Financial Reporting under Ind AS and AS by Bloomsbury India Professional

Financial Reporting under

Ind AS and AS Covering Schedule III, ICDS and ICAI Guidance Notes (Updated as per Ind AS 115, Ind AS 116, Schedule III, Division III for NBFCs )

Includes 600+ Practical illustrations, issues and charts

B.D. Chatterjee B.Com (Hons), ACA, ACMA, ACS, Dip IFR (ACCA - UK)

Bloomsbury Professional India

Second Edition

Contents at a glance About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii List of illustratioins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlix Table of contents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Chapter 1

Financial Reporting under Companies Act, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1

Chapter 2

Operating Cycle & Current Noncurrent classification. . . . . . . . . . . . . . . . . . . . . . . 2.1

Chapter 3

Shareholders’ Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1

Chapter 4

Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1

Chapter 5

Current Liabilities and Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1

Chapter 6

Non-current Assets – Tangible & Intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1

Chapter 7

Non-current investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1

Chapter 8

Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1

Chapter 9

Contingent Liabilities and Contingent Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1

Chapter 10

Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1

Chapter 11

Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1

Chapter 12

Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1

Chapter 13

Foreign Currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1

Chapter 14

Disclosures under Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1

Chapter 15

Other Provisions and Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1

Chapter 16

Corporate Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1

Chapter 17

Consolidation of Parent with Subsidiaries, Associates and Joint Ventures. . . . . . 17.1

Chapter 18

Transitional Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1

Chapter 19

Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.1

Chapter 20

Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1

Table of contents About the authors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Contents at a glance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix List of illustratioins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlix Financial Reporting under Companies Act, 2013. . . . . . . . . . . . . . . . . . . . . . . . 1.1 Chapter 1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 1.1 1.2 Companies Act, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 1.2.1 Books of Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 1.2.2 Period for which books of account to be kept. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.3 Format of Balance Sheet and Profit & Loss Account . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.4 Applicability of Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.5 Extension of Financial Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.6 Accounts of subsidiary company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.7 Attaching of Accounts of subsidiary company. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 1.2.8 Re-opening of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.2.9 Voluntary revision of Financial Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.2.10 National Financial Reporting Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.2.11 Board of Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 1.2.12 Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.2.13 Internal audit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.2.14 Precedence of Companies Act and Accounting Standards over Schedule III. . . . 1.8 1.2.14.1 Accounting Standards (AS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 1.2.15 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 1.3 Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14 1.3.1 Structure of Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15 1.3.2 Salient features of the Balance Sheet format under Schedule III Part I . . . . . . . 1.15 1.3.3 Division –I Financial Statements for a Company whose Financial Statements are required to Comply with the Companies (Accounting Standards) Rules, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15 1.3.3.1 Balance Sheet: Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 1.3.3.2 General Instructions for Preparation of Balance Sheet. . . . . . . . . 1.18 1.3.3.3 Statement of Profit & Loss: (Schedule III – Part II). . . . . . . . . . . 1.28 1.3.3.4 General instructions for preparation of consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.33 1.4 Division II: Financial Statements for a company whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.35

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1.4.1

1.5

1.6

xii

General instructions for preparation of financial statements of a company required to comply with Ind AS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.1.1 Balance Sheet: Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.1.2 Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.1.3 General instructions for preparation of balance sheet. . . . . . . . . . 1.4.1.4 Statement of Profit and Loss: Part II. . . . . . . . . . . . . . . . . . . . . . . 1.4.1.5 General instructions for preparation of statement of profit and loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III - General instructions for the preparation of 1.4.1.6 consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2 Division III : Financial Statements for a Non-Banking Financial Company (NBFC) whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015. . . . 1.4.2.1 General instructions for preparation of financial statements of a non-banking financial company (NBFC) that is required to comply with Indian Accounting Standards (Ind AS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2.2 Part I –Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2.3 Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2.4 General instructions for preparation of balance sheet. . . . . . . . . . 1.4.2.5 Part II – Statement of Profit and Loss. . . . . . . . . . . . . . . . . . . . . . 1.4.2.6 General instructions for preparation of statement of profit and loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4.2.7 Part III – General instructions for the preparation of consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . AS 1 : Disclosure of Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.2 Fundamental accounting assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.3 Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.4 Considerations that determine selection and application of accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.5 Disclosure Requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.6 Comparative Analysis of General Instructions for preparation of Financial Statements of a Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5.7 Balance Sheet Comparison (Schedule III Part I). . . . . . . . . . . . . . . . . . . . . . . . . Ind AS 1: Presentation of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.4 Purpose of Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.5 Components of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6.6 Presentation of True and Fair View and compliance with Ind ASs. . . . . . . . . . . 1.6.7 Departure from compliance of Ind AS 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.35 1.37 1.39 1.40 1.52 1.53 1.55

1.57

1.57 1.59 1.62 1.63 1.76 1.78 1.82 1.85 1.85 1.85 1.86 1.87 1.88 1.88 1.91 1.94 1.94 1.94 1.95 1.96 1.97 1.97 1.97

Table of contents

1.7

1.8

1.6.8 Going concern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.98 1.6.9 Accrual basis of accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.98 1.6.10 Materiality and aggregation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.98 1.6.11 Offsetting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.99 1.6.12 Frequency of reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.100 1.6.13 Comparative information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.100 1.6.14 Reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.101 1.6.15 Consistency of presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.101 1.6.16 Identification of the financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.101 1.6.17 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.102 1.6.17.1 Distinction between Current/non-current. . . . . . . . . . . . . . . . . . 1.103 1.6.17.2 Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.103 1.6.17.3 Current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.103 1.6.17.4 Information to be presented either in the balance sheet or in the notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.104 1.6.18 Statement of Profit and Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.105 1.6.18.1 Profit or loss for the period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.107 1.6.18.2 Other comprehensive income for the period. . . . . . . . . . . . . . . . 1.107 1.6.18.3 Information to be presented in the statement of profit and loss or in the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.107 1.6.19 Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.108 1.6.20 Statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.109 1.6.21 Notes on Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.109 1.6.22 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.110 Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.110 1.6.22.1 Management judgement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.111 1.6.22.2 Assumptions and estimation uncertainties. . . . . . . . . . . . . . . . . 1.111 1.6.22.3 1.6.22.4 Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.112 Puttable financial instruments classified as equity. . . . . . . . . . . 1.112 1.6.22.5 Disclosure requirements – Others. . . . . . . . . . . . . . . . . . . . . . . . 1.112 1.6.22.6 Transition and Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.113 1.6.22.7 Appendix A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.113 1.5.22.8. ICDS I relating to accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.113 1.7.1 Preamble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.113 1.7.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.114 1.7.3 Fundamental accounting assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.114 1.7.4 Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.115 Considerations in the Selection and Change of 1.7.4.1 Accounting Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.115 1.7.5 Disclosure of Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.115 Guidance Notes on Accrual basis of accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.115 1.8.1 Comparative summary of Ind AS 1, AS 1 , ICDS 1 and ICAI Guidance Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.116 xiii

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1.9

1.10

xiv

Interim financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9.1 Accounting Standards (AS 25 : Interim Financial Reporting) . . . . . . . . . . . . . 1.9.1.1 Minimum Components of an Interim Financial Report. . . . . . . 1.9.1.2 Form and content of Interim Financial Statements. . . . . . . . . . . 1.9.1.3 Minimum financial information to be provided in interim financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9.1.4 Periods for which Interim Financial Statements are required to be presented . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure requirements in Annual Financial Statements. . . . . . 1.9.1.5 1.9.1.6 Recognition and measurement of interim financial statements. 1.9.1.7 Companies (Indian Accounting Standard) Amendment Rules 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9.2 Guidance Note of ICAI on Interim Financial Reporting. . . . . . . . . . . . . . . . . . 1.9.3 Ind AS 34: Interim Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9.4 Companies (Indian Accounting Standard) Amendment Rule 2016. . . . . . . . . . 1.9.4.1 Paragraphs 15B (b) shall be substituted by the following . . . . . Contingencies and events occurring after the balance sheet date. . . . . . . . . . . . . . . . . . 1.10.1 AS 4: Contingencies and events occurring after the balance sheet date. . . . . . 1.10.1.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.1.3 Contingencies (para 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.1.4 Accounting Treatment of Contingent Losses (para 5) . . . . . . . . 1.10.1.5 Accounting Treatment of Contingent Gains (Para 6). . . . . . . . . 1.10.1.6 Determination of the Amounts at which Contingencies are included in Financial Statements (Para 7). . . . . . . . . . . . . . . . . . 1.10.1.7 Events Occurring after the Balance Sheet Date (Para 8) . . . . . . 1.10.1.8 Disclosure (Para 9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.1.9 Main Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2 Ind AS 10: Events after the reporting period. . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.3 Process of approving financial statements . . . . . . . . . . . . . . . . . 1.10.2.4 Adjusting events after the reporting period. . . . . . . . . . . . . . . . . 1.10.2.5 Non-adjusting events after the reporting period. . . . . . . . . . . . . 1.10.2.6 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.7 Going concern. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.8 Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.2.9 Non-adjusting events after the reporting period – examples (para 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.3 Distribution of non-cash assets to owners (Appendix A to Ind AS 10). . . . . . . 1.10.3.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.3.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.3.3 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10.3.4 Accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.121 1.121 1.121 1.122 1.122 1.123 1.123 1.124 1.124 1.133 1.134 1.135 1.135 1.135 1.135 1.135 1.135 1.136 1.136 1.137 1.137 1.138 1.138 1.139 1.149 1.149 1.149 1.150 1.150 1.151 1.152 1.152 1.152 1.154 1.154 1.154 1.155 1.155 1.155

Table of contents

1.11

1.12

1.13

Accounting policies, changes in accounting estimates and errors . . . . . . . . . . . . . . . . . 1.157 1.11.1 AS 5: Accounting policies, changes in accounting estimates and errors. . . . . . 1.157 1.11.1.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.157 1.11.1.2 Components of Profit and Loss. . . . . . . . . . . . . . . . . . . . . . . . . . 1.157 1.11.1.3 Change in accounting estimates. . . . . . . . . . . . . . . . . . . . . . . . . 1.157 1.11.1.4 Changes in accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . 1.158 1.11.1.5 Examples. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.158 1.11.1.6 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.158 1.11.2 Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.167 1.11.2.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.167 1.11.2.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.167 1.11.2.3 Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.169 1.11.2.4 Changes in Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . 1.170 1.11.2.5 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.172 1.11.2.6 Accounting estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.174 1.11.2.7 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.174 1.11.2.8 Accounting Errors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.175 1.11.2.9 . Disclosure of prior period errors. . . . . . . . . . . . . . . . . . . . . . . . 1.175 1.11.2.10 Companies (Indian Accounting Standards) Amendment Rules, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.175 Ind AS 29: Financial reporting in Hyperinflationary Economies. . . . . . . . . . . . . . . . . . 1.176 1.12.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.176 1.12.2 Restatement of historical cost financial statements. . . . . . . . . . . . . . . . . . . . . . 1.176 1.12.3 Historical cost financial statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.176 1.12.3.1 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.176 1.12.3.2 Statement of Profit & Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.178 1.12.3.3 Gain or loss on net monetary position . . . . . . . . . . . . . . . . . . . . 1.178 1.12.3.4 Current cost financial statements . . . . . . . . . . . . . . . . . . . . . . . . 1.178 1.12.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.179 1.12.5 Statement of cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.179 1.12.6 Corresponding figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.179 1.12.7 Consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.179 1.12.8 Selection and use of General Price Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.180 1.12.9 Economies ceasing to be hyperinflationary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.180 1.12.10 Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.180 Comparative summary of AS, IFRS, US GAAP and Ind AS. . . . . . . . . . . . . . . . . . . . . 1.180 1.13.1 Constituents of financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.180 1.13.2 Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.182 1.13.3 Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.183 1.13.4 Statement of changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.184 1.13.5 Change in Accounting policies and accounting estimates and errors. . . . . . . . 1.185 1.13.6 Events occurring after the reporting date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.186 xv

Financial Reporting under Ind AS and AS

Chapter 2 Operating Cycle & Current Non current classification. . . . . . . . . . . . . . . . . . . 2.1 2.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 2.2 Operating Cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 2.3 Disclosure of an operating cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.4 Should the operating cycle be calculated for each item separately, say for debtors, inventory or for the company as a whole?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.5 Is the operating cycle to be considered customer wise, especially where a large customer is provided a significantly different credit period? . . . . . . . . . . . . . . . . . . . . . . . 2.4 2.6 Comparative position on Current vs Non-Current Classification. . . . . . . . . . . . . . . . . . . . 2.6 2.7 Treatment on current and non-current related to Investments. . . . . . . . . . . . . . . . . . . . . . . 2.9 2.8 Treatment of deferred tax on current/non-current classification. . . . . . . . . . . . . . . . . . . . 2.11 Chapter 3 Shareholders’ Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 3.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 3.2 Comparative Summary of Schedule III –Part-I under Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 3.3 Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 3.3.1 Equity Share capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 3.3.2 Whether Preference share capital would be classified as Share Capital under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 3.3.3 Treatment on presentation of uncalled share capital under Schedule III of Companies Act, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 3.3.4 What is par value per share as highlighted under Share capital . . . . . . . . . . . . . . 3.9 3.3.5 Treatment under Schedule III on reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period. . . . . . . . . . 3.10 3.3.6 Disclosure requirements under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10 3.3.6.1 Disclosure requirement of the rights, preferences and restrictions attaching to each class of shares including restrictions on the distribution of dividends and the repayment of capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10 3.3.6.2 Disclosure requirements with respect to shares of each class in the company held by its holding company or its ultimate holding company including shares held by or by subsidiaries or associates of the holding company or the ultimate holding company in aggregate . . . . . . . . . . . . . . . . . . . . 3.12 3.3.6.3 Disclosure requirement of shares in the company held by each shareholder holding more than 5 percent shares specifying the number of shares held. . . . . . . . . . . . . . . . . . . . . . 3.13 3.3.6.4 Disclosure requirements related to shares reserved for issue under options and contracts/commitments for the sale of shares/ disinvestment, including terms and amounts . . . . 3.14

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3.3.6.5

3.4

3.5 3.6 3.7 3.8

Disclosure requirements for a period of five years immediately preceding the balance sheet date information such as, aggregate number and class of shares. . . . . . . . . . . . . . . 3.14 3.3.6.6 Disclosure requirements related to terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the furthest such date. . . . . . . . . . . . . . . . . . . . . . . . 3.15 3.3.6.7 Disclosure of call unpaid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.16 3.3.7 Other Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.18 Reserves & Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.19 3.4.1 ICAI Guidance Note on Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 3.4.2 Capital Reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 3.4.3 Capital Redemption Reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 3.4.4 Securities Premium Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.20 3.4.5 Debenture Redemption Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 3.4.6 Revaluation Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 3.4.6.1 Guidance Note on Revaluation reserve on fixed assets . . . . . . . . 3.21 3.4.6.2 Guidance Note on Revaluation reserve on bonus shares . . . . . . . 3.21 3.4.7 Share Options outstanding amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.21 3.4.7.1 Equity-settled employee share-based payment plan. . . . . . . . . . . 3.22 3.4.7.2 Cash-settled employee share-based payment plans . . . . . . . . . . . 3.23 3.4.7.3 Accounting procedure of Employee Stock Option Plan (ESOP). 3.23 3.4.7.4 Principles of Employee stock purchase plan (ESPP). . . . . . . . . . 3.25 3.4.7.5 Accounting procedures followed for Stock Appreciation Rights (SAR). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.25 3.4.7.6 Employee share-based payments with cash alternatives. . . . . . . . 3.26 3.4.7.7 Ind AS 102: Share based payments. . . . . . . . . . . . . . . . . . . . . . . . 3.51 3.4.8 Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60 3.4.9 Treatment of surplus i.e. balance in statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/from reserves under Schedule III . . . . . . . . . . . . . . . . . . . . . . . . 3.60 3.4.10 Treatment of debit balance in the Statement of Profit and Loss and in Reserves and Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.60 3.4.11 Money received against Share Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.62 3.4.12 Presentation of Foreign Currency Monetary Item Translation Difference Account (FCMITDA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.62 Share application money pending allotment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.62 Calls in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.63 Reconciliation of items in other equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.64 Comparative Analysis of Statement of changes in Equity â&#x20AC;&#x201C; Comparison (Part of Schedule III Part I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.64

xvii

Financial Reporting under Ind AS and AS

Chapter 4 Non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 4.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 4.2 Comparative Summary -Non-current Liabilities- Under Schedule III, Part I-Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 4.3 Schedule III – (Division I – AS) - Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 4.4 Schedule III – (Division II – Ind AS) - Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6 4.5 Definition of long term borrowings in the context of Schedule III. . . . . . . . . . . . . . . . . . . 4.7 4.5.1 AS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 4.5.2 Ind AS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.7 4.6 Deferred tax liabilities (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 4.6.1 AS 22: Accounting for taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 4.6.1.1 Differences between taxable income and accounting income . . . . 4.9 4.6.1.2 Principle of recognition of deferred tax . . . . . . . . . . . . . . . . . . . . 4.10 4.6.1.3 Summary of Accounting Standards Interpretation (ASI). . . . . . . 4.11 4.6.1.4 Principles related to presentation and disclosure . . . . . . . . . . . . . 4.13 4.6.2 Ind AS 12: Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.27 4.6.2.1 Deferred tax assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 4.27 4.6.2.2 Recognition of deferred tax liabilities and deferred tax assets. . . 4.27 4.6.3 Companies (Indian Accounting Standards) Amendment Rules, 2019. . . . . . . . . 4.41 4.6.4 Companies (Indian Accounting Standards) Second Amendment Rules, 2019. . . 4.42 4.7 Disclosures required under The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 as a part of Financial Statements. . . . . . . . . . . . . . . 4.47 4.8 Other Non-current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.48 4.8.1 Non-current Trade Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.48 4.8.2 Non-current Other Financial Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.48 4.8.3 Other Non-current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.49 4.9 Long Term Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.49 Chapter 5 Current Liabilities and Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 5.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 5.2 Comparative position Under Schedule III-Division 1 (AS) and Division 2 (Ind AS). . . . 5.4 5.3 Current Liabilities under Schedule III - Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.3.1 AS (Division I) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6 5.3.2 Ind AS (Division II). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 5.4 AS 29: Provisions, contingent liability and contingent assets . . . . . . . . . . . . . . . . . . . . . 5.11 5.4.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 5.4.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 5.4.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.13 5.4.4 Recognition : Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14 5.4.4.1 Present Obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14 5.4.4.2 Past Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.14 5.4.4.3 Probable Outflow of Resources Embodying Economic Benefits. . . 5.15 5.4.4.4 Reliable Estimate of the Obligation . . . . . . . . . . . . . . . . . . . . . . . 5.16 xviii

Table of contents

5.5

5.4.5 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.6 Contingent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.7 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.7.1 Best Estimate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.7.2 Risks and Uncertainties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.7.3 Future Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.8 Expected Disposal of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.9 Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.10 Changes in Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.11 Use of Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.12 Application of the Recognition and Measurement Rules . . . . . . . . . . . . . . . . . . 5.4.12.1 Future Operating Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.13 Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.14 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ind AS 37: Provisions, contingent liability and contingent assets . . . . . . . . . . . . . . . . . . 5.5.1 Need for this standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.2 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.3 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.5 Recognition of provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.6 Present obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.7 Past event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.8 Measurement of provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.9 Present Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.10 Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.11 Changes in provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.12 Reversal of provision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.13 Accounting for provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.14 Future operating losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.15 Onerous contract (OC). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.15.1 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.16 A contract in which unavoidable costs of meeting obligations exceed economic benefits expected to be received.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.16.1 Accounting treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.17 Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.18 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.19 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds (Appendix A to Ind AS 37). . . . . . . . . . . . 5.5.19.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.19.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.19.3 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.19.4 Accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.19.5 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.16 5.16 5.16 5.16 5.17 5.17 5.17 5.18 5.18 5.18 5.18 5.18 5.19 5.20 5.28 5.28 5.28 5.28 5.29 5.30 5.30 5.30 5.31 5.32 5.32 5.32 5.32 5.32 5.32 5.33 5.33 5.33 5.33 5.33 5.34 5.35 5.35 5.36 5.36 5.36 5.37 xix

Financial Reporting under Ind AS and AS

5.6

5.7

5.8

5.5.20 Liabilities arising from Participating in a Specific Market— Waste Electrical and Electronic Equipment (Appendix B to Ind AS 37). . . . . . . . . . . . 5.5.20.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.20.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.20.3 Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.20.4 Accounting principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.21 Levies (Appendix C to Ind AS 37) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.21.1 Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.21.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.21.3 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.21.4 Accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ICDS X relating to provisions, contingent liabilities and contingent assets. . . . . . . . . . . 5.6.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.2 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.2.1 Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3.1 Best Estimate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3.2 Reimbursements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3.3 Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3.4 Use of provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.4 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.1 AS 22: Accounting for taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7.2 Ind AS 12 : Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparative summary between Ind AS , AS and ICDS related to current liabilities and provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.37 5.37 5.38 5.38 5.38 5.38 5.38 5.39 5.39 5.39 5.42 5.42 5.42 5.42 5.43 5.43 5.43 5.43 5.43 5.43 5.44 5.44 5.44 5.44

Chapter 6 Non-current Assets – Tangible & Intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 6.1 6.2 Comparative position of non-current assets under Schedule III –Part-I under Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 6.3 Classification of Non-Current Assets under Schedule III –Part-I under Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 6.4 Presentation of Non-current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6 6.4.1 Reconciliation of Gross and Net non-current assets. . . . . . . . . . . . . . . . . . . . . . . 6.6 6.5 Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.5.1 AS 10 – Property, Plant & Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.5.1.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7 6.5.1.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 6.5.1.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8 6.5.1.4 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.5.1.5 Initial Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.10 6.5.1.6 Subsequent Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 xx

Table of contents

6.5.2

6.5.3

6.5.1.7 Measurement at Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 6.5.1.8 Elements of Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11 6.5.1.9 Measurement of Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.13 6.5.1.10 Measurement after Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14 6.5.1.11 Cost Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14 6.5.1.12 Revaluation Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.14 6.5.1.13 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.16 6.5.1.14 Depreciable Amount and Depreciation Period. . . . . . . . . . . . . . . 6.16 Depreciation Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.17 6.5.1.15 6.5.1.16 Changes in Existing Decommissioning, Restoration and Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.17 6.5.1.17 Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.18 6.5.1.18 Compensation for Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.18 6.5.1.19 Retirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.18 6.5.1.20 Derecognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.19 6.5.1.21 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.19 Ind AS 16: Property, Plant & Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.31 6.5.2.1 Recognition of non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . 6.31 6.5.2.2 Recognition and measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.32 6.5.2.3 Elements of measurement of initial costs. . . . . . . . . . . . . . . . . . . 6.32 6.5.2.4 Elements of costs not to be included as per Ind AS 16 (examples). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.35 6.5.2.5 Bearer Plants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.36 6.5.2.6 Subsequent measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.36 6.5.2.7 Revaluation model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.39 6.5.2.8 De-recognition of Property, Plant and Equipment . . . . . . . . . . . . 6.41 6.5.2.9 Disclosure requirements (Para 73 of Ind AS 16) . . . . . . . . . . . . . 6.41 6.5.2.10 The financial statements shall also disclose (para 74) . . . . . . . . . 6.42 6.5.2.11 If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed (para 77) . . . 6.42 6.5.2.12 Changes in Existing Decommissioning, Restoration and Similar Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.42 6.5.2.13 Stripping Costs in the Production Phase of a Surface Mine. . . . . 6.44 6.5.2.14 Companies (Indian Accounting Standard) Amendment Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.46 ICDS-V relating to tangible fixed assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.49 6.5.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50 6.5.3.2 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50 6.5.3.3 Identification of Tangible Fixed Assets. . . . . . . . . . . . . . . . . . . . . 6.50 6.5.3.4 Components of Actual Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.50 6.5.3.5 Self- constructed Tangible Fixed Assets. . . . . . . . . . . . . . . . . . . . 6.50 6.5.3.6 Non- monetary Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.51 6.5.3.7 Improvements and Repairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.51 xxi

Financial Reporting under Ind AS and AS

6.6

xxii

6.5.3.8 Valuation of Tangible Fixed Assets in Special Cases. . . . . . . . . . 6.5.3.9 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.3.10 Transfer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.3.11 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.4 Comparative summary of Ind AS, AS and ICDS . . . . . . . . . . . . . . . . . . . . . . . . 6.5.5 Comparative summary between Accounting Standards, Ind AS, IFRS and US GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.1 AS 26: Intangible Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.1.1 Intangible Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.1.2 The characteristics determining Intangible Assets are explained as under. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.1.3 Intangible assets can be acquired through. . . . . . . . . . . . . . . . . . . 6.6.1.4 Internally generated intangible assets. . . . . . . . . . . . . . . . . . . . . . 6.6.1.5 Goodwill to be treated as intangible asset. . . . . . . . . . . . . . . . . . . 6.6.1.6 Amortisation of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . 6.6.1.7 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2 Ind AS 38: Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.1 Intangible assets: Principles of recognition . . . . . . . . . . . . . . . . . 6.6.2.2 Categories of Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.3 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.4 Separate acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.5 Examples of directly attributable costs. . . . . . . . . . . . . . . . . . . . . 6.6.2.6 Examples of expenditure that are not a part of intangible assets. . . . 6.6.2.7 Acquisition as a part of Business Acquisition. . . . . . . . . . . . . . . . 6.6.2.8 Acquisition by a Government Grant. . . . . . . . . . . . . . . . . . . . . . . 6.6.2.9 Exchange of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.10 Internally generated intangible assets. . . . . . . . . . . . . . . . . . . . . . 6.6.2.11 Research phase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.12 Development phase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.13 Recognition of expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.14 Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.15 Subsequent Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.16 Cost model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.17 Revaluation model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.18 Accounting principles under Revaluation model. . . . . . . . . . . . . 6.6.2.19 Useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.20 Intangible assets with finite useful lives. . . . . . . . . . . . . . . . . . . . 6.6.2.21 Intangible assets with indefinite useful lives. . . . . . . . . . . . . . . . . 6.6.2.22 Recoverability of the Carrying Amount â&#x20AC;&#x201D;Impairment Losses. . . . . 6.6.2.23 Retirements and Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.24 Disclosure Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.6.2.25 Disclosure Requirements: Others. . . . . . . . . . . . . . . . . . . . . . . . .

6.51 6.51 6.51 6.51 6.52 6.60 6.64 6.64 6.64 6.64 6.64 6.64 6.65 6.66 6.67 6.72 6.72 6.73 6.74 6.74 6.74 6.74 6.75 6.75 6.75 6.75 6.76 6.77 6.77 6.78 6.78 6.79 6.79 6.79 6.80 6.80 6.81 6.81 6.82 6.82 6.83

Table of contents

6.6.2.26 6.6.2.27

Intangible Assets—Web Site Costs (Appendix A to Ind AS 38). . . . 6.84 Companies (Indian Accounting Standard) Amendment Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.86 6.6.2.28 Companies (Indian Accounting Standards) Amendment Rules 2019:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.87 6.7 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.89 6.7.1 AS 19 : Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.89 6.7.1.1 What is a lease?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.89 Minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.90 6.7.1.2 6.7.1.3 Characteristics of finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.91 6.7.1.4 Accounting treatment of Finance lease. . . . . . . . . . . . . . . . . . . . . 6.92 6.7.1.5 Operating lease accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.93 6.7.1.6 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.93 6.7.1.7 A sale and leaseback transaction involves . . . . . . . . . . . . . . . . . . 6.94 6.7.2 Ind AS 116: Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.111 6.7.2.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.112 6.7.2.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.112 Recognition exemptions (paragraphs B3–B8) . . . . . . . . . . . . . . 6.112 6.7.2.3 Identifying a lease (paragraphs B9–B33). . . . . . . . . . . . . . . . . . 6.113 6.7.2.4 Separating components of a contract . . . . . . . . . . . . . . . . . . . . . 6.113 6.7.2.5 6.7.2.6 Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.113 6.7.2.7 Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.114 Lease term (paragraphs B34–B41). . . . . . . . . . . . . . . . . . . . . . . 6.114 6.7.2.8 6.7.2.9 Lessee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.115 6.7.2.10 Lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.121 6.7.2.11 Appendix A - Defined terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.127 6.7.2.12 Appendix B: Application guidance. . . . . . . . . . . . . . . . . . . . . . . 6.130 6.7.2.13 Appendix C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.143 6.7.2.14 Appendix 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.146 6.7.3 Disclosure requirements related to Tangible Assets under Schedule III. . . . . . 6.149 6.7.4 Disclosure requirements for intangible assets under Schedule III. . . . . . . . . . . 6.150 6.8 Accounting policies disclosures related to Non-current assets. . . . . . . . . . . . . . . . . . . . 6.151 6.8.1 Disclosure requirements related to Fixed Assets acquired under Finance lease. . . . 6.153 6.8.2 Disclosure requirements related to capital work-in-progress and capital advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.153 6.8.3 Disclosure requirements related to Intangible assets under development. . . . . 6.154 6.8.4 Disclosure of intangible assets under Division II (Ind AS) of Schedule III . . . 6.154 6.8.4.1 Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.154 6.8.4.2 Other Intangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.154 6.8.4.3 Intangible assets under development . . . . . . . . . . . . . . . . . . . . . 6.155 6.9 Borrowing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.155 6.9.1 AS 16: Borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.155 6.9.1.1 Borrowing costs and qualifying assets. . . . . . . . . . . . . . . . . . . . 6.155 xxiii

Financial Reporting under Ind AS and AS

6.9.1.2 6.9.1.3 6.9.1.4

6.10

xxiv

Recognition of borrowing costs . . . . . . . . . . . . . . . . . . . . . . . . . 6.156 Determinants of borrowing costs eligible for capitalisation. . . . 6.156 Conditions of commencement, suspension and cessation of capitalisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.157 6.9.1.5 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.157 6.9.2 Ind AS 23: Borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.162 6.9.2.1 Recognition of borrowing costs . . . . . . . . . . . . . . . . . . . . . . . . . 6.163 6.9.2.2 Borrowing Costs Eligible for Capitalisation. . . . . . . . . . . . . . . . 6.163 Commencement of capitalisation - conditions. . . . . . . . . . . . . . 6.164 6.9.2.3 6.9.2.4 Suspension of capitalisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.164 6.9.2.5 Cessation of capitalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.164 6.9.2.6 Accounting of borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . 6.165 6.9.2.7 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.165 6.9.2.8 Companies (Indian Accounting Standard) Amendment Rules 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.165 Companies (Indian Accounting Standard) Amendment 6.9.2.9 Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.165 Companies (Indian Accounting Standard) Amendment 6.9.2.10 Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.165 Companies (Indian Accounting Standard) Second 6.9.2.11 Amendment RulesÂ 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.166 6.9.3 Income Computation and Disclosure Standard IX relating to borrowing costs. . . . 6.167 6.9.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.167 6.9.3.2 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.167 6.9.3.3 Borrowing Costs Eligible for Capitalisation. . . . . . . . . . . . . . . . 6.167 6.9.3.4 Commencement of Capitalisation. . . . . . . . . . . . . . . . . . . . . . . . 6.168 6.9.3.5 Cessation of Capitalisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.168 6.9.3.6 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.169 6.9.4 Comparative summary between Ind AS, AS and ICDS . . . . . . . . . . . . . . . . . . 6.169 Government Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.173 6.10.1 AS 12: Accounting for Government Grant. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.173 6.10.1.1 Recognition of Government grants. . . . . . . . . . . . . . . . . . . . . . . 6.173 6.10.1.2 Accounting treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.173 6.10.1.3 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.174 6.10.2 Ind AS 20: Government Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.177 6.10.2.1 Government grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.177 6.10.2.2 Non-monetary Government grants. . . . . . . . . . . . . . . . . . . . . . . 6.178 6.10.2.3 Presentation of grants related to assets. . . . . . . . . . . . . . . . . . . . 6.178 6.10.2.4 Presentation of grants related to income. . . . . . . . . . . . . . . . . . . 6.178 6.10.2.5 Repayment of Government Grants. . . . . . . . . . . . . . . . . . . . . . . 6.178 6.10.2.6 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.178 6.10.3 ICDS VII relating to Government Grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.179 6.10.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.179

Table of contents

6.11

6.10.3.2 Recognition of Government Grants . . . . . . . . . . . . . . . . . . . . . . 6.179 6.10.3.3 Treatment of Government Grants. . . . . . . . . . . . . . . . . . . . . . . . 6.179 6.10.3.4 Refund of Government Grants. . . . . . . . . . . . . . . . . . . . . . . . . . 6.180 6.10.3.5 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.180 6.10.4 Comparative Summary on Government grants. . . . . . . . . . . . . . . . . . . . . . . . . 6.181 Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.184 6.11.1 AS 28 : Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.184 6.11.1.1 Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.184 Impairment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.184 6.11.1.2 6.11.1.3 Net Selling Price = Expected realisable value of an asset â&#x20AC;&#x201C; cost of disposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.185 6.11.1.4 Assessment of impairment of assets. . . . . . . . . . . . . . . . . . . . . . 6.187 6.11.1.5 Recognition and measurement of impairment loss. . . . . . . . . . . 6.188 6.11.1.6 Cash Generating Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.189 6.11.1.7 Impairment loss of a Cash Generating Unit. . . . . . . . . . . . . . . . 6.190 6.11.1.8 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.192 6.11.2 Ind AS 36: Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.195 6.11.2.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.195 6.11.2.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.195 6.11.2.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.196 6.11.2.4 Identifying an Asset that may be Impaired. . . . . . . . . . . . . . . . . 6.197 6.11.2.5 Measurement of Recoverable amount. . . . . . . . . . . . . . . . . . . . . 6.197 6.11.2.6 Measuring the recoverable amount of an intangible asset with an indefinite useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.198 6.11.2.7 Fair value less costs of disposal . . . . . . . . . . . . . . . . . . . . . . . . . 6.198 6.11.2.8 Value-in-use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.198 6.11.2.9 Estimating future cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.199 6.11.2.10 Composition of estimates of future cash flows. . . . . . . . . . . . . . 6.199 6.11.2.11 Discount rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.200 6.11.2.12 Recognition and Measurement of an Impairment Loss . . . . . . . 6.200 6.11.2.13 What is a Cash Generating Unit. . . . . . . . . . . . . . . . . . . . . . . . . 6.202 6.11.2.14 Recoverable Amount and Carrying Amount of a Cash Generating Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.202 6.11.2.15 Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.204 6.11.2.16 Corporate Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.205 6.11.2.17 Impairment loss of a Cash Generating Unit. . . . . . . . . . . . . . . . 6.205 6.11.2.18 Reversal of Impairment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.207 6.11.2.19 Reversal of Impairment loss of an individual asset . . . . . . . . . . 6.207 6.11.2.20 Reversal of Impairment loss of a Cash Generating Unit . . . . . . 6.208 6.11.2.21 Reversing an impairment loss for goodwill . . . . . . . . . . . . . . . . 6.208 6.11.2.22 Decision Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.208 6.11.2.23 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.209 6.11.3 Companies Indian Accounting Standards (Amendment) Rules 2018. . . . . . . . 6.211 xxv

Financial Reporting under Ind AS and AS

6.11.4 Comparative Summary of impairment of assets between AS, Ind AS, IFRS and US GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.211 6.12 Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.212 6.12.1 Accounting Standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.212 6.12.2 There is no Accounting Standard (AS) on agriculture. . . . . . . . . . . . . . . . . . . . 6.212 6.12.3 Ind AS 41: Agriculture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.212 6.12.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.212 6.12.3.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.213 Recognition and measurement . . . . . . . . . . . . . . . . . . . . . . . . . . 6.215 6.12.3.3 6.12.3.4 Gains and losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.216 6.12.3.5 Inability to measure fair value reliably. . . . . . . . . . . . . . . . . . . . 6.216 6.12.3.6 Government grants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.216 6.12.3.7 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.217 6.12.4 Disclosure under Schedule III Division II (Ind AS) . . . . . . . . . . . . . . . . . . . . . 6.218 6.12.5 Companies (Indian Accounting Standards) Amendment Rules 2019: . . . . . . . 6.218 Chapter 7 Non-current investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 7.1 7.2 Comparative Summary of Non-current investments under Schedule III – Part 2, Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.3 7.3 Non-current Investments as prescribed in Schedule III (Division I - under AS) . . . . . . . . 7.5 7.4 Non-current Investments as prescribed in Schedule III (Division II - under Ind AS). . . . 7.7 7.4.1 Disclosure of investments in equity instruments. . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 7.4.2 Disclosure of sub-classification of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 7.4.3 Disclosure of aggregate amount of quoted investments at fair value. . . . . . . . . . 7.7 7.4.4 Disclosure of impairment in the value of investments . . . . . . . . . . . . . . . . . . . . . 7.8 7.4.5 Disclosure of structured entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 7.4.6 Classification of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 7.4.7 Disclosure relating to partnership firms in which the company has invested (under Non- current Investments in the Balance Sheet). . . . . . . . . . . . 7.10 7.4.8 Application money towards securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.5 AS 13 – Accounting for Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.5.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 7.5.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 7.5.3 Forms of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 Classification of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 7.5.3.1 Cost of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 7.5.3.2 7.5.4 Carrying Amount of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.12 7.5.5 Investment Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13 7.5.6 Disposal of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.13 7.5.7 Reclassification of Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 7.5.8 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 7.5.9 Main Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.14 xxvi

Table of contents

7.6 7.7 7.8 7.9

7.10

7.11

Disclosure requirement of controlled special purpose entities. . . . . . . . . . . . . . . . . . . . . Disclosure requirement of basis of valuation of non-current investments under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure requirements related to long term loans and advances and other noncurrent assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9.1 Long term loans and advances – Under AS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9.2 Long term loans and advances – Under Ind AS . . . . . . . . . . . . . . . . . . . . . . . . . Classification of Loans and Advances . . . . . . . . . . . . . . . . . . . . . 7.9.2.1 7.9.2.2 Loans to related parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.9.2.3 Sub-classification of loans and advances . . . . . . . . . . . . . . . . . . . Other non-current assets – under Ind AS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.1 Bank deposits greater than 12 months maturity . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.2 Finance lease receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.3 Capital advance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.4 Advance to directors and other officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.5 Security Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10.6 Advances to related parties under other non-current assets. . . . . . . . . . . . . . . . . Investment Properties (Ind AS 40) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.1 Classification of property as investment property or owner-occupied property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.2 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.1 Initial measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.2 Subsequent measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.3 Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.4 Disposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.5 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.6 Companies (Indian Accounting Standards) Amendment Rules, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11.3.7 Companies (Indian Accounting Standards) Amendment Rules, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.20 7.20 7.21 7.22 7.22 7.24 7.24 7.25 7.25 7.26 7.26 7.26 7.26 7.27 7.27 7.27 7.27 7.27 7.28 7.29 7.29 7.30 7.32 7.32 7.33 7.34 7.37

Chapter 8 Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.2 8.1 8.2 Comparative Summary under Schedule III-Division 1 (AS) and Division 2 (Ind AS). . . . 8.3 8.3 Presentation on Current Assets under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.4 Current investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.5 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 8.5.1 AS 2: Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 8.5.1.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 8.5.1.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.10 8.5.1.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.10 xxvii

Financial Reporting under Ind AS and AS

8.6

xxviii

8.5.1.4 Measurement of Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11 8.5.1.5 Net Realisable Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.16 8.5.1.6 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.16 8.5.2 Ind AS 2: Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.25 8.5.2.1 Definitions: (Para 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.25 8.5.2.2 Recognition principle is depicted as under: . . . . . . . . . . . . . . . . . 8.26 8.5.2.3 Measurement of inventories (Para 9) . . . . . . . . . . . . . . . . . . . . . . 8.26 8.5.2.4 Cost of inventories:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.27 Costs excluded from valuation of inventories. . . . . . . . . . . . . . . . 8.28 8.5.2.5 8.5.2.6 Borrowing costs and inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 8.29 8.5.2.7 Inventories purchased on deferred settlement terms. . . . . . . . . . . 8.29 8.5.2.8 Cost of agricultural produce harvested from biological assets. . . 8.29 8.5.2.9 Techniques for the measurement of cost. . . . . . . . . . . . . . . . . . . . 8.29 8.5.2.10 Inventories: Cost formulae. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.29 8.5.2.11 Net Realisable Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.29 8.5.2.12 Recognition as an expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.30 8.5.2.13 Disclosure Requirements according to para 36 of Ind AS 2:. . . . 8.30 8.5.2.14 .Companies (Indian Accounting Standard) Amendment Rules 2018.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.31 8.5.2.15 Companies (Indian Accounting Standards) Amendment Rules 2019:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.32 8.5.3 ICDS II relating to valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.33 8.5.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.34 8.5.3.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.34 8.5.3.3 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.34 8.5.4 Comparative summary between Ind AS, AS and ICDS on Valuation of inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.37 8.5.5 Comparative summary of inventories between AS, Ind AS, IFRS and US GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.46 Construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.47 8.6.1 AS 7: Construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.47 8.6.1.1 Categories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.47 8.6.1.2 Contract revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.48 8.6.1.3 Contract costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.49 8.6.1.4 Process of recognition of construction contract. . . . . . . . . . . . . . 8.50 8.6.1.5 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.51 8.6.2 Ind AS 115: Recognition of revenue on contracts with customers. . . . . . . . . . . 8.60 8.6.2.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 8.6.2.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 8.6.2.3 Combining of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.60 8.6.2.4 Contract modification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.61 8.6.2.5 Revenue recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.61 8.6.2.6 Costs to fulfil a contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.61

Table of contents

8.6.2.7 8.6.2.8 8.6.2.9 8.6.2.10 8.6.2.11 8.6.2.12 8.6.2.13

8.7 8.8 8.9

8.10

8.11 8.12

Disclosure: Contracts with customers. . . . . . . . . . . . . . . . . . . . . . 8.62 Disaggregation of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.62 Contract balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.62 Service Concession Arrangements (Appendix D) to Ind AS 115. . . 8.63 Application Guidance on Appendix D . . . . . . . . . . . . . . . . . . . . . 8.67 Appendix E: Service Concession Arrangements: Disclosures . . . . . 8.70 Appendix F : References to matters contained in other Indian Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.71 Appendix 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.72 8.6.2.14 8.6.3 ICDS III relating to construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.73 8.6.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.73 8.6.3.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.73 8.6.3.3 Combining and Segmenting Construction Contracts. . . . . . . . . . 8.74 8.6.3.4 Contract Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.75 8.6.3.5 Contract Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.75 8.6.3.6 Recognition of Contract Revenue and Expenses . . . . . . . . . . . . . 8.76 8.6.3.7 Changes in Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.76 8.6.3.8 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.76 8.6.4 Comparative Summary between Ind AS, AS and ICDS on construction contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.77 Trade Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.86 Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.86 8.8.1 Disclosure requirements related to cash and cash equivalents . . . . . . . . . . . . . . 8.87 Short term loans and advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.88 8.9.1 Disclosure related to Short term loans and advances and other current assets. . . . 8.88 8.9.1.1 Short â&#x20AC;&#x201C; term loans and advances. . . . . . . . . . . . . . . . . . . . . . . . . . 8.88 8.9.1.2 Other current assets (specify nature). . . . . . . . . . . . . . . . . . . . . . . 8.89 Ind AS 105: Non-current assets held for sale and discontinued operations . . . . . . . . . . . 8.90 8.10.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.90 8.10.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.90 8.10.3 Classification of non-current assets (or disposal groups) held for sale or as held for distribution to owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.91 8.10.4 Non-current assets that are to be abandoned. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.91 8.10.5 Measurement of non-current assets (or disposal groups)classified as held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.92 8.10.6 Recognition of impairment losses and reversals. . . . . . . . . . . . . . . . . . . . . . . . . 8.94 8.10.7 Change to a plan of sale or distribution to owners (Companies (Indian Accounting Standard)Rules 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.94 8.10.8 Presentation and disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.95 Miscellaneous Expenditure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.101 Profit and Loss Account (debit balance). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.101

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Chapter 9 Contingent Liabilities and Contingent Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Comparative Summary Under Schedule III-Division 1 (AS) and Division 2 (Ind AS). . . . . 9.3 Guarantees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5 Proposed Dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.1 Comparative Summary under Schedule III-Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.5.2 Comparative table on treatment of proposed dividend. . . . . . . . . . . . . . . . . . . . . 9.6 Diminution in value of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 Issue of securities for a specific purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 AS 29: Provisions, contingent liability and contingent assets . . . . . . . . . . . . . . . . . . . . . . 9.8.1 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8.2 Contingent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 Ind AS 37: Provisions, contingent liability and contingent assets . . . . . . . . . . . . . . . . . . . 9.9.1 Contingent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9.2 Contingent Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10 ICDS X relating to provisions, contingent liabilities and contingent assets. . . . . . . . . . . . 9.10.1 Contingent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10.2 Contingent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11 Comparative summary between Ind AS, AS and ICDS . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.1 9.2 9.3 9.3 9.3 9.4 9.5 9.5 9.5 9.6 9.6 9.6 9.6 9.7 9.7 9.7 9.7 9.7 9.8 9.9

Chapter 10 Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 10.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.2 10.2 Statement of Profit and Loss under Schedule III – revisited (Division I). . . . . . . . . . . . . 10.3 10.3 Statement of Profit & Loss under Schedule III - (Division II – Ind AS) - Revisited . . . . 10.5 10.4 Comparative Summary – Statement of Profit & Loss Under Schedule III- Part 2, Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 10.5 Comparative Summary – Revenue from operations Under Schedule III-Division 1 (AS) and Division 2 (Ind AS). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.10 10.6 Revenue from operations : Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11 10.6.1 Treatment of indirect taxes under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . 10.11 10.6.2 Accounting Standard: AS 9: Revenue Recognition. . . . . . . . . . . . . . . . . . . . . . 10.12 10.7 Accounting Standards: AS 9: Revenue Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.14 10.7.1 Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.14 10.7.2 Sale of goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.15 10.7.3 Rendering of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.16 10.7.4 Interest, royalties and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.17 10.7.5 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.18 10.8 Ind AS 115: Recognition of revenue on contracts with customers. . . . . . . . . . . . . . . . . 10.28 10.8.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.28 10.8.2 Meeting the objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.28 10.8.3 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.29 10.8.4 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.30

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10.9

10.8.5 Identifying the contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.5.1 Combination of contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.5.2 Contract modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.6 Identifying performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.6.1 What are distinct goods and services . . . . . . . . . . . . . . . . . . . . . 10.8.6.2 Bundle of goods and services. . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.7 Determining the transaction price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.7.1 Determinants of transaction price. . . . . . . . . . . . . . . . . . . . . . . . Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.7.2 10.8.7.3 The existence of a significant financing component in the contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.7.4 Non-cash consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.7.5 Consideration payable to a customer . . . . . . . . . . . . . . . . . . . . . 10.8.8 Allocating the transaction price to performance obligations. . . . . . . . . . . . . . . 10.8.8.1 Allocation based on stand-alone selling price. . . . . . . . . . . . . . . 10.8.8.2 Allocation of discount to stand alone price. . . . . . . . . . . . . . . . . 10.8.8.3 Changes in transaction price. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.8.4 Satisfaction of performance obligation. . . . . . . . . . . . . . . . . . . . 10.8.8.5 Performance obligations satisfied over time. . . . . . . . . . . . . . . . 10.8.8.6 Methods for measuring progress towards complete satisfaction of a performance obligation;. . . . . . . . . . . . . . . . . . 10.8.8.7 Performance obligations satisfied at a point in time. . . . . . . . . . 10.8.8.8 Measuring progress towards complete satisfaction of a performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.9 Revenue recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.10 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.1 Contracts with customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.2 Disaggregation of revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.3 Contract balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.4 Performance obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.5 Transaction price allocated to the remaining performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.6 Determining the timing of satisfaction of performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.7 Determining the transaction price and the amounts allocated to performance Obligations. . . . . . . . . . . . . . . . . . . . . 10.8.11.8 Assets recognised from the costs to obtain or fulfil a contract with a customer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8.11.9 Companies (Indian Accounting Standards) Amendment Rules 2019:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ICDS: IV relating to revenue recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.30 10.33 10.33 10.35 10.35 10.37 10.38 10.38 10.38 10.39 10.40 10.41 10.41 10.41 10.42 10.44 10.44 10.45 10.45 10.45 10.46 10.46 10.46 10.46 10.46 10.47 10.47 10.48 10.48 10.48 10.49 10.49 10.49 10.54 10.54 xxxi

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10.10 10.11

10.12 10.13 10.14 10.15

10.9.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9.3 Sale of Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9.4 Rendering of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.9.5 The Use of Resources by Others Yielding Interest, Royalties or Dividends. . 10.9.6 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparative summary on Revenue recognition Under Ind AS, AS and ICDS . . . . . . . ICAI Guidance Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11.1 Guidance Note on revenue recognised in the financial statements of contractors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11.2 Guidance Note on Accounting of Real Estate transactions (revised) . . . . . . . . 10.11.2.1 Objective and Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11.2.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11.2.3 Accounting for Real Estate Transactions . . . . . . . . . . . . . . . . . . 10.11.2.4 Application of principles of AS 9: Revenue Recognition. . . . . . 10.11.2.5 Application of percentage completion method. . . . . . . . . . . . . . 10.11.2.6 Transferable Development Rights. . . . . . . . . . . . . . . . . . . . . . . . 10.11.2.7 When development rights are utilised in a real estate project by an enterprise, the cost of acquisition should be added to the project costs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.11.2.8 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Operating Revenue vis-Ă -vis Other Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure requirements for a finance company related to revenue. . . . . . . . . . . . . . . . Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Classification of items as other operating revenue or other income. . . . . . . . . . . . . . . .

10.54 10.55 10.55 10.55 10.56 10.56 10.63 10.63 10.65 10.65 10.65 10.67 10.67 10.68 10.69

10.70 10.70 10.71 10.72 10.73 10.74

Chapter 11 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 11.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 11.2 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.3 Cost of materials consumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.3 11.3.1 Disclosure requirements to be made in the financial statements on raw materials, goods purchased, opening and closing stock, gross income etc. under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.4 11.3.2 Classification of materials to be used under Cost of materials consumed under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 11.3.3 Accounting treatment in regard to Raw Material Consumption under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.7 11.3.4 Accounting treatment of shortages, losses and wastages in respect of Raw Material Consumption under Schedule III . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.3.5 Disclosure requirement related to Purchases of stock-in-trade. . . . . . . . . . . . . . 11.8 11.3.6 Disclosure requirement related to Changes in inventories of finished goods, work-in-progress and stock in trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.8 11.4 Employee benefit expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 11.4.1 AS 15: Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 xxxii

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11.4.1.1 Employee benefits:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.10 11.4.1.2 Short term benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.11 11.4.1.3 Post-employment benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.11 11.4.1.4 Other long term employee benefits. . . . . . . . . . . . . . . . . . . . . . . 11.12 11.4.1.5 Termination benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 11.4.1.6 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 11.4.2 Ind AS 19: Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.25 11.4.2.1 Types of employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.25 11.4.3 Defined contribution plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.25 Defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.27 11.4.3.1 Other long term benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.33 11.4.3.2 Termination benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.34 11.4.3.3 Other definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.34 11.4.3.4 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.37 11.4.3.5 Companies (Indian Accounting Standards) Second 11.4.3.6 Amendment RulesÂ Â 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.39 11.5 Finance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.42 11.6 Depreciation and amortisation expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.43 11.6.1 Depreciation charge (Section 123 & Schedule II). . . . . . . . . . . . . . . . . . . . . . . 11.43 11.6.2 AS 10: Property, Plant & Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.45 11.6.2.1 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.45 Depreciable Amount and Depreciation Period. . . . . . . . . . . . . . 11.46 11.6.2.2 Depreciation Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.47 11.6.2.3 11.6.3 Ind AS 16: Property, Plant & Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.48 11.6.3.1 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.48 Depreciable amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.49 11.6.3.2 Depreciation methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.49 11.6.3.3 Depreciation calculation after revaluation . . . . . . . . . . . . . . . . . 11.50 11.6.3.4 11.6.4 Guidance Note on Accounting of Depreciation under Schedule II of Companies Act 2013. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.51 11.6.5 Income Computation and Disclosure Standards V . . . . . . . . . . . . . . . . . . . . . . 11.57 11.6.5.1 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.57 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.57 11.6.5.2 11.6.6 Comparative Summary : Ind AS, AS and ICDS . . . . . . . . . . . . . . . . . . . . . . . . 11.57 11.7 Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.59 11.8 Exceptional Items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.61 11.9 Extraordinary items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.62 11.10 Tax expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.62 11.10.1 Guidance Note on Accounting for credit available in respect of Minimum Alternative Tax under the Income Tax Act 1961 . . . . . . . . . . . . . . . 11.62 11.10.2 Salient features of GN (A) 11 (Issued 1997) Accounting for corporate dividend tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.63 xxxiii

Financial Reporting under Ind AS and AS

11.10.3 Salient features of GN (A) 24 (Issued 2006) Guidance Note on Measurement of Income Tax Expense for Interim Financial Reporting in the context of AS 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.64 11.10.4 Accounting Standards: AS 22: Accounting for taxes . . . . . . . . . . . . . . . . . . . . 11.65 11.10.5 Ind AS 12 : Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.65 11.10.6 Companies (Indian Accounting Standard) Amendment Rules 2018. . . . . . . . . 11.65 11.11 Discontinuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.65 11.11.1 AS 24: Discontinuing Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.65 11.12 Earnings per Equity Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.66 11.12.1 AS 20: Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.66 11.12.2 Ind AS 33: Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.73 11.12.3 Guidance Note on Earnings per Share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.73 11.13 Disclosure requirements related to the Other Additional Information to be disclosed by way of Notes to Statement of Profit and Loss under Schedule III. . . . . . . 11.74 Chapter 12 Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 12.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.2 Cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.2 12.2.1 Disclosure requirements under cash flow statement. . . . . . . . . . . . . . . . . . . . . . 12.2 12.2.2 AS 3: Cash flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3 12.2.2.1 Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the enterprise. Therefore, they generally result from the transactions and other events that enter into the determination of net profit or loss. . . . . . . . . . . . . . . . . . . . . . . . . 12.3 12.2.2.2 Specimen format of direct and indirect method. . . . . . . . . . . . . . 12.3 12.2.2.3 Cash flows from investing activities. . . . . . . . . . . . . . . . . . . . . . . 12.4 12.2.2.4 Cash flows from financing activities. . . . . . . . . . . . . . . . . . . . . . . 12.4 12.3 IND AS 7: Cash flow Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.3.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.3.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 12.3.3 Benefits of cash flow information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.10 12.3.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.10 12.3.5 Presentation of a Cash Flow Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.10 12.3.6 Operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.11 12.3.7 Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.11 12.3.8 Financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.12 12.3.9 Reporting Cash Flows from Operating Activities. . . . . . . . . . . . . . . . . . . . . . . 12.12 12.3.10 Reporting Cash Flows from Investing and Financing Activities. . . . . . . . . . . . 12.12 12.3.11 Reporting Cash Flows on a Net Basis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.13 12.3.12 Cash flows for Financial institutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.13 12.3.13 Foreign currency Cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.13 12.3.14 Interest and dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.13 xxxiv

Table of contents

12.4

12.5

12.3.15 Taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3.16 Investments in Subsidiaries, Associates and Joint Ventures . . . . . . . . . . . . . . . 12.3.17 Changes in ownership interests in subsidiaries and other businesses. . . . . . . . 12.3.18 Non-cash transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.1 Components of cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.2 Other disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4.3 Specimen format of direct and indirect method . . . . . . . . . . . . . . . . . . . . . . . . Direct method Statement of cash flows. . . . . . . . . . . . . . . . . . . . 12.4.3.1 12.4.3.2 Indirect method Statement of cash flows . . . . . . . . . . . . . . . . . . 12.4.3.3 Companies (Indian Accounting Standards) Amendment Rules 2019:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparative summary of Cash flows between AS, Ind AS, IFRS and US GAAP. . . . .

12.14 12.14 12.14 12.14 12.15 12.15 12.15 12.15 12.15 12.16 12.33 12.33

Chapter 13 Foreign Currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2 Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 13.2.1 Accounting Standards : AS 11: Effects of changes in foreign exchange rates. . . . 13.2 13.2.1.1 Initial recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 13.2.1.2 Recognition principle followed while reporting at subsequent balance sheet date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.2.1.3 .Recognition principle on Exchange differences . . . . . . . . . . . . . 13.3 13.2.1.4 The foreign operations are classified as integral and nonintegral as under . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3 13.2.1.5 How do we translate the following: . . . . . . . . . . . . . . . . . . . . . . . 13.4 13.2.1.6 Process of change in classification of foreign operations. . . . . . . 13.6 13.2.1.7 Major differences between Integral foreign operation and non-integral foreign operation . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6 13.2.1.8 Forward exchange contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.7 13.2.1.9 . Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.8 13.2.2 Indian Accounting Standards: Ind AS 21: The effects of changes in foreign exchange rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.23 13.2.2.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.23 13.2.2.2 Functional currency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.23 13.2.2.3 Monetary items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.24 13.2.2.4 Non-monetary items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.24 13.2.2.5 Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13.25 13.2.2.6 Exchange Differences. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.25 13.2.2.7 Change in functional currency . . . . . . . . . . . . . . . . . . . . . . . . . . 13.26 13.2.2.8 Translation to presentation currency. . . . . . . . . . . . . . . . . . . . . . 13.26 13.2.2.9 Translation of a Foreign operation. . . . . . . . . . . . . . . . . . . . . . . 13.27 13.2.2.10 Disposal or partial disposal of a foreign operation. . . . . . . . . . . 13.27 13.2.2.11 Tax effects of all exchange differences. . . . . . . . . . . . . . . . . . . . 13.27 xxxv

Financial Reporting under Ind AS and AS

13.2.2.12 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.2.13 Companies ( Indian Accounting Standards) Amendments Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.2.14 Companies ( Indian Accounting Standards) Amendments Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.3 Income Computation and Disclosure Standard VI relating to the effects of changes in foreign exchange rates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.3.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Foreign Currency Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.3.2 13.2.3.3 Financial Statements of Foreign Operations. . . . . . . . . . . . . . . . 13.2.3.4 Forward exchange contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2.4 Comparative Summary between Ind AS, AS and ICDS on foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13.27 13.28 13.30 13.31 13.32 13.32 13.33 13.33 13.34

Chapter 14 Disclosures under Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 14.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.3 14.2 Accounting Standards : Financial Instruments (AS 30, AS 31, AS 32) (not notified). . . . . 14.3 14.3 Indian Accounting Standards Ind AS 32: Financial Instruments Presentation. . . . . . . . . 14.5 14.3.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 14.3.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5 14.3.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.6 14.3.4 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.10 14.3.5 Puttable instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.11 14.3.6 No contractual obligation to deliver cash or another financial asset (paragraph 16(a)). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.13 14.3.7 Substance over legal form. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.14 14.3.8 Settlement in the entity’s own equity instruments (Paragraph 16(b)). . . . . . . . 14.16 14.3.9 Contingent settlement provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.17 14.3.10 Settlement options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.3.11 Compound Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.3.12 Treasury shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 14.3.13 Interest, dividends, losses and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.19 14.3.14 Offsetting a financial asset and a financial liability. . . . . . . . . . . . . . . . . . . . . . 14.19 14.3.15 Companies (Indian Accounting Standard) Amendment Rules 2018. . . . . . . . . 14.19 14.3.16 Companies (Indian Accounting Standards) Amendment Rules 2019. . . . . . . . 14.21 14.4 Ind AS 109: Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.21 14.4.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.21 14.4.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.22 14.4.3 Recognition and derecognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.24 14.4.3.1 Initial recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.24 14.4.3.2 Determinants of de-recognition of financial assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.24 14.4.3.3 . Subsequent measurement of financial assets . . . . . . . . . . . . . . 14.31 xxxvi

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14.4.3.4 14.4.3.5

14.5

Subsequent measurement of financial liabilities. . . . . . . . . . . . . Classification, measurement and subsequent measurement of financial assets and financial liabilities are given in the table below:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.6 Amortised cost measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.7 Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.8 Analysis of financial instruments whether debt or equity. . . . . . 14.4.3.9 Derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Measurement of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.10 14.4.3.11 Embedded derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.12 Reclassification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.13 Gains and losses of financial assets and financial liabilities. . . . 14.4.3.14 Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.15 Classification of hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.16 Treatment of hedged items and hedged instruments in hedge accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.17 Interest rate swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.18 Appendix C : Hedges of a Net Investment in a Foreign Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.4.3.19 Appendix D to Ind AS 109 - Extinguishing Financial Liabilities with Equity Instruments. . . . . . . . . . . . . . . . . . . . . . . 14.4.3.20 Companies (Indian Accounting Standard)Amendment Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Companies (Indian Accounting Standard)Amendment 2019. . . . 14.4.3.21 14.4.3.22 Companies (Indian Accounting Standards) Second Amendment RulesÂ 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ind AS 107: Financial Instruments : Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.1 Classes of financial instruments. . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.2 Balance Sheet disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.3 Financial assets or financial liabilities at fair value through profit or loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.4 Investments in equity instruments designated at fair value through other comprehensive income. . . . . . . . . . . . . . . . . . . . . 14.5.3.5 Reclassification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.6 Offsetting financial assets and financial liabilities . . . . . . . . . . . 14.5.3.7 Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.8 Allowance account for credit losses. . . . . . . . . . . . . . . . . . . . . . 14.5.3.9 Compound financial instruments with multiple embedded derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.5.3.10 Defaults and breaches. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.32

14.32 14.32 14.33 14.35 14.36 14.38 14.38 14.40 14.41 14.43 14.44 14.45 14.45 14.46 14.48 14.63 14.67 14.68 14.73 14.73 14.74 14.75 14.75 14.75 14.75 14.76 14.77 14.77 14.78 14.78 14.78 14.78 xxxvii

Financial Reporting under Ind AS and AS

14.5.3.11 14.5.3.12 14.5.3.13

14.6

14.7

xxxviii

Statement of Profit & Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.79 Other disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.80 Nature and extent of exposure to risks arising from financial instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.82 14.5.3.14 Appendix A to Ind AS 107 discusses defined terms used across the Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.83 14.5.3.15 Appendix B to Ind AS 107 provides application guidance related to this Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.83 Appendix C References to matters contained in other 14.5.3.16 Indian Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.83 14.5.3.17 Companies (Indian Accounting Standard)(Amendment) Rules 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.83 Companies (Indian Accounting Standard)(Amendment) 14.5.3.18 Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.84 Companies (Indian Accounting Standard)(Amendment) 14.5.3.19 Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.85 Income Computation and Disclosure Standard VIII relating to securities. . . . . . . . . . . 14.86 14.6.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.87 14.6.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.87 14.6.3 Recognition and Initial Measurement of Securities. . . . . . . . . . . . . . . . . . . . . . 14.87 14.6.4 Subsequent Measurement of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.87 14.6.5 Comparative summary Ind AS, AS and ICDS on Securities and Financial Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.89 Guidance Note on Accounting of Derivative contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 14.97 14.7.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.97 14.7.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.98 14.7.2.1 This Guidance Note covers all derivative contracts that are not covered by an existing notified Accounting Standard. Hence, it does not apply to the following. . . . . . . . . . 14.98 14.7.2.2 This Guidance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.98 14.7.2.3 Hence, this Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.98 14.7.2.4 Examples of contracts covered within the scope of AS 11 and thus not covered within the scope of this Guidance Note include . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.98 14.7.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.99 14.7.4 Accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.99 14.7.5 Synthetic accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.100 14.7.6 Recognition of Derivatives at Fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.100 14.7.7 Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.100 14.7.8 Need for Hedge Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.101 14.7.9 Types of hedging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.101 14.7.10 Accounting of Fair value hedge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.102 14.7.11 Accounting of Cash flow hedge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.102

Table of contents

14.7.12 Accounting for net investment hedging. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7.13 Hedge effectiveness testing and measurement of ineffectiveness. . . . . . . . . . 14.7.13.1 Presentation in the financial statements . . . . . . . . . . . . . . . . . . 14.7.14 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7.15 Effective date of application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14.102 14.103 14.103 14.104 14.105

Chapter 15 Other Provisions and Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 15.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 15.2 Disclosures by way of a note in Schedule III would be as under. . . . . . . . . . . . . . . . . . . 15.4 15.3 Comparative analysis of other disclosures between Schedule III and Old Schedule VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 15.3.1 Comparative analysis of other disclosures between Schedule III Division 1 (related to AS) and Schedule III Division 2 (related to Ind AS). . . 15.10 15.4 Other miscellaneous disclosures related to Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . 15.13 15.5 Ind AS 104: Insurance Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.14 15.5.1 Salient features. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.14 15.5.2 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.14 15.5.2.1 Explanation of recognised amounts . . . . . . . . . . . . . . . . . . . . . . 15.14 15.5.2.2 Nature and extent of risks arising from insurance contracts. . . . 15.15 15.5.3 Companies (Indian Accounting Standard) Amendment Rules 2018. . . . . . . . . 15.16 15.6 Related Party disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.17 15.6.1 Guidance Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.17 15.6.2 Accounting Standards : AS 18: Related Party disclosures . . . . . . . . . . . . . . . . 15.19 15.6.2.1 Objective and scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.19 15.6.2.2 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.20 15.6.3 Indian Accounting Standards : Ind AS 24: Related Party disclosures. . . . . . . . 15.23 15.6.3.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23 15.6.3.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23 15.6.3.3 Purpose of related party disclosures. . . . . . . . . . . . . . . . . . . . . . 15.23 15.6.3.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.24 15.6.3.5 Following are not deemed to be related:. . . . . . . . . . . . . . . . . . . 15.25 15.6.3.6 Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.25 15.7 Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.27 15.7.1 Accounting Standards : AS 17: Segment reporting. . . . . . . . . . . . . . . . . . . . . . 15.27 15.7.1.1 Need for segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.27 15.7.1.2 Business segment and reportable segment. . . . . . . . . . . . . . . . . 15.28 15.7.1.3 Primary and secondary reporting formats. . . . . . . . . . . . . . . . . . 15.28 15.7.1.4 segment (Quantitative thresholds) . . . . . . . . . . . . . . . . . . . . . . . 15.28 15.7.1.5 requirements â&#x20AC;&#x201C;. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.29 15.7.2 Indian Accounting Standards: Ind AS 108: Operating Segments. . . . . . . . . . . 15.35 15.7.2.1 Core principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.35 15.7.2.2 Scope:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.35 15.7.2.3 Operating segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.35 xxxix

Financial Reporting under Ind AS and AS

15.7.2.4 Reportable segment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7.2.5 Quantitative threshold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7.2.6 Aggregation criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7.2.7 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8 Ind AS106:Exploration for and evaluation of mineral resources . . . . . . . . . . . . . . . . . . 15.8.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.3 Recognition of Exploration and Evaluation Assets. . . . . . . . . . . . . . . . . . . . . . 15.8.4 Measurement of Exploration and Evaluation Assets. . . . . . . . . . . . . . . . . . . . . 15.8.4.1 Exploration and evaluation assets shall be measured at cost. (Para 8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.5 Subsequent measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.6 Change in Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.7 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.7.1 Classification of exploration and evaluation assets. . . . . . . . . . . 15.8.7.2 Reclassification of exploration and evaluation assets. . . . . . . . . 15.8.8 Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.8.9 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 Guidance Note on Accounting of Oil and Gas producing activities. . . . . . . . . . . . . . . . 15.9.1 Scope and exclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.2 Classification of activities and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.3 Accounting principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.3.1 Acquisition. Exploration and development costs. . . . . . . . . . . . 15.9.3.2 Production costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.3.3 Cost of support equipment and facilities. . . . . . . . . . . . . . . . . . . 15.9.3.4 Abandonment costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.4 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9.5 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10 Ind AS 114: Regulatory Deferral Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.3 Recognition, measurement, impairment and de recognition. . . . . . . . . . . . . . . 15.10.4 Changes in accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.5 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.6 Classification of regulatory deferral account balances . . . . . . . . . . . . . . . . . . . 15.10.7 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.7.1 Explanation of activities subject to rate regulation. . . . . . . . . . . 15.10.7.2 Explanation of recognised amounts . . . . . . . . . . . . . . . . . . . . . . 15.10.8 Deferred tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.9 Disclosure of interests in other entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.10 Appendix A to this Standard discusses the defined terms used across the Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xl

15.36 15.36 15.39 15.40 15.42 15.42 15.43 15.43 15.43 15.43 15.44 15.44 15.44 15.44 15.44 15.45 15.45 15.45 15.45 15.46 15.48 15.48 15.49 15.49 15.49 15.49 15.50 15.50 15.50 15.51 15.51 15.51 15.52 15.52 15.52 15.53 15.53 15.54 15.54 15.55

Table of contents

15.10.11 Appendix B to this Standard provides Application Guidance of this Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.11.1 Rate regulated activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.10.11.2 Regulatory deferral account balance. . . . . . . . . . . . . . . . . . . . . . 15.10.11.3 Applicability of other Standards. . . . . . . . . . . . . . . . . . . . . . . . . 15.11 Guidance Note on Accounting for Rate Regulated Activities. . . . . . . . . . . . . . . . . . . . . 15.11.1 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.2 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.4 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.5 Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.5.1 Regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.5.2 Regulatory liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.6 Measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.7 De-recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.8 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.9 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.11.10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective date of implementation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12 Guidance Note on accounting of political parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.1 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.3 Basis of accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.4 Books of accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.5 Financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.12.6 Formats of financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.13 Guidance Note on Accounting for Self-generated Certified Emission Reductions (CERs). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.13.1 This Guidance Note provides guidance on matters of applying accounting principles relating to recognition, measurement and disclosures of CERs generated by the entity that has obtained the same under the Clean Development Mechanism (hereinafter referred to as ‘self-generated CERs’).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.13.2 Accounting treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.13.3 Presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.13.4 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15.55 15.55 15.55 15.56 15.57 15.57 15.57 15.58 15.58 15.58 15.58 15.59 15.59 15.59 15.59 15.59 15.60 15.65 15.65 15.65 15.65 15.66 15.66 15.67 15.67

15.67 15.67 15.67 15.67

Chapter 16 Corporate Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 Corporate restructuring and provisions of various Statutes . . . . . . . . . . . . . . . . . . . . . . . 16.2.1 Companies Act, 1956. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2.2 Companies Act, 2013 related to Corporate Restructuring. . . . . . . . . . . . . . . . . . 16.2.2.1 Concept and Guidelines of buy back of shares. . . . . . . . . . . . . . .

16.1 16.2 16.2 16.2 16.5 16.7 xli

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16.3

16.4

xlii

16.2.2.2 Accounting period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.8 16.2.3 Provisions of Income-tax Act,Â 1961 related to Corporate Restructuring. . . . . . . 16.8 16.2.3.1 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.9 16.2.3.2 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.9 16.2.3.3 Exemption from Capital Gains Tax. . . . . . . . . . . . . . . . . . . . . . . . 16.9 16.2.3.4 Carry Forward Losses of Sick Companies. . . . . . . . . . . . . . . . . . 16.9 16.2.3.5 Amalgamation Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10 Accounting Standards :. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10 16.3.1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10 16.3.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.10 16.3.3 Types of Amalgamations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.11 16.3.4 Methods of Accounting for Amalgamations. . . . . . . . . . . . . . . . . . . . . . . . . . . 16.12 16.3.5 The Pooling of Interests Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.12 16.3.6 The Purchase Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.12 16.3.7 Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.13 16.3.8 Treatment of Reserves on Amalgamation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.13 16.3.9 Treatment of Goodwill Arising on Amalgamation . . . . . . . . . . . . . . . . . . . . . . 16.14 16.3.10 Balance of Profit and Loss Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.14 16.3.11 Treatment of Reserves Specified in a Scheme of Amalgamation. . . . . . . . . . . 16.15 16.3.12 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.15 16.3.13 Amalgamation after the Balance Sheet Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 16.16 16.3.14 Main Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.16 16.3.15 Comparative position of the two methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.21 Indian Accounting Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.21 16.4.1 Ind AS 103: Business Combinations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.21 16.4.1.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.21 16.4.1.2 Scope and exclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.21 16.4.1.3 Identifying a business combination. . . . . . . . . . . . . . . . . . . . . . . 16.22 16.4.1.4 The acquisition method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.22 16.4.1.5 Identifying the acquirer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.22 16.4.1.6 Determining the acquisition date . . . . . . . . . . . . . . . . . . . . . . . . 16.22 16.4.1.7 Recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.23 16.4.1.8 Measurement principle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.23 16.4.1.9 Limited exceptions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.24 16.4.1.10 Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.24 16.4.1.11 Bargain purchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.25 16.4.1.12 Consideration transferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.25 16.4.1.13 Additional guidance for applying the acquisition method to particular types of business combinations . . . . . . . . . . . . . . . 16.26 16.4.1.14 Measurement period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.26 16.4.1.15 Subsequent measurement and accounting. . . . . . . . . . . . . . . . . . 16.27

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16.5 16.6

16.4.1.16 Contingent Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4.1.17 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4.1.18 Appendix A to this Standard provides Defined terms used in this Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.4.1.19 Appendix B to this Standard provides Application guidance related to this Standard.. . . . . . . . . . . . . . . . . . . . . . . . 16.4.1.20 Business combinations of entities under common control (Appendix C to Ind AS 103). . . . . . . . . . . . . . . . . . . . . . . . . . . . Companies (Indian Accounting Standards) Amendment 16.4.1.21 Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Companies (Indian Accounting Standards) Second 16.4.1.22 Amendment Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure requirement related to Business Combinations under Schedule III . . . . . . . Comparative summary of Business combinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16.28 16.28 16.28 16.28 16.29 16.31 16.32 16.33 16.39

Chapter 17 Consolidation of Parent with Subsidiaries, Associates and Joint Ventures. . . . . 17.1 17.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.2 17.2 Preparation of consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.3 17.3 Amendments to schedule III of the Companies, Act 2013 incorporating financial reporting requirements under Indian Accounting Standards (Ind AS) . . . . . . . . . . . . . . . 17.5 17.4 Part III – Comparative Analysis of General Instructions for the Preparation of Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.7 17.5 Accounting Standards (AS 21) (As amended) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 17.5.1 Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 17.5.2 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.9 17.5.3 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.10 17.5.4 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.10 17.5.5 Presentation of Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . 17.12 17.5.6 Scope of Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.12 17.5.7 Consolidation when excluded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.13 17.5.8 Consolidation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.14 17.5.9 Intragroup balances and intragroup transactions. . . . . . . . . . . . . . . . . . . . . . . . 17.16 17.5.10 Reporting date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.16 17.5.11 Uniform accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.16 17.5.12 Disposal of investment in subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.16 17.5.13 Treatment of investment on disposal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.17 17.5.14 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.17 17.5.15 Accounting for Investments in Subsidiaries in a Parent’s Separate Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.17 17.5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.17 17.5.17 Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.18 17.5.18 AS 23: Accounting for Associates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.23 17.5.18.1 Significant influence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.23 xliii

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17.6

xliv

17.5.18.2 Equity method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.18.3 Procedure for the equity method is: . . . . . . . . . . . . . . . . . . . . . . 17.5.18.4 Circumstances under which Equity method is followed. . . . . . . 17.5.18.5 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.19 AS 27: Financial reporting of interests in joint ventures. . . . . . . . . . . . . . . . . . 17.5.19.1 Characteristics of a JV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.19.2 Types of JVs are:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.19.3 General Accounting considerations . . . . . . . . . . . . . . . . . . . . . . Jointly controlled operations (JCO) . . . . . . . . . . . . . . . . . . . . . . 17.5.19.4 17.5.19.5 Jointly controlled assets (JCA). . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.19.6 Jointly controlled entity (JCE) . . . . . . . . . . . . . . . . . . . . . . . . . . 17.5.19.7 Disclosure requirements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indian Accounting Standards on consolidation of financial statements . . . . . . . . . . . . . 17.6.1 Ind AS 27: Separate financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.1.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.1.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.1.3 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.1.4 Preparation of separate financial statements. . . . . . . . . . . . . . . . 17.6.1.5 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2 Ind AS 110:Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.3 Concept of group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.4 Concept of control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.5 Consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.6 Objectives of preparing consolidated financial statements. . . . . 17.6.2.7 Circumstances when subsidiaries should be excluded from consolidated financial statements. . . . . . . . . . . . . . . . . . . . 17.6.2.8 Need for using coterminous year-ends and uniform accounting policies when preparing consolidated financial statements and how is it achieved in practical world. . . . . . . . . 17.6.2.9 Process followed in summary for consolidation of parent with subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.10 Purchase consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.11 Non-controlling Interest (NCI). . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.12 Measurement and recognition of goodwill in consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.13 Treatment for acquisition related costs. . . . . . . . . . . . . . . . . . . . 17.6.2.14 Accounting treatment of pre-acquisition and postacquisition profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.15 Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . 17.6.2.16 Consolidated statement of changes in equity. . . . . . . . . . . . . . .

17.24 17.24 17.24 17.25 17.27 17.27 17.28 17.28 17.28 17.31 17.33 17.36 17.36 17.36 17.36 17.37 17.37 17.38 17.39 17.40 17.40 17.41 17.41 17.42 17.46 17.46 17.46

17.47 17.47 17.50 17.52 17.53 17.54 17.54 17.58 17.59

Table of contents

17.6.2.17

Treatment of unrealised profit related to inventories in preparation of consolidated financial statements . . . . . . . . . . . . 17.61 17.6.2.18 Treatment of unrealised profit related to sale of noncurrent assets in preparation of consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.62 17.6.2.19 Treatment of intra-group interest expense . . . . . . . . . . . . . . . . . 17.63 17.6.2.20 Treatment of intra-group dividends . . . . . . . . . . . . . . . . . . . . . . 17.63 17.6.2.21 Treatment of fair value in the consideration paid for a subsidiary as well as in determining subsidiaryâ&#x20AC;&#x2122;s identifiable assets and liabilities when preparing consolidated financial statements. . . . . . . . . . . . . . . . . . . . . . . . 17.63 17.6.2.22 Partial disposal of an investment in a subsidiary . . . . . . . . . . . . 17.69 17.6.2.23 Appendix A to Ind AS 110 discusses Defined terms used across the Standard. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.69 17.6.2.24 Appendix B to Ind AS 110 provides Application guidance . . . . 17.69 17.6.2.25 Companies (Indian Accounting Standard)Amendment Rules 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.69 17.6.3 Ind AS 28: Investment in Associates and Joint Ventures. . . . . . . . . . . . . . . . . . 17.70 17.6.3.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.70 17.6.3.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.70 17.6.3.3 17.3.4.3. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.70 17.6.3.4 Significant influence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.71 17.6.3.5 Equity method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.72 17.6.3.6 Exemptions to Equity method. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.72 17.6.3.7 Procedure for the equity method. . . . . . . . . . . . . . . . . . . . . . . . . 17.73 17.6.3.8 Treatment of unrealised intra-group profits related to associates.17.76 17.6.3.9 Accounting treatment of goodwill, bargain purchases and losses with respect to associates. . . . . . . . . . . . . . . . . . . . . . . . . 17.76 17.6.3.10 Financial statements are prepared at different dates. . . . . . . . . . 17.77 17.6.3.11 Classification as held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.77 17.6.3.12 Discontinuing the use of Equity method. . . . . . . . . . . . . . . . . . . 17.78 17.6.3.13 Change in ownership interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.78 17.6.3.14 Impairment losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.79 17.6.3.15 Separate financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.80 17.6.3.16 Companies(Indian Accounting Standard)Amendment Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.80 Companies(Indian Accounting Standard)Second 17.6.3.17 Amendment Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.81 17.6.4 Ind AS 111: Joint Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.88 17.6.4.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.88 17.6.4.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.88 17.6.4.3 Definitions (Appendix A to Ind AS 111). . . . . . . . . . . . . . . . . . . 17.88 xlv

Financial Reporting under Ind AS and AS

17.6.4.4

17.7

Major changes highlighted in Ind AS 111 related to Joint venture accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.89 17.6.4.5 Joint Arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.89 17.6.4.6 Types of Joint arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.90 17.6.4.7 Comparative Accounting treatment related to types of joint arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.90 17.6.4.8 Decision tree on assessing Joint control. . . . . . . . . . . . . . . . . . . 17.92 17.6.4.9 Classification of a joint arrangement: assessment of the parties’ rights and obligations arising from the arrangement. . . 17.93 17.6.4.10 Comparative analysis of the various entities in consolidation of financial statements . . . . . . . . . . . . . . . . . . . . . 17.94 17.6.4.11 Companies (Indian Accounting Standards) Second Amendment Rules 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.94 17.6.5 Ind AS 112: Consolidated Financial Statements: Disclosure requirements. . . . . 17.95 17.6.5.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.95 17.6.5.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.95 17.6.5.3 Definitions (Appendix A to Ind AS 112). . . . . . . . . . . . . . . . . . . 17.96 17.6.5.4 Significant judgement and assumptions. . . . . . . . . . . . . . . . . . . 17.97 17.6.5.5 Interest in subsidiaries by Parent . . . . . . . . . . . . . . . . . . . . . . . . 17.97 17.6.5.6 The interest that non-controlling interests have in the group’s activities and cash Flows. . . . . . . . . . . . . . . . . . . . . . . . 17.98 17.6.5.7 Consequences of changes in a parent’s ownership interest in a subsidiary during reporting period. . . . . . . . . . . . . . . . . . . . 17.98 17.6.5.8 Interests in unconsolidated subsidiaries (investment entities). . . . . 17.98 17.6.5.9 Interests in joint arrangements and associates . . . . . . . . . . . . . . 17.99 17.6.5.10 Nature, extent and financial effects of an entity’s interests in joint arrangements and associates. . . . . . . . . . . . . . . . . . . . . 17.100 17.6.5.11 Risks associated with an entity’s interests in joint ventures and associates An entity shall disclose:. . . . . . . . . . . . . . . . . . . 17.100 17.6.5.12 Interests in unconsolidated structured entities . . . . . . . . . . . . . 17.100 17.6.5.13 Companies (Indian Accounting Standard)Amendment Rules 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.101 Companies (Indian Accounting Standard)Amendment 17.6.5.14 Rules 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.101 Comparative summary on consolidation of financial statements. . . . . . . . . . . . . . . . . 17.119

Chapter 18 Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Ind AS 101:First time adoption of International Financial Reporting Standards. . . . . . . 18.1.1 Objective. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1.2 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1.3 Recognition and measurement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1.3.1 Accounting policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1.3.2 Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xlvi

18.1 18.2 18.2 18.2 18.2 18.2 18.3

Table of contents

18.1.4 Presentation and disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 18.1.4.1 Comparative information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 18.1.4.2 Non-Ind AS comparative information and historical summaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.4 18.1.4.3 Explanation of transition to Ind ASs. . . . . . . . . . . . . . . . . . . . . . . 18.4 18.1.4.4 Reconciliations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.5 18.1.4.5 Designation of financial assets or financial liabilities. . . . . . . . . . 18.6 18.1.4.6 Use of fair value as deemed cost. . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 Use of deemed cost for investments in subsidiaries, joint 18.1.4.7 ventures and associates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.6 18.1.4.8 Use of deemed cost for oil and gas assets. . . . . . . . . . . . . . . . . . . 18.7 18.1.4.9 Use of deemed cost for operations subject to rate regulation. . . . 18.7 18.1.4.10 Use of deemed cost after severe hyperinflation . . . . . . . . . . . . . . 18.7 18.1.4.11 Interim financial reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.7 18.1.5 Appendix A to this Standard has summarised all the defined terms used across this Ind AS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.1.6 Appendix B to this Standard discusses exceptions to the retrospective application of other Ind ASs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.8 18.1.7 Appendix C Exemptions for business combinations. . . . . . . . . . . . . . . . . . . . . . 18.8 18.1.8 Appendix D: Exemption to other Ind ASs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.9 18.1.9 Amendment under Companies (Indian Accounting Standard) Amendment Rules 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.10 18.1.10 Amendment under Companies (Indian Accounting Standard) Amendment Rules 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.11 18.1.11 Amendment under Companies (Indian Accounting Standard) Amendment Rules 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.13 18.1.12 Companies (Indian Accounting Standards) Second Amendment Rules 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.16 18.1.13 Ind AS Transition Facilitation Group (ITFG) Clarification 1 to 18. . . . . . . . . . 18.18 18.1.14 Transitional provisions of Income Computation and Disclosure Standards. . . 18.57 Chapter 19 Fair Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.1 Chapter Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.2 Fair value measurement of Asset and liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.3 Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 Market participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 The price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.6 Application to non-financial assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 Application to liabilities and an entity’s own equity instruments - General Principles . . 19.7.1 Liabilities and equity instruments held by other parties as assets. . . . . . . . . . . . 19.7.2 Liabilities and equity instruments not held by other parties as assets. . . . . . . . . 19.7.3 Non-performance risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19.1 19.1 19.2 19.2 19.2 19.2 19.3 19.3 19.4 19.4 19.4

xlvii

Financial Reporting under Ind AS and AS

19.7.4 Restriction preventing the transfer of a liability or an entityâ&#x20AC;&#x2122;s own equity instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.4 19.7.5 Financial liability with a demand feature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 19.7.6 Application to financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk. . . . . . . . . . . . . . . . . . . . . . 19.5 19.7.7 Fair value at initial recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 19.8 Valuation techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 19.9 Present value techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.7 19.10 Inputs to valuation techniques. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8 19.11 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.9 19.12 Companies (Indian Accounting Standards) Amendment Rules 2019. . . . . . . . . . . . . . . 19.11 Chapter 20 Corporate Social Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.1 Corporate Social Responsibility (CSR). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.2 Recognition and measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.3 Eligibility of CSR activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.4 Board Report on CSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.5 Excess spend on CSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.6 Other considerations on recognition and measurement . . . . . . . . . . . . . . . . . . . . . . . . . . 20.7 Disclosure requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.8 Schedule VII to the Companies Act 2013 (under SectionÂ 135) . . . . . . . . . . . . . . . . . . . . 20.9 Format of Annual Report on CSR Activities to be included in Board Report . . . . . . . . .

xlviii

20.1 20.1 20.1 20.2 20.3 20.3 20.3 20.4 20.5 20.6

List of illustrations Chapter 1 Financial Reporting under Companies Act, 2013. . . . . . . . . . . . . . . . . . . . . . . . 1.1 Illustration 1.1: Cash and Cash Equivalents – apparent conflict between Schedule III, AS and Ind AS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 Illustration 1.2: Disclosure on Discontinuing Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10 Disclosures on Micro, Small and Medium Enterprises. . . . . . . . . . . . . . . . . . 1.11 Illustration 1.3: Disclosures in addition to the ones specificied under Schedule III. . . . . . . . . 1.11 Illustration 1.4: Presentation on previous years figures during first time adoption of Illustration 1.5: Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11 Disclosures under Schedule III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 Illustration 1.6: Illustration 1.7: Specimen formats. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.125 Illustration 1.8: Tax computation during interim reporting period. . . . . . . . . . . . . . . . . . . . . 1.127 Illustration 1.9: Interim Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.127 Illustration 1.10: Tax computation on interim reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.128 Illustration 1.11: Reporting under Interim Financial Reporting. . . . . . . . . . . . . . . . . . . . . . . . 1.129 Illustration 1.12: Ascertainment of quarterly income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.129 Illustration 1.13: Interim Financial Reporting on defined benefit schemes. . . . . . . . . . . . . . . 1.130 Illustration 1.14: Interim financial reporting on business segment. . . . . . . . . . . . . . . . . . . . . . 1.130 Illustration 1.15: Interim financial reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.130 Illustration 1.16: Computation of Income tax under Interim Financial Reporting. . . . . . . . . . 1.131 Illustration 1.17: ICAI Recommendation on Interim Financial Reporting. . . . . . . . . . . . . . . . 1.132 Illustration 1.18: Income tax computation under Interim Financial Reporting . . . . . . . . . . . . 1.132 Illustration 1.19: Income tax computation under Interim Financial Reporting . . . . . . . . . . . . 1.133 Illustration 1.20: Events occurring after the reporting date – project laying pipeline . . . . . . . 1.140 Illustration 1.21: Events occurring after the reporting date – acquisition of another company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.141 Illustration 1.22: Events occurring after the reporting date – laying cable on rocky surface. . . 1.141 Illustration 1.23: Events occurring after the reporting date – losses due to earthquake. . . . . . 1.141 Illustration 1.24: Events occurring after the reporting date – foreign exchange loan. . . . . . . 1.142 Illustration 1.25: Events occurring after the reporting date – asset destroyed by fire . . . . . . . 1.142 Illustration 1.26: Events occurring after the reporting date – breach of patents and copyrights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.143 Illustration 1.27: Events occurring after the reporting date – agreement to sell its immovable property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.144 Illustration 1.28: Events occurring after the reporting date – increase in price retrospectively.1.144 Illustration 1.29: Events occurring after the reporting date – recovery of bad and doubtful debts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.145 Illustration 1.30: Events occurring after the reporting date – additional expenses on civil construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.145 xlix

Financial Reporting under Ind AS and AS

Illustration 1.31: Illustration 1.32:

Illustration 1.33: Illustration 1.34: Illustration 1.35: Illustration 1.36: Illustration 1.37: Illustration 1.38: Illustration 1.39: Illustration 1.40: Illustration 1.41: Illustration 1.42: Illustration 1.43: Illustration 1.44: Illustration 1.45: Illustration 1.46: Illustration 1.47: Illustration 1.48: Illustration 1.49: Illustration 1.50: Illustration 1.51: Illustration 1.52: Illustration 1.53: Illustration 1.54: Illustration 1.55: Illustration 1.56: Illustration 1.57: Illustration 1.58: Illustration 1.59: Illustration 1.60:

Events occurring after the reporting date – sale of property. . . . . . . . . . . . . Events occurring after the reporting date – like increase in Director’s retirement benefit, shut down of retail business of the company, fire break-out etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Events occurring after the reporting date – like movement in foreign exchange rate, govt policies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Events occurring after the reporting date – bankruptcy of debtors. . . . . . . . Events occurring after the reporting date – treatment of proposed dividend- under Schedule VI Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Events occurring after the reporting date – treatment of proposed dividend- under Schedule VI Part I and Part II. . . . . . . . . . . . . . . . . . . . . . . Events occurring after the reporting date.. . . . . . . . . . . . . . . . . . . . . . . . . . . Events occurring after the reporting date – decline in fair value of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in Accounting estimate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of prior period item- Fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of prior period item- theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure related to writing down of inventory. . . . . . . . . . . . . . . . . . . . . . Disclosure on prior period treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of liability having retrospective effect. . . . . . . . . . . . . . . . . . . . . Treatment of expenses having retrospective effect- revision of wages. . . . . Treatment of assets having retrospective effect . . . . . . . . . . . . . . . . . . . . . . Treatment of expenses having retrospective effect- increase in wages. . . . . Treatment of expenses having post balance sheet effect. . . . . . . . . . . . . . . . Change of accounting treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of increase in liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of Prior period income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of prior period expenses- provision for loss . . . . . . . . . . . . . . . . Treatment of expenses with retrospective effect. . . . . . . . . . . . . . . . . . . . . . Change in accounting estimate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of prior period income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of prior period event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in Accounting policy- Depreciation Method. . . . . . . . . . . . . . . . . . Change in Accounting policy and estimate as applicable. . . . . . . . . . . . . . . Change in Accounting policy- Inventory Valuation Method . . . . . . . . . . . . Change in accounting estimate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.146

1.146 1.147 1.147 1.148 1.148 1.150 1.151 1.159 1.159 1.160 1.160 1.161 1.161 1.162 1.162 1.162 1.163 1.163 1.164 1.164 1.165 1.165 1.165 1.166 1.166 1.171 1.171 1.172 1.174

Chapter 2 Operating Cycle & Current Non current classification. . . . . . . . . . . . . . . . . . . Current Classifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 2.1: Illustration 2.2: Current vs Non current Classifications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 2.3: Operating Cycle Insurance spares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 2.4: Operating Cycle on high seas sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 2.5: Operating Cycle on milk and dairy industry. . . . . . . . . . . . . . . . . . . . . . . . . . . l

2.1 2.2 2.3 2.3 2.3 2.3

List of illustrations

Illustration 2.6: Illustration 2.7: Illustration 2.8: Illustration 2.9: Illustration 2.10: Illustration 2.11: Illustration 2.12: Illustration 2.13: Illustration 2.14: Illustration 2.15: Illustration 2.16: Illustration 2.17: Illustration 2.18: Illustration 2.19: Illustration 2.20: Illustration 2.21: Illustration 2.22: Illustration 2.23: Illustration 2.24: Illustration 2.25: Illustration 2.26: Illustration 2.27: Illustration 2.28: Illustration 2.29: Illustration 2.30:

Operating Cycle – software development companies. . . . . . . . . . . . . . . . . . . . 2.3 Operating Cycle – basis of determination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Operating Cycle – whether to include lead time for procurement in the cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Whether credit period allowed by supplier reduced while determining Operating Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Classification of current vs non-current for previous period . . . . . . . . . . . . . . 2.7 Classification of current vs non-current at hindsight . . . . . . . . . . . . . . . . . . . . 2.7 Classification of fixed assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 Classification of investment in preference shares. . . . . . . . . . . . . . . . . . . . . . . 2.8 Classification of provision for bad and doubtful debts. . . . . . . . . . . . . . . . . . . 2.8 Classification of slow moving stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 Classification of loan, on breach of major debt covenant. . . . . . . . . . . . . . . . . 2.9 Classification of long-term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12 Classification of roll over of loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12 Classification of loan linked to operating cycle . . . . . . . . . . . . . . . . . . . . . . . 2.13 Classification of fixed deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13 Treatment of lien over fixed deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13 Treatment of settlement of liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.13 Classification of security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14 Classification of security deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14 Classification of funded defined benefit plans . . . . . . . . . . . . . . . . . . . . . . . . 2.15 Classification of gratuity and leave encashment. . . . . . . . . . . . . . . . . . . . . . . 2.15 Classification of deferred tax assets and liabilities. . . . . . . . . . . . . . . . . . . . . 2.15 Classification of provision on standard assets by NBFCs. . . . . . . . . . . . . . . . 2.16 Classification of Non controlling interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16 Classification of loan with debt covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 2.16

Chapter 3 Shareholders’ Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Specimen format of Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 Illustration 3.1: Illustration 3.2: Reconciliation of number of shares outstanding. . . . . . . . . . . . . . . . . . . . . . . 3.10 Illustration 3.3: Disclosure of each class of shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 Disclosure of ADR / GDR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11 Illustration 3.4: Specimen format of details of shareholders holding more than 5% shares . . 3.13 Illustration 3.5: Illustration 3.6: Disclosure regarding shareholders holding. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.13 Illustration 3.7: Disclosure of allotment of shares for a period of five years immediately preceding the Balance Sheet date. . . . . . . . . . . . . . . . . . . . . . . . 3.15 Illustration 3.8: An example of disclosure of Share capital under Schedule III. . . . . . . . . . . . 3.16 Illustration 3.9: Base concept. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.26 Illustration 3.10: Accounting procedure of ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.27 Illustration 3.11: ESOP: Variation in vesting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.31 Illustration 3.12: ESOP: Graded vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.33 Illustration 3.13: ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.35 li

Financial Reporting under Ind AS and AS

Illustration 3.14: Illustration 3.15:

Employee Stock purchase plan (ESPP). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cancellation and settlements of grants during vesting period (other than grant cancelled by forfeiture) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.16: Stock Appreciation Rights (SAR). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.17: Employee share based payment plans with cash alternatives. . . . . . . . . . . . . Illustration 3.18: Dilution of earnings per share (EPS) on ESOPs granted . . . . . . . . . . . . . . . . Illustration 3.19: Employees stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.20 : Treatment of stock option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.21: Employees stock option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.22: Equity-settled share-based payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.23: Share appreciation rights to employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.24 : Cash-settled share-based payment transaction. . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.25: Accounting of Employee stock option rights. . . . . . . . . . . . . . . . . . . . . . . . . Illustration 3.26: Specimen format of Reserves and Surplus. . . . . . . . . . . . . . . . . . . . . . . . . . .

3.38 3.38 3.42 3.43 3.46 3.49 3.50 3.53 3.55 3.55 3.57 3.57 3.60

Chapter 4 Non-current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Classification of non current and current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Illustration 4.1: Illustration 4.2: Classification of non current and current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Illustration 4.3: Classification of non current and current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Illustration 4.4: Specimen format for Long term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 Illustration 4.5: Specimen format of Maturity profile and rate of interest of Debentures and bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 Illustration 4.6: Tax effect of deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 Illustration 4.7: Tax effect of deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 Illustration 4.8: Timing difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 Illustration 4.9: Difference between timing difference and permanent difference. . . . . . . . . . 4.14 Illustration 4.10: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 Illustration 4.11: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 Illustration 4.12: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.16 Illustration 4.13: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.16 Illustration 4.14: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.17 Illustration 4.15: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.17 Illustration 4.16: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.18 Illustration 4.17: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.18 Illustration 4.18: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.19 Illustration 4.19: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.20 Illustration 4.20: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.21 Illustration 4.21: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.21 Illustration 4.22: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.24 Illustration 4.23: Explanation of MAT credit as deferred tax asset . . . . . . . . . . . . . . . . . . . . . . 4.24 Illustration 4.24: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.24 Illustration 4.25: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.25 Illustration 4.26: Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . 4.26 lii

List of illustrations

Illustration 4.27: Illustration 4.28: Illustration 4.29: Illustration 4.30: Illustration 4.31: Illustration 4.32: Illustration 4.33: Illustration 4.34:

Deferred tax Liability (net). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Computation of deferred tax asset / liability. . . . . . . . . . . . . . . . . . . . . . . . . . Disclosure of repayment terms of loan liabilities. . . . . . . . . . . . . . . . . . . . . .

4.27 4.28 4.30 4.32 4.32 4.33 4.34 4.48

Current Liabilities and Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 Chapter 5 Specimen format of Short term borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Illustration 5.1: Illustration 5.2: Treatment of trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.8 Illustration 5.3: Treatment of secured or unsecured borrowings . . . . . . . . . . . . . . . . . . . . . . . . 5.9 Illustration 5.4: Provisions, Contingent Liabilities and Contingent Assets . . . . . . . . . . . . . . . . 5.9 Illustration 5.5: Provision for current and deferred tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 Illustration 5.6: Specimen format of Trade payables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10 Illustration 5.7: Specimen format: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.10 Illustration 5.8: Specimen format: Short term provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 Provisions for indirect taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 Illustration 5.9: Illustration 5.10: Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.23 Illustration 5.11: Contaminated Land -Legislation Virtually Certain to be enacted. . . . . . . . . . 5.23 Illustration 5.12: Offshore Oil field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.23 Illustration 5.13: Refunds Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.24 Illustration 5.14: Legal Requirement to Fit Smoke Filters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.24 Illustration 5.15: Staff Retraining as a Result of Changes in the Income Tax System. . . . . . . . 5.25 Illustration 5.16: A Single Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.25 Illustration 5.17: A Court Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.26 Illustration 5.18: Refurbishment Costs -No Legislative Requirement. . . . . . . . . . . . . . . . . . . . 5.26 Illustration 5.19: Refurbishment Costs -Legislative Requirement. . . . . . . . . . . . . . . . . . . . . . . 5.27 Illustration 5.20: An onerous contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.27 Illustration 5.21: Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.27 Illustration 5.22: Disclosure Exemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.27 Illustration 5.23: Provision for warranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.31 Illustration 5.24: Provisions of warranty costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.39 Illustration 5.25: Provision for damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40 Illustration 5.26: Provision for administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.41 Chapter 6 Non-current Assets â&#x20AC;&#x201C; Tangible & Intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 Initial cost of asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.22 Illustration 6.1: Illustration 6.2: Initial measurement of non-current asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.22 Illustration 6.3: Treatment of income from sale of land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.23 Illustration 6.4: Treatment of initial measurement of joint assets. . . . . . . . . . . . . . . . . . . . . . 6.24 liii

Financial Reporting under Ind AS and AS

Illustration 6.5: Illustration 6.6: Illustration 6.7: Illustration 6.8: Illustration 6.9: Illustration 6.10: Illustration 6.11: Illustration 6.12: Illustration 6.13: Illustration 6.14: Illustration 6.15: Illustration 6.16: Illustration 6.17: Illustration 6.18: Illustration 6.19: Illustration 6.20: Illustration 6.21: Illustration 6.22: Illustration 6.23: Illustration 6.24: Illustration 6.25: Illustration 6.26: Illustration 6.27: Illustration 6.28: Illustration 6.29: Illustration 6.30: Illustration 6.31: Illustration 6.32: Illustration 6.33: Illustration 6.34: Illustration 6.35: Illustration 6.36: Illustration 6.37: Illustration 6.38: Illustration 6.39: Illustration 6.40: Illustration 6.41: Illustration 6.42: Illustration 6.43: Illustration 6.44: Illustration 6.45: Illustration 6.46: liv

Treatment of adjustment of losses with revaluation reserve. . . . . . . . . . . . . . 6.24 Adjustments of price adjustment, exchange fluctuation to the carrying amount of Plant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.24 Calculation of subsequent measurement of Machinery in foreign currency. . . 6.25 Calculation of subsequent measurement of Machinery in foreign currency. . . 6.26 Initial measurement of immovable property. . . . . . . . . . . . . . . . . . . . . . . . . . 6.27 Subsequent measurement of Property, Plant and Equipment. . . . . . . . . . . . . 6.28 Subsequent measurement of Property, Plant and Equipment. . . . . . . . . . . . . 6.29 Subsequent measurement of Property, Plant and Equipment. . . . . . . . . . . . . 6.30 Initial measurement of Property, Plant and Equipment. . . . . . . . . . . . . . . . . 6.33 Initial measurement of Property, Plant and Equipment. . . . . . . . . . . . . . . . . 6.34 Subsequent measurement of Property, Plant and Equipment. . . . . . . . . . . . . 6.35 Initial and subsequent measurement of Property, Plant and Equipment. . . . . 6.36 Principle of Revaluation of an asset explained. . . . . . . . . . . . . . . . . . . . . . . . 6.39 Treatment of research expenses under intangible assets. . . . . . . . . . . . . . . . . 6.68 Recognition of intangible assets and calculation of amortization. . . . . . . . . . 6.69 Subsequent measurement of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . 6.69 Initial measurement of intangible asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.70 Treatment of publicity and research expenses . . . . . . . . . . . . . . . . . . . . . . . . 6.71 Recognition of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.71 Subsequent measurement of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . 6.72 Recognition criteria of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.74 Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.75 Recognition of intangible assets related to technical know how . . . . . . . . . . 6.76 Finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.89 Finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.90 Operating lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.90 Finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.91 Finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.91 Accounting Policy related to Leases under AS 19 . . . . . . . . . . . . . . . . . . . . . 6.94 Finance lease with entries in the books of the lessor and the lessee. . . . . . . . 6.95 Operating lease with entries in the books of the lessor and lessee. . . . . . . . . 6.99 Finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.101 Accounting treatment of leases in the books of lessee. . . . . . . . . . . . . . . . . 6.102 Accounting treatment of leases in the books of lessor. . . . . . . . . . . . . . . . . 6.103 Treatment of finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.104 Measurement of liability on finance lease. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.105 Calculation of value of Plant under Finance lease. . . . . . . . . . . . . . . . . . . . 6.106 Treatment of annual lease payment under finance lease. . . . . . . . . . . . . . . . 6.106 Recognition and measurement of finance lease . . . . . . . . . . . . . . . . . . . . . . 6.109 Treatment of sale and leaseback transaction. . . . . . . . . . . . . . . . . . . . . . . . . 6.109 Calculation of unearned financial income. . . . . . . . . . . . . . . . . . . . . . . . . . . 6.110 Treatment of Accounting of lease in the books of lessee . . . . . . . . . . . . . . . 6.147

List of illustrations

Illustration 6.47: Illustration 6.48: Illustration 6.49: Illustration 6.50: Illustration 6.51: Illustration 6.52: Illustration 6.53: Illustration 6.54: Illustration 6.55: Illustration 6.56: Illustration 6.57: Illustration 6.58: Illustration 6.59: Illustration 6.60: Illustration 6.61: Illustration 6.62: Illustration 6.63: Illustration 6.64: Illustration 6.65: Illustration 6.66: Illustration 6.67: Illustration 6.68: Illustration 6.69: Illustration 6.70: Illustration 6.71: Illustration 6.72: Illustration 6.73: Illustration 6.74: Illustration 6.75: Illustration 6.76: Illustration 6.77:

Accounting policy on Non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . Specimen format : Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specimen format : Fixed Assets acquired on Finance Lease . . . . . . . . . . . . Specimen format: Capital work-in-progress. . . . . . . . . . . . . . . . . . . . . . . . . Specimen format: Intangible asset under development . . . . . . . . . . . . . . . . Borrowing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of borrowing cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Borrowing cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of borrowing cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of borrowing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of borrowing cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognition and measurement of Government Grant. . . . . . . . . . . . . . . . . . Recognition and measurement of Government Grant. . . . . . . . . . . . . . . . . . Recognition and measurement of Government grants . . . . . . . . . . . . . . . . . Recognition and measurement of recoverable value . . . . . . . . . . . . . . . . . . Recognition and measurement of value-in-use. . . . . . . . . . . . . . . . . . . . . . . Recognition and measurement of recoverable value . . . . . . . . . . . . . . . . . . Recognition and measurement of recoverable value . . . . . . . . . . . . . . . . . . Recoverable value of cash generating unit. . . . . . . . . . . . . . . . . . . . . . . . . . Recognition and measurement of impairment loss, value-in-use and revised carrying cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Computation of impairment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of impairment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounting policy on Impairment of assets. . . . . . . . . . . . . . . . . . . . . . . . . Impairment loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of Cash Generating Unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of value-in-use of a mine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Goodwill linked to Cash Generating Unit. . . . . . . . . . . . . . . . . . . . . . . . . . . Calculation of recoverable value of a machine. . . . . . . . . . . . . . . . . . . . . . .

6.151 6.152 6.153 6.153 6.154 6.155 6.157 6.158 6.159 6.160 6.160 6.161 6.161 6.174 6.175 6.176 6.185 6.186 6.186 6.188 6.190 6.190 6.193 6.194 6.194 6.195 6.201 6.202 6.204 6.205 6.206

Chapter 7 Non-current investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1 Specimen format: Non-current investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 Illustration 7.1: Illustration 7.2: Recognition of long term investments in financial statements.. . . . . . . . . . . . 7.16 Illustration 7.3: Recognition of long term and current investments. . . . . . . . . . . . . . . . . . . . . 7.16 Illustration 7.4: Classification of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.17 Illustration 7.5: Recognition of long term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.17 Illustration 7.6: Treatment of investments in securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.18 Illustration 7.7: Financial derivatives and commodity hedging transactions. . . . . . . . . . . . . . 7.20 Illustration 7.8: Specimen format : Long term loans and advances (unsecured and considered good). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.24 lv

Financial Reporting under Ind AS and AS

Illustration 7.9: Illustration 7.10: Illustration 7.11:

Specimen format : Assets given on finance lease on or after 1stÂ April 2001. 7.24 Examples of Investment Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.28 Examples which are not Investment Property. . . . . . . . . . . . . . . . . . . . . . . . . 7.28

Chapter 8 Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.1 Illustration 8.1: Current Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 Illustration 8.2: Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.8 Illustration 8.3: Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 Specimen Format : Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9 Illustration 8.4: Illustration 8.5: Measurement of cost of inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.13 Illustration 8.6: Fixed overheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.13 Illustration 8.7: Variable overheads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.14 Illustration 8.8: Other costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.14 Illustration 8.9: Retail method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 Illustration 8.10: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17 Illustration 8.11: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.17 Illustration 8.12: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.18 Illustration 8.13: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.19 Illustration 8.14: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.19 Illustration 8.15: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.20 Illustration 8.16: Recognition and measurement of inventories. . . . . . . . . . . . . . . . . . . . . . . . . 8.20 Illustration 8.17: Interest cost not part of valuation of inventories. . . . . . . . . . . . . . . . . . . . . . . 8.21 Illustration 8.18: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.21 Illustration 8.19: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.22 Illustration 8.20: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.22 Illustration 8.21: Whether interest can be included in valuation of inventories. . . . . . . . . . . . . 8.23 Illustration 8.22: Treatment of abnormal loss in valuation of inventories. . . . . . . . . . . . . . . . . 8.23 Illustration 8.23: Valuation of inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.24 Illustration 8.24: Specimen example of Accounting policy related to inventories. . . . . . . . . . . 8.25 Illustration 8.25: Computation of profit or loss in contract accounting. . . . . . . . . . . . . . . . . . . 8.52 Illustration 8.26: Profitability analysis under Construction contract . . . . . . . . . . . . . . . . . . . . . 8.53 Illustration 8.27: Accounting for construction contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.54 Illustration 8.28: Profit and loss on construction contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.55 Illustration 8.29: Valuation of contract and treatment of foreseeable profit or loss. . . . . . . . . . 8.56 Illustration 8.30: Recognition of revenue under construction contract . . . . . . . . . . . . . . . . . . . 8.57 Illustration 8.31: Computation of profit or loss under construction contract. . . . . . . . . . . . . . . 8.57 Illustration 8.32: Recognition and measurement of contract revenue and profit or loss . . . . . . 8.58 Illustration 8.33: Computation of estimated profit or loss under construction contract. . . . . . . 8.59 Illustration 8.34: Specimen format: Trade Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.86 Illustration 8.35: Specimen format: Cash and Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . 8.88 Illustration 8.36: Specimen format: Short term loans and advances . . . . . . . . . . . . . . . . . . . . . 8.89 Illustration 8.37: Specimen format : Other Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.90 Illustration 8.38: Recognition and Measurement of assets classified as held for sale . . . . . . . 8.100 Illustration 8.39: Recognition and measurement of asset classified as held for sale . . . . . . . . 8.100 lvi

List of illustrations

Chapter 9 Contingent Liabilities and Contingent Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 Illustration 9.1: Specimen format: Contingent liabilities and commitments . . . . . . . . . . . . . . . 9.8 Illustration 9.2: Contingent Liabilities and commitments (Source: ITC Limited). . . . . . . . . . . 9.9 Chapter 10 Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 Illustration 10.1: Accounting policy on Revenue Recognition. . . . . . . . . . . . . . . . . . . . . . . . . 10.12 Illustration 10.2: Revenue from Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.12 Illustration 10.3: Particulars of sale of products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.13 Illustration 10.4: Accounting policy on revenue: ITC Limited . . . . . . . . . . . . . . . . . . . . . . . . 10.13 Illustration 10.5: Revenue from Operations: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.13 Illustration 10.6: Gross revenue from sale of products and services:. . . . . . . . . . . . . . . . . . . . 10.14 Illustration 10.7: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.15 Illustration 10.8: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.16 Illustration 10.9: Recognition of service revenue for a specific period . . . . . . . . . . . . . . . . . . 10.17 Illustration 10.10: Recognition of service revenue on completion of performance obligation. 10.17 Illustration 10.11: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.18 Illustration 10.12: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.18 Illustration 10.13: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.19 Illustration 10.14: Recognition of revenue on increase of sales price . . . . . . . . . . . . . . . . . . . . 10.19 Illustration 10.15: Recognition of revenue on interest and royalties. . . . . . . . . . . . . . . . . . . . . 10.20 Illustration 10.16: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.20 Illustration 10.17: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.21 Illustration 10.18: Recognition of sale of immovable property. . . . . . . . . . . . . . . . . . . . . . . . . 10.21 Illustration 10.19: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.21 Illustration 10.20: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.22 Illustration 10.21: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.23 Illustration 10.22: Recognition of revenue – Treatment of trade discount and provision of anticipated loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.23 Illustration 10.23: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.24 Illustration 10.24: Recognition of revenue – treatment of interest recovery . . . . . . . . . . . . . . . 10.25 Illustration 10.25: Recognition of revenue – advertisement rights. . . . . . . . . . . . . . . . . . . . . . . 10.25 Illustration 10.26: Recognition of revenue – substance over legal form . . . . . . . . . . . . . . . . . . 10.26 Illustration 10.27: Recognition of revenue – substance over legal form . . . . . . . . . . . . . . . . . . 10.27 Illustration 10.28: Recognition of revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.27 Illustration 10.29: Product delivered without written contract. . . . . . . . . . . . . . . . . . . . . . . . . . 10.31 Illustration 10.30: Combination of contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.33 Illustration 10.31: Contract modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.33 Illustration 10.32: Extension of contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.34 Illustration 10.33: Adjustment of Stand-alone selling price for a discount . . . . . . . . . . . . . . . . 10.35 Illustration 10.34: Identifying performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.36 Illustration 10.35: Identifying performance obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.36 Illustration 10.36: Bundle of goods and service that are combined. . . . . . . . . . . . . . . . . . . . . . 10.37 Illustration 10.37: Bundle of goods and services that are combined . . . . . . . . . . . . . . . . . . . . . 10.38 Illustration 10.38: Variable consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.39

lvii

Financial Reporting under Ind AS and AS

Illustration 10.39: Illustration 10.40: Illustration 10.41: Illustration 10.42: Illustration 10.43: Illustration 10.44: Illustration 10.45: Illustration 10.46: Illustration 10.47: Illustration 10.48: Illustration 10.49: Illustration 10.50: Illustration 10.51: Illustration 10.52: Illustration 10.53:

Recognition of revenue and unwinding of discount to finance income . . . . Recognition of revenue – non cash consideration recorded at fair value. . . Allocation of stand-alone selling price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocating transaction price – allocating discount . . . . . . . . . . . . . . . . . . . . Treatment of Sales Commission. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treatment of advance payment prior to delivery . . . . . . . . . . . . . . . . . . . . . Treatment of costs as expense or assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Whether expenses can be eligible for recognition as assets. . . . . . . . . . . . . Recognition of revenue – real estate project. . . . . . . . . . . . . . . . . . . . . . . . . Other Operating Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Operating Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10.39 10.40 10.43 10.43 10.51 10.52 10.52 10.53 10.70 10.71 10.72 10.72 10.72 10.72 10.73

Chapter 11 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.1 Illustration 11.1: Cost of materials consumed: Specimen format. . . . . . . . . . . . . . . . . . . . . . . . 11.5 Illustration 11.2: Raw materials (including Packaging materials) consumed:. . . . . . . . . . . . . . 11.8 Illustration 11.3: Details of purchases of stock-in-trade:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Illustration 11.4: Changes in inventories of finished goods, work-in-progress, Stock-inTrade and intermediates: Specimen format. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.9 Illustration 11.5: Defined Benefit Plan using Projected unit credit method. . . . . . . . . . . . . . . 11.13 Illustration 11.6: Accounting Policy on Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.14 Illustration 11.7: Calculation of pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.15 Illustration 11.8: Treatment of actuarial gains and losses in statement of profit and loss . . . . 11.15 Illustration 11.9: Computation of return on plan assets relate to company’s defined benefit plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 Illustration 11.10: Computation of fair value of plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.16 Illustration 11.11: Computation of actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . 11.17 Illustration 11.12: Computation of expected and actual return on plan assets. . . . . . . . . . . . . . 11.17 Illustration 11.13: Treatment of actuarial valuation under pension scheme. . . . . . . . . . . . . . . . 11.18 Illustration 11.14: Treatment of actuarial valuation under defined benefit scheme. . . . . . . . . . 11.18 Illustration 11.15: Computation of actual return and expected return on plan assets. . . . . . . . . 11.19 Illustration 11.16: Treatment of leave encashment benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.20 Illustration 11.17: Treatment of Settlement allowance under defined benefit scheme. . . . . . . . 11.20 Illustration 11.18: Computation of actual return and expected return on plan assets. . . . . . . . . 11.21 Illustration 11.19: Employee benefit expenses: Specimen format. . . . . . . . . . . . . . . . . . . . . . . 11.22 Illustration 11.20: Employee benefit expenses disclosures: Reliance Industries Ltd. . . . . . . . . 11.22 Illustration 11.21: Defined Benefit Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.28 Illustration 11.22: Computation of remeasurement of defined benefit obligation and effect of asset ceiling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.31 Illustration 11.23: Treatment of past service costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.33 lviii

List of illustrations

Illustration 11.24: Illustration 11.25: Illustration 11.26: Illustration 11.27: Illustration 11.28: Illustration 11.29: Illustration 11.30: Illustration 11.31: Illustration 11.32: Illustration 11.33: Illustration 11.34: Illustration 11.35: Illustration 11.36: Illustration 11.37: Illustration 11.38: Illustration 11.39: Illustration 11.40: Illustration 11.41: Illustration 11.42: Illustration 11.43: Illustration 11.44: Illustration 11.45: Illustration 11.46: Illustration 11.47: Illustration 11.48: Illustration 11.49:

Computation of transitional liability under Ind AS 19. . . . . . . . . . . . . . . . . 11.34 Multi-employer plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.35 Accumulated cost of compensated absence . . . . . . . . . . . . . . . . . . . . . . . . . 11.36 Profit sharing and bonus plan.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.36 Multi employer plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.36 Finance cost: Specimen format. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.42 Depreciation and amortization expenses:. . . . . . . . . . . . . . . . . . . . . . . Specimen format. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.44 Accounting Policy: Depreciation / amortization. . . . . . . . . . . . . . . . . . . . . . 11.44 Separate Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.48 Treatment of revaluation surplus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.50 Treatment of revaluation surplus realised through depreciation. . . . . . . . . . 11.50 Treatment of depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.52 Treatment of depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.52 Treatment of depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.52 Treatment of depreciation and to be applied consistently. . . . . . . . . . . . . . . 11.52 Component accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.54 Component accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.54 Review of useful life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.56 Calculation of depreciation on multiple shift. . . . . . . . . . . . . . . . . . . . . . . . 11.56 Assessment of useful life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.56 Other Expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Specimen format: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.60 Earnings per share - Bonus issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.67 Earnings per share - Rights issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.67 Computation of Diluted Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . 11.69 Calculation of Earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.69 Calculation of diluted earnings per share. . . . . . . . . . . . . . . . . . . . . . . . . . . 11.71

Chapter 12 Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1 Illustration 12.1: Cash flow statement – direct method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 Illustration 12.2: Cash flow statement: Indirect method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.6 Illustration 12.3: Specimen format: Cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.7 Illustration 12.4: Ind AS 7: Cash flow from operating activities – direct method. . . . . . . . . . 12.17 Illustration 12.5: Ind AS 7: Cash flow from operating activities – Indirect method. . . . . . . . . 12.18 Illustration 12.6: Ind AS 7: Cash flow from operating activities – direct method. . . . . . . . . . 12.19 Illustration 12.7: Ind AS 7: Cash flow from financing activities . . . . . . . . . . . . . . . . . . . . . . . 12.20 Illustration 12.8: Ind AS 7 and Ind AS 110: consolidated cash flow . . . . . . . . . . . . . . . . . . . . 12.21 Illustration 12.9: Ind AS 7 and Ind AS 110: Reconciliation of purchases in consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.21 Illustration 12.10: Ind AS 7 & Ind AS 110: Reconciliation of minority interest in consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.22

lix

Financial Reporting under Ind AS and AS

Illustration 12.11: Ind AS 7 & Ind AS 28: Investment in associates in consolidated cash flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 12.12: Ind AS 7 & Ind AS 110 Reconciliation of minority interest in consolidated cash flow statement.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 12.13: Ind AS 7: Cash flow from financing activities . . . . . . . . . . . . . . . . . . . . . . . Illustration 12.14: Ind AS 7: Cash Flow statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Illustration 12.15: Cash flow statement - direct and indirect method. . . . . . . . . . . . . . . . . . . . .

12.23 12.23 12.24 12.25 12.28

Chapter 13 Foreign Currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1 Illustration 13.1: Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.2 Illustration 13.2: Specimen accounting policy on foreign currency. . . . . . . . . . . . . . . . . . . . . . 13.8 Illustration 13.3: Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.9 Illustration 13.4: Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.10 Illustration 13.5: Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.10 Illustration 13.6: Foreign currency transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 Illustration 13.7: Foreign Currency transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.12 Illustration 13.8: Foreign Currency transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.13 Illustration 13.9: Foreign Currency transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.14 Illustration 13.10: Foreign Currency transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.14 Illustration 13.11: Foreign Currency transaction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.15 Illustration 13.12: Accounting Treatment of foreign branches. . . . . . . . . . . . . . . . . . . . . . . . . . 13.17 Illustration 13.13: Foreign currency translation reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.18 Illustration 13.14: Capitalization of exchange difference not permitted . . . . . . . . . . . . . . . . . . 13.18 Illustration 13.15: Accounting treatment of foreign branch. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.18 Illustration 13.16: Accounting treatment of foreign branch. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.19 Illustration 13.17: Treatment of forward contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.22 Chapter 14 Disclosures under Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.1 Illustration 14.1: Financial assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7 Illustration 14.2: Financial assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.7 Illustration 14.3: Financial Asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.8 Illustration 14.4: Financial liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.9 Illustration 14.5: Examples of Financial Assets and Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 14.9 Illustration 14.6: Redemption of non-puttable instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.13 Illustration 14.7: Whether preference share with mandatory redemption a financial liability. 14.14 Illustration 14.8: Whether open-ended mutual funds, unit trusts with the right to redemption can be treated as financial liability. . . . . . . . . . . . . . . . . . . . . . . 14.14 Illustration 14.9: Contractual right and contractual obligation under a financial instrument. . 14.15 Illustration 14.10: When a financial instrument may be treated as financial liability . . . . . . . . 14.15 Illustration 14.11: Own equity instrument as financial liability. . . . . . . . . . . . . . . . . . . . . . . . . 14.16 Illustration 14.12: Whether changes in the fair value of an equity instrument are recognised in the financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.16 Illustration 14.13: Initial and subsequent measurement of Financial liability. . . . . . . . . . . . . . 14.17 lx

List of illustrations

Illustration 14.14: Contract settled through fixed number of equity instruments in exchange for a variable amount of cash or other financial asset. . . . . . . . . . 14.17 Illustration 14.15: When a derivative financial instrument gives one party a choice over how it is settled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.18 Illustration 14.16: Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.27 Illustration 14.17: Measurement of Financial liability through amortised cost. . . . . . . . . . . . . 14.29 Illustration 14.18: Derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.36 Illustration 14.19: Derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.37 Illustration 14.20: Derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.37 Illustration 14.21: Examples of derivatives and underlying. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.37 Illustration 14.22: Compound financial instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.38 Illustration 14.23: Measurement of embedded derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.39 Illustration 14.24: Measurement of embedded derivatives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.40 Illustration 14.25: Hedging transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.43 Illustration 14.26: Hedged item and hedged instrument. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.44 Illustration 14.27: Interest swap on forward contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.46 Illustration 14.28: Debt instrument: Loan to employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.50 Illustration 14.29: Compound financial instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.52 Illustration 14.30: Debt Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.52 Illustration 14.31: Put Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.54 Illustration 14.32: Embedded derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.55 Illustration 14.33: Embedded Derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.55 Illustration 14.34: Embedded derivative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.56 Illustration 14.35: Derivative accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.56 Illustration 14.36: Put Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.57 Illustration 14.37: Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.58 Illustration 14.38: Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.58 Illustration 14.39: Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.59 Illustration 14.40: Hedge Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.61 Illustration 14.41: Accounting Policy on Financial instruments . . . . . . . . . . . . . . . . . . . . . . . . 14.62 Illustration 14.42: Specimen format: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial and derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.88 Illustration 14.43: Cash flow hedge accounting: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . forecasted sale with forward contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.105 Illustration 14.44: Cash flow hedge accounting: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . forecast sale with option contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.105 Illustration 14.45: Cash flow hedge accounting: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . hedging the repayment of foreign currency debt with an option contract. 14.106 Illustration 14.46: Commodity contract â&#x20AC;&#x201C; fair value hedge of forecasted sales with an exchange trade future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.107 Illustration 14.47: Commodity contract â&#x20AC;&#x201C; cash flow hedge of a forecasted sale with an exchange traded future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.108 Illustration 14.48: Cash flow hedge on repayment of a loan . . . . . . . . . . . . . . . . . . . . . . . . . . 14.108 lxi

Financial Reporting under Ind AS and AS

Illustration 14.49: Exchange traded contract – Fair value hedge of investment portfolio. . . . 14.109 Illustration 14.50: Hedging a portion of a non-financial item –Commodity future. . . . . . . . . 14.110 Chapter 15 Other Provisions and Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.1 Illustration 15.1: Specimen format: CIF Value of imports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 Illustration 15.2: Specimen format: Expenditure in foreign currency . . . . . . . . . . . . . . . . . . . . 15.5 Illustration 15.3: Specimen format: Total value of raw materials, spare parts and components consumed during the year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.6 Illustration 15.4: Specimen format: dividend remittance in foreign currency. . . . . . . . . . . . . . 15.6 Illustration 15.5: Specimen format: Earnings in foreign Exchange. . . . . . . . . . . . . . . . . . . . . . 15.6 Illustration 15.6: Related party disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.18 Illustration 15.7: Identification of related party . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.21 Illustration 15.8: Related party disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.21 Illustration 15.9: Related party disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.21 Illustration 15.10: Related party disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.22 Illustration 15.11: Related party disclosure – remuneration to key management personnel. . . 15.22 Illustration 15.12: Related Party disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.23 Illustration 15.13: Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.30 Illustration 15.14: Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.31 Illustration 15.15: Segment reporting – inter segment transfer pricing policy. . . . . . . . . . . . . . 15.32 Illustration 15.16: Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.32 Illustration 15.17: Segment reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.33 Illustration 15.18: Reporting on operating segments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.35 Illustration 15.19: Reporting on operating segments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.37 Illustration 15.20: Reporting on operating segments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.39 Illustration 15.21: Rate regulated entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.61 Illustration 15.22: Rate regulated entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.61 Chapter 16 Corporate Restructuring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.1 Illustration 16.1: Amalgamation in the nature of merger – pooling of interest method. . . . . . 16.20 Illustration 16.2: Amalgamation in the nature of purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.20 Illustration 16.3: Cost Recognition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.23 Illustration 16.4: Business Combination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.33 Illustration 16.5: Business Combination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.35 Illustration 16.6: Business Combination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.38 Chapter 17 Consolidation of Parent with Subsidiaries, Associates and Joint Ventures . . 17.1 Illustration 17.1: Exemptions on disclosures in consolidated financial statements. . . . . . . . . 17.18 Illustration 17.2: Calculation of goodwill or capital reserve to be recorded in consolidated financial statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.19 Illustration 17.3: Calculation of goodwill or capital reserve to be recorded in consolidated financial statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.20 Illustration 17.4: Treatment of adjustments in consolidated financial statement. . . . . . . . . . . 17.21 Illustration 17.5: Computation of equity method with respect to associates . . . . . . . . . . . . . . 17.25 lxii

List of illustrations

Illustration 17.6: Illustration 17.7: Illustration 17.8: Illustration 17.9: Illustration 17.10: Illustration 17.11: Illustration 17.12: Illustration 17.13: Illustration 17.14: Illustration 17.15: Illustration 17.16: Illustration 17.17: Illustration 17.18: Illustration 17.19: Illustration 17.20: Illustration 17.21:

Computation of equity method with respect to associates . . . . . . . . . . . . . . 17.26 Jointly controlled operations (JCO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.29 Jointly controlled assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.31 Jointly Controlled Entities (JCE) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.34 Consolidation of parent with subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.48 Consolidation of parent with subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.54 Statement of consolidated Profit and Loss . . . . . . . . . . . . . . . . . . . . . . . . . . 17.58 Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . 17.60 Fair Value Adjustments to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.65 Equity Method of Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.75 Joint arrangement through joint control. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.91 Joint arrangement through joint control. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.91 How does joint control become operative. . . . . . . . . . . . . . . . . . . . . . . . . . . 17.92 Joint Arrangement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.93 Consolidated statement of Profit and Loss and Statement of Equity . . . . . 17.102 Consolidated Balance Sheet, parent, subsidiary and associate. . . . . . . . . . 17.111

Chapter 18 Transitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Illustration 18.1: First time adoption of Ind AS and presentation of comparative information in financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.2

lxiii

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Financial Reporting under Companies Act, 2013 Synopsis 1.1 1.2

1.3

1.4

Chapter Summary .................................................................................................... 1.4 Companies Act, 2013 ............................................................................................... 1.4 1.2.1 Books of Accounts ................................................................................... 1.5 1.2.2 Period for which books of account to be kept.......................................... 1.6 1.2.3 Format of Balance Sheet and Profit & Loss Account .............................. 1.6 1.2.4 Applicability of Accounting Standards.................................................... 1.6 1.2.5 Extension of Financial Year .................................................................... 1.6 1.2.6 Accounts of subsidiary company ............................................................. 1.6 1.2.7 Attaching of Accounts of subsidiary company ........................................ 1.6 1.2.8 Re-opening of Accounts .......................................................................... 1.7 1.2.9 Voluntary revision of Financial Statement .............................................. 1.7 1.2.10 National Financial Reporting Authority .................................................. 1.7 1.2.11 Board of Directorsâ&#x20AC;&#x2122; Report ...................................................................... 1.7 1.2.12 Corporate Social Responsibility .............................................................. 1.8 1.2.13 Internal audit ............................................................................................ 1.8 1.2.14 Precedence of Companies Act and Accounting Standards over Schedule III...................................................................................... 1.8 1.2.15 Financial Statements .............................................................................. 1.12 Schedule III ............................................................................................................ 1.14 1.3.1 Structure of Schedule III ........................................................................ 1.15 1.3.2 Salient features of the Balance Sheet format under Schedule III Part I ....................................................................................................... 1.15 1.3.3 Division â&#x20AC;&#x201C;I Financial Statements for a Company whose Financial Statements are required to Comply with the Companies (Accounting Standards) Rules, 2006 ...................................... 1.15 Division II: Financial Statements for a company whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015 ....................................................................... 1.35

1.1

Financial Reporting under Ind AS and AS

1.4.1

1.5

1.6

1.2

Chapter 1

General instructions for preparation of financial statements of a company required to comply with Ind AS .......................................... 1.35 1.4.2 Division III : Financial Statements for a Non-Banking Financial Company (NBFC) whose financial statements are drawn up in compliance of the Companies (Indian Accounting Standards) Rules, 2015....................................................... 1.57 AS 1 : Disclosure of Accounting Policies .............................................................. 1.85 1.5.1 Introduction............................................................................................ 1.85 1.5.2 Fundamental accounting assumptions ................................................... 1.85 1.5.3 Accounting Policies ............................................................................... 1.86 1.5.4 Considerations that determine selection and application of accounting policies ................................................................................ 1.87 1.5.5 Disclosure Requirements ....................................................................... 1.88 1.5.6 Comparative Analysis of General Instructions for preparation of Financial Statements of a Company .................................................. 1.88 1.5.7 Balance Sheet Comparison (Schedule III Part I) ................................... 1.91 Ind AS 1: Presentation of Financial Statements ..................................................... 1.94 1.6.1 Objective ................................................................................................ 1.94 1.6.2 Scope ..................................................................................................... 1.94 1.6.3 Definitions ............................................................................................. 1.95 1.6.4 Purpose of Financial Statements ............................................................ 1.96 1.6.5 Components of Financial Statements..................................................... 1.97 1.6.6 Presentation of True and Fair View and compliance with Ind ASs......................................................................................................... 1.97 1.6.7 Departure from compliance of Ind AS 1................................................ 1.97 1.6.8 Going concern........................................................................................ 1.98 1.6.9 Accrual basis of accounting ................................................................... 1.98 1.6.10 Materiality and aggregation ................................................................... 1.98 1.6.11 Offsetting ............................................................................................... 1.99 1.6.12 Frequency of reporting......................................................................... 1.100 1.6.13 Comparative information ..................................................................... 1.100 1.6.14 Reclassification .................................................................................... 1.101 1.6.15 Consistency of presentation ................................................................. 1.101 1.6.16 Identification of the financial statements ............................................. 1.101 1.6.17 Balance Sheet....................................................................................... 1.102 1.6.18 Statement of Profit and Loss ................................................................ 1.105 1.6.19 Statement of changes in equity ............................................................ 1.108 1.6.20 Statement of cash flows ....................................................................... 1.109

Chapter 1

1.7

1.8

1.9

1.10

1.11

1.12

Financial Reporting under Companies Act, 2013

1.6.21 Notes on Accounts ............................................................................... 1.109 1.6.22 Disclosure requirements ...................................................................... 1.110 ICDS I relating to accounting policies ................................................................ 1.113 1.7.1 Preamble .............................................................................................. 1.113 1.7.2 Scope ................................................................................................... 1.114 1.7.3 Fundamental accounting assumptions ................................................. 1.114 1.7.4 Accounting policies ............................................................................. 1.115 1.7.5 Disclosure of Accounting policies ....................................................... 1.115 Guidance Notes on Accrual basis of accounting.................................................. 1.115 1.8.1 Comparative summary of Ind AS 1, AS 1 , ICDS 1 and ICAI Guidance Notes .................................................................................... 1.116 Interim financial statements ................................................................................. 1.121 1.9.1 Accounting Standards (AS 25 : Interim Financial Reporting) ............. 1.121 1.9.2 Guidance Note of ICAI on Interim Financial Reporting ..................... 1.133 1.9.3 Ind AS 34: Interim Financial Reporting .............................................. 1.134 1.9.4 Companies (Indian Accounting Standard) Amendment Rule 2016 ..................................................................................................... 1.135 Contingencies and events occurring after the balance sheet date ........................ 1.135 1.10.1 AS 4: Contingencies and events occurring after the balance sheet date ............................................................................................. 1.135 1.10.2 Ind AS 10: Events after the reporting period ....................................... 1.149 1.10.3 Distribution of non-cash assets to owners (Appendix A to Ind AS 10) ............................................................................................ 1.154 Accounting policies, changes in accounting estimates and errors ....................... 1.157 1.11.1 AS 5: Accounting policies, changes in accounting estimates and errors ............................................................................................. 1.157 1.11.2 Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors ............................................................................ 1.167 Ind AS 29: Financial reporting in Hyperinflationary Economies ........................ 1.176 1.12.1 Scope ................................................................................................... 1.176 1.12.2 Restatement of historical cost financial statements ............................. 1.176 1.12.3 Historical cost financial statement ....................................................... 1.176 1.12.4 Taxes .................................................................................................... 1.179 1.12.5 Statement of cash flows ....................................................................... 1.179 1.12.6 Corresponding figures.......................................................................... 1.179 1.12.7 Consolidated financial statements........................................................ 1.179 1.12.8 Selection and use of General Price Index ............................................ 1.180 1.12.9 Economies ceasing to be hyperinflationary ......................................... 1.180 1.3

Financial Reporting under Ind AS and AS

1.13

1.1

Chapter 1

1.12.10 Disclosures........................................................................................... 1.180 Comparative summary of AS, IFRS, US GAAP and Ind AS .............................. 1.180 1.13.1 Constituents of financial statements .................................................... 1.180 1.13.2 Balance Sheet....................................................................................... 1.182 1.13.3 Income Statement ................................................................................ 1.183 1.13.4 Statement of changes in Equity............................................................ 1.184 1.13.5 Change in Accounting policies and accounting estimates and errors .................................................................................................... 1.185 1.13.6 Events occurring after the reporting date ............................................. 1.186

CHAPTER SUMMARY

Companies Act, 2013

• • •

Section 129 Section 133 Schedule III and amendments thereof

Accounting Standards (AS)

• •

AS 1: Disclosure of Accounting Policies AS 4: Contingencies and events occurring after the balance sheet date (as amended) AS 5: Accounting policies, changes in accounting estimates and errors AS 25 : Interim Financial Reporting

• •

• • •

Ind AS 1: Disclosure of Accounting Policies Ind AS 8: Accounting policies, changes in accounting estimates and errors Ind AS 10: Events occurring after the reporting date Ind AS 29: Financial reporting in hyperinflationary economies Ind AS 34: Interim Financial Reporting

Income Computation & Disclosure Standards (ICDS)

•

ICDS I : Accounting policies

Guidance Notes of ICAI

• •

Accrual basis of Accounting Interim Financial Reporting

Indian Accounting Standards (Ind AS)

1.2

• •

COMPANIES ACT, 2013

The Companies Act, 2013 (“the Act”) prescribes the detailed provisions regarding the maintenance of books of accounts and the preparation and presentation of annual accounts. Under the provisions of the Act, audit of annual accounts is compulsory for all companies registered under it. The Act prescribes the roles and responsibilities of directors and also the matters to be reported by them in the annual reports of the companies. It also deals with the 1.4

Chapter 1

Financial Reporting under Companies Act, 2013

qualification, appointment, rights and liabilities of the auditors and provides contents of auditors report. Salient features of provisions of Companies Act 2013 are summarised as under:

1.2.1

Books of Accounts

The Companies Act requires every company to prepare and keep at its registered office (a)

books of account and

(b)

other relevant books and papers and

(c)

financial statement for every financial year

which give a true and fair view of the state of affairs of the company including that of its branch office or offices, if any, and explain the transactions effected both at the registered office and its branches and such books are kept on accrual basis and according to the double entry system of accounting. (Section 128 (1)) As per section 2(13) Books of account includes records maintained in respect of: Books of account

(i)

all sums of money received and expended by a company and matters in relation to which the receipts and expenditures take place,

(ii)

all sales and purchases of goods and services by the company,

(iii)

the assets and liabilities of the company, and

(iv)

the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section

As per section 2(14) books and papers include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form, According to section 2(40) financial statement in relation to a company includes, financial statement

(i)

a Balance Sheet as at the end of financial year,

(ii)

a Profit & Loss Account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year,

(iii)

cash flow statement for the financial year,

(iv)

a statement of change in equity, if applicable and

(v)

any explanatory note annexed to or forming part of any document referred to in sub-clause (i) to sub-clause (iv)

Provided that the financial statement, with respect to One Person Company, small Company and dormant company, may not include the cash flow statement.

1.5

Financial Reporting under Ind AS and AS

1.2.2

Chapter 1

Period for which books of account to be kept

The companies are required to preserve books of accounts for a period of eight years. In the event of any investigation which has been ordered under Chapter XIV, the Central Government may direct that the books of accounts may be kept for such period longer than eight years.

1.2.3

Format of Balance Sheet and Profit & Loss Account

The financial statements shall (a) Give a true and fair view of the state of affairs of the Company or companies, (b) Comply with the accounting standards notified under section 133 and (c) Shall be in the form as may be provided for different class or classes of Companies under Schedule III Financial Statement

True and Fair

1.2.4

Comply with notified Accounting Standards

Prescribed manner under Schedule III for different classes of Companies Act

Applicability of Accounting Standards

Financial Statements shall comply with the accounting standards notified by the Central Government as recommended by the Institute of Chartered Accountants of India in consultation with and after examination of the recommendations made by the National Financial Reporting Authority.

1.2.5

Extension of Financial Year

There is no such provision in the Act.

1.2.6

Accounts of subsidiary company

Consolidated Financial Statements of all subsidiaries and the Company shall be prepared and laid before the Annual General Meeting along with the financial statements of the Company.

1.2.7

Attaching of Accounts of subsidiary company

The Company shall attach along with its financial statements, a separate statement containing salient features of the financial statements of its Subsidiaries in such form as may be prescribed. The subsidiary company shall include Associate Company and Joint Venture in this regard.

1.6

Chapter 1

1.2.8

Financial Reporting under Companies Act, 2013

Re-opening of Accounts

The Act provides for re-opening or recasting of books of accounts of the Company in case of application filed by the Central Government, SEBI, Income Tax Authorities and other statutory authorities or against a specified order by a court of competent jurisdiction or tribunal.

1.2.9

Voluntary revision of Financial Statement

Directors of a Company may prepare revised financial statements or a revised Report in respect of any of the three preceding financial years pursuant to an approval by the Tribunal in the event of any non-compliance with regards to financial statements and board report.

1.2.10 National Financial Reporting Authority Under Section 132 of the Act of 2013, the name of National Advisory Committee on Accounting Standards (NACAS) has been changed to National Financial Reporting Authority (NFRA). The role of the authority has been extended to advice on matters related to Auditing Standards in addition to Accounting Standards. The following role of National Financial Reporting Authority has been prescribed as under:

Role of National Financial Reporting Authority

(a)

make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by Companies or class of Companies or their auditors as the case may be,

(b)

monitor and enforce the compliance with accounting standards and auditing standards recommended by it in such manner as may be prescribed,

(c)

oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of services and such other related matters as may be prescribed, and

(d)

perform such other functions relating to clauses (a), (b) and (c) as may be prescribed (Section 132(2))

1.2.11 Board of Directors’ Report The Directors are required to include certain additional information in the Board Report like, –

extract of Annual Return,

–

number of Board meetings in a financial year,

–

declaration of independent reports apart from the ones already covered under the earlier Act

1.7

Financial Reporting under Ind AS and AS

Chapter 1

The following are not required to be disclosed: (a)

details of employees in receipt of prescribed remuneration and

(b)

reasons for failure in completing buy-back within the time limit

1.2.12 Corporate Social Responsibility Every Company having (a)

net worth of Rs.500 crore or more or

(b)

turnover of Rs.1000 crore or more or

(c) net profit of Rs.5 crore or more during any financial year, shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more Directors, out of which at least one Director shall be an Independent Director The Board of every Company referred to above, shall ensure that the Company spends at least 2% of average net profits of the company made during three immediately preceding financial years, towards its corporate social responsibility policy, If the Board fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons of not spending such amount.

1.2.13 Internal audit Certain class or classes of Companies as may be prescribed shall be required to appoint an Internal auditor, to conduct internal audit of the functions and activities of the company. An internal auditor shall either be a Chartered Accountant or a Cost Accountant or such other professional as may be decided by the Board.

1.2.14 Precedence of Companies Act and Accounting Standards over Schedule III 1.2.14.1 Accounting Standards (AS) According to Schedule I, if stipulations of the Companies Act and/or the notified Accounting Standards require a change in treatment or disclosure in the Financial Statements, the requirements of the Act and/or notified Accounting Standards will take precedence over Schedule III. As per the general instruction for preparation of the balance sheet, if the regulatory authority requires that Schedule III needs to be changed then Schedule III shall automatically stand modified to that extent. According to Clause (1) of Annexure A, Indian Accounting Standards, which are notified, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular Indian Accounting Standard is found to be not in conformity with such law, the provisions of the said law shall prevail and the financial statements shall be prepared in conformity with such law.

1.8

Chapter 1

Financial Reporting under Companies Act, 2013

Illustration 1.1: Cash and Cash Equivalents – apparent conflict between Schedule III, AS and Ind AS One of the line items to be presented on the face of the Balance Sheet under current assets is” Cash and cash equivalents”. The break-up of these items required to be presented by Schedule III comprises of items such as balances with banks held as margin money or security against borrowings, guarantees etc and bank deposits with more than 12 months maturity. According to AS 3 Cash flow statements, cash is defined to include cash on hand and demand deposits with banks. Cash equivalents are defined as short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. The standard further explains that an investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Hence, normally, deposits with original maturity of three months or less only should be classified as cash equivalents. Ind AS 7: Cash flow statements, attributes the same definition. Further, bank balances held as margin money or security against borrowings are neither in the nature of demand deposits, nor readily available for use by the company, and accordingly, do not meet the aforesaid definition of cash equivalents. Thus, this is an apparent conflict between the requirements of Schedule III and the Accounting Standards (both AS 3 and Ind AS 7) with respect to which items should form part of Cash and Cash equivalents. As laid down in the general instructions, para 1 of Schedule III, requirements of the Accounting Standards would prevail over Schedule III and the company should make necessary modification in the Financial Statements which may include addition, amendment, substitution or deletion in the head/sub-head or any other changes inter se. Accordingly, the conflict should be resolved by changing the caption “cash and cash equivalents” to “cash and bank balances”, which may have two sub-headings e.g. (a) Cash and cash equivalents and (b) Other bank balances. The former should include only the items that constitute cash and cash equivalents defined in accordance with AS 3 and Ind AS 7(and not Schedule III), while the remaining line items may be included under the latter. (Source : Guidance Note of the Institute of Chartered Accountants of India – Adapted)

Also para 2 of the General Instructions to the Schedule III states that the disclosure requirements of the Schedule are in addition to and not in substitution of the disclosure requirements specified in the notified Accounting Standards. They further clarify that the additional disclosures specified in the Accounting Standards shall be made in the Notes to Accounts or by way of an additional statement unless required to be disclosed on the face of the Financial Statements. All other disclosures required by the Act are also required to be made in the Notes to Accounts in addition to the requirements set out in Schedule III.

1.9

Financial Reporting under Ind AS and AS

Chapter 1

Illustration 1.2: Disclosure on Discontinuing Operations AS 24 Discontinuing Operations requires that specific disclosure be given on the face of the Statement of Profit and Loss. The disclosure pertains to the pre-tax gain or loss recognised on disposal of assets or settlement of liabilities attributable to discontinuing operation. According to Ind AS 105: Non-current assets held for sale and discontinued operations, (para 33), an entity shall disclose: (a)

(b)

a single amount in the statement of profit and loss comprising the total of: (i)

the post-tax profit or loss of discontinued operations and

(ii)

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.

an analysis of the single amount in (a) into: (i)

the revenue, expenses and pre-tax profit or loss of discontinued operations;

(ii)

the related income tax expense as required by paragraph 81(h) of Ind AS 12; and

(iii)

the 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.

(iv)

the related income tax expense as required by paragraph 81(h) of Ind AS 12.

The analysis may be presented in the notes or in the statement of profit and loss. If it is presented in the statement of profit and loss it shall be presented in a section identified as relating to discontinued operations, i.e. separately from continuing operations. (c)

The net cash flows attributable to the operating, investing and financing activities of discontinued operations. These disclosures may be presented either in the notes or in the financial statements. These disclosures are not required for disposal groups that are newly acquired subsidiaries that meet the criteria to be classified as held for sale on acquisition.

(d)

The amount of income from continuing operations and from discontinued operations attributable to owners of the parent. These disclosures may be presented either in the notes or in the statement of profit and loss.

An entity shall represent the disclosures in paragraph 33 for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the end of the reporting period for the latest period presented.(Para 34) Such disclosures are specifically covered on the face of either the Statement of Profit and Loss or Balance Sheet as prescribed under Schedule III. Also, though not mandated by Schedule III, disclosures required by other Act or legal requirements will have to be made in the Financial Statements.

1.10

Chapter 1

Financial Reporting under Companies Act, 2013

Illustration 1.3: Disclosures on Micro, Small and Medium Enterprises The Micro, Small and Medium Enterprises Development (MSMED) Act 2006 stipulates that specified disclosures are required to be made in the annual Financial Statements of the buyer wherever such Financial Statements are required to be audited under any law. Acordingly such disclosures are necessary for the buyer company’s Financial Statements. (Source: Guidance Note of The Institute of Chartered Accountants of India)

Illustration 1.4: Disclosures in addition to the ones specificied under Schedule III (a)

Disclosure required under Clause 32 to the Listing Agreement

(b)

ICAI pronouncement on disclosure related to derivatives and unhedged foreign currency exposures

(c)

Disclosures related to employee share based payments as per Guidance Note of ICAI

These disclosures to continue in addition to the disclosures specified under Schedule III. Illustration 1.5: Presentation on previous years figures during first time adoption of Schedule III A company is preparing its financial statements in accordance with Schedule III for the first time. For certain information required to be disclosed in the notes, the current year amounts are nil. For example, let us assume that there is no default in repayment of loan and interest existing as at the end of current year. Is the company required to present previous year figures for such notes? Alternatively, can it omit the previous year information since no disclosure is required in the current year? Solution Schedule III requires that, “Except in the case of the first financial statements laid before the company (after its incorporation), the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the financial statements including notes shall also be given.” The objective of presenting comparative information is to help users of financial statements in understanding the trends and key changes vis-à-vis the previous period financial statements. The inter-period comparability of information assists users in taking their economic decisions. Hence, a company needs to present comparative information for disclosures required under Schedule III even if their current period amount is nil.

1.11

Financial Reporting under Ind AS and AS

Chapter 1

Illustration 1.6: Disclosures under Schedule III Schedule III of Companies Act 2013 requires a balance to be maintained between excessive detail and too much aggregation. Can a company use this principle to avoid giving disclosures specifically required by Schedule III/Guidance Note on the Revised Schedule VI, say, security details for each loan? Solution A company should not use this principle to avoid making material disclosures, which are specifically required under Schedule III, Accounting Standards, Guidance Notes and so on. Since disclosure regarding security for each loan is required by Schedule III (Revised Schedule VI) and Guidance Note on the Revised Schedule VI, a company cannot avoid making such disclosure.

1.2.15 Financial Statements Pursuant to the Companies Act 2013, Corporate Financial Reporting would include the following constituents (as highlighted in Schedule III to the Act): Financial Statements

(a) (b) (c) (d) (e)

Balance Sheet Profit and Loss Account Cash flow statement for specified enterprises A statement of changes in equity if applicable and Notes and schedules forming part of the Accounts

(a)

Balance Sheet: This statement represents the financial position which discloses short term and long term solvency, which is the ability to meet the liability in the short as well as long term. According to framework Liquidity represents the availability of sufficient funds to meet the deposit withdrawals and other financial commitments as they fall due. Solvency is the availability of cash over the longer term to meet the financial commitments as they fall due.

(b)

Statement of Profit and Loss: This statement reflects net financial results of an entity Cash flow statement: This statement manifests sources from where cash has been acquired and the utilisation of the same and also helps the entity to predict future cash flows.

Statement of changes in Equity: Depicts movement in shareholderâ&#x20AC;&#x2122;s equity and includes net profit or loss during the accounting period, increase or decrease in reserves and dividend payments to shareholders.

(e)

Notes and schedules forming part of Accounts: These represent a summary of accounting policies, explanations and assumptions forming integral part of Accounts. Proper disclosures ensure meaning interpretation of the financial statements for users of financial statements.

According to provisions of Companies Act 2013, the financial statements shall give a true and fair of the state of affairs of the company or companies, comply with the accounting standards

1.12

Chapter 1

Financial Reporting under Companies Act, 2013

notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III. Provided that items contained in such financial statements shall be in accordance with the accounting standards. (Section 129(1)). At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year. (Section 129(2)) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under section 129(2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under 129(2). Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or subsidiaries in such form as may be prescribed. (Section 129(3)) The provisions of the Act of 2013 applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in (c) above Without prejudice to (a) above, where financial statements of a company do not comply with the accounting standards referred to in section 129(1), the company shall disclose in its financial statements, (i)

the deviation from the accounting standards,

(ii)

the reasons for such deviation and

(iii)

the financial effects, if any, arising out of such deviation.

Schedule III as referred to in clause (a) above, provides general instructions for preparation of Balance Sheet and Statement of Profit and Loss of a company. These are enumerated as under: 1.

Where compliance with the requirements of the Act including Accounting Standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, inter se, in the financial statements or statements forming part thereof, the same shall be made and the requirements of this Schedule shall stand modified accordingly.

The disclosure requirements specified in this Schedule are in addition to and not in substitution of the disclosure requirements specified in the Accounting Standards prescribed under the Companies Act 2013. Additional disclosures specified in the Accounting Standards shall be made in the notes to accounts or by way of additional statement unless required to be disclosed on the face of the Financial Statements. Similarly, all other disclosures as required by the Companies Act shall be made in the notes to accounts in addition to the requirements set out in this schedule.

1.13

Financial Reporting under Ind AS and AS

Chapter 1

(i)

Notes to Accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required (a) narrative descriptions or disaggregation of items recognised in those statements; and (b) information about items that do not qualify for recognition in those statements.

(ii)

Each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes to accounts. In preparing the financial statements including the notes to accounts, a balance shall be maintained between excessive detail that may not assist users of financial statements and not providing important information as a result of too much aggregation.

(i)

Depending upon the turnover of the company, the figures appearing in the Financial Statements may be rounded off as given below:

Turnover

Rounding off

(a) less than one hundred crore rupees

To the nearest hundreds, thousands, lakhs or millions or decimals thereof

(b) one hundred crore rupees or more

To the nearest lakhs, millions or crores or decimals thereof

(ii)

Once a unit of measurement is used, it shall be used uniformly in the Financial Statements.

Except in the case of the first Financial Statements laid before the company (after its incorporation) the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the financial statements including notes shall also be given.

For the purpose of this Schedule, the terms used herein shall be as per the applicable Accounting Standards.

Note: The Schedule sets out minimum requirements for disclosure on the face of the Balance Sheet and the Statement of Profit and Loss (hereinafter referred to as â&#x20AC;&#x153;Financial Statementsâ&#x20AC;? for the purposes of this Schedule) and Notes, Line items, sub-line items and Sub-totals shall be presented as an addition or substitution on the face of the Financial Statements when such presentation is relevant to an understanding of the companyâ&#x20AC;&#x2122;s financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the amendments to the Companies Act or under the Accounting Standards.

1.3

SCHEDULE III

Structure of Schedule III, salient features of Balance Sheet and specimen format of Balance Sheet and Profit & Loss statement under Schedule III Part I are highlighted in the following paragraphs.

1.14

Chapter 1

1.3.1

Financial Reporting under Companies Act, 2013

Structure of Schedule III

Structure of Schedule III is: 1. 2. 3. 4. 5.

1.3.2

General Instructions Part I – Form of Balance Sheet General instructions for preparation of Balance Sheet Part II – Form of Statement of Profit and Loss General instructions for preparation of Statement of Profit and Loss

Salient features of the Balance Sheet format under Schedule III Part I

The salient features of the Balance Sheet format under amended Schedule VI Part I are highlighted as under: Salient features of Balance Sheet format:

1.3.3

●

Vertical form of Balance Sheet permitted only

●

Assets and liabilities are to be classified as current and non-current

●

There is separate head for intangible assets

●

Debit balance of Profit and Loss Account to be shown as deduction from Reserves and Surplus, thus may result in negative shareholders’ funds

●

Concept of operating cycle has been introduced as one of the criteria for classification of assets and liabilities between current and noncurrent assets and liabilities

●

Cash and cash equivalents are to be disclosed separately

●

Contingent liabilities are distinguished from commitments

Division –I Financial Statements for a Company whose Financial Statements are required to Comply with the Companies (Accounting Standards) Rules, 2006

Division I General insturctions for preparation of balance sheet and statement of profit and loss of a company General Instructions 1. Where compliance with the requirements of the Act including Accounting Standards as applicable to the companies require any change in treatment or disclosure including addition, amendment, substitution or deletion in the head or sub-head or any changes, inter se, in the financial statements or statements forming part thereof, the same shall be made and the requirements of this Schedule shall stand modified accordingly. 2.

Financial Reporting under Ind AS and AS

Chapter 1

Accounting Standards shall be made in the notes to accounts or by way of additional statement unless required to be disclosed on the face of the Financial Statements. Similarly, all other disclosures as required by the Companies Act shall be made in the notes to accounts in addition to the requirements set out in this Schedule. 3.

(i)

Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required (a) narrative descriptions or disaggregations of items recognised in those statements; and (b) information about items that do not qualify for recognition in those statements.

(ii)

Each item on the face of the Balance Sheet and Statement of Profit and Loss shall be cross-referenced to any related information in the notes to accounts. In preparing the Financial Statements including the notes to accounts, a balance shall be maintained between providing excessive detail that may not assist users of financial statements and not providing important information as a result of too much aggregation.

(i)

Depending upon the turnover of the company, the figures appearing in the Financial Statements may be rounded off as given below:— Turnover

Rounding off

(a)

less than one hundred crore rupees

To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.

(b)

one hundred crore rupees or more

To the nearest lakhs, millions or crores, or decimals thereof.

(ii)

Once a unit of measurement is used, it should be used uniformly in the Financial Statements.

Except in the case of the first Financial Statements laid before the Company (after its incorporation) the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the Financial Statements including notes shall also be given.

For the purpose of this Schedule, the terms used herein shall be as per the applicable Accounting Standards.

Note:—This part of Schedule sets out the minimum requirements for disclosure on the face of the Balance Sheet, and the Statement of Profit and Loss (hereinafter referred to as “Financial Statements” for the purpose of this Schedule) and Notes. Line items, sub-line items and sub-totals shall be presented as an addition or substitution on the face of the Financial Statements when such presentation is relevant to an understanding of the company’s financial position or performance or to cater to industry/sector-specific disclosure requirements or when required for compliance with the amendments to the Companies Act or under the Accounting Standards.

1.16

Chapter 1

Financial Reporting under Companies Act, 2013

1.3.3.1 Balance Sheet: Part I Part I — Balance Sheet Name of the Company……………………. Balance Sheet as at ……………………… (Rupees in…………) Particulars

Note No.

Figures as at the end of current reporting period

Figures as at the end of the previous reporting period

I. EQUITY AND LIABILITIES (1) Shareholders’ funds (a) Share capital (b) Reserves and surplus (c) Money received against share warrants (2) Share application money pending allotment (3) Non-current liabilities (a) Long-term borrowings (b) Deferred tax liabilities (Net) (c) Other Long term liabilities (d) Long-term provisions (4) Current liabilities (a) Short-term borrowings (b) Trade payables:(A) total outstanding dues of micro enterprises and small enterprises; and (B) total outstanding dues of creditors other than micro enterprises and small enterprises. (c) Other current liabilities (d) Short-term provisions TOTAL II. ASSETS (1) Non-current assets (a) Property, Plant and Equipment (i) Tangible assets (ii) Intangible assets (iii) Capital work-in-progress (iv) Intangible assets under development (b) Non-current investments (c) Deferred tax assets (net) (d) Long-term loans and advances (e) Other non-current assets (2) Current assets (a) Current investments (b) Inventories (c) Trade receivables (d) Cash and cash equivalents

1.17

Financial Reporting under Ind AS and AS Particulars

Chapter 1 Note No.

Figures as at the end of current reporting period

Figures as at the end of the previous reporting period

(e) Short-term loans and advances (f) Other current assets TOTAL

See accompanying notes to the Financial Statements. Notes

1.3.3.2 General Instructions for Preparation of Balance Sheet 1.

An asset shall be classified as current when it satisfies any of the following criteria:— (a)

it is expected to be realised in, or is intended for sale or consumption in, the company’s normal operating cycle;

(b)

it is held primarily for the purpose of being traded;

(c)

it is expected to be realised within twelve months after the reporting date; or

(d)

it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date.

All other assets shall be classified as non-current. 2.

An operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. Where the normal operating cycle cannot be identified, it is assumed to have a duration of twelve months.

A liability shall be classified as current when it satisfies any of the following criteria:— (a)

it is expected to be settled in the company’s normal operating cycle;

(b)

it is held primarily for the purpose of being traded;

(c)

it is due to be settled within twelve months after the reporting date; or

(d)

the company does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current. 4.

A receivable shall be classified as a “trade receivable” if it is in respect of the amount due on account of goods sold or services rendered in the normal course of business.

A payable shall be classified as a “trade payable” if it is in respect of the amount due on account of goods purchased or services received in the normal course of business.

A company shall disclose the following in the notes to accounts.

1.18