IFRS

CONTENTS

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UNIT -1 IFRS Introduction

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First Time Adoption

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Inventories

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PPE

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Leases Cashflow Statement

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BASICS OF FINANCIAL REPORTING

Accounting is a financial information system. As a financial information system, accounting is a process of identifying, measuring, recording and communicating information t interesting parties. Accounting system that converts inputs into outputs. Inputs are the business transactions and external events. Out puts are the financial statements prepared from the record of business transactions and events. Outputs include income statement, balance sheet. Cash flow statement, etc. these statements provide information for decision making. At the end of each accounting year, every business enterprise is curious to know whether it has earned a profit or suffered a loss during the accounting period. Similarly, it also wants to know its financial position. It is for these purpose financial statements are prepared.

Financial reporting

Financial reporting for various stakeholders and Management Reporting for internal Management are important and are an integral part of Accounting & reporting system of an organization. But considering the number of stakeholders involved and statutory & other regulatory requirements, Financial Reporting is a very important and critical task of an organization. It is a vital part of Corporate Governance. Let’s discuss various aspects of Financial Reporting in the following paragraphs.

Definition of Financial Reporting

Financial Reporting involves the disclosure of financial information to the various stakeholders about the financial performance and financial position of the organization over a specified period of time. These stakeholders include – investors, creditors, public, debt providers, governments & government agencies. In case of listed companies the frequency of financial reporting is quarterly & annual.
Financial Reporting is usually considered an end product of Accounting. The typical components of financial reporting are:

The financial statements – Balance Sheet, Profit & loss account, Cash flow statement & Statement of changes in stock holder’s equity
The notes to financial statements
Quarterly & Annual reports (in case of listed companies)
Prospectus (In case of companies going for IPOs)
Management Discussion & Analysis (In case of public companies)

The Government and the Institute of Chartered Accounts of India (ICAI) have issued various accounting standards & guidance notes which are applied for the purpose of financial reporting. This ensures uniformity across various diversified industries when they prepare & present their financial statements. Now let’s discuss about the objectives & purposesof financial reporting.

Objectives of Financial Reporting

According to International Accounting Standard Board (IASB), the objective of financial reporting is “to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.”

The following points sum up the objectives & purposes of financial reporting –

Providing information to the management of an organization which is used for the purpose of planning, analysis, benchmarking and decision making.
Providing information to investors, promoters, debt provider and creditors which is used to enable them to male rational and prudent decisions regarding investment, credit etc.
Providing information to shareholders & public at large in case of listed companies about various aspects of an organization.
Providing information about the economic resources of an organization, claims to those resources (liabilities & owner’s equity) and how these resources and claims have undergone change over a period of time.
Providing information as to how an organization is procuring & using various resources.
Providing information to various stakeholders regarding performance management of an organization as to how diligently & ethically they are discharging their fiduciary duties & responsibilities.
Providing information to the statutory auditors which in turn facilitates audit.
Enhancing social welfare by looking into the interest of employees, trade union & Government.

Importance of Financial Reporting

The importance of financial reporting cannot be over emphasized. It is required by each and every stakeholder for multiple reasons & purposes. The following points highlights why financial reporting framework is important –

In help and organization to comply with various statues and regulatory requirements. The organizations are required to file financial statements to ROC, Government Agencies. In case of listed companies, quarterly as well as annual results are required to be filed to stock exchanges and published.
It facilitates statutory audit. The Statutory auditors are required to audit the financial statements of an organization to express their opinion.
Financial Reports forms the backbone for financial planning, analysis, benchmarking and decision making. These are used for above purposes by various stakeholders.
Financial reporting helps organizations to raise capital both domestic as well as overseas.
On the basis of financials, the public in large can analyze the performance of the organization as well as of its management.
For the purpose of bidding, labor contract, government supplies etc., organizations are required to furnish their financial reports & statements.

Financial Reports

What is a statement Financial Report?

Why do you need financial reports?

What is a statement Financial Report?

Communicating a financial is known as a Financial reporting. Financial reports used in Financial reporting are records that disclose financial information about a company's activities and current status of business.
The major components in Financial reporting are:

Balance Sheet

A balance sheet portrays the value of assets owned by an organisation, liquidity and solvency of the organisation. The balance sheet is utilised to study the ability of the organisation in meeting its financial goals.

Statement of Profit and Loss

This document illustrates an organisations total income, expenses, and profits/losses over a certain period of time. A profit and loss statement also provides information on the operations of the organisation.

Cash Flow Statement

The cash flow statement merges the balance sheet and the income statement to highlight business activities which include operating, investing and financing activities that involve inflow or outflow of taxes.

Notes and Schedules

This provides additional information explaining different parts of the financial statement, such as risk, uncertainties or accounting policies that affect the organization.
The basic objective of financial reports is to provide information about the financial health, status, growth and modifications in the financial position of an organisation that will be useful to a wide range of stakeholders in making business decisions.

Meaning of financial statements

Financial statements are the statements showing the financial position and results of business operation at the end of the accounting period. The basic traditional statements are balance sheet and profit and loss account. General purpose financial statements are financial statements which are used by all categories of users. These include balance sheet, statement of profit or loss, cash flow statement, notes to financial statement etc.

Objectives of preparing financial statements

1. To show the position of asset or liabilities

2. To provide various information to various stakeholders

3. To present true and fair view of the business

4. To forecast earning capacity of the business

5. To assess credit worthiness of the business

6. To decide about future of the business

Uses of financial statement to users

1. To owners of an entity: Financial statements help owners to get valuable information regarding the financial soundness of their organization. It enables them to know financial position and growth of their business.

2. To management: For the professional management of a joint stock company, managers need various information. Financial statements provide most of the information for their decisions. Financial statements serve as “eyes and ears to management”.

3. To suppliers and creditors: The suppliers of goods and services are interested in the liquidity position of the company. Creditors also interested in the financial position and credit worthiness of a firm. They will take decision on long term continuity of business according the available information in the statement.

4. To customers: Customers are also interested in the affairs of the company. It helps them to know about quality of the product, price and so on.

5. To financial institutions: Lenders will get valuable information about the creditworthiness of the company from the financial statements. Financial statements enable them to know future payment of interest and instalments.

6. To employees and trade unions: Employees need information regarding profitability and continuity of the business. Potential employees are also interested in the financial statements to decide whether to join the enterprise or not. Existing employees will demand for higher wages and other incentives according to the information available in the financial statement.

7. To Government and other agencies: Financial statements assist Government to frame taxation policies, Exim policies, annual budget etc. These statements help controlling agencies like SEBI, RBI, IRDA etc., to exercise control over them.

8. To public: Public are interested in the development of infrastructure, employment opportunities, etc. Financial statements also help them to know whether the company is doing its social responsibility.

Concept of Accounting Standards:

Generally Accepted Accounting Principles (GAAP) aims at bringing uniformity and comparability in the financial statements. It can be seen that at many places, GAAP permits a variety of alternative accounting treatments for the same item. For example, different methods for valuation of stock give different results in financial statements. Such practices sometimes can misguide intended users in taking decision relating to their field. Keeping in view the problems faced by many users intended users in taking decision relating to their field. Keeping in view the problem faced by many users of accounting a need for the development of common accounting standard was aroused.

Meaning of Accounting Standards:

Accounting standards are the written statements consisting of rules and guidelines, issued by the accounting institutions, for the preparation of uniform and consistent financial statements and also for other disclosures affecting the different users of accounting information. Accounting standards lay down the terms and conditions of accounting policies and practices by way of codes, guidelines and adjustments for making the interpretation of the items appearing in the financial statements easy and even their treatment in the books of account.

Nature of Accounting Standards:

1. Serve as a guide to the accountants: Accounting standards serve the accountants as a guide in the accounting process. They provide basis on which accounts are prepared. For example, they provide the method of valuation of inventories.

2. Act as a dictator: Accounting standards act as a dictator in the field of accounting. Like a dictator, in some areas accountants have no choice of their own but to opt for practices other than those stated in the accounting standards. For example, Cash Flow Statement should be prepared in the format prescribed by accounting standard.

3. Serve as a service provider: Accounting standards comprise the scope of accounting by defining certain terms, presenting the accounting issues, specifying standards, explaining numerous disclosures and implementation date. Thus, accounting standards are descriptive in nature and serve as a service provider.

4. Act as a harmonizer: Accounting standards are not biased and bring uniformity in accounting methods. They remove the effect of diverse accounting practices and policies. On many occasions, accounting standards develop and provide solutions to specific accounting issues. It is thus clear that whenever there is any conflict on accounting issues, accounting standards act as harmonizer and facilitate solutions for accountants.

Objectives of Accounting Standards:

In earlier days, accounting was just used for recording business transactions of financial nature. Its main emphasis now lies on providing accounting information in the process of decision making.

1. For bringing uniformity in accounting methods: Accounting standards are required to bring uniformity in accounting methods by proposing standard treatments to the accounting issue. For example, AS-6(Revised) states the methods for depreciation accounting.

2. For improving the reliability of the financial statements: Accounting is a language of business. There are many users of the information provided by accountants who take various decisions relating to their field just on the basis of information contained in financial statements. In this connection, it is necessary that the financial statements should show true and fair view of the business concern. Accounting standards when used give a sense of faith and reliability to various users.

3. Simplify the accounting information: Accounting standards prevent the users from reaching any misleading conclusions and make the financial data simpler for everyone. For example, AS-3 (Revised) clearly classifies the flows of cash in terms of ‘operating activities’, ‘investing activities’ and ‘financing activities’.

4. Prevents frauds and manipulations: Accounting standards prevent manipulation of data by the management and others. By codifying the accounting methods, frauds and manipulations can be minimized.

5. Helps auditors: Accounting standards lay down the terms and conditions for accounting policies and practices by way of codes, guidelines and adjustments for making and interpreting the items appearing in the financial statements. Thus, these terms, policies and guidelines etc. become the basis for auditing the books of accounts.

Accounting Standard Boards of India (ASB)

On 21st April 1977, The Institute of Chartered Accountants of India, as a premier accounting body in our country, set up the “Accounting Standard Board” (ASB) to harmonies the diverse accounting policies and practice prevalent in our country. The primary duty of ASB is to formulate the accounting standards for India. These standards may be established by the Council of the Institute in India. During formulation of accounting standards, the ASB considered the applicable laws, usages, customs and the business environment existing in our country. For this purpose ASB took the valued views and guidelines of various industrial houses, the Government and other interested parties. The body consists of the following members: Company Law Board, CBDT, Central Board of Excise and Customs Controller General of Accounts, SEBI, Comptroller & Auditor General of India, UGC, Educational and Professional Institutions, Council of the Institute and representatives of Industry, Banks.

The Accounting Standards will, however, be issued under the guidance of the Council. As such, ASB has given the authority of propagating the Accounting Standards and instituting the parties to prepare and present the accounts on the basis of Accounting Standards.ASB will explain the basic concepts on which accounting principles should be oriented and will also explain the accounting principles on which the practice and procedures should conform while performing its functions. However, this Council of the Institute of Chartered Accountants of India (ICAI) has issued 32 Accounting Standards (AS) so far.

Requirements for international accounting standards

1. Financial analysis is more costly and less efficient

2. Lack of comparability causes the credibility of accounting to suffer

3. It does not make economic sense for every country to incur the enormous cost of developing its own national standards

4. Most stock exchanges already accept IAS for cross-border listings

5. European Union (EU) law will require European listed companies to adopt IAS in 2005

IASB (International Accounting Standard Board)

The IASB (International Accounting Standards Board) is the independent standard-setting body of the IFRS Foundation. All meetings of the IASB are held in public and webcast. In fulfilling its standard setting duties the IASB follows a thorough, open and transparent due process. This process leads to publication of consultative documents, such as Discussion Papers and Exposure Drafts, for public comment. The IASB engages closely with stakeholders around the world, including investors, analysts, regulators, business leaders, accounting standard-setters and the accountancy profession.

FASB (Financial Accounting Standard Board)

Financial Accounting Standards Board (FASB) is the independent, private-sector, not-for- profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports.

Role of IASB in IFRS Setting Process

1. Setting the agenda: The IASB, by developing high quality financial reporting standards, seeks to address a demand for better quality information that is of value to those users of financial reports. When deciding whether a proposed agenda item will address users’ needs the IASB considers: The relevance to users of the information and the reliability of information that could be provided, Existing guidance available, The possibility of increasing convergence, The quality of the IFRS to be developed, Resource constraints. To help the IASB in considering its future agenda, its’ staff is asked to identify, review and raise issues that might warrant the IASB’s attention. New issues may also arise from a change in the IASB’s Conceptual Framework for Financial Reporting. In addition, the IASB raises and discusses potential agenda items in the light of comments from other standard-setters and other interested parties, the IFRS Advisory Council and the IFRS Interpretations Committee, and staff research and other recommendations. In making decisions regarding its agenda priorities, the IASB also considers factors related to its convergence initiatives with accounting standard-setters. The IASB’s approval to add agenda items, as well as its decisions on their priority, is by a simple majority vote at an IASB meeting.

2. Planning the project: When adding an item to its active agenda, the IASB decides whether to conduct the project alone or jointly with another standard-setter. Similar due process is followed under both approaches. When considering whether to add an item to its active agenda, the IASB may determine that it meets the criteria to be included in the annual improvements process. The IASB assesses the issue against criteria such as Clarifying, Correcting, Well defined and sufficiently narrow in scope that the consequences of the proposed change have been considered, Completed on a timely basis, All criteria must be met to qualify for inclusion in annual improvements. Once this assessment is made, the amendments included in the annual improvements process will follow the same due process as other IASB projects. The primary objective of the annual improvements process is to enhance the quality of IFRSs by amending existing IFRSs to clarify guidance and wording, or correcting for relatively minor unintended consequences, conflicts or oversights. After considering the nature of the issues and the level of interest among constituents, the IASB may establish a working group at this stage and a project team for the project will be selected. The project manager draws up a project plan under the supervision of the directors of the technical staff and the project team may also include members of staff from other accounting standard-setters, as deemed appropriate by the IASB.

3. Developing and publishing the discussion paper: A discussion paper is not a mandatory step in the IASB’s due process. Normally the IASB publishes a discussion paper as its first publication on any major new topic as a vehicle to explain the issue and solicit early comment from constituents. If the IASB decides to omit this step, it will state its reasons. Typically, a discussion paper includes a comprehensive overview of the issue, possible approaches in addressing the issue, the preliminary views of its authors or the IASB, and an invitation to comment. This approach may differ if another accounting standard-setter develops the research paper. Discussion papers may result either from a research project being conducted by another accounting standard-setter or as the first stage of an active agenda project carried out by the IASB. If research has been performed by another accounting standard-setter, issues related to the discussion paper are discussed in IASB meetings, and publication of such a paper requires a simple majority vote by the IASB. If the discussion paper includes the preliminary views of other authors, the IASB reviews the draft discussion paper to ensure that its analysis is an appropriate basis on which to invite public comments. For discussion papers on agenda items that are under the IASB’s direction, or include the IASB’s preliminary views, the IASB develops the paper or its views on the basis of analysis drawn from staff research and recommendations, as well as suggestions made by the IFRS Advisory Council, working groups and accounting standard-setters and presentations from invited parties. All discussions of technical issues related to the draft paper take place in public sessions. When the draft is completed and the IASB has approved it for publication the discussion paper is published to invite public comment.

4. Developing and publishing the exposure draft: Publication of an exposure draft is a mandatory step in due process. An exposure draft is the IASB’s main vehicle for consulting the public. Unlike a discussion paper, an exposure draft sets out a specific proposal in the form of a proposed IFRS (or amendment to an IFRS). The development of an exposure draft begins with the IASB considering issues on the basis of staff research and recommendations, as well as comments received on any discussion paper, and suggestions made by the IFRS Advisory Council, working groups and accounting standard-setters and arising from public education sessions. After resolving issues at its meetings, the IASB instructs the staff to draft the exposure draft. When the draft has been completed, and the IASB has balloted on it, with a minimum of nine votes necessary to publish an exposure draft, the IASB publishes it for public comment. An exposure draft contains an invitation to comment on a draft IFRS, or draft amendment to an IFRS, that proposes requirements on recognition, measurement and disclosures. The draft may also include mandatory application guidance and implementation guidance, and will be accompanied by a basis for conclusions on the proposals and the alternative views of dissenting IASB members (if any).

5. Developing and publishing the standard: The development of an IFRS is carried out during IASB meetings, when the IASB considers the comments received on the exposure draft. Changes from the exposure draft are posted on the website. After resolving issues arising from the exposure draft, the IASB considers whether it should expose its revised proposals for public comment, for example by publishing a second exposure draft. If the IASB decides that re-exposure is necessary, the due process to be followed is the same as for the first exposure draft As it moves towards completing a new IFRS or major amendment to an IFRS, the IASB prepares a project summary and feedback statement. These give direct feedback to those who submitted comments on the exposure draft, identify the most significant matters raised in the comment process and explain how the IASB responded to those matters. At the same time, the IASB prepares an analysis of the likely effects of the forthcoming IFRS or major amendment. The analysis will therefore attempt to assess the likely effects of the new IFRS on: The financial statements of those applying IFRSs, The possible compliance costs for preparers, The costs of analysis for users (including the costs of extracting data, Identifying how the data have been measured and adjusting data for the purposes of including them in, for example, a valuation model, The comparability of financial information between reporting periods for an individual entity and between different entities in a particular reporting period, and The quality of the financial information and its usefulness in assessing the future cash flows of an entity. When the IASB is satisfied that it has reached a conclusion on the issues arising from the exposure draft, it instructs the staff to draft the IFRS.

International Financial Reporting Standards (IFRS)

With the aim of forming one uniform accounting standard, a London based board known as the International Accounting Standards Board (IASB) issued International Financial Reporting Standards (IFRS). They are principle-based standards that outline the broad rules and regulations for financial reporting.

Currently, our global economy is extremely integrated. Companies raise capital from across the globe. They also market and sell their products in various countries. This results in them having tax liabilities in various countries as well. And so this has lead to a demand for a global standard for accounting.

The ultimate goal of the IFRS is to provide a common global language for global business via standardized accounting. So if a company has dealings in several countries it only publishes one set of financial statements that fulfill the statutory requirements of all the countries it operates in. Also if there is a global standard then it becomes much easier for users of these financial statements to compare them.

Broadly the IFRS consist of the following:

· 13 IFRS

· 28 International Accounting Standards (which were issued before the IFRS)

· 15 Interpretations of the IFRIC

· 9 Interpretations of the Standard Interpretation Committee (SIC)

With time these global standards are also being updated by the IASB to keep up with the modern practices. The ultimate goal is a global convergence but they have started by focusing on Europe. Today there are approximately 120 countries that have accepted the IFRS as their accounting standards. 90 of these countries are fully conformed with the IFRS, i.e. completely integrated. Among these 120 countries are the UK, Australia, Canada, Japan etc.

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.

Benefits of Convergence.

The world is getting smaller and smaller, globalization has made it possible to accept the world as one market. For better understanding of the business reporting and consistency in accounting policies, there was an urgent need to align to one global accounting language. Application of a single set of accounting requirements would increase the comparability of different entities. This is the reason for more than 120 countries to follow global accounting standards i.e. International Financial Reporting Standards (IFRS). In this article I will give an overview of Indian Accounting Standards converged with IFRS (Ind AS).

The organisation communicates its Financial Position using financial statements and reports. For any communication to be effective and efficient, the language must be the same. It will be difficult to communicate if the language is different i.e. comparing, analysing, etc. of Financial statements of different organisation will be difficult. The problem of uniform reporting of Financial Statement had overcome by introduction of common set of Standards known as Accounting Standards.

If the financial accounting process is not properly regulated, there is possibility of financial statements being misleading, tendentious and providing a distorted picture of the business, rather than the true state of affairs. In order to ensure transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to standardize the accounting principles and policies.

Accounting standards are written policy documents issued by expert accounting body or by government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transactions in the financial statements.

Every country has its own set of Local Accounting Standards for recognition, measurement, presentation & disclosure of financial statement.

In India, Local standards are known as Accounting Standards (AS) issued by Accounting Standard Board (ASB) in consultation with Institute of Chartered Accountants of India (ICAI).

Now, the apple to apple comparison was possible at national level due to introduction of Accounting Standards. Today, we are living in Global Era, now we are supposed to create apple to apple situation at Global level. The answer to this is International Financial Reporting Standards (IFRSs).

International Financial Reporting Standards (IFRSs)

IFRSs refers to the entire body of IASB pronouncements, including standards and interpretations approved by the International Accounting Standard Board (IASB) & IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee (IASC)

Broadly, IFRS consist of,

13 International Financial Reporting Standard (IFRS)
28 International Accounting Standard (IAS)
15 International Financial Reporting Interpretation Committee (IFRIC) Interpretations
9 Standard Interpretation Committee (SIC) Interpretation

Simply be put, IFRS are AS of the World.

The Accounting Standards (AS) issued by ICAI are prepared on the basis of the Indian environment, while International Financial Reporting Standards (IFRS) are prepared by considering the global environment as a whole. The Indian environment and Global environment are different which leads to a huge gap between AS issued by ICAI & IFRS issued by IASB. So as to bridge the gap between AS & IFRS, ICAI issued Indian Accounting Standard converged with IFRS (formally known as Ind AS)

Indian Accounting Standards Converged with IFRS (Ind AS)

Ind AS are set of accounting standards notified by Ministry of Corporate Affairs (MCA), converged with International Financial Reporting Standards (IFRS), these accounting standards are formulated by Accounting Standard Board (ASB) of Institute of Chartered Accountants of India (ICAI).

Convergence means alignment of the standards of different standard setters with a certain rate of compromise, by adopting the requirements of the standards either fully or partially.

Indian Accounting Standards are almost similar to IFRS but with few carve outs so as to make them suitable for Indian Environment.

Till now, MCA has notified 35 Ind AS. However the date of implementation is yet to be notified.

Need for Ind AS

The need for Ind AS can be understood in two different parts,

Why there must be a Change or Transition?
If change then, what type of change, Adoption or Convergence?

Need for Change

The only thing which will be received from such transition is common set of accounting standards. The benefits of having the common standards for financial reporting are the reasons which attract this transition.

These are as follows,

a. Better Comparability-By following a common set of standards, will help the stakeholders to compare the organisations globally, i.e. to create an apple to apple comparison.

b. Better Transparency- The users of accounts will be benefited by this as, same accounting standards will help to them understand the fundamentals of the organisation which will generate better transparency.

c. Many companies having subsidiary or Holding company in different countries are required to follow dual set of accounting standards, local standards on one hand & global standards on the other hand. The transition will be helpful in saving time & cost on the finance department. For example, Swiss pharmaceutical giant ROCHE group, which operates in more than 100 countries, likely to save more than $100 million through Convergence.

d. Attract Foreign Investment- Since the investors can compare with other organisations globally, it will help them to take investment decision, at the same time it will help the organisation to present their financial position in more efficient way to the world, in a language that all can understand.

e. Due to transition many companies will be attracted towards India, for investing, for setting up subsidiary, etc., which will result in increase in employment opportunities.

f. Globalization-Globalization can be understand at three levels

ü World Trade- Smooth trade can be achieved.

ü Listing, Securities Markets etc. – Listing of Securities on international Stock Exchanges will be eased. Cross border flow of investment will lead to economic growth.

ü Stakeholders- Stakeholder can easily take the decision in regards to the organisation.

g. Cost Saving

- Saving of time and money in planning and executing of accounting and auditing.

- Costs involved in the access to the capital market are expected to reduce.

- Labour Cost-In developing countries, the labour cost is cheap, but capital availability is difficult. By convergence the cost of capital will reduce & its availability will also be eased.

Adoption or Convergence

From the above discussion one may wonder why to introduce Ind AS instead of following IFRS as it is. Some countries had accepted the IFRS as it is instead of convergence, Question is why not India?

One of the main reason is any changes in the IFRS would have impact on books of Indian Companies; it would be hard for companies to adopt or cope up with the IFRS as and when amended.

At the same time, India is multi regulator nation. In India there are many regulators like, Companies Act, Income Tax Act, Securities Exchange Board of India (SEBI), Insurance Regulatory & Development Authority (IRDA), and Reserve Bank of India (RBI) etc.

To welcome the change in IFRS the respective Rules and Regulation must be amended accordingly, which can be time consuming. If the changes in IFRS are not in consensus with the Rules and Regulation, then there will be chaos in the corporate reporting. So Introduction of Ind AS is a way to buy some time to analyse the situation or the change with a view to take necessary action by MCA as it thinks fit.

Hence, substantially similar to the IFRSs, the Ind AS have some carve outs to ensure that these standards are suitable for application in the Indian environment

In a nut shell, Ind AS can be referred as “International Dish with Indian Flavour” or “Desi version of IFRS”

Challenges:

a. Rules & Regulations- Since there are many Rules & Regulations in India, for implementation of Ind AS the appropriate amendment must be done in the Rules & Regulations.

b. Technological Aspect- Right now, book keeping and accounting is done through software like, Tally, Miracle, Busy, SAP, etc.; these accounting softwares are based on Indian GAAP & AS. There will be a huge cost to invest in such upgraded software.

c. Personnel- There is lack of efficient personnel. However, it can be avoided by Training & Awareness programs.

Applicability:

The Council of the ICAI, at its meeting, held on March 20-22, 2014, has finalised the roadmap. As per this roadmap, the first set of accounting standards i.e. converged accounting standards (Ind AS) shall be applied to the following specified class of companies for preparing their first Indian Accounting Standards (Ind AS) consolidated financial statements for the accounting period beginning on or after April 1, 2016, with comparatives for the year ending 31^st March 2016 or thereafter.

The specified class of companies include,

(a) Whose equity and/or debt securities are listed or are in the process of listing company stock exchange in India or Outside India or

(b) Companies other than those covered in (a) above, having net worth of Rs. 500 crore or more

However, the standalone financial statements will continue to be prepared as per the existing notified Accounting Standards which would be upgraded over a period of time.

In Budget 2014 speech, The Honourable Finance Minister, Arun Jaitley, has welcomed the IFRS by proposing that Indian companies will have to adopt the new Indian Accounting Standards (Ind AS) voluntarily from fiscal year 2015-16 and on mandatory basis from 2016-17. The Honourable Finance Minister said, “There is an urgent need to converge the current Indian Accounting Standards with the International Financial Reporting Standards (IFRS)”

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.

Difficulties of convergence with the IFRS

There are some significant challenges of converging the IFRS and the Indian AS. Some of them are as follows,

· Other than the Accounting Standards, India has many rules and regulations to implement them. These rules will have to be updated as well.

· Accounting is done via software these days, like Tally, Oracle, etc. Convergence with IFRS means this software will have to be updated at great costs.

· Also, there is a lack of trained and efficient personnel. The accountants, auditors, etc will have to undergo training and learning programmes for the updated standards.

Roadmap of Convergence of IAS with IFRS

Finally the wait is over. Indian Accounting Standards converged with IFRS are here. After issuing the revised roadmap for implementing Ind AS in January 2015, the Ministry of Corporate Affairs (MCA) has come up with the phase wise adoption of Ind AS, India’s Accounting Standards converged with IFRS. India has chosen the path of IFRS convergence and not adoption. The MCA has issued a notification dated 16 February 2015 announcing the Companies (Indian Accounting Standards) Rules, 2015 for the applicability of Ind AS. A total of 39 Ind AS has been notified. Now let’s look into the various aspects of Ind AS one by one.

Applicability

The application of Ind AS is based on the listing status and net worth of a Company. Also these standards will be applied to various threshold companies in phased out manner. The below table summarises the various phase of application –

Phases	Companies	Date
1	Companie s having Net worth of greater than or equal to INR 500 crore.	1- April 2016
2	Listed Companies and companies having Net worth of greater than or equal to INR 250 crore.	1 April 2017

– Companies covered under phase 1 will also require comparative Ind AS information for the period 1 April 2015 to 31 March 2016. So the companies under this phase have already started their Ind AS conversion planning and activities.

It is important to note that the Ind AS will also apply to subsidiaries, joint ventures, associates and holding companies of the entities covered in various phases. Companies not covered by the new Ind AS rules can voluntarily adopt Ind AS. Once adopted, they cannot switch back.

Exemptions

The following Companies are exempted from applying Ind AS –

Companies listed on SME exchanges.
Companies not covered by the new Ind AS rules will continue to apply the existing accounting standards.

Explanations/ Clarifications

The notification has clarified number of open points, few are stated below –

The date and manner of calculating net worth has been defined. The net worth needs to be calculated based on standalone financials of the company as on 31 March 2014 or first audited period ending thereafter. Net worth defined is similar to the one defined in section 2(57) of Companies Act 2013. It will be total of paid up share capital, reserves created out of profits (except revaluation and amalgamation reserve) and securities premium. From this we need to deduct accumulated losses, deferred and miscellaneous expenditure to the extent not written off.
Ind AS will apply to both consolidated and standalone financial statements of the company covered by the rule. This is very helpful as the companies will not be required to maintain dual accounting system.
Overseas subsidiaries, joint ventures and associates of an Indian Company which is covered by new Ind AS rule, are not required to prepare their standalone financials as per Ind AS. However, for the purpose of consolidation, such overseas entities should give Ind AS adjusted financials.
Insurances, banking and non- financial companies are not required to apply Ind AS either voluntarily or mandatorily.
In case of conflict with Ind AS and Law, the provisions of Law shall prevail and financial statements should be prepared in conformity with it.
Preparation of financial statements as per IFRS issued by IASB (true IFRS) has been ruled out.

IFRS Adoption or Convergence in India

1. Voluntary adoption

Companies can voluntarily adopt Ind AS for accounting periods beginning on or after 1 April 2015 with comparatives for period ending 31 March 2015 or thereafter. However, once they have chosen this path, they cannot switch back.

2. Mandatory Applicability Phase I

Ind AS will be mandatorily applicable to the following companies for periods beginning on or after 1 April 2016, with comparatives for the period ending 31 March 2016 or thereafter:

1. Companies whose equity and/or debt securities are listed or are in the process of listing on any stock exchange in India or outside India and having net worth of 500 crore INR or more.

2. Companies having net worth of 500 crore INR or more other than those covered above.

3. Holding, subsidiary, joint venture or associate companies of companies covered above.

Phase II

Ind AS will be mandatorily applicable to the following companies for periods beginning on or after 1 April 2017, with comparatives for the period ending 31 March 2017 or thereafter:

1. Companies whose equity and/or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than rupees 500 crore.

2. Unlisted companies other than those covered in Phase I and Phase II whose net worth are more than 250 crore INR but less than 500 crore INR.

3. Holding, subsidiary, joint venture or associate companies of above companies.

IFRS (International Financial Reporting Standards)

International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external.

Ind AS

Indian Accounting Standards, (abbreviated as Ind AS) are a set of accounting standards notified by the Ministry of Corporate Affairs which are converged with International Financial Reporting Standards (IFRS). These accounting standards are formulated by Accounting Standards Board of Institute of Chartered Accountants of India. Now India will have two sets of accounting standards viz. existing accounting standards under Companies (Accounting Standard) Rules, 2006 and IFRS converged Indian Accounting Standards (Ind AS). The Ind AS are named and numbered in the same way as the corresponding IFRS.

Conceptual Framework for Financial Reporting

A framework is the foundation accounting standards. A conceptual framework acts as a constitution for the standard setting process. Concepts are the ground work, the basis, the foundation upon which the superstructure of standard can be created. Without conceptual framework, a constant approach to standard – setting cannot be achieved.

The Conceptual Framework serves as a tool for the IASB to develop standards. It does not override the requirements of individual IFRSs. Some companies may use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements.

Elements of Conceptual Framework

The elementsof a conceptual framework are:

1. Objective

2. Qualitative Characteristics of accounting information

3. Elements of financial statements

4. Recognition and measurement

5. Measuring attributes

6. Units of measurement

7. Presentation and Disclosure

Objective of financial statements

The Conceptual Framework states that the primary purpose of financial information is to be useful to existing and potential investors, lenders and other creditors when making decisions about the financing of the entity and exercising rights to vote on, or otherwise influence, management's actions that affect the use of the entity's economic resources.Users base their expectations of returns on their assessment of the amount, timing and uncertainty of future net cash inflows to the entity; Management's stewardship of the entity’s resources.

Qualitative characteristics of financial information

The Conceptual Framework for Financial Reporting defines the fundamental qualitative characteristics of financial information to be:

· Relevance; and

· Faithful representation

· Comparability

· Verifiability

· Timeliness

· Understandability

Elements of financial statements

The Conceptual Framework defines the elements of financial statements to be:-

Asset: A present economic resource controlled by the entity as a result of past events which are expected to generate future economic benefits

Liability: A present obligation of the entity to transfer an economic resource as a result of past events

Equity: The residual interest in the assets of the entity after deducting all its liabilities

Income: increases in economic benefit during an accounting period in the form of inflows or enhancements of assets, or decrease of liabilities that result in increases in equity. However, it does not include the contributions made by the equity participants (for example owners, partners or shareholders).

Expenses: decreases in assets, or increases in liabilities, that result in decreases in equity. However, these do not include the distributions made to the equity participants.

Other changes in economic resources and claims: Contributions from holders of equity and distributions to them

Recognition of elements of financial statements

An item is recognized in the financial statements when:

-it is probable that future economic benefit will flow to or from an entity.

-the resource can be reliably measured

-In some cases specific standards add additional conditions before recognition is possible or prohibit recognition altogether.

An example is the recognition of internally generated brands, mastheads, publishing titles, customer lists and items similar in substance, for which recognition is prohibited by IAS 38. In addition research and development expenses can only be recognised as an intangible asset if they cross the threshold of being classified as 'development cost'.

Whilst the standard on provisions, IAS 37, prohibits the recognition of a provision for contingent liabilities, this prohibition is not applicable to the accounting for contingent liabilities in a business combination. In that case the acquirer shall recognise a contingent liability even if it is not probable that an outflow of resources embodying economic benefits will be required.

Presentation of financial statements

IFRS financial statements consist of:[24]

· a statement of financial position (balance sheet)

· a statement of comprehensive income. This may be presented as a single statement or with a separate statement of profit and loss and a statement of other comprehensive income

· a statement of changes in equity

· a statement of cash flows

· notes, including a summary of the significant accounting policies.

· Comparative information is required for the prior reporting period.

General features

The following are the general features in IFRS:

Fair presentation and compliance with IFRS: Fair presentation requires the faithful representation of the effects of the transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework of IFRS.[25]

Going concern: Financial statements are present on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.[26]

Accrual basis of accounting: An entity shall recognise items as assets, liabilities, equity, income and expenses when they satisfy the definition and recognition criteria for those elements in the Framework of IFRS.[27]

Materiality and aggregation: Every material class of similar items has to be presented separately. Items that are of a dissimilar nature or function shall be presented separately unless they are immaterial.[28]

Offsetting: Offsetting is generally forbidden in IFRS.[29] However certain standards require offsetting when specific conditions are satisfied (such as in case of the accounting for defined benefit liabilities in IAS 19[30] and the net presentation of deferred tax liabilities and deferred tax assets in IAS 12[31]).

Frequency of reporting: IFRS requires that at least annually a complete set of financial statements is presented.[32] However listed companies generally also publish interim financial statements (for which the accounting is fully IFRS compliant) for which the presentation is in accordance with IAS 34 Interim Financing Reporting.

Comparative information: IFRS requires entities to present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements. In addition comparative information shall also be provided for narrative and descriptive information if it is relevant to understanding the current period's financial statements.[33] The standard IAS 1 also requires an additional statement of financial position (also called a third balance sheet) when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. This for example occurred with the adoption of the revised standard IAS 19 (as of 1 January 2013) or when the new consolidation standards IFRS 10-11-12 were adopted (as of 1 January 2013 or 2014 for companies in the European Union).

Consistency of presentation: IFRS requires that the presentation and classification of items in the financial statements is retained from one period to the next unless:

it is apparent, following a significant change in the nature of the entity's operations or a review of its financial statements, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in IAS 8; or

an IFRS standard requires a change.

Questions for Practices

I. Short Answer Type

1. Define financial reporting.

2. What are the general purpose financial statements?

3. Define accounting standard.

4. What are international accounting standards?

5. What are the main functions of IASB?

6. What is recognition of financial elements?

7. Define the term “equity”

8. What is capital maintenance?

9. Define financial elements.

10. What is IFRS convergence?

II. Short Essay Type

1. What are the objectives of financial statements?

2. What are the steps involved in financial reporting?

3. Define Accounting standards. What are the objectives of accounting standards?

4. Explain the role of ASB in Indian Accounting Standard setting.

5. What are the objectives of IASB?

6. State the role of IASB in developing IFRS.

7. What are the benefits of IFRS convergence?

8. What are the criteria of recognition of asset?

9. What are the principles of recognition of financial elements?

10. What are the bases of measurement of financial elements?

III. Essay Type

1. Define financial reporting? Discuss the rationale of financial reporting.

2. Discuss the uses of financial statements to different stakeholders.

3. Compare IFRS with Indian accounting standard.

4. What are the functions of FASB?

5. Discuss the principles of presentation and disclosure of financial elements.

PREPARATION OF FINANCIAL STATEMENTS Ifrs 1

The objective of preparing general purpose financial statements of a single entity is to provide information about the entity’s financial position, performance and cash flows that is useful for economic decision-making by a broad range of users (eg:- owners who are not involved in managing the business, potential owners, existing and potential lenders and other creditors) who are not in a position to demand reports tailored to meet their particular information needs. This chapter deals with most of the aspects for preparing a complete set of financial statements. A complete set of a single entity’s financial statements generally include, Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows.

I. PRESENTATION OF FINANCIAL STATEMENTS (IAS 1 &Ind AS 1)

Objectives

This standard specify the basis for presentation of general purpose financial statements to ensure that the financial statements are in accordance with IFRS and it also ensure comparability with entity’s previous years financial statements and with same of other entities. Standard ensures the structure and minimum requirement for the content of financial statements.

Scope

1. This standard has wide coverage in the following areas:

a) What constitute a complete set of financial statements?

b) The overall requirements for the presentation of financial statement, including guidelines for their structure.

c) Distinction between current and non-current elements.

d) Minimum requirements for the content of financial statements.

2. This Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with IAS 34 / Ind AS 34 Interim Financial Reporting.

Definition

a. Fair presentation: Fair presentation means the faithful representation of the effects of transactions, other events, and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses set out in the framework. The financial statements should present fairly the financial position, financial performance, and cash flows of the entity.

b. Current Asset: An asset is classified as current asset when it:

a) Is expected to be realized or intended for sale or consumption in the entity’s normal

operating cycle.

b) Is held primarily for trading.

c) Is expected to be realized within 12 months after the reporting date.

d) Is cash or cash equivalents asset which is not restricted in its use.

Current Liability: A liability should be classified as current liability when it:

e) Is expected to be settled in the entity’s normal operating cycle.

f) Is held primarily for trading.

g) Is due to be settled within 12 months after the reporting date.

h) Liabilities for which the entity does not have an unconditional right to defer settlement for at least 12 months after the reporting period.

c. Non-current asset and Non-current Liabilities: Non-current assets and Non-current liabilities are expected to be settled after 12 months from the date of reporting. Proportionof non-current interest bearing liabilities to be settled within 12 months after the reporting date can be classified as non-current liabilities if the original term is greater than 12 months and it is the intention to refinance or reschedule the obligation.

d. Other Comprehensive Income: Other comprehensive income comprises of income and expenses they are not recognised in profit or loss as permitted. These include:

a) Changes in revaluation surplus of fixed or intangible assets in terms of IAS 16 and IAS 38.

b) Actuarial gain and losses on defined benefit plans recognised in accordance with IAS 19.

c) Gains or losses arising from translating the financial statement of a foreign operation recognised in terms of IAS 21.

d) The effective portion of gains and losses on hedging instruments in a cash flow hedge in terms of IAS 39.

e. Total Comprehensive Income: Total comprehensive income is the change in equity during a period resulting from transactions, other than those changes resulting from transactions with owners in their capacity as owners. That is, the sum of profit or loss for the period and other comprehensive income.

Accounting Treatment

1. Financial statements should provide information about an entity’s financial position, performance, and cash flows that is useful to a wide range of users for economic decision making.

2. A return journey from the requirements of an IFRS is allowed only in the extremely rare case in which the application of IFRS would be so misleading as to conflict with the objectives of financial statements. In such cases, the firm should disclose the following:

a) Whether the management has concluded that the financial statements present

fairly the entity’s financial position, performance and cash flows.

b) Whether the entity has complied with the applicable IFRSs.

c) Whether it has departed from the title of the IFRS.

d) Nature and reason for the departure.

e) Financial effect of the departure.

3. To maintain consistency the presentation and classification of items in the financial statements should stay the same from one period to another. There are two exceptions to this. A change is permitted when; the change is required by an IFRS or the change results in a more appropriate presentation of Financial Statements.

4. A complete set of financial statements comprises of the following components:

a) Statement of financial position (formerly balance sheet) as at the end of the reporting period.

b) A statement of profit or loss and other comprehensive income for the reporting period.

c) Statement of changes in equity for the reporting period.

d) Statement of cash flows.

e) Notes to financial statement explaining the significant accounting policies and other information.

f) A statement of financial position as at the beginning of the earliest comparative period.

5. In addition, IAS 1 / Ind AS 1 encourage, a financial review by the management, environmental reports and a value added statement. But, the reports presented outside of the financial statements are outside the scope of IFRSs.

6. The financial statements should present fairly the financial position, financial performance and cash flow of an entity. Following points are specified by the standard to address this issue:

a) Compliance with IFRS should be disclosed.

b) Compliance with all requirements by each standard is compulsory.

c) Disclosure cannot rectify inappropriate accounting treatments.

d) Requirement of a new or revised standard is adopted before the effective date; this matter also should be disclosed.

7. Financial statements of an entity are prepared on going concern basis unless the management intends to liquidate the business or cease trading. If the going concern assumption is not followed, the fact must be disclosed with basis adopted for preparing the statements and the reason for not considering the business as going concern.

8. Financial statements are usually prepared annually. If the annual reporting period changes and financial statements are prepared for a different period, then the enterprise must disclose the reason for the change and a warning about problems of comparability.

9. The accrual basis of accounting should be applied when preparing the financial statements, except for cash flow information. Entity should prepare their financial statements on the basis that transaction are recorded in them, not as the cash is paid or received, but as the revenue or expenses are earned or incurred.

10. All the material items must be disclosed in the financial statements. Aggregation of immaterial items of a similar nature is permitted, but the material items should not be aggregated. Items of dissimilar nature should be presented separately.

11. IAS1/ Ind AS1 do not permit asset and liabilities to be offset against each other unless it is required by another IFRS. Income and expenditure can be offset only when an IFRS permits to do so. However, immaterial gain, losses and related expenses arising from similar transaction can be offset.

12. For comparison purpose numerical information of the previous period should be disclosed in the financial statements. Relevant descriptive and narrative information also should be disclosed.

13. If the publication for financial statements is delayed too long after the reporting period, their usefulness will be severely diminished. So the standard compels entities to publish their financial statements within six months of the end of the reporting period.

Presentation and Disclosure

Financial statements should be clearly distinguished from the document published. Each component of the financial statements should be clearly identified with following information:

a) Name of the reporting entity.

b) Whether the statement is of an individual entity or of a group of entities.

c) Reporting date and period of reporting.

d) Presentation currency.

Statement of Financial Position (Balance Sheet)

This statement provides information about the financial position of an entity. Statement of financial position should normally distinguish between current and non- current assets, and between current and non-current liabilities, where a presentation based on liquidity provides more relevant and reliable information. Irrespective of the method of presentation adopted, an entity should disclose the amount expected to be recovered or settled within and after more than 12 months of the reporting period for each asset and liability line.

1. An entity should disclose the following information on capital either in the Statement of Financial Position, Statement of Changes in Equity, or in the notes.

a) Number of shares authorized.

b) Number of shares issued and fully paid; and issued but not fully paid.

c) Face value per share or that it has no par value.

d) Reconciliation of the number of shares at the beginning and end of year.

e) Rights, preferences, and restrictions attached to that class, including restrictions on dividends and the repayment of capital.

f) Shares in the entity held by the entity itself or by its subsidiaries or associates.

g) Number of shares reserved for issue under options and sales contracts, including the terms and amounts.

h) A description of the nature and purpose of each reserve within equity.

2. Minimum information must be presented in the face of a Statement of Financial Position.

Assets	Liabilities and Equity
Property, plant, and equipment	Trade and other payables
Investment property	Provisions
Intangible assets	Financial liabilities
Financial assets	Current tax liabilities
Investments accounted for using the equity method	Deferred tax liabilities
Biological assets	Liabilities included in disposal groups held for sale
Deferred tax assets	Equity
Inventories	Issued capital and reserves attributable to owners of the parent
Trade and other receivables	Reserves
Current tax assets	Non-controlling interests
Cash and cash equivalents
Assets held for sale
Assets included in disposal groups held for sale

3. Other information must appear on the face of the statement of financial position and it includes details on nature and purpose of each reserve, shareholders for dividend not formally approved and amount cumulative preference dividend not recognised.

Statement of Profit or Loss and Other Comprehensive Income

The performance of a company is reported in the statement of profit or loss and other comprehensive income. IAS 1, Presentation of Financial Statements, defines profit or loss as ‘the total of income less expenses, excluding the components of other comprehensive income’.

AS 1 permit to present incomes and expenses either in a single statement called “statement of profit or loss and other comprehensive income”; or in two statements, a separate statement for profit or loss and a statement for other comprehensive income. But, Ind AS 1 allows the single statement approach only.

1. Standard lists the following items as minimum to be disclosed in the Statement of profit or loss and other comprehensive income

a) Revenue

b) Finance cost

c) Share of profit or loss of associates and joint venture.

d) Tax expenses

e) A single amount comprising the total of the post-tax profit or loss of discontinued operations and the post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets or disposal group(s) constituting the discontinued operation.

f) Profit or loss

g) Each component of other comprehensive income classified by nature, excluding amount in (h).

h) Share of the other comprehensive income of associates and joint ventures accounted for using the equity method.

i) Total comprehensive income.

2. The following items must be disclosed in the statement as allocation of profit or loss for the period:

a) Profit or loss attributable to non- controlling interest.

b) Profit or loss attributable to owners of the parent.

3. Following items are to be presented on the face of the statement or in the notes:

a) Analysis of expenses based on either, in their nature or function (Ind AS1 requires only nature wise classification)

b) Depreciation charges for tangible assets; amortisation charges for intangible assets; employee benefit expenses; and dividends recognised and the related amount per share are required to be disclosed if the expenses are classified by function.

4. IFRS never permits presentation of any items of income or expense as extraordinary items.

Statement of Changes in Equity

The statement of changes in equityshows information about the increase or decrease in net assets or wealth of an entity. IAS 1 requires preparation of a Statement of Changes in Equity as a separate statement. Ind AS 1 requires the statement of changes in equity to be shown as a part of the balance sheet.

1. The minimum information to be presented on the face of the statement of changes in equity includes:

a) Total comprehensive income for the period showing separately the total amount attributable to owners of the parent and non-controlling interest.

b) The effects of retrospective applications or restatements recognised in accordance with IAS 8 on each of the components of equity.

c) Reconciliation between the carrying amount at the beginning and end of the period for each components of equity.

2. Following details are also to be presented on the face of the statement of changes in equity or in the notes as other information.

a) Capital transaction with owners and distributions to owners.

b) The amount of dividend recognised as distribution to owners during the period and the related per share information.

c) Reconciliation of the balance of accumulated profit or loss at the beginning and end of the year.

d) Reconciliation of the carrying amount of each class of equity capital, share premium, and each reserve at the beginning and end of the period.

Format and Presentation of Financial Statements

1. Statement of Comprehensive Income

a. Single statement approach

Statement of Comprehensive Income of ABC Ltd. Co. for the year ended 31^st March 2016.

	2015-16	2014-15
Revenue	XXXX	XXXX
Cost of Sales	(XXX)	(XXX)
Distribution costs	(XXX)	(XXX)
Administrative expenses	(XXX)	(XXX)
Finance costs	(XXX)	(XXX)
Share of profit of associates	(XXX)	(XXX)
Profit before tax	XXXX	XXXX
Income tax expense	(XXX)	(XXX)
Profit for the year from continuing operations	XXXX	XXXX
Loss for the year from discontinued operations	(XXX)	(XXX)
Profit for the year	XXXX	XXXX
Other Comprehensive Income
Exchange differences on translating foreign operations, net of tax	XXX	XXX
Actuarial gains on defined benefit pension obligations, net of tax	(XX)	(XX)
Share of associate’s other comprehensive income	(XX)	(XX)
Other comprehensive income for the year, net of tax	XXX	XXX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	XXXX	XXXX

b. Two statement approach

Consolidated Income statement of ABC Ltd. Co. for the year ended 31^st March 2016

	2015-16	2014-15
Revenue	XXXX	XXXX
Cost of Sales	(XXX)	(XXX)
Distribution costs	(XXX)	(XXX)
Administrative expenses	(XXX)	(XXX)
Finance costs	(XXX)	(XXX)
Share of profit of associates	(XXX)	(XXX)
Profit before tax	XXXX	XXXX
Income tax expense	(XXX)	(XXX)
Profit for the year from continuing operations	XXXX	XXXX
Loss for the year from discontinuing operations	(XXX)	(XXX)
PROFIT FOR THE YEAR	XXXX	XXXX

Profit for the year is attributable to:
Owners of the parent company	XXXX	XXXX
Non-controlling interests	XX	XX
	XXXX	XXXX

	Note	2015-16	2014-15
Profit for the year		XXXX	XXXX
Other comprehensive income:
Exchange differences on translating foreign operations, net of tax	16	XXX	XXX
Actuarial gains on defined benefit pensions obligations, net of tax	17	(XX)	(XX)
Share of associate’s other comprehensive income	13	(XXX)	(XXX)
Other comprehensive income for the year, net of tax	18	XXX	XXX
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		XXXX	XXXX

Total Comprehensive income for the year is attributable to:
Owners of the parent		XXXX	XXXX
Non-controlling interests		XX	XX
		XXXX	XXXX

2. Statement of Financial Position

Performa of Statement of Financial Position of ABC Ltd. for the year ended 31^St March, 2016

	2015-16	2014-15
ASSETS
Current Assets
Cash and Cash equivalents	XXX	XXX
Trade receivables	XXX	XXX
Other financial assets – derivative hedging instruments	XXX	XXX
Inventories	XXX	XXX
Other current assets	XXX	XXX
Total current assets	XXXX	XXXX

Non-current assets
Financial assets – Investments in shares	XXX	XXX
Investments in associates
- Carried at fair value	XXX	XXX
- Carried at cost less impairment	XXX	XXX
Investment in jointly controlled entities
- Carried at fair value	XXX	XXX
- Carried at cost less impairment	XXX	XXX
Investment property – Carried at fair value	XXX	XXX
Property, Plant and Equipment – Carried at cost less accumulated depreciation	XXX	XXX
Biological assets
- Carried at fair value	XXX	XXX
- Carried at cost less impairment	XXX	XXX
Goodwill	XXX	XXX
Other intangible assets	XXX	XXX
Deferred tax assets	XXX	XXX
Total non-current assets	XXXX	XXXX
Total assets	XXXXX	XXXXX

LIABILITIES AND EQUITY
Current liabilities
Bank overdrafts	XXX	XXX
Trade and other payables	XXX	XXX
Short-term borrowings	XXX	XXX
Current portion of bank loans	XXX	XXX
Current portion of obligations under finance leases	XXX	XXX
Current portion of employee benefit obligations	XXX	XXX
Current tax payable	XXX	XXX
Short-term provisions	XXX	XXX
Total current liabilities	XXXX	XXXX

Non-current liabilities
Bank loans	XXX	XXX
Obligations under finance leases	XXX	XXX
Environmental restoration provision	XXX	XXX
Long-term employee benefit obligations	XXX	XXX
Deferred tax liabilities	XXX	XXX
Total non-current liabilities	XXXX	XXXX
Total liabilities	XXXX	XXXX

Equity
Share capital	XXX	XXX
Retained earnings	XXX	XXX
Actuarial gains on defined benefit pension plan	XXX	XXX
Gains on hedges of foreign exchange risks of firm commitments	XXX	XXX
Total equity attributable to owners of the parent	XXXX	XXXX
Non-controlling interests	XXX	XXX
Total equity	XXXX	XXXX
Total equity and liabilities	XXXXX	XXXXX

3. Statement of Changes in Equity

Performa Statement of changes in equity, of ABC Ltd. for the period ended 31^st March, 2016

	Share Capital	Retained Earnings	Equity instruments	Revaluation Surplus	Total	Non- controlling interest	Total Equity
Balance as on 1^st April 2014	XXXX	XXXX	XXXX	-	XXXX	XXXX	XXXX
Correction of a prior period error	-	XXX	XXX	-	XXX	XXX	XXX
Changes in accounting policy	-	XXX	-	-	XXX	XXX	XXX
Restated balance as on 1^st April 2014	XXXX	` XXXX	XXXX	-	XXXX	XXXX	XXXX
Changes in equity
Dividends	-	(XXX)	-	-	(XXX)	-	(XXX)
Total comprehensive income for the year	-	XXX	XXX	XXX	XXX	XXX	XXX
Balance as on 31^st March 2015	XXXX	XXXX	XXXX	XXXX	XXXX	XXXX	XXXX
Changes in equity for the period 2015-16
Issue of share capital	XXX	-	-	-	XXX	-	XXX
Dividend	-	(XXX)	-	-	(XXX)	-	(XXX)
Total comprehensive income for the year	-	XXX	XXX	XXX	XXX	XXX	XXX
Transfer to retained earnings	-	XXX	-	(XXX)	-	-	-
Balance as on 31^st March 2016	XXXX	XXXX	XXXX	XXXX	XXXX	XXXX	XXXX

Note that, where there has been a change of accounting policy, necessitating a retrospective restatement, the adjustment is disclosed for each period. So, rather than just showing an adjustment to the balance on 1^st April, 2015, the balance for 2014-15 is restated.

Gains and losses on cash flow hedges or on the translation of foreign operation would be shown in additional column.

Notes to Financial Statements

The notes to the financial statements should present information about the basis of preparation of the financial statements and accounting policies, judgments made in applying accounting policies, information required by IFRSs but not disclosed elsewhere and additional information that is not presented elsewhere, but is relevant to an understanding of the financial statements.

Other disclosures

a) Domicile of the entity.

b) Legal form of the business.

c) Country of incorporation.

d) Address of the registered office.

e) Nature of principal operation.

f) Name of the parent entity and ultimate parent entity of the group.

g) Quantum of dividend proposed or declared before the authorised issue of the financial statements, but not recognised as a distribution to owners during the period.

h) Amount of any cumulative preference dividends not recognised.

II. ACCOUNTING POLICIES, CHANGE IN ACCOUNTING ESTMATES AND ERRORS (AS8 and Ind AS8)

Objective

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.

Scope

IAS 8 / Ind AS8 Covers the following areas:

a) Selection and application of accounting policies

b) Accounting for changes in accounting policies

c) Changes in accounting estimates

d) Corrections of prior period errors

Definitions

a. Accounting Policies: Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

b. Change in accounting estimate: 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. These changes are the results of new information or new developments. But they are not the correction of errors.

c. Prior period errors: Prior-period errors are the omissions or misstatements in entity’s

financial statement for one or more prior periods.

d. Retrospective application: Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied.

e. Retrospective restatement: 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.

f. Prospective application: Prospective applications of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:

i) Applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and

ii) Recognising the effect of the change in the accounting estimate in the current and future periods affected by the change.

Accounting Treatment

1. When a standard or interpretation specifically applies to a transaction, the accounting policies related to that item should be determined by relevant IAS / Ind AS, and should consider the implementation guidance issued by the standard setting body.

2. In the absence of specific guidance or accounting policies, the management should use its judgement in developing and applying accounting policy that results in relevant and reliable information.

3. Accounting policies must select and apply consistently for similar transactions, events and conditions, unless a different treatment permitted by any of the standards.

4. A change in accounting policy is permitted only, if the change is:

a. Required by a standard,

b. Required to provide more appropriate presentation of event or transaction

5. In case of a change in accounting policy results from the application of a new standard or interpretation, specific provisions in the standard or interpretation should be followed for applying that particular change. If there is no such provision, the change should be applied in the same way as a voluntary change.

6. A voluntary change in accounting policies is applied as follows:

a. Policies are applied retrospectively and prior periods restated as though the new policy had always applied, unless it is impracticable to do so.

b. Opening balances are adjusted at the earliest period presented

c. Policies are applied prospectively if it is impracticable to restate prior periods or to adjust opening balances

7. The carrying amount of various assets and liabilities should be adjusted when changes in accounting estimates necessitate a change in the same. Changes in accounting estimates should be included in profit or loss in the period of change or in the period of change and future periods, if the change affects both.

8. Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Financial statements do not comply with Ind AS / IAS, 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.

Presentation and Disclosure

1. In case of voluntary change in accounting policies by an entity, it should disclose the following:

a. The nature of the change.

b. Supporting evidence to prove the availability of relevant information through the policy change.

c. Adjustments made in current and each prior period presented and line items affected.

d. Adjustment to the basic and diluted earnings per share in current and prior periods.

e. Adjustments to period prior to those presented.

f. If retrospective application is impracticable, 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.

2. In considering an impending change in accounting policy, an entity should disclose:

a. The title of the new standard.

b. The nature of the pending implementation of a new standard.

c. The planned application date.

d. Known or reasonably estimable information relevant to assessing the possible impact of new standards.

3. An entity should disclose nature of the change in accounting estimate and also should disclose amount of the change and its effect on the current and future period. If estimation of future effect is impracticable, that fact should be disclosed.

4. In consideringprior-period errors, an entity should disclose

a. The nature of the error.

b. The amount of correction in each prior period presented and the line items affected;

c. The correction to the basic and diluted earnings per share;

d. The amount of correction at the beginning of the earliest period presented.

e. The correction relating to periods prior to those presented.

5. These disclosures need not be repeated in the subsequent periods.

MODULE 2

AS 2 – Valuation of Inventories

This accounting standard is applicable to all companies irrespective of their level (Level I, II and III). This standard prescribes the accounting treatment for inventories and sets the guidelines to determine the value at which the inventories are carried in the financial statements. It explains the different methods of accounting the inventory or closing stock which has a huge impact on the business revenue and the assets. Topics discussed in this article: In this article, we cover the following topics:

Valuation of Inventories

This Standard should be applied in accounting for all inventories except the following : (a) work in progress in the construction business, including directly related service contracts (b) work in progress of service business (consulting, banking etc) (c) shares, debentures and other financial instruments held as stock in trade (d) Inventories like livestock, agricultural and forest products, mineral oils etc These inventories are valued at net realizable value

Definition

I. Definition of the Inventory includes the following:

A. Held for sale in the normal course of business i.e finished goods

B. Goods which are in the production process i.e work in progress

C. Raw materials which are consumed during production process or rendering of services (including consumable stores item)

II. Net Realisable Value (NRV):

“Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale”

Valuation of Inventories

Inventories should be valued at lower of cost and net realizable value. Following are the steps for valuation of inventories: A. Determine the cost of inventories B. Determine the net realizable value of inventories C. On Comparison between the cost and net realizable value, the lower of the two is considered as the value of inventory. A comparison can be made the item by item or by the group of items.

The cost of inventories includes the following

i) Purchase cost

ii) Conversion cost

iii) Other costs which are incurred in bringing the inventories to their present location and condition.

B. Cost of Purchase While determining the purchase cost, the following should be considered:

i) Purchase cost of the inventory includes duties and taxes (except those which are subsequently recoverable from the taxing authorities)

ii) Freight inwards

iii) Other expenditure which is directly attributable to the purchase

iv) Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase

C. Cost of Conversion Cost of conversion includes all cost incurred during the production process to complete the raw materials into finished goods. Cost of conversion also includes a systematic allocation of fixed and variable overheads incurred by the enterprise during the production process. Following are the categories of conversion cost:

I. Direct Cost

All the cost directly related to the unit of production such as direct labor

II. Fixed Overhead Cost

Fixed overheads are those indirect costs which are incurred by the enterprise irrespective of production volume. These are the cost that remains relatively constant regardless of the volume of production, such as depreciation, building maintenance cost, administration cost etc.

The allocation of fixed production overheads is based on the normal capacity of the production facilities. In case of low production or idle plant allocation of these fixed overheads are not increased consequently.

III. Variable Overhead Cost

Variable overheads are those indirect costs of production that vary directly with the volume of production. These are the cost that will be incurred based on the actual production volume such as packing materials and indirect labor. D. Other Cost All the other cost which are incurred in bringing the inventories to the current location and condition. For (eg) design cost which is incurred for the specific customer order. If there are by-products during the production of main products, their cost has to be separately identified. If they are not separately identifiable, then allocation can be made on the relative sale value of the main product and the by-product. Some of the cost which should not be included are:

a. Cost of any abnormal waste materials cost

b. Selling and distribution cost unless those costs are necessary for the production process

c. A normal loss which occurs during the production process is apportioned over the remaining no of units and abnormal loss is treated as an expense

Cost formula

1. The cost of inventories that are not ordinarily interchangeable and those produced and segregated for specific projects are assigned by specific identification of their individual costs.

2. Cost of inventories, other than those mentioned in the above paragraph should be determined by using either of the following formulas

a) Weighted average cost or

b) First in first out (FIFO)

3. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified.

DEFINITIONS

 Inventories should be measured at cost or NRV whichever is lower.

 Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

 Cost of inventories comprises all the costs of purchase, costs of conversion, and other costs incurred in bringing the inventories to their present location and condition.

ACCOUNTING TREATMENT

Measurement

1. Cost of inventories include:

a) Purchase cost such as the purchase price, import charges, non-recoverable taxes, and other directly attributable transport and handling cost.

b) Cost of Conversion such direct labour, production overhead including variable and fixed overhead allocated at normal production capacity.

c) Other cost such as design cost and borrowing cost.

2. Cost inventories exclude the following:

a) Abnormal amount of wasted materials, labour and overhead.

b) Storage cost, if they are not necessary prior to a further production process.

c) Administrative overhead.

d) Selling cost.

3. Inventory cost of service providers is measured at the costs of their production. These costs consist primarily of the labour and other costs of personnel directly engaged in providing the service including supervisory personnel, and attributable overheads. But it does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers.

4. In case of sale of inventories, the carrying amount of the items sold shall be recognised as an expense in the period in which related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognized as an expense in the period the write-down or loss occurs. If any reversal of written down of inventory arising from an increase in net realisable value, shall be recognized as reduction in the amount of inventory recognised as an expense in the period in which the reversal occurs.

5. There are cases in which some inventories may be allocated to other asset accounts and the allocated items are recognized as an expense during the useful life of that asset.

Technique for the measurement

1. Standard cost method or the retail method can be used as the techniques for the measurement of cost for convenience if the results approximate cost. Standard osts take into account normal levels of materials and supplies, labour, efficiency

and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions.

2. The retail method is often used in the retail industry for measuring inventories of large numbers of rapidly changing items with similar margins for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. The percentage used takes into consideration inventory that has been marked down to below its original selling price. An average percentage for each retail department is often used.

3. The cost of the inventories cannot be recoverable if those inventories are damaged or they have fully or partly obsolete or their selling prices have decreased. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs to be incurred to make the sale have increased. The practice of writing inventories down below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use.

4. NRV is the estimated selling price less the estimated costs of completion and costs necessary to make the sale. These estimates are based on the most reliable evidence at the time the estimates are made. The purpose for which the inventory is held should be taken into account at the time of the estimate. Inventories are usually written down to NRV after considering the following:

a) Items are treated on an item by item basis.

b) Same or similar items are normally grouped together.

c) All the services are treated as separate items.

5. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value.

6. An estimate of NRV is made in each subsequent period and if there is any indication that the circumstance previously caused inventories to be written down below cost no longer exist or there is an evidence of an increase in NRV because of any change in economic condition, the amount of written down is reversed.

Methods of Inventory Valuation

The cost of inventories of items which can be segregated for specific projects should be assigned by specific identification of their individual costs (Specific identification method). All other items cost should be assigned by using the

n first-in, first-out (FIFO),

n or weighted average cost (WAC) formula.

The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. However, when it is difficult to calculate the cost using above methods, Standard cost and Retail cost can be used if the results approximate the actual cost.

Accounting Disclosure

The following should be disclosed in the financial statements:

Accounting policy adopted in inventory measurement
Cost formula used
Classification of the of inventory such as finished goods, raw material & WIP and stores and spares etc
Carrying amount of inventories carried at fair value less sale cost
Amount of inventories recognized as expense during the period
Amount of any write-down of inventories recognized as an expense and its subsequent reversal if any.

Comparison between AS 2 and ICDS

Given below are some of the key differences between As 2 and Income Computation and Disclosure Standards (ICDS):

Sl.No	Particulars	AS 2	ICDS
1	Methods of Valuation	Standard Cost and Retail cost methods are allowed if its close to actual cost	Standard Cost method is not allowed to be used
2	Change in method of valuation	Allowed if it provides more appropriate presentation	Not allowed unless there is a reasonable cause
3	Opening Inventory of New Business	Value of opening inventory should be “Nil”	Shall be the cost of inventory available on the day of commencement of business

Some of the Major Differences between Ind AS (IAS) and AS 2

Scope of AS 2 does not deal with the inventory treatment related to Service Providers whereas IAS 2 details the treatment related to the cost of inventories of Service Providers
AS 2 requires lesser disclosure in the financial statements when compared to IAS 2
Cost of Inventories does not include “selling and distribution costs” under AS 2 and it is expensed in the period in which they are incurred whereas IAS 2 specifically excludes only “Selling Costs” and not “Distribution Costs”.
AS 2 requires the inventories value of goods which cannot be segregated for specific projects should be assigned using FIFO or WAC whereas IAS requires the same formula to be used for all the inventories with similar nature.

EXAMPLES:

1. NRV: Cost is 500 and NRV is 300 then Inventory value as per AS-2 is 300 Cost is 500 and NRV is 600 then Inventory value as per AS-2 is 600 Cost is 500, Sale Price is 700 and 30% commission, NRV is 490 (700-30%*700) then, Inventory value as per AS-2 is 490

2. Treatment of Normal loss and abnormal loss: Company A purchased 100 items at the cost of Rs.10 each. Of which 10% is normal loss in general, there were no sales in that period and closing stock was 80. Calculate the Inventory value: Normal Loss = 100*10% = 10 Cost per item considering normal loss = 100*10/ 90 = RS 11.11 Abnormal Loss is 90-80 (Normal – closing stock) = 10 Cost of abnormal loss = Rs 111.11 Closing stock Value = Rs 888.89

MODULE 4

ASSETS BASED ACCOUNTING STANDARDS

INTRODUCTION

This sets of standards ensures fair measurement, timely recognition, de-recognition and amortisation of various assets, whether tangible or intangible, owned by an entity irrespective of its size and legal form. Assets are the resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. Proper presentation and disclosure of various aspects of the assets help the users for their economic decisions. In forming a safe environment for stakeholders, corporate governance rules should focus on creating a culture of transparency.

I. PROPERTY, PLANT AND EQUIPMENT (Ind AS 16 and IAS 16) OBJECTIVE

Objective for the introduction of this standard is to prescribe the accounting treatment for property, plant and equipment (PPE). The standard specifies the following:

§ Timing of the recognition, de-recognition and amortization.

§ Fixation of carrying amount of the asset under the cost model and the revaluation model.

§ Recognition of depreciation charges and impairment losses in profit or loss.

§ Disclosure requirements.

SCOPE

This standard shall be applied in accounting for property, plant and equipment, including property which is held by lessee under a finance lease. But this standard does not apply to:

§ Property, plant and equipment which are classified as held for sale.

§ Biological assets related to agricultural activities.

§ Exploration assets.

§ Mineral rights and mineral reserves, such as oil or natural gas.

DEFINITIONS

Ø Property, plant and equipment are the tangible items that are held for use in the production or supply of goods or services, or for rental to others, or for administrative purpose and expected to use for more than one accounting period.

Ø Cost is the amount paid or the fair value of any other consideration given to acquire an asset at the time of its acquisition or construction.

Ø Fair value is the amount for which an asset could be exchanged between

knowledgeable, willing parties in an arm’s length transaction.

Ø Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and impairment losses.

Ø Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Ø Impairment loss is the amount by which the carrying amount of an asset exceeds recoverable amount. Recoverable amount is the higher of an asset’s net selling price and its value in use.

Ø The residual value of asset is the estimated amount that an entity would currently obtain from disposal of the asset.

Ø Useful life is the intended period over which an asset is expected to be available for use by an entity.

Ø Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

ACCOUNTING TREATMENT

Initial measurement

1. An item of property, plant and equipment should be recognised as an asset only if :

a) It is probable that future economic benefits associated with the item will flow to the entity; and

b) Cost of the item can be reliably measured.

2. Property, plant and equipmentis initially recognised at cost, but the standard does not prescribe unit of account for recognition.

3. Safety and environmental assets will be included in this class, if they enable the entity to increase future economic benefits from related assets in excess of what it could derive if they had not been acquired.

4. Cost incurred in respect of day to day servicing are recognised in the profit and loss and not capitalised in this class. Consumables of servicing are usually carried as inventory and recognised in profit or loss when consumed.

5. Parts of some property, plant and equipment may require replacement frequently and the cost of such replacement is included in the carrying amount of the asset, if the criteria of recognition are fulfilled.

6. Cost of an item of property, plant and equipment includes:

a. Purchase price and duties paid.

b. Cost of transportation and cost incurred to make it capable of operating in its intended manner.

c. Initial estimate of the cost of dismantling and removing the asset and restoring site.

d. Material, labour and other inputs for self-constructed asset.

7. Cost of an item excludes general and administrative expenses and start-up cost.

8. The costof an item of property, plant, and equipment might include the effects of Government Grants (IAS 20) deducted from cost or set-up as deferred income.Ind AS 20 does not permit the option of reducing carrying amount.

9. When an asset is exchanged and the transaction has commercial substance, it is recorded at the fair value of the asset received. If the acquired item is not measured at fair value, asset is recorded at the carrying amount.

Subsequent measurement

1. Subsequent to initial measurement, the standard permits two accounting models as its accounting policy and the policy should be applied to an entire class:

a. Cost model: The asset is carried at cost less accumulated depreciation and impairment.

b. Revaluation model: The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation, provided that fair value can be measured reliably.

2. If a revaluation results in an increase in value, it should be credited to equity under the heading "revaluation surplus" unless it represents the reversal of therevaluation decrease of the same asset previously recognised as an expense, in which case it should be recognised as an income.

3. A decrease arising as a result of a revaluation should be recognised as an expense to the extent that it exceeds any amount previously credited to the revaluation surplus relating to the same asset.

4. The depreciable amount (cost less prior depreciation, impairment, and residual value) should be allocated on a systematic basis over the asset's useful life. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change shall be accounted for as a change in accounting estimate in accordance with IAS 8/Ind AS8.

5. The depreciation method used should reflect the pattern in which the asset's economic benefits are consumed by the enterprise. The depreciation method should be reviewed at least annually and, if the pattern of consumption of benefits has changed, the depreciation method should be changed prospectively as a change in estimate under IAS 8/ Ind AS 8. Depreciation should be charged to the statement of comprehensive income, unless it is included in the carrying amount of another asset. Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle.

6. Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable.

7. Carrying amount of an asset should be derecognised and removed from the statement of financial position on disposal or when it is withdrawn from use and no future economic benefits are expected from its use or disposal. The gain or loss on disposal is the difference between the proceeds and the carrying amount and should be recognised in the statement of comprehensive income, except for sale and lease back transaction, which have specific rules in IAS 17/Ind AS 17.

PRESENTATION AND DISCLOSURE

1. For each class of property, plant, and equipment, the following must be presented:

a) Measurement bases for determining carrying amount.

b) Depreciation method used.

c) Useful lives or depreciation rates used.

d) Gross carrying amount and accumulated depreciation (together with accumulated impairment losses) at the beginning and end of the period.

e) A reconciliation of the carrying amount at the beginning and end of the period, showing:

· Additions and disposals, including assets classified as held for sale.

· Acquisitions through business combinations.

· Depreciation.

· Increases or decreases resulting from revaluations and impairment losses recognised or reversed directly in other comprehensive income.

· Impairment losses recognised in profit or loss.

· Impairment losses reserved in profit or loss.

· Net exchange differences arising on translation of financial statement.

· Any other movements.

2. Financial statements should also disclose:

a) The existence and amounts of restrictions on title and asset pledged as security for liabilities.

b) The amount of expenditure recognised in the carrying amount during the course of construction.

c) The amount of contractual commitments for the acquisition of an asset.

d) Compensation from third parties for impairments included in profit or loss.

3. Following must be disclosed along with depreciation method adopted and estimated useful lives or rate of depreciation:

a) Depreciation, whether recognised in profit or loss or as a part of the cost of other assets.

b) Accumulated depreciation at the end of the period.

4. Disclose the nature and effect of a change in an accounting estimate with respect to:

a) Residual values.

b) The estimated costs of dismantling, removing or restoring items of property, plant and equipment.

c) Useful lives.

d) Depreciation methods.

5. If items of property, plant, and equipment are stated at revalued amounts, the following must be disclosed:

a) Effective date of revaluation.

b) Involvement of independent valuer.

c) Methods and assumptions applied in estimating the fair value.

d) Reference to observable prices in an active market.

e) Carrying amount that would have been recognised had the assets been carried under the cost model.

f) Revaluation surplus.

II. INTANGIBLE ASSETS (Ind AS 38 and IAS 38) OBJECTIVE

An intangible asset is one that has no physical form, although it exists from contractual and legal rights and has an economic value. The objective of this standard is to allow entities to identify and recognize separately the value of intangible assets on the Statement of Financial Position. The standard enables users to assess the value as well as the makeup of assets of the entity more accurately.

SCOPE

This standard applies to all intangible assets that are not specifically dealt with in any other standards. Standard prescribes the accounting treatment of intangible assets, including:

§ The definition of an intangible asset.

§ Recognition as an asset.

§ Determination of the carrying amount.

§ Determination and treatment of impairment losses.

§ Disclosure requirements.

DEFINITION

Ø An intangible asset is identifiable non-monetary asset without physical substance; is capable of being separated from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, asset or liability; or that arises from contractual or other legal rights.

Ø Development is the application of research findings or other knowledge to a plan or design for the production of new products or services before the start of commercial production or use.

Ø Research is original and planned investigation for gaining new technical knowledge and understanding.

ACCOUNTING TREATMENT

Recognition

1) An intangible asset is recognizedas an asset ifit meets the definition of an intangible asset; it is probablethat the future economic benefits attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably.

2) Internally generated goodwill may not be recognised. Other internally generated intangible assets that may not be recognised include brands, mastheads, customer lists, and similar items that are not acquired through a business combination.

3) Development expenditure is recognised as an intangible asset if the final product is available for sale or use and subject to the availability of adequate resources to complete the development of the tangible asset. More over entity should have intention to complete the tangible asset and ability to use and sell it.Development expenditurepreviously recognised as an expense cannot be subsequently capitalised as an asset. Research expenditureis recognized as an expense when incurred.

4) Certain expenses like internally generated brands, start-up costs, training costs, advertising and promotion, redundancy and other termination costs, etc. are notrecognized as intangible assets and are expensed.

Initial Measurement

1) On initial recognition, an intangible asset is measured at cost, whether it is acquired externally or developed internally.

2) In case of an internal project, expenditure of creating an intangible asset is treated differently. The research phase and development phase should be distinguished from one another. Research expenditureis treated as an expense. Development expenditurequalifying for recognition is measured at cost and is capitalised.

Subsequent Measurement

1) Subsequent to initial recognition, an entity should select either the cost modelor the revaluation modelas its accounting policy for intangible assets and should apply that policy to an entire class of intangible assets.

2) In cost model the carrying amount of an intangible asset is its cost less accumulated amortization.

3) In revaluation model the carrying amount of an intangible asset is its fair value less subsequent accumulated amortization and impairment losses.

Amortization and impairment

A firm should assess whether the useful lifeof an intangible asset is finiteor infinite. If it is finite, the entity should find the length of its life or the number of units that can produce. An intangible asset with finite useful life is amortized on a systematic basis over the useful life. An intangible asset with an infiniteuseful life should be tested for impairment annually, but not amortized. The firm should review the useful life and the residual value on an annual basis.

Revaluation gain or loss

Increases should be credited directly to other comprehensive income under the heading of revaluation surplus. A reversal of a previous loss for the same asset is reported in profit or loss. Decreases should be recognised in profit or loss. A reversal of a profit previously taken to other comprehensive income can be debited to other comprehensive income.

PRESENTATION AND DISCLOSURE

1) Each class of intangible assets should be separately mentioned as internally generatedand otherintangibles. Accounting policiesshould clearly specify bases of measurement, amortization methods, and useful lives / amortization rates.

2) The Statement of Comprehensive Income andnotesshould disclose the amortization charge for each class of asset, indicating the line item in which it is included and the total amount of research and development costs recognised as an expense.

3) The Statement of Financial Position and notes should disclose:

a) Gross carrying amount less accumulated depreciation of each class of asset at the beginning and end of a period.

b) Carrying amount of intangible asset pledged as security and carrying amount of asset whose title is restricted.

c) Capital commitments for the acquisition.

d) A description on the carrying amount and remaining amortization period of any intangible asset that is material to the financial statement as a whole.

4) For intangible asset acquired by way of Government grant and initiallyrecognised at fair value, the fair value recognised initially, carrying amount and the method of measurement (at benchmark or any alternative treatment) should be disclosed.

III. IMPAIRMNET OF ASSET (Ind AS 36 & IAS 36) OBJECTIVE

The main objective of this standard is to give guidance to determine whether an asset is impaired and how the impairment should be recognised. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the standard requires the entity to recognise an impairment loss. The Standard also specifies when an entity should reverse an impairment loss and disclosure requirements also.The principles in this standard apply to all assets where impairment is not specifically addressed in another standard.

SCOPE OF THE STANDARD

§ This Standard shall be applied in accounting for the impairment of all assets except inventories, assets arising from construction contracts, deferred tax assets, assets arising from employee benefits, financial assets that are within the scope of Ind AS 39/ IAS 39, biological assets related to agricultural activity that are measured at fair

value less costs to sell and non-current assets (or disposal groups) classified as held for sale in accordance with Ind AS 105/ IFRS 5.

§ This Standard also applies to financial assets including subsidiaries(as defined in Ind AS 27 / IAS 27 Consolidated and Separate Financial Statements), associates (as defined in Ind AS 28 / IAS 28 Investments in Associates) and joint ventures(as defined in Ind AS 31/ IAS 31 Interests in Joint ventures.

§ IAS 36 / Ind AS 36 prescribes, the circumstances in which an entity should calculate the recoverable amount of its assets including internal and external indicators or impairment; the measurement of recoverable amounts for individual assets and cash- generating units; and the recognition and reversal of impairment losses.

DEFINITION

Ø An impairment lossis the amount by which the carrying amount of an asset or a cash- generating unit exceeds its recoverable amount.

Ø The recoverable amountof an asset or a cash-generating unit is the higher of its fairvalue less costs to sell and its value in use.

Ø Value in useis the present value of the future cash flows expected to be derived froman asset or a cash-generating unit. If either the net selling price or the value in use of an asset exceeds its carrying amount, the asset is not impaired.

Ø A cash-generating unitis the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets

Ø Corporate assetsare assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other cash-generating units.

Ø Costs of disposalare incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense.

ACCOUNTING TREATMENT

1. On the date of reporting the recoverable amount of an asset should be estimated if there is an indication that the asset could be impaired. But the recoverable amount of the below given assets should be determined annually irrespective of whether there is an indication of impairment.

a) Intangible assets with an indefinite useful life.

b) Intangible assets not yet ready for use.

c) Goodwill.

2. For assessing the indication of impairment, a firm should consider the external sources of information like decline in market value of an asset, increase in market interest rate, whether the carrying amount of the net asset of the entity is more than its market value, etc. and internal sources of information like evidence of physical damage; and evidence from internal reporting indicating an asset is performing worse than expected.

3. While calculating value in use the following factors are to be reflected:

a) Estimate of future cash flows that an entity expected to receive from the asset.

b) Expectation on chance of variation in the amount future ash flows and in its timing.

c) The time value of money, represented by the current market risk-free rate of interest.

d) The price for bearing the uncertainty inherent in the asset.

e) For calculating the value in use firm should use pre-tax future cash flows and pre-tax discount rate.

4. Cash flow estimates for the asset in its present condition should be based on the following:

a) It should reflect management’s best estimate of the range of economic

conditions that will exist over the remaining useful life of the asset.

b) Estimates should beon the basisof most recent financial budgets and forecasts approved by management for a maximum period of five years.

5. If the recoverable amount of an asset is lower than its carrying amount, that carrying amount shall be decreased to its recoverable amount and that reduction is an impairment loss. Impairment loss should be recognised in the profit or loss unless the asset is carried at the revalued amount in accordance with IAS 16 or IAS 38.Once impairment loss is recognised, the depreciation charge for the subsequent period is basedon the revised carrying amount.

6. An entity should reassess the asset at each reporting date to know the indication on an impairment loss recognised in a prior period no longer exist or has reduced. If any such indication exists, firm should estimate the recoverable amount of that asset and impairment loss recognised in prior periods should be reversed.

7. Recoverable amount of an asset should be estimated individually. If it is not possible, the firm should calculate the recoverable amount for the cash generating unit to which the asset belongs. If it is difficult to allocate an asset to cash generating units on a reasonable basis, the entity should identify the units to which assets can be allocated on a reasonable and consistent basis.

8. Impairment loss should be allocated to reduce the carrying amount of the cash generating unit in a particular order. First it should be allocated to goodwill then to other assets of the unit on a pro rata basis.The carrying amount of any asset in the cash-generating unit should not be reduced below its recoverable amount, which is the highest of its fair value less costs to sell or its value in use and zero.

9. A reversal of an impairment loss should be recognized in profit or lossunless the asset is carried at the revalued amount in accordance with IAS 16 or IAS 38, in which case the reversal is treated as a revaluation increase in accordance with that standard. Impairment loss of goodwill may never be reversed.

PRESENTATION AND DISCLOSURE

1. Following should be disclosed for each class of assets and for each IFRS 8’s

reportable segment.

a) Amount of impairment losses and reversal of impairment losses recognised in the statement of comprehensive income.

b) Amount of impairment loss and reversal of impairment losses recognised directly in comprehensive income.

2. Impairment loss of an individual asset or a cash generating unit is recognised or reversed the below given matters also be disclosed:

a) The situation that led to the loss being recognised or reversed.

b) Amount of loss recognised or reversed.

c) Details on the nature of asset and the reportable segment.

d) Whether the recoverable amount is the net selling price or value in use.

e) Basis of determining selling price or the basis of discount rate used to determine value in use.

3. If the recoverable amount is based on value in use or fair value less cost to sell, the following should be disclosed:

a) Description of the key assumptions used.

b) A description of the approach to determine the values assigned to each assumption.

c) The period over which the cash flow has been projected.

d) The growth rate and the discount rate.

.V. BORROWING COST (IAS23 &Ind AS23) OBJECTIVE

The acquisition, construction, or production of certain assets can take long period than one accounting period. If borrowing costs incurred during a period are directly attributable to specific qualifying assets, under certain circumstances it will be legitimate to regard thesecosts as forming part of the costs of getting such assets ready for their intended use or sale.

This standard defines a qualifying asset and provides guidance on which borrowing costs should be capitalized and included in the carrying amount of a qualifying asset. This guidance addresses instances in which the funds are specifically borrowed to obtain a qualifying asset and where the entity utilizes funds from their general borrowings.

SCOPE

§ This standard applies to borrowing cost incurred by an entity in connection with borrowing of funds.

§ This guidance is not applicable to borrowing costs that are directly attributable to qualifying assets measured at fair value or inventories that are produced in large quantities on a repetitive basis over a short period of time.

§ The Standard does not deal with the actual or imputed cost of equity, including preferred capital not classified as a liability.

.DEFINITION

Ø Borrowing costs mean interest and other costs that an entity incurs in connection with the borrowing of funds. It includes:

a) Interest calculated using the effective interest rate method as described inInd AS 39/ IAS 39.

b) Finance charges in respect of finance -leases as set out inInd AS17 /IAS 17.

c) Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest cost.

Ø Qualifying assetsare those assets that require a substantial time to bring to their intended use or saleable condition.Examples are inventories requiring a substantial period to bring them to a saleable condition, manufacturing plants, power generating facilities etc.

ACCOUNTING TREATMENT

Recognition

1. Borrowing costs that are directly attributable to the acquisition or production of a qualifying asset should be capitalised when it is probable that they will bring future economic benefit to the entity and the costs can be measured reliably.

2. Borrowing costs not coming in the above category are recognised as an expense in the period in which they are incurred. Capitalisation should be suspendedduring extended periods in which the active development of the asset is interrupted.

3. Capitalisation commence when all of the below given conditions have been met:

a) Expenditure on aqualifying asset are being incurred.

b) Borrowing costs are being incurred.

c) Works necessary to bring the asset for its intended sale or use are in progress.

4. An entity shall cease capitalising when the asset is materially ready for its intended use or sale or when the construction is completed in part and the complete part can be independently used. Capitalisation should not cease when there is a brief interruption in activities or when it is delayed and that delays are inherent in the asset acquisition process.

Measurement

1. If funds are specifically borrowed to obtain a particular asset, the amount qualifying for capitalisation is the actual cost less income earned on the temporary investment of those borrowing.

2. If funds are borrowed generally and used to obtain an asset, the amount of borrowing costs to be capitalised should be determined by applying the weighted average of the borrowing costs to the expenditure on that asset.

3. The amount capitalised during a period should not exceed the amount of borrowing costs incurred during that period. If the carrying value of an asset (inclusive of capitalised interest) exceeds the net realisable value, the asset should be written to the NRV.

DISCLOSURE

1. An entity shall disclose the following:

a) The amount of borrowing cost capitalised during the period.

b) The capitalisation rate used to determine the amount of borrowing cost eligible for capitalisation.

Questions for Practices

I. Short Answer Type

1. What are the two different accounting treatments specified for the subsequent measurement of an asset?

2. What are the factors considered when estimating the useful life of a depreciable asset?

3. How is revaluation gain accounted as per Ind AS 16?

4. Define Intangible assets.

5. Define depreciation and depreciable asset.

6. What do you mean by carrying amount?

7. How an intangible asset is acquired?

8. What do you mean by development cost?

9. Comment on ‘value in use’.

10. How is an intangible asset with indefinite useful life recognised as per Ind AS 38?

11. What are the two different indications of possible impairment?

12. Define impairment.

13. What do you mean by reversal of impairment loss?

14. Define fair value.

15. Define carriage inwards as an element of cost of goods produced.

16. What do you mean by cost to complete and sell?

17. What will be the effect on current ratio when the closing inventory is understated by a certain amount?

18. Define borrowing cost.

19. What is a qualifying asset as per Ind AS 23?

20. Define capitalisation rate as per Ind AS 23.

II. Short Essay Type

1. Discuss the review of depreciation method in light of Ind AS 16.

2. State whether the following is correct or incorrect and quantify your views in brief: ‘Ind AS 16 applies to tangible non-current assets including biological assets and mineral rights’.

3. How impairment loss on property, plant and equipment is dealt with as perInd AS 16?

4. How is revaluation decrease accounted for when there exists a previously made revaluation increase which is shown as revaluation surplus under equity?

5. Comment on the components of cost of asset as per Ind AS 16.

6. How is cost of an internally developed intangible asset recognised as per Ind AS 38?

7. How is an intangible asset with finite useful life amortised as per Ind AS 38?

8. State whether the following is correct or incorrect and quantify your views in brief. ‘Ind AS 38 deals with the recognition of internally generated brands, mastheads, publishing titles and customer lists and similar items of intangible assets’

9. How is the disposal or retirement of intangible assets accounted for as per Ind AS 38?

10. How an intangible asset is measured when it is recognised initially? List out the conditions to be fulfilled for recognising the same as an intangible asset.

III. Essay Type

1. What are the disclosure requirements for each class of property, plant and equipment as per Ind AS 16?

2. How the retirements and disposals of property, plant and equipment is dealt with in Ind AS 16?

3. How is the research and development cost is recognised as an intangible asset as per Ind AS 38?

4. How is the useful life of an intangible asset assessed as per Ind AS 38?

5. Which are the assets that must be tested for impairment annually even when there are no indications of impairment? Discuss the steps in testing the said assets for impairment.

6. Define various components that form part of cost of purchase?

7. Elaborate the various methods used for the valuation of inventories?

8. What is the accounting treatment for fixed and variable production overheads in the cost of production?

9. Describe the method used for cessation of capitalisation where the asset is completed in different stages.

10. Discuss the cases where the capitalisation of borrowing cost is to be done.

MODULE- 3

REVENUE AND LIABILITY BASED ACCOUTING STANDARDS

An increase in economic benefits during the accounting period in the form of inflows or enhancements of assets, or decreases of liabilities that result in an increase in equity (other than those relating to contributions from equity participants) is called as income. Income comprises both revenue and gains. Revenue is defined as the gross inflow of economic benefits (cash, receivables, other assets) arising from the ordinary operating activities of an enterprise (such as sales of goods, sales of services, interest, royalties, and dividends).A gain is the amount received that is in excess of the asset's carrying amount (book value). Liabilities are present obligations of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.

The present chapter is dealing with dealing with Recognition, Measurement, Presentation and disclosure of Revenue and Liabilities such as:

1. Revenue from contract with customer (IFRS 15 and Ind AS 115)

2. Income Tax (IAS 12 and Ind AS 12)

3. Employee Benefits (IAS 19 and Ind AS 19)

4. Provisions, Contingent liabilities and Contingent Assets (IAS 37 and Ind AS 37)

5. Share Based Payment (IFRS 2 and Ind AS 102)

I. REVENUE FROM CONTRACTS WITH CUSTOMERSb (IFRS -15 and IND AS- 115)

OBJECTIVE

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

An entity shall consider the terms of the contract and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.

SCOPE

Applies to all contracts with customers, except:

1. Lease contracts (refer to IAS 17)

2. Insurance contracts (refer to IFRS 4)

3. Financial instruments and other contractual rights or obligations (refer to IFRS 9/IAS 39, IFRS 10, IFRS 11, IAS 27, and IAS 28)

4. Certain non-monetary exchanges.

The standard can significantly change how entities recognise revenue, especially those that currently apply industry-specific guidance. The standard will also result in a significant increase in the volume of disclosures related to revenue.

DEFINITIONS

1. Contract: An agreement between two or more parties that creates enforceable rights and obligations.

2. Revenue: Income arising in the course of an entity’s ordinary activities

3. Performance obligation: A promise to transfer to the customer either:

(i) A distinct (bundle of) good(s) or service(s)

(ii) A series of substantially the same distinct goods or services that have the same pattern of transfer to the customer, and the pattern of transfer is both over time and represents the progress towards complete satisfaction of the performance obligation.

4. Customer: A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

5. Income: Increases in economic benefits in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity (other than those from equity participants).

6. Stand-alone selling price: The price at which a good or service would be sold separately to a customer.

7. Contract cost, entities sometimes incur costs (such as sales commissions or mobilisation activities) to obtain or fulfill a contract.

8. Variable consideration - Entities may agree to provide goods or services for consideration that varies upon certain future events which may or may not occur. Examples include refund rights, performance bonuses and penalties. This can sometimes be driven by the past practice of an entity or industry, for example, if there is a history of providing discounts or concessions after the goods are sold.

MEASUREMENT AND RECOGNITION

(i) Entities need to apply IFRS 15 for reporting periods beginning on or after 1 January 2017 (early application permitted);

(ii) IFRS 15 will replace the following standards and interpretations:

o IAS 18 Revenue,

o IAS 11 Construction Contracts

o SIC 31 Revenue – Barter Transaction Involving Advertising Services

o IFRIC 13 Customer Loyalty Programs

o IFRIC 15 Agreements for the Construction of Real Estate and

o IFRIC 18 Transfer of Assets from Customers

(iii) The core principle of IFRS 15 is that an entity will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration (payment) to which the entity expects to be entitled in exchange for those goods or services.

While applying the Ind AS 115(IFRS 15), entities will have to follow the following five- step process:

1. Identify the contract with a customer - Contracts can be oral or written.

2. Identify the separate performance obligations in the contract - A performance obligation is a promise to transfer a distinct good or service to a customer. The promise can be explicit, implicit or implied by an entity’s customary business practice.

3. Determine the transaction price - The transaction price is the amount of consideration that an entity expects to be entitled to in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of a third party.

4. Allocate the transaction price to the separate performance obligations - The transaction price is allocated to the separate performance obligations in a contract based on the relative stand-alone selling prices of the goods or services promised.

5. Recognise revenue when (or as) each performance obligation is satisfied - The final step in the model is recognising revenue. An entity will recognise revenue when (or as) a good or service is transferred to the customer and the customer obtains control of that good or service.

Under this, revenue is to be measured at the amount of consideration to which the entity expects to be entitled (rather than contractually specified) in exchange for transferring promised goods & services. Unlike AS 9 where no guidance is available, this standard introduced the concept of variable consideration. Under the new standard, if transaction price is subject to variability, an entity would be required to estimate transaction price by using either (i) the expected value (probability-weighted) approach or (ii) the most likely amount approach depending on which method the entity expects to better predict the amount of consideration to which the entity is entitled.

As far as services are concerned, entity should recognize revenue over time by measuring progress towards completion. Under the new standard, entities recognise revenue as “control” of the goods or services underlying a performance obligation are transferred to the customer. This control-based model differs from the risks-and-rewards model generally applied under current revenue recognition guidance. Entities must first determine whether control is transferred over time.

Contract cost, entities sometimes incur costs (such as sales commissions or mobilisation activities) to obtain or fulfill a contract. Contract costs that meet certain criteria will be capitalised as assets and amortised as revenue under the new standard. Such capitalised costs will require a periodic review for recoverability and impairment, if applicable.

DISCLOSURE

Ind AS 115 and IFRS 15 prescribes a cohesive set of disclosure requirements including both qualitative and quantitative information about the nature, amount, timing and uncertainty of revenue and cash flows from contract with customer, specially information about;

(i) Disaggregated information - Revenue recognised from contract with customer, including disaggregation of revenue into appropriate categories.

(ii) Contract balances - including opening and closing balances of receivables, contract assets and contract liabilities and a description of its significant changes.

(iii) Performance obligations – Including when the entity typically satisfies its performance obligation and transaction price that is allocated to the remaining performance obligations and an explanation of when revenue is expected to be recognised.

(iv) Significant judgments and changes in judgments – made in applying the requirement of those contracts. And

(v) Asset recognised – from costs to obtain or fulfill a contract with a customer

MODULE 5

DISCLOSURE RELATED ACCOUNTING STANDARDS

In forming a safe environment for stakeholders, corporate governance rules should focus on creating a culture of transparency. Transparency refers to making information on existing conditions, decisions, and actions accessible, visible, and understandable to all market participants. Disclosure refers more specifically to the process and methodology of providing the information and of making policy decisions known through timely dissemination and openness. Transparency is a prerequisite for accountability, especially to borrowers and lenders, issuers and investors, national authorities, and international financial institutions. Here arises the importance of disclosure standards.

The adoption of internationally accepted financial reporting standards is a necessary measure to facilitate transparency and contribute to proper interpretation of financial statements. This chapter specially dealing with disclosure related accounting standards such as:

1. Accounting for financial and operating leases (IAS 17 and Ind AS 17)

2. Accounting for basic and diluted EPS ( IAS 33 and Ind AS 33)

3. Accounting for agriculture (IAS 41 and Ind AS 41)

4. Disclosure of related party transaction (IAS 24 and Ind AS 24)

5. Interim reporting (IAS 34 and Ind AS 34)

6. Operating segment (IFRS 8 and Ind AS 108)

I. ACCOUNTING FOR FINANCIAL AND OPERATING LEASES (IAS 17 AND IND AS 17)

Lease is an agreement whereby the lessor conveys to lessee in return for a payment or series of payments the right to use an asset for an agreed period of time including contracts giving hirer an option to acquire title to asset by paying an extra amount usually at end of the contract (as in the case of hire purchase contracts)

OBJECTIVE

The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to leases.

SCOPE

IAS 17 applies to all leases other than lease agreements for minerals, oil, natural gas, and similar regenerative resources and licensing agreements for films, videos, plays, manuscripts, patents, copyrights, and similar items.

However, IAS 17 does not apply as the basis of measurement for the following leased assets:

a) Property held by lessees that are accounted for as investment property for which the lessee uses the fair value model set out in IAS 40.

b) Investment property provided by lessors under operating leases

c) Biological assets held by lessees under finance leases

d) Biological assets provided by lessors under operating leases

DEFINITIONS

1. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

2. Financial lease: A lease that transfers substantially all the risks and rewards incidental to ownership. The title may or may not eventually be transferred.

3. Operating lease: lease other than a financial lease.

4. Minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required exercising it.

5. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

6. Unearned finance income is the difference between :(a) the gross investment in the lease, and (b) the net investment in the lease.

7. Gross investment in the lease is the aggregate of:(a) the minimum lease payments receivable by the lessor under a finance lease, and (b) any unguaranteed residual value accruing to the lessors.

8. Unguaranteed residual value is that portion of the residual value of the leased asset, the realisation of which by the lessor is not assured or is guaranteed solely by a party related to the lessor.

MEASUREMENT AND RECOGNITION

Accounting by Lessees:

ú Lease payments under an operating lease shall be recognised as an expense on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit

ú At commencement of the lease term, finance leases should be recorded as an asset and a liability at the lower of the fair value of the asset and the present value of the minimum lease payments (discounted at the interest rate implicit in the lease, if practicable, or else at the enterprise’s incremental borrowing rate);

ú Finance lease payments should be apportioned between the finance charge and the reduction of the outstanding liability (the finance charge to be allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability);

ú The depreciation policy for assets held under finance leases should be consistent with that for owned assets. If there is no reasonable certainty that the lessee will obtain ownership at the end of the lease – the asset should be depreciated over the shorter of the lease term or the life of the asset;

Accounting by Lessors:

1. Operating leases

· Lessors shall present assets subject to operating leases in their statements of financial position according to the nature of the asset.

· The depreciation policy for depreciable leased assets shall be consistent with the lessor’s normal depreciation policy for similar assets, and depreciation shall be calculated in accordance with IAS 16 and IAS 38.

· Lease income from operating leases shall be recognised in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.

2. Finance Leases

· Lessors shall recognise assets held under a finance lease in their statements of financial position and present them as a receivable at an amount equal to the net investment in the lease.

· The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment in the finance lease.

Sale and Leaseback transactions

A sale and leaseback is a transaction where one entity sells an asset to another entity (often a bank) and leases back the same asset. If it results in a finance lease ownership never really passes and remains with the seller/lessee. If it results in an operating lease ownership passes to the buyer/lessor. If the leaseback is a finance lease, it is inappropriate to recognize the profit as income immediately. Any excess of sales proceeds over the carrying amount of the related asset should be deferred (an unearned income liability is recognized) and amortized to profit and loss over the lease term. The transaction is a means whereby the lessor provides finance to the lessee and the lessor retains risks and rewards of ownership.

PRESENTATION AND DISCLOSURE:

Lessees—Finance Leases:

Lessee in financial lease must present and disclose:

1. The net carrying amount at reporting date for each class of asset;

2. A reconciliation between the total future minimum lease payments and the present values of the lease liabilities in three periodic bands, namely:

· not later than one year;

· later than one year but not later than five years; and

· later than five years;

3. All related disclosures under IAS 16, IAS 36, IAS 38, and IAS 40 as relevant to the leased asset;

4. General description of material leasing arrangements, such as the basis for contingent rent, the existence and terms of renewal, purchase options and escalation clauses, and restrictions imposed for further leasing;

5. Distinction between current and noncurrent lease liabilities;

6. The total future minimum sublease payments expected to be received under non- cancellable subleases at reporting date;

7. Contingent rents recognized in expenses for the period; and

8. The relevant requirements of IFRS 7, for example liquidity analysis, impairment, and credit risk.

Lessees—Operating Leases: should disclose:

1. General description of significant leasing arrangements (same information as for finance leases above);

2. lease and sublease payments recognized as an expense in the current period, separating minimum lease payments, contingent rents, and sublease payments;

3. future minimum no cancellable lease payments in the three periodic bands as described for finance leases; and

4. The total future minimum sublease payments expected to be received under noncancellable subleases at reporting date.

Lessors—Finance Leases: Should disclose:

1. a reconciliation of the total gross investment in the lease and the present value of minimum lease payments receivable at reporting date, in the three periodic bands as described above;

2. unearned finance income;

3. the accumulated allowance for uncollectible minimum lease payments receivable;

4. contingent rents recognized in income in the period;

5. general description of material leasing arrangements; and

6. Unguaranteed residual values accruing to the lessor.

Lessors—Operating Leases: Should disclose

1. All related disclosures under IAS 16, IAS 36, IAS 38, and IAS 40 as relevant to the leased asset;

2. general description of leasing arrangements;

3. total future minimum lease payments under noncancellable operating leases in the

three periodic bands as described; and

4. Total contingent rents recognized in income for the period.

For sale and leaseback transactions, the same disclosure requirements as for lessees and lessors above apply. Some items might be separately disclosable in terms of IAS 1

Questions for Practices

I. Short Answer type.

1. Define the term ‘lease’.

2. What is financial lease?

3. What is operating lease?

4. What is Minimum Lease Payment (MLP)?

5. What is “gross investment”?

6. Define ‘Unearned finance income’.

7. What is sale and leaseback transaction?

8. What is ‘Basic earnings per share’?

9. What is ‘diluted earnings per share’?

10. Differentiate ordinary share from potential earning per share.

11. What is biological asset? Give examples.

12. What is harvest?

13. State the scope of IAS 41?

14. Give examples of ‘point of sale cost.

15. Who is “Related party”?

II. Short Essay type questions

1. State the objective and scope of Ind AS 17.

2. Differentiate between financial lease and operating lease with suitable examples.

3. What is accounting treatment of financial and operating lease?

4. How do you measure and recognise “earning per share”?

5. What are disclosure requirement as per IAS 24 and Ind AS 24?

6. How do you measure Basic EPS and diluted EPS?

7. What are disclosure requirements as per IAS-33?

8. Briefly state objectives and scope of IFRS 8, operating segment’.

9. How do you measure and recognise ‘Related party transaction?

10. Briefly explain accounting treatment of “interim financial reporting, IAS 34”.

III. Essay type questions:

1. Briefly explain disclosure related reporting standards.

2. Briefly state objective, scope, measurement and recognition and disclosure requirements under Ind AS (IAS 17).

3. Briefly state objective, scope, measurement and recognition and disclosure requirements under Ind AS 33 (IAS 33).

4. Briefly state objective, scope, measurement and recognition and disclosure requirements under Ind AS 34 (IAS 34).

5. Briefly state objective, scope, measurement and recognition and disclosure requirements under Ind AS 24 (IAS 24).

III. EVENTS AFTER THE REPORTING DATE (AS 10 &Ind AS10)

Objective

There will always be a time delay between the end of the reporting period and the date on which the financial statements are authorized for issue. In the meantime, some events will take place and they should be accounted in the financial statements. Objective of this standard is to prescribe:

a. When an entity should adjust its financial statement for events after the reporting period.

b. The disclosure that an entity should give about the date when the financial statement is approved for issue and about events after reporting period.

Standard also suggests that an entity should not prepare its financial statement on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.

Scope

This standard covers the following:

i) Accounting treatment of events after the reporting period

ii) Disclosure on events after the reporting period

Definition

Events after the reporting period: Events after the reporting period are those events, both favourable and unfavourable, that occur between the reporting date and the date on which the financial statements are authorised for issue. Two types of events can be identified:

i) Events that provide evidence of conditions that existed at the end of the reporting period (adjusting events after the reporting period)

ii) Events that are indicative of conditions that arose subsequent to the reporting period (non- adjusting events after the reporting period)

Accounting Treatment

1. Amounts recognised in the financial statements of an entity shall adjust to reflect the adjusting events after the reporting period.

2. An entity shall not adjust the amount recognised in the financial statement to reflect non-adjusting events after the reporting period.

3. Dividend declared after the reporting period is a special case. Even if they are stated to be in respect of the period covered by the financial statements, they should not be provided for. They should simply be disclosed in the notes.

4. An entity should not prepare financial statements on a going-concern basis if management determines after the reporting period that it intends to either liquidate the entity or cease trading.

Presentation and Disclosure

1. Disclosure requirements in connection with authorisation for issue of financial statements are:

a. Date of authorisation given for issuing financial statements

b. Name of the person who gave authorisation

c. Name of the person having power to amend the statements after issuance.

2. Material non-adjusting events after the reporting period will influence the economic decision of the users, if it is not disclosed in the statements. Disclosure requirements related to the material non-adjusting events after reporting period are as follows:

a. The nature of such events

b. An estimate of the financial effect, or a statement that such an estimate cannot be made

3. An entity needs to update the disclosure in the financial statements to reflect the information received after the reporting period, even when the information does not affect the amount that it recognises in its financial statements.

IV. CASH FLOW STATEMENT (IAS 7 &Ind AS7)

Objective

Users of the financial statements require estimates on cash resources and use of cash resources of an entity for assessing the solvency and liquidity position. The purpose of IAS7/ IndAS7 is to provide guidance on the manner in which the cash flow information should be presented. Cash flow statements are relevant for identifying details like movement in cash balance for the period, timing and certainty of cash flow, ability of the entity to generate cash resources and prediction of future cash flows.

Scope

An entity shall prepare a statement of cash flows in accordance with the

requirements of this standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented.

Definition

1. Cash: Cash comprises cash on hand and demand deposits (net of bank overdrafts repayable on demand).

2. Cash Equivalents: Cash equivalentsare short-term, highly liquid investments (such as short-term debt securities) that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

DECISION TREE showing cash equivalent

3. Cash Flows: Cash flows are the inflows and outflows of cash and cash equivalents.

4. Operating activities: Operating activities are the major revenue producing activities of the entity and other activities that are not investing or financing activities.

5. Investing activities: Investing activities are the acquisition and disposal of non-current assets and other investments not included in cash equivalents.

6. Financing activities: Financing activities are activities that result in changes in the size and composition of the equity capital and borrowings of the entity.

Accounting Treatment

Cash Flows from Operating Activities

1. Operating activities are the prominent part of the statement because it shows whether, and to what extent, entity can generate cash from their principal operation. Most of the items of cash flows from operating activity are affecting the profitability of the entity. The standard suggests the following as examples of cash flows from operating activities.

a) Proceeds of the sale of goods or rendering of services

b) Royalties, fees, commissions and other revenue received

c) Payments to suppliers of goods and services

d) Payments made to employees

e) Cash receipts and cash payments of an insurance entity for premiums and claims

f) Cash payments or refunds of income taxes unless they can be specifically identifies with financing and investing activities

g) Cash receipts and payments from contract held for dealing or trading purposes

2. Cash flows from operating activities are reported using either the direct or indirect method. Entities are encouraged to use direct method because it provides additional information that may be useful in estimating future cash flows.

a) Direct method discloses major classes of gross cash receipts and gross cash payments

b) In indirect method, net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferral or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows

Cash Flows from Investing Activities

1. Cash flows from investing activities represent the inflows and outflows from the acquisition and disposal of assets and other investments. Examples for cash flows arising from investing activities are;

a) Payments to acquire property, plant and equipment, intangible and other long-term assets, including the payment made for capitalised development and self-constructed property, plant and equipment.

b) Receipt from sale of property, plant and equipment, intangible and other long term assets.

c) Cash payments to acquire share or debentures of other entities.

d) Cash receipts from sale of share or debentures of other entities.

e) Cash advances and loan made to other parties.

f) Receipts from repayment of loans and advances.

g) Cash payments for future contracts, forward contract, option contracts and swap contracts, if they are not held for trading purpose.

h) Cash receipts from future contracts, forward contract, option contracts and swap contracts, if they are not held for trading purpose.

2. Cash flows from investing activities are reported as follows:

a) Major classes of gross cash receipts and gross cash payments are reported separately

b) The aggregate cash flows from acquisitions or disposals of subsidiaries and other business units are classified as investing

Cash Flows from Financing Activities

1. Cash flows from financing activity represent the inflows and out flows of cash resulting from changes in the size and composition of the equity capital and borrowings of the entity. Examples for cash flows from financing activities are:

a) Cash proceeds from issue of shares.

b) Cash payments to owners acquire or redeem equity shares.

c) Cash proceeds from issue of debentures, loans, notes, etc. and other short term and long-term borrowings.

d) Repayments of amount borrowed.

e) Cash payments by a lessee for the reduction of theoutstanding liability relating to a finance lease.

2. Cash flows from financing activities are reported by separately listing major classes of gross cash receipts and gross cash payments.

3. Cash flows of the following activities may be reported on a net basis;

a) Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity.

b) Cash receipts and payments for items in which the turnover is quick, the amount is large, and the maturities are short.

DECISION TREE showing Classification of cash flows among

4. Cash flow generating from transaction made in foreign currency shall be recorded in functional currency after considering the exchange rate at the date of cash flow. The cash flows of a foreign subsidiary shall be translated by applying the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.

5. In case of associates and joint ventures, where the equity method is used, the statement of cash flows should report only cash flows between the investor and the investee. Cash flows from joint ventures are proportionately included in the statement of cash flows if the joint venture is proportionally consolidated.

6. Interest and dividends received and paid may be classified as operating, investing, or financing cash flows, provided that they are classified consistently from period to period.

7. Cash flows arising from taxes on income shall be separately disclosed and are normally classified as operating, unless they can be specifically identified with financing or investing activities.

Presentation and Disclosure

1. An entity should disclose the following;

a) Components of cash and cash equivalents and a reconciliation of the amount in its cash flow statement with the same items reported in the statement of financial position.

b) Details about non-cash investing and financing transactions (example: conversion of equity in to debt).

c) Amount of cash and cash equivalents that are not available for use by the group.

d) The amount of undrawn borrowing facilities which are available .

e) Aggregate amount of cash flows from each of the three activities related to interest in joint ventures that are proportionally consolidated.

f) Amount of cash flows arising from each of the three activities regarding each reportable operating segment.

g) Cash flows that represent an increase in operating capacity and those that represent the maintenance of it.

2. Below given items related to purchase or sale of a subsidiary or business unit should be disclosed in aggregate:

a) Total consideration of purchase or disposal.

b) Consideration paid in cash and equivalents.

c) Amount of cash or equivalents available in purchased or disposed entity.

d) Total of assets and liabilities other than cash or equivalents in the entity purchased or disposed.

Performa of Cash Flow Statement:

a. Direct Method

Statement of Cash flows for the year ended 31^st March, 20XX

Particulars	Amount	Amount
Cash flows from operating activities
Cash receipts from customers	XXXXX
Cash payments to suppliers and employees	(XXX)
Net cash generated by operations	XXXX
Interest paid	(XXX)
Taxation paid	(XXX)
Dividends paid	(XXX)
Net cash from / (used in) Operating activities		XXXX
Cash flow from investing activities
Purchases of Property, Plant and Equipment	(XXXX)
Sale proceeds of Machinery	XXX
Dividend received	XXX
Interest received	XXX
Loan to directors	(XXX)
Net cash from / (used in) Investing activities		(XXXX)
Cash flows from financing activities
Decrease in long term loan	(XXX)
Repayment of Share capital	(XXX)
Net cash from / (used in) financing activities		(XXXX)
Net increase/(decrease) in bank balance for the period	XXX
Bank balance at the beginning of the year	XXX
Cash and cash equivalents / (Overdraft) at the end of the year		XXX

b. Indirect Method

Statement of Cash flows for the year ended 31^st March, 20XX

Particulars	Amount	Amount
Cash flows from operating activities
Net profit before taxation and extra-ordinary items	XXXX
Adjustment for:
Depreciation	XXX
Foreign exchange loss	XXX
Interest Income	(XXX)
Dividend income	(XXX)
Interest expense	XXX
Operating profit before working capital changes	XXXX
Increase in sundry debtors	(XXX)
Decrease in inventories	XXX
Decrease in sundry creditors	(XXX)

Pages

Thursday, March 25, 2021

IFRS Notes

Meaning of financial statements

Objectives of preparing financial statements

Uses of financial statement to users

Concept of Accounting Standards:

Requirements for international accounting standards

IASB (International Accounting Standard Board)

FASB (Financial Accounting Standard Board)

Role of IASB in IFRS Setting Process

IFRS Adoption or Convergence in India

2. Mandatory Applicability Phase I

Phase II

IFRS (International Financial Reporting Standards)

Ind AS

Elements of Conceptual Framework

Questions for Practices

II. Short Essay Type

III. Essay Type

Presentation and Disclosure

Financial statements should be clearly distinguished from the document published. Each component of the financial statements should be clearly identified with following information:

Statement of Financial Position (Balance Sheet)

The performance of a company is reported in the statement of profit or loss and other comprehensive income. IAS 1, Presentation of Financial Statements, defines profit or loss as ‘the total of income less expenses, excluding the components of other comprehensive income’.

Statement of Changes in Equity

Format and Presentation of Financial Statements

Statement of Comprehensive Income of ABC Ltd. Co. for the year ended 31st March 2016.

Notes to Financial Statements

i) Applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and

I. PROPERTY, PLANT AND EQUIPMENT (Ind AS 16 and IAS 16) OBJECTIVE

SCOPE

DEFINITIONS

PRESENTATION AND DISCLOSURE

II. INTANGIBLE ASSETS (Ind AS 38 and IAS 38) OBJECTIVE

SCOPE

DEFINITION

ACCOUNTING TREATMENT

Initial Measurement

Subsequent Measurement

Amortization and impairment

Revaluation gain or loss

PRESENTATION AND DISCLOSURE

DEFINITION

PRESENTATION AND DISCLOSURE

.V. BORROWING COST (IAS23 &Ind AS23) OBJECTIVE

SCOPE

ACCOUNTING TREATMENT

Measurement

Questions for Practices

II. Short Essay Type

III. Essay Type

MODULE- 3

REVENUE AND LIABILITY BASED ACCOUTING STANDARDS

I. REVENUE FROM CONTRACTS WITH CUSTOMERSb (IFRS -15 and IND AS- 115)

SCOPE

DEFINITIONS

MEASUREMENT AND RECOGNITION

DISCLOSURE

I. ACCOUNTING FOR FINANCIAL AND OPERATING LEASES (IAS 17 AND IND AS 17)

OBJECTIVE

SCOPE

DEFINITIONS

MEASUREMENT AND RECOGNITION

Sale and Leaseback transactions

PRESENTATION AND DISCLOSURE:

Lessors—Operating Leases: Should disclose

Questions for Practices

II. Short Essay type questions

III. Essay type questions:

There will always be a time delay between the end of the reporting period and the date on which the financial statements are authorized for issue. In the meantime, some events will take place and they should be accounted in the financial statements. Objective of this standard is to prescribe:

Standard also suggests that an entity should not prepare its financial statement on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.

This standard covers the following:

An entity shall prepare a statement of cash flows in accordance with the

Cash Flows from Financing Activities

Statement of Comprehensive Income of ABC Ltd. Co. for the year ended 31^st March 2016.