true and fair.

5] Comparability

This is another major objective of accounting standards. Since all entities of the country
follow the same set of standards their financial accounts become comparable to some
extent. The users of the financial statements can analyze and compare the financial
performances of various companies before taking any decisions.

Also, two statements of the same company from different years can be compared. This
will show the growth curve of the company to the users.

6] Determining Managerial Accountability

The accounting standards help measure the performance of the management of an entity.
It can help measure the management’s ability to increase profitability, maintain the
solvency of the firm, and other such important financial duties of the management.

Management also must wisely choose their accounting policies. Constant changes in the
accounting policies lead to confusion for the user of these financial statements. Also, the
principle of consistency and comparability are lost.

Limitations of Accounting Standards

There are a few limitations of Accounting Standards as well. The regulatory bodies keep
updating the standards to restrict these limitations.

1] Difficulty between Choosing Alternatives

There are alternatives for certain accounting treatments or valuations. Like for example,
stocks can be valued by LIFO, FIFO, weighted average method, etc. So choosing
between these alternatives is a tough decision for the management. The AS does not
provide guidelines for the appropriate choice.

2] Restricted Scope

Accounting Standards cannot override the laws or the statutes. They have to be framed
within the confines of the laws prevailing at the time. That can limit their scope to
provide the best policies for the situation.

Procedure Adopted by the Expert Committee in the issue of an Accounting Standard(

AS)

1. Determination of the need of an AS

First, the Accounting Standard Board determines the broad areas in which accounting
standards needs to be formulated.

2. Constituting Study Group

Study Group will be constituted consisting the members of the Institute of Chartered
Accountants of India. The motive behind constitution of this group is to assist the
accounting Standard Board in its activities.

3. Drafting the Standard

The Study Group Prepares draft of the proposed Standard. Te proposed draft enlists
the following areas
a) Objective of the standard.
b) Scope of the Standard.
c) Definitions of the terms used in the standard
d) Recognition & Measurement Principles
e) Presentation & Disclosure requirements.

4. Analyzing the Draft

ASB in this stage considers the Preliminary draft prepared by the Study Group. In
case anything needs to be revised than Accounting Standard Board takes the following
steps.
a) ASB makes the revision
b) ASB refers the same to the study Group

5. Circulation of the Draft

In this step the ASB circulates the AS draft to the council members of the Institute of
Chartered Accountants of India and the following specifies bodies for their comments.
a) The Institute of Works & Cost Accountants of India
b) The Institute of Company Secretaries of India.
c) Ministry of company affairs.
d) Comptroller & Auditor General of India
e) Central Board of Direct Taxes
f) Standing Committee of Public Enterprises
g) Reserve Bank of India
h) India Banks Association
i) Securities & Exchange Board of India
j) Associated Chamber of Commerce & Industry, Confederation of Indian Industry
and Federation of Indian chambers of commerce & Industry
k) Any other body considered relevant by the ASB

6. Holding Discussion and Finalizing Exposure Draft

ASB holds meeting with the representatives of above mentioned bodies for the
purpose of determining their views on the Draft Accounting Standard. Based on
analyses of the discussion ASB finalizes the exposure draft of proposed accounting
standards.

7. Circulation the exposure Draft

The exposure Draft of the proposed standards is issued for comments the members of
the ICAI and the public.

8. Finalizing the exposure draft

Based on the comments received, the ASB finalizes the draft of the proposed
standards.
It then submits the same to the council of the ICAI.

9. Modifying & Issuing the Accounting Standard.

The council of the ICAI considers the considers the finalized draft standard and if
necessary modifies the same in consultation with the ASB. The ICAI then issues the
Accounting Standard after modification if any on the relevant subject.

Convergence of IFRS and Indian AS

Indian Accounting Standards are formulated by the Accounting Standard Board (ASB)
of the ICAI as notified by the Ministry of Corporate Affair. These standards are framed
keeping in mind the economic environment and practices of India. They are made to suit
the Indian companies and the disclosure requirements of the Indian government.

The IFRS, on the other hand, are made keeping global standards and environment in
mind. Convergence would mean bridging the gap between the two, i.e the IFRS and the
India AS. Convergence will involve alignment of the two sets of standards. The
compromise is done by adopting the policies of the IFRS either fully or at least partially.

Following are the few benefits of Convergence.

Benefits of Convergence

1] Beneficial to the Economy

If the accounting standards are converged it will promote international business and
increase the influx of capital into the country. This will help India’s economy grow and
expand. International investing will also mean more capital for domestic companies as
well.

2] Beneficial to Investors

Convergence is a boon for investors who wish to invest in foreign markets or economies.
It makes it much easier for them to study and compare the financial statements of foreign
companies. Since the financial statements are made using the same set of standards it is
also easier for the investors to understand and analyze them.
3] Beneficial to the Industry

With globally accepted standards the industry can also surge ahead. So convergence is
important for the industry as well. It will allow the industry to lower the cost of foreign
capital. If companies are not burned by adopting two different sets of standards it will
allow them easier entry into the market.

4] More Transparency

Convergence will benefit the users of the financial statements as well. It will make it
easier for them to understand the financial statements. And this will generate better
transparency and raise the confidence of the investors to invest funds.

5] Cost Saving

Firstly it will exempt companies from maintaining separate accounting books according
to separate standards. This will save a lot of work hours and money for the finance
department. And also planning and executing auditing will also become easier.

It will be especially helpful for those companies that have subsidiaries in many
countries. And the cost of capital will also reduce since capital would be more accessible
and easily available.

INTERNATIONAL FINANCIAL
REPORTING STANDARDS

INTRODUCTION

Accounting is the art and science of recording business

transactions in best possible manner with proper selection and
adoption of accounting policies and principles. Over the time it was
felt necessary to ensure easy comparability the enterprises should
follow uniform accounting methods. In India the Institute of
Chartered Accountants of India governs the profession of
accountancy. The institute ensures professionalism and prudence in
preparation and presentation of financial statements by issuing
guidelines, accounting standards from time to time.

In today’s world of globalization business enterprises have

become more dependent on each other, across the nation and across
the world. The globalization has forced more and more countries to
open their doors for business expansion across borders and to
foreign investments. Traditionally companies raised funds from
domestic capital markets and financial institutions. The business was
restricted to very few countries. The rapid expansion of international
trade and internationalization of firms, the development of new
communication technologies, and the

emergence of international competitive forces has made it extremely

necessary to have uniform and internationally acceptable accounting
standards. Now it has been realized that under this global business
scenario the business community is badly in need of a common
accounting language that should be spoken by all of them across the
world.

A financial reporting system supported by a strong

governance, high quality standards and firm regulatory framework is
the key to economic development. Indeed, sound financial reporting
standards underline the trust that investors place in financial
reporting information and thus play an important role in contributing
to the economic development of a country. Different countries have
local accounting standards which spell out the accounting treatment
and disclose your requirements for preparing of financial statements,
some sort of compatibility or convergence is necessary to enable all
the stake holders to take appropriate economic decisions. This is
sought to be ensured through the International Financial Reporting
Systems (IFRS) adopted by International Accounting Standards
Board (IASB). Most of the countries have started adopting IFRS or
making their local GAAP convergent with IFRS. Major stock
exchanges across the world today accept IFRS.

MEANING OF IFRS:

 IFRSs are principle-based standards.

 The principle-based standards have distinct advantage that the
transactions cannot be manipulated easily to achieve a particular
accounting.
 The Financial Accounting Standards Board (FASB), USA, is
having a convergence project with the IASB and is broadly
adopting the principle-based approach instead of rule-based
approach.
 IFRSs lay down treatments based on the economic substance of
various events and transactions rather than their legal form.
 The application of this approach may result into events and
transactions being presented in a manner different from their
legal form.
 To illustrate, as per IAS 32, preference shares that provide for
mandatory redemption by the issuer are presented as a liability.

OBJECTIVES OF IFRS:

WHY IFRS?

A single set of accounting standards would enable

internationally to standardize training and assure better quality on a
global screen, it would also permit international capital to flow more
freely, enabling companies to develop consistent global practices on
accounting problems. It would be beneficial to regulators too, as a
complexity associated with needing to understand various reporting
regimes would be reduced.

OBJECTIVES OF IFRS:

1. The main objective of IFRS is to develop in the public the

interest of a single set of high quality, understandable and
enforceable global accounting standards that require high
quality, transparent and comparable information in financial
statements and other financial reporting to help participants in
the world's capital markets and other users make economic
decisions.
2. To promote the use and rigorous application of those standards;
in fulfilling the objectives associated with it.
3. To take account of, as appropriate, the special needs of small
and medium-sized entities and emerging economies.
4. To bring about convergence of national accounting standards
and International Accounting standards and IFRS to high
quality solutions.

SCOPE OF IFRS:

All International Accounting Standards (IASs) and

Interpretations issued by the former IASC (International Accounting
Standard Committee) and SIC (Standard Interpretation Committee)
continue to be applicable unless and until they are amended or
withdrawn. IFRSs apply to the general purpose financial statements
and other financial reporting by profit-oriented entities -- those
engaged in commercial, industrial, financial, and similar activities,
regardless of their legal form. Entities other than profit-oriented
business entities may also find IFRSs appropriate.

General purpose financial statements are intended to meet the

common needs of shareholders, creditors, employees, and the public
at large for information about an entity's financial position,
performance, and cash flows. Other financial reporting includes
information provided outside financial statements that assists in the

interpretation of a complete set of financial statements or improves

users' ability to make efficient economic decisions. IFRS apply to
individual company and consolidated financial statements. A
complete set of financial statements includes a balance sheet, an
income statement, a cash flow statement, a statement showing either
all changes in equity or changes in equity other than those arising
from investments by and distributions to owners, a summary of
accounting policies, and explanatory notes.

If an IFRS allows both a 'benchmark' and an 'allowed

alternative' treatment, financial statements may be described as
conforming to IFRS whichever treatment is followed. In developing
Standards, IASB intends not to permit choices in accounting
treatment. Further, IASB intends to reconsider the choices in
existing IASs with a view to reducing the number of those choices.
IFRS will present fundamental principles in bold face type and other
guidance in non-bold type (the 'black-letter'/'grey-letter' distinction).
Paragraphs of both types have equal authority. The provision of IAS
1 that conformity with IAS requires compliance with every
applicable IAS and Interpretation requires compliance with all
IFRSs as well.

LIST OF IFRS:

 IFRS 1: First-time Adoption of International Financial Reporting

Standards
 IFRS 2: Share-based Payment
 IFRS 3: Business Combinations
 IFRS 4: Insurance Contracts
 IFRS 5: Non-current Assets Held for Sale and Discontinued
Operations
 IFRS 6: Exploration for and Evaluation of Mineral Resources
 IFRS 7: Financial Instruments: Disclosures
 IFRS 8: Operating Segments
 IFRS 9: Financial Instruments
International Accounting Standards (IAS)

IAS relates to standards on various aspects of accounting

issues. These are mainly relevant for maintenance of accounts as
well as disclosure of Information.

 IAS 1: Presentation of Financial Statements.

 IAS 2: Inventories
 IAS 7: Cash Flow Statements
 IAS 8: Accounting Policies, Changes in Accounting Estimates
and Errors
 IAS 10: Events After the Balance Sheet Date
 IAS 11: Construction Contracts
 IAS 12: Income Taxes
 IAS 16: Property, Plant and Equipment (summary)
 IAS 17: Leases
 IAS 18: Revenue
 IAS 19: Employee Benefits
 IAS 20: Accounting for Government Grants and Disclosure of
Government Assistance
 IAS 21: The Effects of Changes in Foreign Exchange Rates
 IAS 23: Borrowing Costs
 IAS 24: Related Party Disclosures
 IAS 26: Accounting and Reporting by Retirement Benefit Plans
 IAS 27: Consolidated Financial Statements
 IAS 28: Investments in Associates
 IAS 29: Financial Reporting in Hyperinflationary Economies
 IAS 31: Interests in Joint Ventures
 IAS 32: Financial Instruments: Presentation
 IAS 33: Earnings per Share
 IAS 34: Interim Financial Reporting
 IAS 36: Impairment of Assets
 IAS 37: Provisions, Contingent Liabilities and Contingent
Assets
 IAS 38: Intangible Assets
 IAS 39: Financial Instruments: Recognition and Measurement
 IAS 40: Investment Property
 IAS 41: Agriculture

CHALLENGES OF IFRS
Economic Environment

 Some IFRSs require fair value approach to be followed,

examples include:
o IAS 39, Financial Instruments: Recognition and Measurement
o IAS 41, Agriculture
 The markets of many economies such as India normally do not
have adequate depth and breadth for reliable determination of
fair values.
 With a view to provide further guidance on the use of fair value
approach, the IASB is developing a document.
 Till date, no viable solution of objective fair value measures is
available.

SME concerns
SMEs face problems in implementing IFRSs because of:

 Scarcity of resources and expertise with the SMEs to achieve

compliance
 Cost of compliance not commensurate with the expected benefits

Keeping in view the difficulties faced by the SMEs, the IASB is developing
an IFRS for SMEs.
Training to Preparers

 Some IFRSs are complex.

 There is lack of adequate skills amongst the preparers and users
of Financial Statements to apply IFRSs.
 Proper implementation of such IFRSs requires
extensive education of preparers

Interpretation

 A large number of application issues arise while applying IFRSs.

 There is a need to have a forum which may address the
application issues in specific cases.

CONVERGENCE WITH IFRSS:

INDIAN PERSPECTIVE

 Indian Accounting Standards (ASs) are formulated on the basis

 of the IFRSs.
 While formulating ASs, the endeavor of the ICAI remains to
converge with the IFRSs.
 The ICAI has till date issued 29 ASs corresponding to IFRSs.
 Some recent ASs, issued by the ICAI, are totally at par with the
corresponding IFRSs, e.g., the Standards on ‘Impairment of
Assets’ and ‘Construction Contracts’.
 While formulating Indian Accounting Standards, changes from
the corresponding IAS/ IFRS are made only in those cases where
these are unavoidable considering:
o Legal and/ or regulatory framework prevailing in the country.
o To reduce or eliminate the alternatives so as to ensure
comparability.
o State of economic environment in the country
o Level of preparedness of various interest groups involved in
implementing the accounting standards.

BENEFITS OF IFRS

The forces of globalization prompt more and more countries

to open their doors to foreign investment and as businesses expand
across borders the need arises to recognize the benefits of having
commonly accepted and understood financial reporting standards.
Following are some of the benefits of adopting IFRS -

 Transparency and comparability

 Low cost of capital
 Eliminates need for multiple reporting
 True value of acquisition
 Cross border transaction
 Sets a benchmark
 Improvement in planning and forecasting

FRAMEWORK FOR THE PREPARATION

AND PRESENTATION OF FINANCIAL
STATEMENTS:

This Framework sets out the concepts that underlie the

preparation and presentation of financial statements for external
users. The Framework deals with: The objective of financial
statements; the qualitative characteristics that determine the
usefulness of information in financial statement; The Definition,
recognition and measurement of the elements from which financial
statements are constructed; and Concept of capital and capital
maintenance. The Objective of Financial statements is to provide
useful information to users of financial statements in making
economic decision. Financial Statements are prepared to provide
information on Financial Position, Operating Performance and
changes in financial position of an entity Financial Statements are
normally prepared on the assumption that entity is a going concern
and will continue in operation for the foreseeable future, and
prepared on accrual basis of accounting. The four Qualitative
characteristics are Understandability, relevance; reliability and
comparability are the attributes that make the financial information
useful to users. The elements directly related to the measurement of
financial position are assets, liabilities and equity. An item that
meets the definition of an element should be recognized if: it is
probable that any future economic benefit associated the item will
flow to or from the entity. The item has a cost or value that can be
measured with reliability. Measurement is the process of
determining the monetary amounts at which each element in the
financial statements is to be recognized and carried in the Balance
Sheet and Income statement. The concept of capital maintenance is
concerned with how an entity defines the capital that it seeks to
maintain. It provides the linkage between the concepts of capital and
the concepts of profit because it provides the point of reference by
which profit is measured.

IFRS -1: FIRST TIME ADOPTION OF IFRS

An entity shall prepare and present an opening IFRS

statement of financial position at the date of transition to IFRSs. This
is the starting point for its accounting under IFRSs. An entity shall
prepare an opening IFRS balance sheet at the date of transition to
IFRSs. This is the starting point for its accounting under IFRSs. An
entity need not present its opening IFRS balance sheet in its first
IFRS financial statements. In general, the IFRS requires an entity to
comply with each IFRS effective at the end of its first IFRS
reporting period. In particular, the IFRS requires an entity to do the
following in the opening IFRS statement of financial position that it
prepares as a starting point for its accounting under IFRSs: recognize
all assets and liabilities whose recognition is required by IFRSs. not
to recognize items as assets or liabilities if IFRSs do not permit such
recognition; IFRS-1. IFRS-1 reclassify items that it recognized under
previous GAAP as one type of asset, liability or component of
equity, but are different type of asset, liability or component of
equity under IFRSs. Apply IFRSs in measuring all recognized assets
and liabilities. The IFRS grants limited exemptions from these
requirements in specified areas where the cost of complying with
them would be likely to exceed the benefits to users of financial
statements. The IFRS also prohibits retrospective application of
IFRSs in some areas; particularly where retrospective application
would require judgments by management about past conditions after
the outcome of a particular transaction is already known. The IFRS
requires disclosures that explain how the transition from previous
GAAP to IFRSs affected the entities reported financial position,
financial performance and cash flows.

OBJECTIVE OF THIS STANDARD: The objective of this IFRS

is to specify the financial reporting by an entity when it undertakes a
share-based payment transaction. In particular, it requires an entity
to reflect in its profit or loss and financial position the effects of
share-based payment transactions, including expenses associated
with transactions in which share options are granted to employees.

IFRS -2: SHARE-BASED PAYMENTS

The IFRS requires an entity to recognize share-based

payment transactions in its financial statements, including
transactions with employees or other parties to be settled in cash,
other assets, or equity instruments of the entity. There are no
exceptions to the IFRS, other than for transactions to which other
Standards apply. This also applies to transfers of equity instruments
of the entity’s parent, or equity instruments of another entity in the
same group as the entity, to parties that have supplied goods or
services to the entity. This IFRS sets out measurement principles and
specific requirements for three types of share-based payment
transactions: equity-settled share-based payment transactions, in
which the entity receives goods or services as consideration for
equity instruments of the entity (including shares or share options);
(b) cash-settled share-based payment transactions, in which the
entity acquires goods or services by incurring liabilities to the
supplier of those goods or services for amounts that are based on the
price (or value) of the entity’s shares or other equity instruments of
the entity; and (c) transactions in which the entity receives or
acquires goods or services and the terms of the arrangement provide
either the entity or the supplier of those goods or services with a
choice of whether the entity settles the transaction in cash or by
issuing equity instruments.

The IFRS also sets out requirements if the terms and

conditions of an option or share grant are modified (e.g. an option is
reprised) or if a grant is cancelled, repurchased or replaced with
another grant of equity instruments. For example, irrespective of any
modification, cancellation or settlement of a grant of equity
instruments to employees, the IFRS generally requires the entity to
recognize, as a minimum, the services received measured at the grant
date fair value of the equity instruments granted. For cash- settled
share-based payment transactions, the IFRS requires an entity to
measure the goods or services acquired and the liability incurred at
the fair value of the liability. Until the liability is settled, the entity is
required to re measure the fair value of the liability at each reporting
date and at the date of settlement, with any changes in value
recognized in profit or loss for the period.

IFRS -3: BUSINESS COMBINATIONS:

The objective of the IFRS is to enhance the relevance,

reliability and comparability of the information that an entity
provides in its financial statements about a business combination and
its effects. It does that by establishing principles and requirements
for how an acquirer:
(a) Recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-
controlling interest in the acquire;

(b) Recognizes and measures the goodwill acquired in the business

combination or a gain from a bargain purchase.

(c) Determines what information to disclose to enable users of the

financial statements to evaluate the nature and financial effects of
the business combination.

Points: Core principle an acquirer of a business recognizes the

assets acquired and liabilities assumed at their acquisition-date fair
values and discloses information that enables users to evaluate the
nature and financial effects of the acquisition. Applying the
acquisition method a business combination must be accounted for by
applying the acquisition method, unless it is a combination involving
entities or businesses under common control. One of the parties to a
business combination can always be identified as the acquirer, being
the entity that obtains control of the other business (the acquiree).
Formations of a joint venture or the acquisition of an asset or a group
of assets that does not constitute a business are not business
combinations.

IFRS -4: INSURANCE CONTRACTS:

The objective of this IFRS is to specify the financial

reporting for insurance contracts by any entity that issues such
contracts (described in this IFRS as an insurer) until the Board
completes the second phase of its project on insurance contracts. In
particular, this IFRS requires: limited improvements to accounting
by insurers for insurance contracts. disclosure that identifies and
explains the amounts in an insurer’s financial statements arising
from insurance contracts and helps users of those financial
statements understand the amount, timing and uncertainty of future
cash flows from insurance contracts.

IFRS -5: NON-CURRENT ASSETS HELD FOR SALE AND

DISCONTINUED OPERATIONS:

The objective of this IFRS is to specify the accounting for

assets held for sale, and the presentation and disclosure of
discontinued operations. In particular, the IFRS requires: assets that
meet the criteria to be classified as held for sale to be measured at
the lower of carrying amount and fair value less costs to sell, and
depreciation on such assets to cease; and assets that meet the criteria
to be classified as held for sale to be presented separately in the
statement of financial position and the results of discontinued
operations to be presented separately in the statement of
comprehensive income.
IFRS-6: EXPLORATION FOR AND EVALUATION OF MINERALS:

The objective of this IFRS is to specify the financial

reporting for the exploration for and evaluation of mineral resources.
POINTS: Exploration and evaluation expenditures are expenditures
incurred by an entity in connection with the exploration for and
evaluation of mineral resources before the technical feasibility and
commercial viability of extracting a mineral resource are
demonstrable. Exploration for and evaluation of mineral resources is
the search for mineral resources, including minerals, oil, natural gas
and similar non-regenerative resources after the entity has obtained
legal rights to explore in a specific area, as well as the determination
of the technical feasibility and commercial viability of extracting the
mineral resource. Exploration and evaluation assets are exploration
and evaluation expenditures recognized as assets in accordance with
the entity’s accounting policy.

FRS-7: FINANCIAL INSTRUMENTS DISCLOSURE:

The objective of this IFRS is to require entities to provide

disclosures in their 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 reporting date, and how the entity manages those
risks. The qualitative disclosures describe management’s objectives,
policies and processes for managing those risks. The quantitative
disclosures provide information about the extent to which the entity
is exposed to risk, based on information provided internally to the
entity's key management personnel. Together, these disclosures
provide an overview of the entity's use of financial instruments and
the exposures to risks they create.
IFRS-8: OPERATING SEGMENTS:
This IFRS shall apply to:

(a) The separate or individual financial statements of an entity:

whose debt or equity instruments are traded in a public market (a
domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets), or that files, or is in the
process of filing, its financial statements with a securities
commission or other regulatory organization for the purpose of
issuing any class of instruments in a public market.

(b) The consolidated financial statements of a group with a parent:

whose debt or equity instruments are traded in a public market (a
domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets), or that files, or is in the process of
filing, the consolidated financial statements with a securities commission
or other regulatory organization for the purpose of issuing any class of
instruments in a public market. IFRS-8

IFRS - Indian Context

Convergence with IFRS has gained momentum in recent years all
over the World.
India is committed to adopt IFRS from 2011.

United States of America has announced its intention to

adopt IFRS from 2014 and it also permits foreign private filers in the
U.S. Stock Exchanges to file IFRS compiled Financial Statement,
without requiring the presentation of reconciliation statement.

In this scenario of globalization, India cannot insulate itself

from the developments taking place worldwide. In India, so far as
the ICAI is concerned, its aim has always been to comply with the
IFRS to the extent possible with the objective to formulate sound
financial reporting standards. The ICAI, being a member of the
International Federation of Accountants (IFAC), considers the IFRS
and tries to integrate them, to the extent possible, in the light of the
laws, customs, practices and business environment prevailing in
India. The Preface to the Statements of Accounting Standards, issued
by the ICAI, categorically recognizes the same. Now, as the world
globalizes, it has become imperative for India also to make a formal
strategy for convergence with IFRS with the objective to harmonize
with globally accepted accounting standards.

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 multinational 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. 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.

The paradigm shift in the economic environment in India during

last few years has led to increasing attention being devoted to accounting
standards as a means towards ensuring potent and transparent financial
reporting by any corporate.

ICAI, being a premier accounting body in the country, took upon

itself the leadership role by establishing ASB, more than twenty five years
back, to fall in line with the international and national expectations.
Today, accounting standards issued by the Institute have come a long way.

The ICAI as the accounting standard - setting body in the country

has always made efforts to formulate high quality Accounting Standards
and has been successful in doing so. Indian Accounting Standards have
withstood the test of time. As the world continues to globalize, discussion
on convergence of national accounting standards with International
Financial Reporting Standards (IFRS) has increased significantly.

At present, the ASB of ICAI formulates the AS based on IFRS.

However, these standards remain sensitive to local conditions, including
the legal and economic environment. Accordingly, AS issued by ICAI
depart from corresponding IFRS in order to ensure consistency with legal,
regulatory and economic environment of India.

Formation of IFRS Task Force by the Council of ICAI

Recommendation of the IFRS Task Force submitted to the Council Full
adoption of IFRS from accounting period commencing on or after 1 April
2011 Proposed to be applicable to listed entities and public interest entities
such as banks, insurance companies and large sized entities Involvement
of various regulators (MCA, RBI, IRDA, Tax authorities and SEBI)

Draft Schedule VI and Accounting Standard 1 (Exposure Draft) consistent

with IFRSs Convergence Strategy presented by Technical Directorate of
ICAI on 02.02.2009:

– ICAI has begun the process of issuing IFRS equivalent AS with

following proposed changes:
1. Removal of alternative treatments
2. Additional disclosures, where required
3. AS number will continue but IFRS number will be given in parenthesis
4. IFRICs will be issued as appendices

– ICAI has constituted a Group in liaison with government & regulatory

authorities and this group has constituted separate core groups to identify
inconsistencies between IFRS and various relevant acts.

An entity:
i Whose equity or debt securities are listed or are in the process of listing
on any stock exchange, whether in India or outside India; or
ii Which is a bank (including a cooperative bank), financial institution, a
mutual fund, or an insurance entity; or
iii Whose turnover (excluding other income) exceeds rupees one hundred
crores in the immediately preceding accounting year; or
iv Which has public deposits and/or borrowings from banks and financial
institutions in excess of rupees twenty five crores at any time during the
immediately preceding accounting year; or
v Which is a holding or a subsidiary of an entity which is covered in
(i) to (iv) above
Transition to IFRS – Things to remember

First year of reporting:

Accounting period commencing on or after 1 April 2011
(Normally 1 April 2011 – 31 March 2012)

Date of adoption:
The first day of the first reporting financial year (1 April 2011)

Date of reporting:
The last day of the first reporting financial year (31 March 2012)

Comparative year:
Immediately preceding previous year (1 April 2010 – 31 March 2011)

Date of transition:
The beginning of the earliest period for which an entity presents
full comparative information (1 April 2010)
 First time adoption of IFRS on the date of reporting envisages-
1. Restatement of opening balances as at 1 April 2010
2. Presentation of comparative financial statements for the year 2010-11
3. Preparation and presentation of financial statements for the first year of
reporting 2011-12
4. Explicit and unreserved statement of compliance with IFRS

All the above statements (as stated in 1 to 3 above) have to be

drawn as per the IFRS in force on the date of reporting.

List of Indian Accounting Standards along with comparative Accounting Standard (AS):

Relevant
Accounting
Ind AS Objective/ Deals with standard or
Guidance note

Its main objective is to prepare first

financial statements as per Ind AS
Ind AS 101 – containing high quality information that is
First-time adoption of transparent, comparable and prepared at N.A.
Ind AS economical cost, suitable starting point for
accounting in accordance with Ind AS.

Ind AS 102 – It deals with accounting of share-based Guidance note on

payment transactions and reflect effect of Employee Share
Share Based payments such payment on profit or loss and Based Plans
financial statements of entity.

Ind AS 103 – It applies to transaction or other event that AS 14

meets the definition of a business
Business Combination combination. This standard helps in
improving the relevance, reliability and
comparability of the information that a
reporting entity provides in its financial
statements about a business
combination and its effects.
Ind AS 104 – This standard specifies financial reporting N.A.
for insurance contracts by insurer entity.
Insurance Contracts

Ind AS 105 – This standard specifies accounting for AS 24

assets held for sale, and presentation and
Non-Current Assets Held disclosure of discontinued operations.
for Sale and
Discontinued Operations

Ind AS 106 – This standard specifies financial reporting N.A.

for exploration and evaluation of mineral
Exploration for and resources.
Evaluation of Mineral
Resources

Ind AS 107 – This standard require entities to provide AS 32

disclosures related to financial instruments
Financial Instruments: that will enable users to evaluate
Disclosures significance of financial instruments for
entity's financial position and performance
and 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
manages those risks.

Ind AS 108 – This standard discloses information to AS 17

enable users of its financial statements to
Operating Segments evaluate the nature and financial effects of
the business activities in which it engages
and the economic environments in which it
operates.

Ind AS 109 – This Standard establish principles for AS 30, AS 31

financial reporting of financial assets and and Guidance
Financial Instruments financial liabilities that will present note on
relevant and useful information to users of derivative
financial statements for their assessment of contract
the amounts, timing and uncertainty of an
entity's future cash flows.

Ind AS 110 – This standard establish principles for the AS 21

presentation and preparation of
Consolidated Financial consolidated financial statements when an
Statements
 entity controls one or more other entities.

Ind AS 111 – This standard establish principles for AS 27

financial reporting by entities that have an
Joint Arrangements interest in arrangements that are controlled
jointly (known as joint arrangements).

Ind AS 112 – This standard requires an entity to disclose AS 21, AS 23

information that enable users of its and AS 27
Disclosure of Interests in financial statements nature risk and effect
Other Entities of such interest in other entities.

Ind AS 113 – This standard defines fair value, set outs N.A.
framework for measuring fair value and
Fair Value Measurement disclosures about fair value measurements.
Such fair measurement principle will apply
when another Ind AS requires or permits
use of fair value.

Ind AS 114 – This Standard specifies financial reporting Guidance note on

requirements for regulatory deferral accounting for
Regulatory Deferral account balances that arise when an entity rate regulated
Accounts provides goods or services to customers at activities
a price or rate that is subject to rate
regulation.

Ind AS 115 – This Standard establishes principles that an AS 7 & AS 9

entity shall apply to report useful
Revenue from Contracts information to users of financial statements
with Customers about nature, amount, timing and
uncertainty of revenue and cash flows
arising from a contract with a customer.

Ind AS 1 – This standard sets out overall requirements AS 1

for presentation of financial statements,
Presentation of Financial guidelines for their structure and minimum
Statements requirements for their content to ensure
comparability.

Ind AS 2 – Its deals with accounting of inventories AS 2

such as measurement of inventory,
Inventories Accounting inclusions and exclusions in its cost,
disclosure requirements, etc.

Ind AS 7 – It deals with cash received or paid during AS 3

the period from operating, financing and
Statement of Cash Flows investing activities. It also shows any
change in the cash and cash equivalents of
any entity.

Ind AS 8 – It prescribes criteria for selecting and AS 5

changing accounting policies together with
Accounting Policies, accounting treatments and disclosures.
Changes in Accounting
Estimates and Errors

Ind AS 10 – It deals with any adjusting or non-adjusting AS 4

event occurring after reporting date and
Events after Reporting
Period

Ind AS 12 – This standard prescribes accounting AS 22

treatment for income taxes. The principal
Income Taxes issue in accounting for income taxes is
how to account for the current and future
tax

Ind AS 16 – This standard prescribes accounting AS 10

treatment for Property, Plant And
Property, Plant and Equipment (PPE) such as recognition of
Equipment assets, determination of their carrying
amounts and the depreciation charges and
impairment losses to be recognised in
relation to them.

Ind AS 116 – This standard prescribes appropriate AS 19

accounting policies and principle for
Leases lessees and lessors.

Ind AS 19 – This standard prescribes accounting and AS 15

disclosure requirements relating to
Employee Benefits employee benefits.

Ind AS 20 – This Standard shall be applied in AS 12

accounting for and in disclosure of,
Accounting for government grants and in disclosure of
Government Grants and other forms of government assistance.
Disclosure of
Government Assistance

Ind AS 21 – This Standard prescribes how to include AS 11

foreign currency transactions and foreign
The Effects of Changes operations in the financial statements of an
in Foreign Exchange entity and how to translate financial
Rates
 statements into a presentation currency.

Ind AS 23 – It provides borrowing cost incurred on AS 16

qualifying asset should form part of that
Borrowing Costs asset, it also guides on which finance cost
should be capitalised, conditions for
capitalisation, time of commencement and
cessation of capitalisation of borrowing
cost.

Ind AS 24 – This standard ensures that an entity's AS 18

financial statements contains necessary
Related Party disclosures to draw attention to the
Disclosures 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.

Ind AS 27 – This Standard prescribes accounting and AS 13

disclosure requirements for investments in
Separate Financial subsidiaries, joint ventures and associates
Statements
when an entity prepares separate financial
statements.

Ind AS 28 – This standard prescribes accounting for AS 23, AS 27

investments in associates and to set out
Investments in requirements for the application of equity
Associates and Joint method when accounting for investments
Ventures in associates and joint ventures.

Ind AS 29 – This standard will gives inclusive list of N.A.

characteristics that will categorise an
Financial Reporting in economy as hyper inflationary and
Hyperinflationary reporting of operating results and financial
Economies position.

Ind AS 32 – This Standard establishes principles for AS 32

presenting financial instruments as
Financial Instruments: liabilities or equity and for offsetting
Presentation financial assets and financial liabilities.

Ind AS 33 – This Standard prescribe principles for the AS 20

determination and presentation of earnings
Earnings per Share per share

Ind AS 34 – This Standard prescribes minimum content AS 25

of an interim financial report and
Interim Financial principles for recognition & measurement
Reporting in complete or condensed financial
statements for an interim period.

Ind AS 36 – This Standard prescribe procedures that an AS 28

entity applies to ensure that an asset’s
Impairment of Assets carrying amount is not more than its
recoverable amount.

Ind AS 37 – This Standard ensures that appropriate AS 29

recognition criteria and measurement bases
Provisions, Contingent are applied to provisions, contingent
Liabilities and liabilities and contingent assets and proper
Contingent Assets disclosures are made in the notes to enable
users to understand their nature, timing and
amount.

Ind AS 38 – This Standard prescribes accounting AS 26

treatment for intangible assets. It specifies
Intangible Assets conditions for recognition of intangible
asset and how to measure carrying amount
at which intangible asset should be
recognised.

Ind AS 40 – This Standard prescribes accounting AS 13

treatment for investment property and
Investment Property
related disclosure requirements.

Ind AS 41 – This Standard prescribes accounting N.A.

treatment and disclosures related to
Agriculture agricultural activity.
 UNIT II

Ind AS 1 – Objective of Ind AS 1 –

Presentation of Financial Statements (FS)

Basis of Financial Statements

Comparability

With FS of Other
With FS of Entities
Previous Period

www.caaa.in 2
Objective of Ind AS 1

• Financial Statements provide information about an entity’s

– Assets
– Liabilities
– Equity
– Income and Expense incl gains and losses
– Contribution by and Distribution to owners
– Cash Flows
Scope of Ind AS 1

An entity shall apply this Standard

• in preparing and presenting general purpose financial statements

• in accordance with Indian Accounting Standards (Ind ASs).
 Complete Set of Financial

Statements (FS)

• Financial Statements comprise of

Balance Sheet ( Changes in Equity)

Statement of Profit or Loss

Statement of Changes in Cash Flows

Notes comprising of significant A/cing policies and other

information

5 Balance Sheet at the end ofwww.caaa.in

the earliest comparative period
 Components of financial statements

Statement of financial position (SOCIE)

Statement of comprehensive income

Most financial
Complete set ofassets measured
Financial statements
IAS 1.10
Statement of cash flows at fair value

Notes including accounting policies

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 Statement of financial Position at the beginning of earliest
comparative period

Fundamental Assumptions

Going Concern

Accrual Basis of
Accounting

Consistency in
Presentation

8
Other Considerations

Fair Presentation

Materiality and Aggregation

Offsetting

Comparatives
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 Reporting Period

• There is a presumption that financial statements will be prepared at least annually.

• The presumption is that compliance with Accounting Standards with additional disclosures will lead to True
and Fair View

Structure and Content of

Financial Statements in General

Clearly Identify

• the financial statements

• the reporting enterprise
• whether the statements are for the enterprise or for a group
• the date or period covered
• the presentation currency
• the level of precision (thousands, millions, etc.)
 Balance Sheet

As a minimum, the balance sheet shall include line items that present the following amounts

(a) property, plant and equipment

(b) investment property
(c) intangible assets
(d) financial assets (excluding amounts shown under (e), (h), and (i))
(e) investments accounted for using the equity method
(f) biological assets
(g) inventories
(h) trade and other receivables
i) cash and cash equivalents

(j) assets held for sale

(k) trade and other payables
(l) provisions
Balance Sheet

(m) financial liabilities (excluding amounts shown under (k) and (l))
(n) liabilities and assets for current tax, as defined in IAS 12
(o) deferred tax liabilities and deferred tax assets, as defined in IAS 12
(p) liabilities included in disposal groups
(q) non-controlling interests , presented within equity and
(r) issued capital and reserves attributable to owners of the parent

Share Capital Reserves

Regarding issued share capital and reserves, the following disclosures are required

• Numbers of shares authorised, issued and fully paid, and issued but not fully paid
• Par value
• Reconciliation of shares outstanding at the beginning and the end of the period
• Description of rights, preferences, and restrictions
 Share Capital Reserves

• Treasury shares, including shares held by subsidiaries and associates

• Shares reserved for issuance under options and contracts
• A description of the nature and purpose of each reserve within equity

Current and Non Current

• An entity shall present current and non- current assets, and current and non- current liabilities, as separate
classifications on the face of its balance sheet unless a presentation based on liquidity provides reliable information that
is more relevant.
 Current Assets

An asset shall be classified as current when it satisfies any of the following criteria:
• it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal operating cycle (e.g. potentially
exceeding 12 months after the reporting date)
• it is held primarily for the purpose of being traded
• it is expected to be realized within 12 months after the reporting date
• it is cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months
after the reporting date

All other assets shall be classified as non-current.

Current Liabilities

A liability is classified as current when it satisfies any of the following criteria:

• it is expected to be settled in the entity’s normal operating cycle (i.e. may be more than 12 months)
• it is held primarily for the purpose of being traded
• it is due to be settled within 12 months after the reporting date
• the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the
reporting date

All other liabilities shall be classified as non-current.

Non – Current Assets

• Property, Plant & Equipment

• Investment Property

• Goodwill

• Other intangible assets

• Investments in associates

• Available for sale financial assets

• Finance lease receivables

• Deferred tax assets

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Current Assets

• Inventories

• Trade Receivables

• Other Current Assets

• Held for Trading Financial Assets

• Cash and cash equivalents

• Non-Current assets held for sale

Non – Current Liabilities

• Long term borrowings

• Retirement benefit obligation

• Deferred tax liabilities

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 • Obligation under finance leases – due after one year

• Long term provisions

Current Liabilities

• Trade and other payables

• Current portion of long term borrowings

• Retirement benefit obligation

• Obligations under finance leases – due within one year

• Bank overdrafts loans

• Short term provisions

• Liabilities directly associates with non – current assets held for sale

• Statement of Profit and Loss

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 An entity shall present all items of income and expense including components of other comprehensive income
recognized in a period in a single statement of profit and loss.

Components of OCI:- Items of income and expense

recognised in Equity

Effective portion of cash flow Actuarial gains/losses on

hedges Defined Benefit Pension Plans

Effect of translation of FS Of
foreign operations

Change in Revaluation Surplus of

Re measurement of AFS 21
PPE and Intangibles
 Statement of Profit or Loss

• Minimum items on the face of the statement of Profit or Loss should include: [IAS 1.81]

(a) revenue;
(b) finance costs;
(c) share of the profit or loss of associates and joint ventures accounted for using the equity method;
(d) pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to
discontinuing operations;

(e) tax expense; and

(f) profit or loss.
Statement of Profit or Loss

An entity shall disclose the following items in the statement of profit and loss as allocations for the period:

(a) profit or loss for the period attributable to:

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 (i) non-controlling interests, and
(ii) owners of the parent.
(b) total comprehensive income for the period attrib utable to:
(i) non-controlling interests, and
(ii) owners of the parent.
Statement of Profit or Loss

• Certain items must be disclosed either on the face of the income statement or in the notes, if material, including:

(a)reversals
write-downs of inventories to net realisable value or of property, plant and equipment to recoverable amount, as well as
of such write-downs;

(b) restructurings of the activities of an entity and reversals of any provisions for the costs of restructuring;
(c) disposals of items of property, plant and equipment;
(d) disposals of investments;
(e) discontinuing operations;
(f) litigation settlements; and
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(g) other reversals of provisions.

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 Statement of changes in equity

For each component of equity, a reconciliation between the opening and closing balances, disclosing changes resulting from:-

 profit or loss
 each item of other comprehensive income

Transactions with owners in their capacity as owners This Statement of Changes in Equity is a part of the
Balance Sheet

Statement of Cash Flows

• Information on cash flows provides a basis to assess an entity's ability to generate cash, and the utilization of those cash flows.

• All entities are required to provide a cash flow statement regardless of their size and the industry they operate in.

• There are no exemptions for subsidiaries whose parents have also published a cash flow statement

• Major Components

– operating cash flows

– investing cash flows
– financing cash flows
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 Notes to financial statements

The notes shall

• present information about the basis of preparation of the financial statements and the specific accounting policies
used

• disclose any information required by IFRSs that is not presented elsewhere in the financial statements and

• provide additional information that is not presented elsewhere in the financial statements but is relevant to an
understanding of any of them

• Notes should be cross-referenced from the face of the financial statements to the relevant note.

Disclosure of accounting policies

• Entity should give disclosure of the measurement bases and the accounting policies an entity uses

• The entity's accounting policies should be clearly stated and presented

• The disclosure given in respect of an accounting policy should be sufficiently detailed that it is understandable

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 Disclosure about Dividends

• In addition to the distributions information in the statement of changes in equity ( part of B/S), the following must be
disclosed in the notes
“ the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a
distribution to owners during the period, and the related amount per share and the amount of any cumulative preference
dividends not recognised”

Capital Disclosures

An entity should disclose information about its objectives, policies and processes for managing capital. To comply with this, the
disclosures include:

• qualitative information about the entity's objectives, policies and processes for managing capital, including
– description of capital it manages
– nature of external capital requirements, if any
– how it is meeting its objectives
• quantitative data about what the entity regards as capital
• changes from one period to another
• whether the entity has complied with any external capital requirements and
• if it has not complied, the consequences of such non-compliance.

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 Disclosures about Puttable

Financial Instruments

The following additional disclosures if an entity has a puttable instrument that is classified as an equity instrument:
• summary quantitative data about the amount classified as equity
• the entity's objectives, policies and processes for managing its obligation to repurchase or redeem the instruments when
required to do so by the instrument holders, including any changes from the previous period
• the expected cash outflow on redemption or repurchase of that class of financial instruments and
• information about how the expected cash outflow on redemption or repurchase was determined.

Difference between Ind AS 1 and

IAS 1

IAS 1 Presentation of Financial Statements permits companies to present all items of income and expense recognized
in a period either in a single statement, or in two statements.

Ind-AS 1 does not permit the two statements approach. It requires all items of income and expense to be presented
in a single statement of profit and loss.

Difference between Ind AS 1 and

IAS 1

• IAS 1 requires a company to present an analysis of expenses recognized in profit or loss using a classification based on
either their nature or their function within the company.

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 • However, Ind-AS 1 mandates only nature- wise classification of expenses.

IND AS 7 – Statement of Cash Flows

Applicability, Scope & Objective
Applicability –
Cash flow statement is applicable to all the companies and there is no exemption available to any type of entity from preparation and
presentation of the cash flow statement but as per existing AS this statement is not mandatory for small and medium enterprises.
Scope –
An entity shall prepare a statement of cash flows in accordance with the requirement of this standard and shall present it as an integral part
of its financial statements for each period for which financial statements are prepared.
Objective –
Assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the
present value of the future cash flows of different entities. It also enhances comparability.
Definitions
Cash –
Cash comprises cash on hand and demand deposits.
Cash equivalents –
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to
insignificant risk of changes in value.
Cash flows –
Cash flows are inflows and outflows of cash and cash equivalents.
Notes –

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 1. Bank borrowings are generally considered to be financing activities. However, where bank overdrafts which are repayable on
demand form an integral part of an entity’s cash management, bank overdrafts are included as a component of cash and cash
equivalents.
2. An investment normally qualifies as cash equivalent only when it has a short maturity, say 3 months or less from the date of
acquisition.

Operating Activities –
are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.
Examples –

1. cash receipts from sale of goods or rendering of services;

2. Cash receipts from royalties, fees, commissions and other revenue;
3. Cash payments to suppliers for goods and services
4. An entity may hold securities and loans for dealing or trading purposes, in which they are similar to inventory acquired specifically
for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating
activities.

Notes – Cash payment to manufacture or acquire assets held for rental to others and subsequently held for sale as described in para 68A of
Ind AS 16, as cash flows from operating activities. The cash receipts from rents and subsequent sales of such assets are also cash flow from
operating activities.
Investing Activities –
are the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.
Example –

1. Cash payment to acquire property, plant and equipment, intangibles and other long-term assets
2. Cash receipts from sale of property, plant and equipment, intangibles
3. Cash payment to acquire equity or debt instruments
4. Cash advances and loans made to other parties
5. Cash payment for future contracts, forward contracts, option contracts

Financing Activities –

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are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.
Example –

1. Cash proceeds from issuing of share or other equity instruments

2. Cash payment to owners to acquire or redeem the equity’s shares
3. Cash proceeds from issuing debentures, loans, notes, bonds, mortgages
4. Cash repayments of amount borrowed and
5. Cash repayment by lessee for the reduction of the outstanding liability

Note –
Cash flows arising from the operating, investing or financing activities may be reported on net basis.
Foreign currency cash flows –
Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s functional currency by applying to the foreign
currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.
The cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional currency and the foreign currency at
the dates of the cash flows.
Note –
Unrealized gains and losses arising from changes in foreign currency exchange rates are not cash.
Others
Interest & Dividend–
Cash flows from interest and dividends received and paid shall each be disclosed separately.
In case of financial institutions – cash flow arising from interest paid and interest and dividend received should be classified as cash flow
arising from operating activities.
In case of other entities –
Interest paid should be classified as part of financing activities.
Interest and dividend received should be classified as part of investing activities.
Dividend paid should be classified as part of financing activities.

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Cash flows arising from taxes on income shall be separately disclosed and shall be classified as part of operating activities unless they can
be separately identified with investing and financing activities.
Investing and financial transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows.
Example –
a. The acquisition of assets either by assuming directly liabilities or by means of a finance lease
b. The acquisition of an entity by means of an equity issue
c. The conversion of debt into equity
Indian Accounting Standard (Ind AS) 8 Accounting Policies, Changes in Accounting Estimates and Errors# (This Indian Accounting
Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main
principles.)

Objective 1 The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with the
accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The
Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial
statements over time and with the financial statements of other entities.

2 Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in Ind AS 1, Presentation of
Financial Statements.

Scope

3 This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes
in accounting estimates and corrections of prior period errors. 4 The tax effects of corrections of prior period errors and of retrospective
adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with Ind AS 12, Income Taxes.
Definitions 5 The following terms are used in this Standard with the meanings specified: Accounting policies are the specific principles,
bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. A change in accounting
estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results
from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in
accounting estimates result from new information or new developments and, accordingly, are not corrections of errors. # This Ind AS was
notified vide G.S.R. 111(E) dated 16th February, 2015 and was amended vide Notification No. G.S.R. 310(E) dated 28th March, 2018.
Indian Accounting Standards (Ind ASs) are Standards prescribed under Section 133 of the Companies Act, 2013. Material Omissions or
misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis
32
of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding
circumstances. The size or nature of the item, or a combination of both, could be the determining factor. Prior period errors are omissions
from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable
information that: (a) was available when financial statements for those periods were approved for issue; and (b) could reasonably be
expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Such errors include
the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.
Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been
applied. Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements
as if a prior period error had never occurred. Impracticable Applying a requirement is impracticable when the entity cannot apply it after
making every reasonable effort to do so. For a particular prior period, it is impracticable to apply a change in an accounting policy
retrospectively or to make a retrospective restatement to correct an error if: (a) the effects of the retrospective application or retrospective
restatement are not determinable; (b) the retrospective application or retrospective restatement requires assumptions about what
management’s intent would have been in that period; or (c) the retrospective application or retrospective restatement requires significant
estimates of amounts and it is impossible to distinguish objectively information about those estimates that: (i) provides evidence of
circumstances that existed on the date(s) as at which those amounts are to be recognised, measured or disclosed; and (ii) would have been
available when the financial statements for that prior period were approved for issue from other information. Prospective application of a
change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are: (a) applying the new
accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and (b) recognising
the effect of the change in the accounting estimate in the current and future periods affected by the change. 6 Assessing whether an omission
or misstatement could influence economic decisions of users, and so be material, requires consideration of the characteristics of those users.
The Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the
Institute of Chartered Accountants of India states in paragraph 25 that ‘users are assumed to have a reasonable knowledge of business and
economic activities and accounting and a willingness to study the information with reasonable diligence.’ Therefore, the assessment needs
to take into account how users with such attributes could reasonably be expected to be influenced in making economic decisions.
Accounting policies Selection and application of accounting policies 7 When an Ind AS specifically applies to a transaction, other event or
condition, the accounting policy or policies applied to that item shall be determined by applying the Ind AS. 8 Ind ASs set out accounting
policies that result in financial statements containing relevant and reliable information about the transactions, other events and conditions to
which they apply. Those policies need not be applied when the effect of applying them is immaterial. However, it is inappropriate to make,
or leave uncorrected, immaterial departures from Ind ASs to achieve a particular presentation of an entity’s financial position, financial
performance or cash flows. 9 Ind ASs are accompanied by guidance that is integral part of Ind AS to assist entities in applying their
requirements. Such guidance is mandatory. 10 In the absence of an Ind AS that specifically applies to a transaction, other event or condition,
management shall use its judgement in developing and applying an accounting policy that results in information that is: (a) relevant to the
economic decision-making needs of users; and (b) reliable, in that the financial statements: (i) represent faithfully the financial position,
33
financial performance and cash flows of the entity; (ii) reflect the economic substance of transactions, other events and conditions, and not
merely the legal form; (iii) are neutral, ie free from bias; (iv) are prudent; and (v) are complete in all material respects. 11 In making the
judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending
order: (a) the requirements in Ind ASs dealing with similar and related issues; and (b) the definitions, recognition criteria and measurement
concepts for assets, liabilities, income and expenses in the Framework. 12 In making the judgement described in paragraph 10, management
may also first consider the most recent pronouncements of International Accounting Standards Board and in absence thereof those of the
other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and
accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11. Consistency of accounting policies 13
An 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. Changes in accounting policies
14 An entity shall change an accounting policy only if the change: (a) is required by an Ind AS; or (b) results in the financial statements
providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial
position, financial performance or cash flows. 15 Users of financial statements need to be able to compare the financial statements of an
entity over time to identify trends in its financial position, financial performance and cash flows. Therefore, the same accounting policies are
applied within each period and from one period to the next unless a change in accounting policy meets one of the criteria in paragraph 14.
16 The following are not changes in accounting policies: (a) the application of an accounting policy for transactions, other events or
conditions that differ in substance from those previously occurring; and (b) the application of a new accounting policy for transactions, other
events or conditions that did not occur previously or were immaterial. 17 The initial application of a policy to revalue assets in accordance
with Ind AS 16, Property, Plant and Equipment, or Ind AS 38, Intangible Assets, is a change in an accounting policy to be dealt with as a
revaluation in accordance with Ind AS 16 or Ind AS 38, rather than in accordance with this Standard. 18 Paragraphs 19–31 do not apply to
the change in accounting policy described in paragraph 17. Applying changes in accounting policies 19 Subject to paragraph 23: (a) an
entity shall account for a change in accounting policy resulting from the initial application of an Ind AS in accordance with the specific
transitional provisions, if any, in that Ind AS; and (b) when an entity changes an accounting policy upon initial application of an Ind AS that
does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the
change retrospectively. 20 For the purpose of this Standard, early application of an Ind AS is not a voluntary change in accounting policy.
21 In the absence of an Ind AS that specifically applies to a transaction, other event or condition, management may, in accordance with
paragraph 12, apply an accounting policy from the most recent pronouncements of International Accounting Standards Board and in
absence thereof those of the other standard-setting bodies that use a similar conceptual framework to develop accounting standards. If,
following an amendment of such a pronouncement, the entity chooses to change an accounting policy, that change is accounted for and
disclosed as a voluntary change in accounting policy. Retrospective application 22 Subject to paragraph 23, when a change in accounting
policy is applied retrospectively in accordance with paragraph 19(a) or (b), the entity shall adjust the opening balance of each affected
component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if
34
the new accounting policy had always been applied. Limitations on retrospective application 23 When retrospective application is required
by paragraph 19(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to
determine either the period-specific effects or the cumulative effect of the change. 24 When it is impracticable to determine the period-
specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the entity shall apply
the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective
application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each
affected component of equity for that period. 25 When it is impracticable to determine the cumulative effect, at the beginning of the current
period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new
accounting policy prospectively from the earliest date practicable. 26 When an entity applies a new accounting policy retrospectively, it
applies the new accounting policy to comparative information for prior periods as far back as is practicable. Retrospective application to a
prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing
balance sheets for that period. The amount of the resulting adjustment relating to periods before those presented in the financial statements
is made to the opening balance of each affected component of equity of the earliest prior period presented. Usually the adjustment is made
to retained earnings. However, the adjustment may be made to another component of equity (for example, to comply with an Ind AS). Any
other information about prior periods, such as historical summaries of financial data, is also adjusted as far back as is practicable. 27 When
it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of
applying the policy to all prior periods, the entity, in accordance with paragraph 25, applies the new policy prospectively from the start of
the earliest period practicable. It therefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising before
that date. Changing an accounting policy is permitted even if it is impracticable to apply the policy prospectively for any prior period.
Paragraphs 50–53 provide guidance on when it is impracticable to apply a new accounting policy to one or more prior periods. Disclosure
28 When initial application of an Ind AS has an effect on the current period or any prior period, would have such an effect except that it is
impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose: (a) the title of
the Ind AS; (b) when applicable, that the change in accounting policy is made in accordance with its transitional provisions; (c) the nature of
the change in accounting policy; (d) when applicable, a description of the transitional provisions; (e) when applicable, the transitional
provisions that might have an effect on future periods; (f) for the current period and each prior period presented, to the extent practicable,
the amount of the adjustment: (i) for each financial statement line item affected; and (ii) if Ind AS 33, Earnings per Share, applies to the
entity, for basic and diluted earnings per share; (g) the amount of the adjustment relating to periods before those presented, to the extent
practicable; and (h) if retrospective application required by paragraph 19(a) or (b) is impracticable for a particular prior period, or for
periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the
change in accounting policy has been applied. Financial statements of subsequent periods need not repeat these disclosures. 29 When a
voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that
it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entit y shall disclose: (a) the
nature of the change in accounting policy; (b) the reasons why applying the new accounting policy provides reliable and more relevant
35
information; (c) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment: (i) for each
financial statement line item affected; and (ii) if Ind AS 33 applies to the entity, for basic and diluted earnings per share; (d) the amount of
the adjustment relating to periods before those presented, to the extent practicable; and (e) if retrospective application is impracticable for a
particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description
of how and from when the change in accounting policy has been applied. Financial statements of subsequent periods need not repeat these
disclosures. 30 When an entity has not applied a new Ind AS that has been issued but is not yet effective, the entity shall disclose: (a) this
fact; and (b) known or reasonably estimable information relevant to assessing the possible impact that application of the new Ind AS will
have on the entity’s financial statements in the period of initial application. 31 In complying with paragraph 30, an entity considers
disclosing: (a) the title of the new Ind AS; (b) the nature of the impending change or changes in accounting policy; (c) the date by which
application of the Ind AS is required; (d) the date as at which it plans to apply the Ind AS initially; and (e) either: (i) a discussion of the
impact that initial application of the Ind AS is expected to have on the entity’s financial statements; or (ii) if that impact is not known or
reasonably estimable, a statement to that effect. Changes in accounting estimates 32 As a result of the uncertainties inherent in business
activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgements
based on the latest available, reliable information. For example, estimates may be required of: (a) bad debts; (b) inventory obsolescence; (c)
the fair value of financial assets or financial liabilities; (d) the useful lives of, or expected pattern of consumption of the future economic
benefits embodied in, depreciable assets; and (e) warranty obligations. 33 The use of reasonable estimates is an essential part of the
preparation of financial statements and does not undermine their reliability. 34 An estimate may need revision if changes occur in the
circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an
estimate does not relate to prior periods and is not the correction of an error. 35 A change in the measurement basis applied is a change in an
accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a
change in an accounting estimate, the change is treated as a change in an accounting estimate. 36 The effect of change in an accounting
estimate, other than a change to which paragraph 37 applies, shall be recognised prospectively by including it in profit or loss in: (a) the
period of the change, if the change affects that period only; or (b) the period of the change and future periods, if the change affects both. 37
To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be
recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. 38 Prospective
recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions
from the date of the change in estimate. A change in an accounting estimate may affect only the current period’s profit or loss, or the profit
or loss of both the current period and future periods. For example, a change in the estimate of the amount of bad debts affects only the
current period’s profit or loss and therefore is recognised in the current period. However, a change in the estimated useful life of, or the
expected pattern of consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the
current period and for each future period during the asset’s remaining useful life. In both cases, the effect of the change relating to the
current period is recognised as income or expense in the current period. The effect, if any, on future periods is recognised as income or
expense in those future periods Disclosure 39 An entity shall disclose the nature and amount of a change in an accounting estimate that has
36
an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when
it is impracticable to estimate that effect. 40 If the amount of the effect in future periods is not disclosed because estimating it is
impracticable, an entity shall disclose that fact. Errors 41 Errors can arise in respect of the recognition, measurement, presentation or
disclosure of elements of financial statements. Financial statements do not comply with Ind ASs if they contain either material errors or
immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash
flows. Potential current period errors discovered in that period are corrected before the financial statements are approved for issue.
However, material errors are sometimes not discovered until a subsequent period, and these prior period errors are corrected in the
comparative information presented in the financial statements for that subsequent period (see paragraphs 42–47). 42 Subject to paragraph
43, an entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their
discovery by: (a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or (b) if the error occurred
before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period
presented. Limitations on retrospective restatement 43 A prior period error shall be corrected by retrospective restatement except to the
extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error. 44 When it is impracticable
to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity shall
restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which
may be the current period). 45 When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error
on all prior periods, the entity shall restate the comparative information to correct the error prospectively from the earliest date practicable.
46 The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Any information
presented about prior periods, including any historical summaries of financial data, is restated as far back as is practicable. 47 When it is
impracticable to determine the amount of an error (eg a mistake in applying an accounting policy) for all prior periods, the entity, in
accordance with paragraph 45, restates the comparative information prospectively from the earliest date practicable. It therefore disregards
the portion of the cumulative restatement of assets, liabilities and equity arising before that date. Paragraphs 50–53 provide guidance on
when it is impracticable to correct an error for one or more prior periods. 48 Corrections of errors are distinguished from changes in
accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes
known. For example, the gain or loss recognised on the outcome of a contingency is not the correction of an error. Disclosure of prior period
errors 49 In applying paragraph 42, an entity shall disclose the following: (a) the nature of the prior period error; (b) for each prior period
presented, to the extent practicable, the amount of the correction: (i) for each financial statement line item affected; and (ii) if Ind AS 33
applies to the entity, for basic and diluted earnings per share; (c) the amount of the correction at the beginning of the ear liest prior period
presented; and (d) if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that
condition and a description of how and from when the error has been correcte

37
IND AS 10 -

Events After the Reporting Period CA Kushal Soni on 23 March 2019 1. To understand any accounting standard in a better way, it is of most importance to
know the objective of the standard. Objectives primarily cover key areas which standard address and reason why standard came into existence

. Objective of Ind AS-10: To prescribe when entity adjust its financial statements (FS) for events after the reporting period To disclose the date when FS was
approved and events after the reporting date 2. To know about coverage/applicability of standard you should look into the

scope of it. Ind AS-10 is applicable to accounting and disclosure of events after the reporting date. 3. Definitions Events after the reporting period: are those
favorable and unfavorable events that occur between the end of the reporting period and the date when FS are approved. Two types of events can be identified:
Adjusting Events: are those that provide evidence of the condition that existed at the end of the reporting period Non-adjusting Events: are those that are
indicative of the condition that arose after the reporting period. Breach of material provision of a long term loan arrangement (like default in repayment or
shortage of primary security) on or before the end of the reporting period is always an adjusting event even if lender agrees not to demand repayment. In some
organizations, FS first approved by the management then further approved by supervisory management or top management, date of approval shall be the date
when FS was first approved by management. Entity shall adjust its FS to reflect adjusting events after the reporting period. Following are example of adjusting
events: Existence of a present obligation of a court case at the end of the reporting period. Information received after end of the reporting period that asset was
impaired at the end of the reporting period. Discovery of any fraud or error that shows that FS is incorrect. Effect of non-adjusting events after the reporting
period should not be made in FS. If non-adjusting events after the reporting period is material, then it is mandatory to give its disclosure. Following are the
example of non-adjusting events after reporting period which generally calls for disclosure Major business combination Plan for discontinuation of operations
Major purchase of assets Destruction of major production plants by fire Announcement or commencement of major restructuring Abnormal changes in assets
prices or foreign exchange held Significant changes in tax rates Significant commitments or material contingent liabilities Commencing major litigations Dividend
declared after the reporting period should not be recognized as a liability at the end of the reporting period (reason being, dividends do not meet the criteria of a
present obligation as per Ind AS-37, Provisions Contingent Liabilities and Contingent Assets Entity shall not prepare its FS on a going concern basis if
management after the reporting period has the intention to liquidate the entity or to cease trading. If going concern assumption is not appropriate then it affects
is so pervasive that it calls for fundamental change in the basis of accounting, rather than an adjustment to the amounts recognized. Disclosures: Date when FS
was approved for issue, who gave the approval.
If owners or others have the power to amend the FS after issue, the entity shall disclose this fact.

2
 UNIT III

Ind AS 16 Property Plant Equipment

Ind AS 16 prescribes the accounting treatment for Property and P&E (Plant, and Equipment). The principal issues covered in the standard includes: –

1. Timing of recognizing an asset

2. Determining the carrying amounts of the assets
3. Depreciation to be recognized in the financial statements

Applicability and Scope

Ind AS 16 Property Plant Equipment is applicable to all Property and P&E (Plant & Equipment) unless and until any other accounting standard asks for a different treatment.
Ind AS 16 Property Plant Equipment is not applicable in the following cases:
(i) Property and P&E (Plant & Equipment) which are classified as held for sale as per Ind AS 105
(ii) Biological assets which are related to agricultural activities except bearer plants
(iii) The measurement and recognition of exploration and evaluation assets
(iv) Mineral rights and reserves like oil, natural gas and other such non-regenerative resources

Recognition
The cost of any item of PPE must be recognized as an asset only when:
(a) It is apparent that the future economic benefits related to such asset would flow to the business; and
(b) Cost of such asset could be reliably measured

Constituents of cost
The cost of the item of PPE includes:
(a) The purchase price, which includes the import duties and any non-refundable taxes on such purchase, after deducting rebates and trade discounts

3
(b) Costs which are directly attributable to bringing assets to the condition and location essential for it to operate in a manner as intended by the management
(c) Initial estimate of costs of removing and dismantling an item and restoring a site where it is located

Measurement after recognition

A business must choose cost model or revaluation model as the accounting policy and should apply such policy to its entire class of PPE.

Cost model
After recognizing an asset, PPE should be carried at the cost as reduced by the accumulated depreciation and accumulated impairment losses (if any).

Revaluation model
After recognizing an asset, PPE whose fair value could be reliably measured should be carried at the revalued amount, being the fair value at revaluation date and reduced by
successively accumulated depreciation and successive accumulated impairment losses (if any).
(a) Revaluations must be made with adequate regularity for ensuring that carrying amount doesn’t differ substantially from that which would be determined if fair value at end
of the reporting period is used
(b) In case an item of PPE is revalued, whole class of such PPE to which such asset belongs should be revalued
(c) In case the carrying amount of an asset increases due to revaluation, such increase should be credited to other comprehensive income and should be accumulated in equity.
However, such increase should be recognized in P/L statement to the extent of reversal of a revaluation decrease of similar asset recognized previously in the P/L statement
(d) In case the carrying amount of an asset is decreased due to revaluation, such decrease should be recognized in the P/L statement. However, such decrease should be debited
to other comprehensive income to the extent of credit balances available in revaluation surplus with respect to such similar asset

Depreciation
Each part of PPE with a cost which is substantial with respect to the total cost of the PPE should be separately depreciated. The amount of depreciation should be allocated on
an orderly basis over the useful life of an asset.
The standard also requires:

1. The method of depreciation used should reflect an asset’s pattern of future economic benefits
2. At each balance sheet date, three standard requires review of

4
(i) Residual value and the useful life of assets
(ii) Depreciation method employed

Derecognition
The carrying amount of items of PPE should be derecognized:
(a) At the time of their disposal; or
(b) When there are no future economic benefits anticipated from the use or disposal of such asset
Any gain or loss arising from such derecognition should be included in the P/L statement when such item is derecognized. Gains arising from such derecognition shouldn’t be
classified as part of revenue.

Disclosure Requirements
Ind AS 16 prescribes financial statements should disclose, for every class of PPE:
(i) Measurement basis for determining carrying amount
(ii) Depreciation methods used
(iii) Depreciation rates/ Useful lives of the assets
(iv) Aggregate carrying amount and accrued depreciation at the start and at the end of period
(v) Existence and value of restrictions on the title and PPE pledged as collateral for liabilities
(vi) Amount of expenditure recognized in carrying amount of an item of PPE during its construction
(vii) Amount with respect to contractual commitment for acquisition of PPE

Major differences between Ind AS 16 & 6

Particulars Ind AS 16 Property Plant AS 10 & 6
Equipment

5
Change in the Ind AS 16 considers such change AS 10 necessitates retrospective
methods of as changes in the accounting recalculation of the depreciation
depreciation estimate and is applied and accounted for prospectively.
prospectively. This change is considered as the
changes in accounting policy.

Reviewing The residual value must be As per AS 10, estimates with respect
residual value reviewed at the end of every to residual value aren’t required to
financial year at least and, any be updated and reviewed.
change must be accounted for as
changes in the accounting
estimate.

Reassessing the Ind AS 16 requires reviewing at AS 10 required periodical review

useful life the end of every financial year and and prospective application.
applied prospectively.

Government Ind AS doesn’t allow the same. AS 12 gives an option to reduce the
grant received grant so received from gross value
for PPE of such asset

Cost of major As per Ind AS 16, the cost of any As per AS 10, the cost of major
Inspections major inspections must be inspections are usually expensed as
recognized in carrying the amount and when they’re incurred.
of the PPE

6
Ind AS-17 Leases
Posted on May 7, 2016

This standard is a replacement for the erstwhile Accounting standard issued by the ICAI, AS-19- Leases.

The objective of this standard is to define criteria for identifying Finance and operating leases and also to set up defined guidelines to account the same in the books of both, the Lessor
and the Lessee.

This standard does not apply to leases to explore for or use non-regenerative resources like minerals, oil, natural gas, etc, licensing agreements for such items as motion picture films,
video recordings, plays, manuscripts, patents and copyrights, Biological assets and Investment property.

What is a Lease?

Agreement > Transfer the right to use an Asset > for a series of Payments > for a period of time

It includes Hire purchase agreement with an option to take over the hired asset by hirer on fulfillment of certain agreed conditions

As we might know, for every leasehold transaction,there are two parties.

A) The Lessor – One who gives the asset on lease and gets lease rent

B) The Lessee- One who takes the asset on lease and pays rent periodically or as per agreed terms.

Classification:

Leases are classified into two types- Finance Lease and Operating Lease.

Finance Lease : Type of Lease that involves the transfer of Risk and Rewards incidental to the ownership of an asset. The lease period covers a substantial portion of the useful life of
the asset when it is a finance lease.The present Values of the Minimum Lease Payments (MLP, meaning the periodic rent that the lessee pays for the asset) is almost equal to the Fair
value of the leased asset. A finance Lease may or may not end up in the asset getting transferred to the lessee at the end of the lease period.

7
Operating Lease : All leases other than Finance Leases are Operating Leases.

What is the purpose of such classification?

To enable proper accounting methods to it.

Minimum Lease Payments?

Gross Investment?

RECOGNITION

In case of Finance Lease :

In the Books of the Lessee:

Initial Recognition:

Amount of Fair Value (or) whichever is lower

Present Value of Minimum Lease Payments

8
Plus- Initial Direct Costs.

The Appropriate discount rate for computing the Present Value of Minimum Lease Payments shall be the Interest Rate and if that is not available, then the Implicit
Borrowing Rate can be used.

Also, The asset and the liability so recognised must be of equal values except the addition of the Initial Direct Costs to the Asset side.

Presentation in Balance Sheet?

Shown separately as an Asset and a Liability. It can also be classified as Current and Non-current based on the applicable criteria.

Subsequent Measurement:

The minimum Lease Payments are apportioned between the Finance Charge and the Liability Outstanding amount. In a finance lease, Depreciation expense and Finance Charges reflect
in the Statement of Profit and Loss.

How to account for such Depreciation?

It must be accounted as per the policy adopted, for both, tangible and intangible assets as per the respective standards.

In case of Operating Lease :

In the Books of the Lessee:

Generally lease payments are recognized as an expenses in P/L on a straight line basis

Unless, a systematic pattern is available to better represent the time pattern of the user’s benefit.

9
Lease payments excludes costs for services such as insurance and maintenance. These costs are apportioned on a straight line basis or any other systematic manner identified.

The standard also mentions a few additional disclosures to be made for both types of leases.

Sale and Lease Back transactions

Say I sell an asset to you for a fixed amount today on an agreement that I will lease it from you for a certain rent for a certain period of time. Such arrangements between two parties are
called Sale and Leaseback transactions.

So how is such an arrangement accounted for in the books?

In the books of the Lessor:

In case of Finance Lease:

Initial Recognition:

Recognise the Asset at an amount equal to the Net Investment in the Asset and show it as Receivables in the Balance Sheet. The Lease Payments that are received are treated as amount
received towards the principal and the finance cost.

Subsequent Measurement:

The Recognition of Finance Income shall be based on a pattern that reflects the constant periodic return on the Lessor’s net investment.

An asset under a finance lease that is classified as held for sale should be classified as Non-current Assets Held for Sale and Discontinued Operations, in accordance with Ind AS 105.

Special provisions are given in case the lessor is a Manufacturer or a dealer Lessor.

10
Prominent issues dealt with in the standard:

Upfront Cash Payments- How is it treated in the books in case of Operating Lease?

Transactions/Arrangements like Lease and Lease Back

A) How to identify if such actions are linked and if they

are to be accounted as “One” or as a “Single” transaction?

B) Does such an arrangement meet the definition of a lease under this method?

Yes. Only if the substance of such an arrangement involves the conveyance/transfer of the right to use the asset for an agreed period of time.

C) If such an arrangement is not a Lease as per the definition of this standard, then how the entity must account for other obligations resulting from the arrangement?

Other obligations shall be accounted as per their respective governing standards ( Ind AS- 37/39/104) based on the nature and terms of such obligations.

D) How the entity should account for a fee that it might receive from an investor?

11
To recognise the fee, the criteria mentioned in the Ind AS-18, Revenue shall apply. However, where the earning of such fee is based on some conditions to perform or refrain from some
activities, or where there are restrictions and limitations to use such underlying asset, or where there is a possibility to reimburse any part of the fee or pay additional amount, then such
incomes are not to be recognised as revenue.

Such fee shall be presented in the Statement of Profit and Loss based on its economic substance and Nature.

Disclosure of Arrangements that are not “lease”:

A) Description of Arrangement

B) Accounting treatment applied to any fee received ,amount recognised as income in the period and the line item in the Statement of Profit and Loss in which it is included.

E) How to determine whether an arrangement is a lease or not as defined in the Standard?

F) When must the Assessment/Reassessment of whether the arrangement contains a lease or not, must be made?

Assessment: Shall be made on

a) The date of Arrangement Or

b) The date of commitment by the parties , to the principal terms of the arrangement,

Whichever is Earlier.

Re-Assessment: Shall be made only if any one of the following conditions is met:

1. There is a change in the contractual terms ( Other than Renewal/ extension)

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2. A renewal or Extension is agreed to by the parties ( other than the one initially included in the Lease Agreement)

3. A change in the determination of whether fulfillment of the activity is dependent on a specific asset

4. Substantial change in the physical features of the asset.

Changes in Estimates does not trigger Reassessment

If an arrangement is reassessed and determined to contain lease(or otherwise),lease accounting shall be applied (Or cease to apply) from :

1. The date of such change – In cases 1,2 and 4

2. The date of inception of renewal or Extension period-In case 3.

G) If any arrangement is/or contains a lease, then how the payments for the lease should be separated from payments for any other elements in the arrangement.

 It shall be separated at the time of the inception of the assessment/reassessment of the Lease based on fair values.
 Minimum Lease Payments – It contains only the “For Lease” components of payments.

IND AS 18 Revenue Recognition

Updated on Oct 18, 2018 - 12:54:56 PM
IND AS 18 Revenue Recognition sets the guidelines as to when to recognize the revenue arising from certain types of transactions and the accounting
treatment of the same.
Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably.
In this article we cover the following topics w.r.t IND AS 18 Revenue Recognition:

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Applicability of IND AS 18 Revenue Recognition
This Standard should be applied in accounting for revenue arising from the following transactions:
1. Sale of goods
2. Rendering of Services
3. Use of entity assets yielding Interest, Royalties or Dividends

Important Definition
I. Income is the increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases in the liabilities that
result in an increase in equity, other than contributions from equity participants.
II. Revenue is income that arises in the course of ordinary activities of an entity and if referred to by the variety of different names including sales, fees, interest,
dividends, and royalties.
III. Fair Value (FV) is the amount for which an asset could be exchanged or the liability settled between knowledgeable, willing parties in an arm’s length
transaction.

Measurement of Revenue
Revenue is measured at FV of the consideration received or receivable after deducting trade discounts and rebates. When the inflow of cash (or cash
equivalents) is deferred, FV can be less than the nominal amount of cash.
Under an effective financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest.

Interest Revenue = Fair Value of consideration – Nominal Amount of consideration

The imputed rate of interest is the more clearly determinable of either:

(a) Prevailing rate for a similar instrument of an issue with a similar credit rating
(b) Rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services

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Identification of Transaction
This standard is usually separately applied to each transaction but to reflect the substance of the transaction, it can be applied to separately identifiable
components of a single transaction.
For example, when the product price includes a substantial amount for subsequent servicing, that amount is deferred and recognized as revenue when that
service is performed.
On the other hand, to understand the commercial effect of series of transactions, recognition criteria can be applied together on two or more transactions at the
same time.

Sale of Goods
Recognise revenue from the sale of goods when all below conditions are met:

1. Transfer of significant risks and rewards of ownership

2. Neither continuing managerial involvement nor effective control
3. Probable future economic benefits
4. Reliable measurement of revenue
5. Reliable measurement of costs

Rendering of Services
Sl.No Event Revenue Recognition

1 Outcome estimated Recognise revenue by reference to stage of completion

reliably (percentage of completion method) at end of reporting
period

2 Outcome not Recognise revenue only to extent of expenses recognized

estimated reliably that are recoverable (no profit recognized)

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Criteria to be considered for reliably estimating the outcome of the transaction:

1. Reliable measurement of revenue

2. Probable future economic benefits
3. Reliable measurement of stage of completion
4. Reliable measurement of completion cost

The stage of completion of a transaction may be determined based on the nature of the transaction using the following:
(a) Survey of work performed
(b) Services performed to date as a percentage of total services to be performed
(c) The proportion of the costs that are incurred to date bear to the estimated total costs of the transaction.
Using the percentage of completion method also provides useful information on the extent of service activity and the performance during the period.

Interest, Royalty & Dividend

To recognize revenue related to interest, royalties, and dividends, the below-mentioned conditions are to be met:

1. Probable future economic benefits

2. Reliable measurement of revenue

Sl.No Income Nature Revenue Measurement

1 Interest Effective interest method (as per Ind AS 109)

2 Royalties Accrual basis in accordance with substance of the agreement

3 Dividends Shareholder’s right to receive payment is established

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Any contingent liabilities and contingent assets should be disclosed in accordance with IND AS 37. Few examples are warranty costs, claims, penalties or
possible losses.

Comparison with AS 9
Some of the key differences between IND AS 18 and AS 9 are given below:

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Sl.No IND AS 18 Revenue Recognition AS 9 Revenue Recognition

1 Revenue covers all economic Revenue is gross inflow of cash, receivables

benefits that arise in the ordinary or other consideration arising in the course of
course of activities of an entity the ordinary activities of an enterprise from
which result in increases in equity, the sale of goods, from the rendering of
other than increases relating to services, and from the use by others of
contributions from equity enterprise resources yielding interest,
participants royalties and dividends

2 Real estate revenue is specifically Does not exclude Real estate revenue
not covered

3 Revenue has to be measured at fair Revenue is recognized at the nominal amount

value of the consideration of consideration receivable
receivable

4 Specific guidance regarding barter No such specific guidance

transactions involving advertising
services is given

5 Uses, only percentage of Permits the use of completed service

completion method for revenue contract method
recognition for rendering of service

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 6 Requires interest to be recognized Uses time proportion basis for interest
using effective interest rate method recognition

7 IND AS 18 does not specifically deal Existing AS 9 specifically deals with disclosure
with the same of excise duty as a deduction from revenue
from sales transactions

8 Disclosure requirements are more Not that detailed as IND AS 18

detailed

Indian Accounting Standard 12 – Income Taxes

1.Introduction
Income taxes as per this standard include both domestic and foreign taxes, which are based on taxable profits. It also includes
withholding taxes.
The objective of this standard is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income
taxes is how to account for current and future tax consequences of:

 Future settlement of carrying amount of assets and liabilities that are recognised in the balance sheet of an organisation. If it is probable
that the settlement of the carrying amount will result in a variance of tax amount which should then be recognised as deferred tax.
 Events and transactions that are recognised in the current period. The treatment for the tax related to the events will be the same as the
events.

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Ind AS 12 is based on the Balance Sheet approach. It requires recognising tax consequences of the difference between the carrying
amounts of assets and liabilities and their tax base.

2.What is Tax expense or Income?

Tax expense or Tax income is the aggregate amount included in the determination of profit or loss in respect of current tax and
deferred tax.
Current tax is the amount of income taxes payable/recoverable in respect of the current profit/ loss for a period.
Deferred Tax liability is the amount of income tax payable in future periods with respect to the taxable temporary differences.
Deferred tax asset is the income tax amount recoverable in future periods in respect to the deductible temporary differences, carry
forward of unused tax losses, and carry forward of unused tax credits.
Temporary differences are the differences between the carrying amount of an asset or liability in the balance sheet and its tax base.
Tax Base of an asset or liability is the amount attributed to the asset or liability for tax purposes.

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3.Recognition of current tax assets and current tax liabilities
 Taxes to the extent unpaid for current and prior periods will be recognised as a liability. If the amount already paid for current and prior
periods exceeds the actual amount due, then it will be recognised as an asset.
 A tax loss that can be used to recover current tax of a previous period is recognised as an asset in the period in which tax loss occurred.

4.Recognition of deferred tax liabilities

Deferred tax liability will be recognised for all taxable temporary differences. However, the following are exceptions to the same:

 The initial recognition of goodwill.

 The initial recognition of asset or liability which is not a business combination and neither affects accounting profit or taxable profit at the
time of transaction.

5.Recognition of deferred tax assets

A deferred tax asset will be recognised for all the deductible temporary differences, provided it is probable that the taxable profit will
be available for utilisation of deductible temporary differences. The restrictions being that if the asset arises from the initial recognition
of asset or liability in a transaction that which is not a business combination and neither affects accounting profit or taxable profit at
the time of transaction.

6.Measurement of current and deferred tax assets/liabilities

Current tax assets or liability will be measured as the amount expected to be recovered or paid to the tax authorities at the tax rate
and laws that have been enacted or subsequently enacted by the end of the reporting period.
Deferred tax assets or liability will be measured at the expected tax rates in the period in which the asset is realised or liability paid
based on the tax laws that have been enacted or subsequently enacted at the end of the reporting period.

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7.Presentation of current and deferred tax assets and liabilities
An entity shall offset current tax assets and liabilities only if it is legally entitled to and it intends to settle on a net basis or to realise
assets and settle liabilities simultaneously.
It can offset deferred tax assets and liabilities if:

 It has the legal right to offset current tax assets and liabilities.
 The deferred tax assets and liabilities relate to the income taxes levied by the same taxation authorities on same entities or on entities that
intend to settle current tax assets and liabilities on a net basis or to realise assets and settle liabilities simultaneously.

8.Disclosure of current and deferred tax assets and liabilities

The major components of tax expense or income will be disclosed separately.

9.Allocation
As per this standard, an entity must account for tax consequences in the same way as it accounts for the transactions and other
events. Therefore, if the transaction and other events are recognised in profit and loss, then the related tax consequences should
also be recognised in profit and loss.
If the transaction and event is recognised outside profit and loss that is in other comprehensive income or directly in equity, then the
tax consequence will also be recognised outside the profit and loss that is in other comprehensive income or directly in equity..

Ind AS 11 Construction Contracts

Ind AS 11 Construction Contracts prescribes the accounting treatment of revenue and costs associated with
construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the

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contracting activity is entered into and the date when the activity is completed usually fall into different accounting
periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and
contract costs to the accounting periods in which construction work is performed.

Scope Of Ind AS 11 Construction Contract

The Standard shall be applied in accounting for construction contracts in the financial statements of contractors A
construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets
that are closely interrelated or interdependent in terms of their design, technology, and function or their ultimate
purpose or use.

The requirements of this Standard are usually applied separately to each construction contract. However, in certain
circumstances, it is necessary to apply the Standard to the separately identifiable components of a single contract or
to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

Contract revenue shall comprise: (a) the initial amount of revenue agreed in the contract; and (b) variations in contract
work, claims and incentive payments: (i) to the extent that it is probable that they will result in revenue; and (ii) they are
capable of being reliably measured.Contract revenue is measured at the fair value of the consideration received or
receivable.

Contract costs shall comprise: (a) costs that relate directly to the specific contract; (b) costs that are attributable to
contract activity in general and can be allocated to the contract; (c) such other costs as are specifically chargeable to
the customer under the terms of the contract.

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Recognition of contract revenue and expenses

When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs
associated with the construction contract shall be recognized as revenue and expenses respectively by reference to
the stage of completion of the contracting activity at the end of the reporting period.

When the outcome of a construction contract cannot be estimated reliably: (a) revenue shall be recognized only to the
extent of contract costs incurred that it is probable will be recoverable, and (b) contract costs shall be recognized as an
expense in the period in which they are incurred.

Recognition of expected losses

When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognized
as an expense immediately.

An entity shall disclose the amount recognized as contract revenue in the period, the method used to determine the
contract revenue recognized and stage of completion of contracts in progress.

For the contracts in progress at the end of the period, an entity shall disclose the aggregate costs incurred and
recognized profits to date, the amounts of retentions and advances received.

Appendix A of Ind AS 11 gives guidance on accounting by operators for public-to-private service concession
arrangements. It sets out principles for recognition and measurement of the obligations and related rights in service
concession arrangements. The Appendix prescribes that an operator shall not recognize the public service
infrastructure (within the scope of this appendix) as its Property, Plant, and Equipment because the contractual service
arrangement does not convey the right to control the use of the infrastructure. It only gives operator theaccess to

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operate the infrastructure to provide public service on behalf of the
grantor.

The operator shall account for revenue and costs relating to the construction or upgrade services in accordance with
Ind AS 11 and those relating to operation services in accordance with Ind AS 18. The consideration received or
receivable shall be recognized at its fair value. The consideration may be rights to a financial asset or an intangible
asset.

The operator recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or
another financial asset from or at the direction of the grantor for the construction services. The operator shall
recognize an intangible asset to the extent that it receives a right (a license) to charge users of the public service.

UNIT IV

Ind AS 20– ACCOUNTING FOR GOVERNMENT

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 Scope
• Assistance.

• Applied in accounting for & disclosures of

Govt. Grants ; and
In the disclosure of other forms of Government

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 Ind AS 20 does not deal with

• Government participation in the ownership of the

enterprises;

• Government grants covered by Ind AS 41, Agriculture

• Income Tax incentives offered by the Government

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 Certain Definitions

• Government grants are assistance by government in the form of transfers of resources in return for past or future compliance
with certain conditions relating to the operating activities of an entity.

• Government grants are sometimes called as subsidies, subventions or premium.

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 Definitions Contd..

Forgivable loans are loans which lender undertakes to waive repayment under certain prescribed conditions.

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 Government Assistance

• Excluded from the definition of government grants are certain forms of government assistance which cannot
reasonably have a value placed upon them and transactions with government which cannot be distinguished
from the normal trading transactions of the entity.

Examples:
Free technical or marketing advice.
Provision of guarantees.
Minimum Support prices

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 Recognition Criteria of GG

 A) The entity will comply with the conditions attached to the grant;
and

 B) The grants will be received.

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 Accounting Treatment Of Government Grants under AS-12.

Capital Approach Income approach

• Credited directly to shareholders interest (This • Grant is taken as income over one or more
approach is not prescribed by Ind-As 20) period

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Types and Presentation of Grants

• Ind AS 20 prescribes the accounting treatment for the

following three types of grants:

a. Grants relating to assets;

b. Grants relating to income;

c. Non-monetary government grants.

d. Government Loan at below Market rate

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 GRANTS RELATING TO ASSETS

Ind AS 20 permits the following method of presentation:

• Present the grant as deferred income which is recognised in the profit or loss account on a systematic and rational basis over
the useful life of the asset.

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 Grants Relating To Income

• Ind AS 20 prescribes the following methods for these types of grants:

 Gross Disclosure: Present grant received in income statement, either separately or under a general heading such
as “Other Income”;

 Net Disclosure: Alternatively, they are deducted in reporting the related expenses.

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Non Monetary Government Grants

A) The fair value of the non-monetary asset should be

assessed and

B) the asset and grant should be accounted for at fair value. Grant is to be presented as Deferred Income.

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 GOVERNMENT LOAN AT BELOW MARKET RATE

Measured as the difference between the initial carrying amount of the loan determined in accordance with Ind AS 109 and the
proceeds received.

Repayment Of A Grant

Accounted as a revision to an accounting estimate under Ind AS 8 Accounting Policies, Changes in Accounting Estimates
and Errors. Prospective adjustment

Repayment of a grant related to income:

First adjusted against any unamortised deferred credit

Balance shall be recognised immediately in profit or loss.

Repayment of a grant related to an asset & non montary assets:

reduce the deferred income balance by the amount repayable.

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 Balance shall be recognised immediately in profit or loss.

FIRST TIME ADOPTION -- 101

• Government loans –Interest Free or below market rate of interest

Requirement of Ind As 20 and Ind AS 109 Financial Intruments are applied prospectively.

Alternatively Ind-As20 may be applied retrospectively, if required information was obtained at the time of initially
recognition.

Disclosure Requirements

• Ind AS 20 requires the following matters to be disclosed:

 Accounting policy adopted for grants, including methods of presentations adopted in the financial statements;

 Nature and extent of grants recognised in the financial statements;

 Other forms of government assistance from which the entity has directly benefited;

 Unfulfilled conditions and contingencies attaching to recognised grants

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 Differences between Ind AS 20 and AS 12

Topic Indian GAAP Ind AS

Government No specific guidance. Deals with both
Assistance government grants and
disclosure of government
assistance.

17
Forgivable Loans No specific guidance. Forgivable loans are treated
as government grants when
there is a reasonable
assurance that the entity
will meet the terms for
forgiveness of the loan.

18
 Differences contd….
Topic Indian GAAP Ind AS
Government loans with No specific guidance. Benefit of government
below market rate of loans with below market
interest rate of interest should be
accounted for as
government grant-
measured as the difference
between the initial carrying
amount of the loan
determined in accordance
with Ind AS 109 and the
proceeds received.
Promoters Contribution Government grants in the Government grants are not
nature of promoters’ directly credited to
contribution are credited shareholders’ interests.
directly to shareholders’
funds.

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 Differences contd….
Topic Indian GAAP Ind AS
Non- AS 12 requires government grants in the Ind-AS 20 requires entities to
Monetary form of non-monetary assets, given at a account for government grants in
Assets concessional rate, to be accounted for the form of non-monetary assets
on the basis of their acquisition cost at their fair value.
only. If a non-monetary asset is given
free of cost, it should be recorded at a
nominal value.

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 Differences contd….
Topic Indian GAAP Ind AS
Fixed Assets related Government grants related to Ind-AS 20 requires an asset
specific fixed assets should be related grant to be presented
presented in the balance sheet by in the balance sheet by
showing the grant as a deduction setting up the grant as
from the gross value of the assets deferred income. The grant
concerned in arriving at their book set up as deferred income is
value. Where the grant related to a recognized in the profit or
specific fixed asset equals the whole, loss on a systematic basis
or virtually the whole, of the cost of over the useful life of the
the asset, the asset should be shown asset.
in the balance sheet at a nominal
value.
Alternatively, government grants
related to depreciable fixed assets
may be treated as deferred income
which should be recognized in the
profit or loss on a systematic and
rational basis over the useful life of
the asset. 20
 Differences contd….
Topic Indian GAAP Ind AS
Repayment of Recognised either by increasing the Recognised by reducing the
grants carrying amount of the asset or deferred income balance by the
relating to reducing the deferred income or capital amount repayable.
fixed assets reserve, as appropriate, by the amount
repayable. If the carrying amount of the
asset is increased, depreciation on the
revised carrying amount is provided
prospectively over the residual useful
life of the asset. Prohibited to be classified as an
Classified as an extraordinary item. extraordinary item.

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