IND AS 41 by Shrihari Pandula

INDIAN ACCOUNTING STANDARD 41 FIRST TIME ADOPTION: A GUIDE by

MOHAN R LAVI CHARTERED ACCOUNTANT

This book covers the following:

• • • •

Comparison between Converged Indian Accounting Standards and IFRS Comparison between Converged Indian Accounting Standards and Indian Accounting Standards Reconciliation and Disclosure Examples from Indian and International Companies Frequently Asked Questions

Abbreviations

Ind-AS 41 The Institute of Chartered Accountants of India The International Accounting Standards Board International Financial Reporting Standards AS ( Revised XX), Ind-AS , Converged Indian Accounting Standards Ministry of Corporate Affairs

The Standard ICAI IASB IFRS

CIAS MCA

A Snapshot of Key Definitions

Date of transition The beginning date of financial year on or after 1 April 2011 for which an entity presents financial information under Ind-ASs in its first Indto IFRS IND-AS AS financial statements. However, where an entity decides to provide one year comparative information under Ind-AS then the date of transition would be the beginning of the earliest period for which an entity presents full comparative information under Ind-AS in its first Ind-AS financial statements i.e. beginning of financial year on or after 1 April, 2010. deemed cost

fair value

first Ind-AS financial statements

first Ind-AS reporting period

An amount used as a surrogate for cost or depreciated cost at a given date. Subsequent depreciation or amortisation assumes that the entity had initially recognised the asset or liability at the given date and that its cost was equal to the deemed cost. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an armâ&#x20AC;&#x2122;s length transaction

The first annual financial statements in which an entity adopts Indian Financial Reporting Standards (Ind-ASs), by an explicit and unreserved statement of compliance with Ind-ASs The latest reporting period covered by an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements

first-time adopter An entity that presents its first Ind-AS financial statements

Indian Accounting Accounting Standards (ASs) are Standards issued by the Institute of Chartered Accountants of India (ICAI). Standards (Ind-ASs) opening Ind-AS Balance Sheet previous GAAP

An entityâ&#x20AC;&#x2122;s Balance Sheet at the date of transition to Ind-AS

The basis of accounting that a first-time adopter used immediately before adopting Ind-ASs.

Contents

EXECUTIVE SUMMARY .................................................................................................... 2

IND-AS 41 – AN OVERVIEW ............................................................................................. 4 OBJECTIVE .................................................................................................................................... 4 SCOPE.......................................................................................................................................... 4 FIRST FINANCIAL STATEMENTS .......................................................................................................... 5 INAPPLICABILITY ............................................................................................................................. 6 RECOGNITION................................................................................................................................ 6 CONSISTENT ACCOUNTING POLICIES ................................................................................................... 7 MEASUREMENT ............................................................................................................................. 8

INDIAN ROADMAP FOR CONVERSION

TO IFRS AND CLARIFICATION ........... 10

PRESS RELEASE ........................................................................................................................ 10 CLARIFICATION ON THE ROADMAP ................................................................................................... 12 4.

IND AS-41: THE STEPS ................................................................................................... 22

IFRS OPENING BALANCE SHEET ..................................................................................... 24

MANDATORY AND OPTIONAL EXCEPTIONS .................................................................. 26 MANDATORY EXCEPTIONS ............................................................................................................. 26 OPTIONAL EXEMPTIONS ................................................................................................................ 26 1. MANDATORY EXCEPTIONS.......................................................................................................... 27 2. OPTIONAL EXCEPTIONS.............................................................................................................. 29 MANDATORY EXCEPTIONS ............................................................................................................. 33 1. ESTIMATES .............................................................................................................................. 33 2. DE-RECOGNITION OF FINANCIAL ASSETS AND LIABILITIES .................................................................. 34 3. HEDGE ACCOUNTING ................................................................................................................ 34 4. NON-CONTROLLING INTERESTS ( MINORITY INTERESTS) ................................................................... 35 OPTIONAL EXCEPTIONS ........................................................................................................... 36 1. BUSINESS COMBINATIONS .................................................................................................. 36 BUSINESS COMBINATIONS – IND AS 41 NOT APPLIED RETROSPECTIVELY ................................................. 40 SHARE-BASED PAYMENT TRANSACTIONS ........................................................................................... 41 INSURANCE CONTRACTS ................................................................................................................. 42

DEEMED COST ............................................................................................................................. 42 LEASES ....................................................................................................................................... 44 EMPLOYEE BENEFITS ..................................................................................................................... 44 INVESTMENTS IN SUBSIDIARIES, JOINTLY CONTROLLED ENTITIES AND ASSOCIATES ...................................... 45 ASSETS AND LIABILITIES OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES ............................................ 46 COMPOUND FINANCIAL INSTRUMENTS ............................................................................................. 47 DESIGNATION OF PREVIOUSLY RECOGNISED FINANCIAL INSTRUMENTS ..................................................... 47 FAIR VALUE MEASUREMENT OF FINANCIAL ASSETS OR FINANCIAL LIABILITIES AT INITIAL RECOGNITION............ 48 DECOMMISSIONING LIABILITIES INCLUDED IN THE COST OF PROPERTY, PLANT AND EQUIPMENT .................... 48 FINANCIAL ASSETS OR INTANGIBLE ASSETS ACCOUNTED FOR IN ACCORDANCE WITH APPENDIX A TO AS 7 (REVISED 20XX) .......................................................................................................................... 49 TRANSFERS OF ASSETS FROM CUSTOMERS ......................................................................................... 50 EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY INSTRUMENTS ........................................................ 50 NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS ................................................. 51 7.

APPLICATION GUIDANCE .............................................................................................. 52 1. ESTIMATES........................................................................................................................... 52 2. BUSINESS COMBINATIONS .................................................................................................. 54

COMPARATIVE INFORMATION ..................................................................................... 64 WOULD IT AMOUNT TO COMPLIANCE WITH IFRS?.............................................................................. 65

RECONCILIATIONS AND DISCLOSURES .......................................................................... 66 SPECIFIC DISCLOSURES ............................................................................................................ 67 RECONCILIATION AND DISCLOSURES EXAMPLES .................................................................... 69 NOTE THE RECONCILIATION TO EQUITY AT 1 APRIL 2011........................................................ 70 EXAMPLE 2- WIPRO LTD .......................................................................................................... 74 TRANSITION TO IFRS .................................................................................................................... 74 RECONCILIATION OF EQUITY AS ON APRIL 1, 2008 .................................................................. 77

10.

MAJOR DIFFERENCES BETWEEN

11.

DIFFERENCES BETWEEN INDIAN GAAP

IND-AS 41 AND IFRS-1 .............................. 96 AND IFRS ...................................... 100

INDIAN GAAP/IFRS COMPARISON ............................................................................................... 100 12. COMPARISON BETWEEN CONVERGED INDIAN ACCOUNTING STANDARDS AND IFRS ............................................................................................................................. 210 1. DIFFERENT TERMINOLOGY ....................................................................................................... 210 2. TRANSITIONAL PROVISIONS ...................................................................................................... 211 3. NON-CURRENT ASSETS HELD FOR SALE: ..................................................................................... 212 4. STATEMENT OF CASH FLOWS .................................................................................................... 212

5. BORROWING COSTS ................................................................................................................ 213 6. INVESTMENTS IN ASSOCIATES.................................................................................................... 213 7. EARNINGS PER SHARE.............................................................................................................. 213 8. RELATED PARTY DISCLOSURES................................................................................................... 214 9. EMPLOYEES BENEFIT ............................................................................................................... 214 10. INTANGIBLE ASSETS AND SIC INTERPRETATION 32 INTANGIBLE ASSETS—WEB SITE COSTS................. 215 11. ACCOUNTING AND REPORTING BY RETIREMENT BENEFIT PLANS .................................................... 216 12. INCOME TAXES .................................................................................................................... 216 13. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS ....................................... 217 13. DIFFERENCES BETWEEN CONVERGED INDIAN ACCOUNTING STANDARDS (CIAS) & INDIAN ACCOUNTING STANDARDS (IAS) ............................................. 220 1. IAS -1 .................................................................................................................................. 220 2. AS 2, VALUATION OF INVENTORIES ............................................................................................ 221 3. AS 3, CASH FLOW STATEMENTS................................................................................................ 223 4. MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 4 (REVISED 20XX) AND EXISTING AS 4..... 225 5. MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 5 (REVISED 20XX), ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS AND EXISTING AS 5 (REVISED 1997) NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES ................................... 226 6. MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 12 (REVISED), ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE, AND PREEXISTED AS 12, ACCOUNTING FOR GOVERNMENT GRANTS (1991) ........................................................................... 228 MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 16 (REVISED), BORROWING COSTS, AND EXISTING AS 16 (ISSUED 2000) ................................................................................................................ 230 MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 19 (REVISED 20XX), LEASES, AND EXISTING AS 19 (ISSUED 2001) ..................................................................................................................... 232 MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 25 (REVISED 20XX), INTERIM FINANCIAL REPORTING, AND EXISTING AS 25 (ISSUED 2002) ............................................................................ 234 MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 11 (REVISED 20XX), THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES, AND EXISTING AS 11 (REVISED 2003) ..................................................... 237 MAJOR DIFFERENCES BETWEEN THE EXPOSURE DRAFT OF AS 10 (REVISED 20XX) PROPERTY, PLANT AND EQUIPMENT, AND EXISTING AS 10, ACCOUNTING FOR FIXED ASSETS AND AS 6, DEPRECIATION ACCOUNTING .............................................................................................................................................. 238 14.

SUMMARY OF IFRS-1 .................................................................................................. 274

15.

FREQUENTLY ASKED QUESTIONS ................................................................................ 286

1. Executive Summary

On 31st May 2010, the Institute of Chartered Accountants of India (ICAI) issued an Exposure Draft of Ind-AS 41( the Standard) - First-Time Adoption of Indian Accounting Standards. It welcomed comments on the Standard till 28 June 2010. The Standard marks the culmination of many standards issued by the ICAI to keep pace with International Financial Reporting Standards ( IFRS) and the beginning of providing a path to convert financial statements to IFRS. The Standard corresponds to IFRS-1 issued by the International Accounting Standards Board ( IASB) though there are still some differences between the two. As IFRS normally involved retrospective application of most accounting standards, it was generally felt that the costs of implementing IFRS far exceeded the benefits thereof. This led to a requirement to ease IFRS norms for first-time movers to IFRS. Taking a cue from global trends in this regard, Ind-AS 41 attempts to ease IFRS implementation for first-time implementers. The ICAI has followed the procedure detailed in IFRS-1 in providing both mandatory as well as optional exceptions for first-time adopters. In a marked departure from IFRS-1, Ind AS-41 provides an option to companies for providing comparative financial statements. This book attempts to summarize the provisions of Ind AS-41 and provides examples of disclosures from published accounts.

IND-AS 41 – First Time Adoption: A Guide

Ind-AS 41 â&#x20AC;&#x201C; An Overview

Objective As stated by Ind-AS 41, the objective of this Accounting Standard is to ensure that an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that: (a) is transparent for users and comparable over all periods presented;

(b) provides a suitable starting point for accounting in accordance with Indian Accounting Standards (Ind-ASs) and (c)can be generated at a cost that does not exceed the benefits

Scope

Ind-AS 41 states that and entity shall apply this Standard in: (a) its first Ind-AS financial statements3; and

(b) each interim financial report, if any, that it presents in accordance with AS 25 (Revised 20XX) Interim Financial Reporting for part of the period covered by its first Ind-AS financial statements.

IND-AS 41 – First Time Adoption: A Guide

First Financial Statements An entity’s first Ind-AS financial statements are the first annual financial statements in which the entity adopts Ind-ASs, by an explicit and unreserved statement in those financial statements of compliance with Ind-ASs. Financial statements in accordance with Ind-ASs are an entity’s first Ind-AS financial statements if, for example, the entity: (a) presented its most recent previous financial statements:

(i) in accordance with national requirements that are not consistent with Ind-ASs in all respects;

(ii) in conformity with Ind-ASs in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IndASs;

(iii) containing an explicit statement of compliance with some, but not all, Ind-ASs;

(iv) in accordance with national requirements inconsistent with Ind-ASs, using some individual Ind-ASs to account for items for which national requirements did not exist; or (v) in accordance with national requirements, with a reconciliation of some amounts to the amounts determined in accordance with Ind-ASs;

(b) prepared financial statements in accordance with Ind-ASs for internal use only, without making them available to the entity’s owners or any other external users;

(c) prepared a reporting package in accordance with Ind-ASs for consolidation purposes without preparing a complete set of financial statements as defined in AS 1 (Revised 20XX) Presentation of Financial Statements ; or (d) did not present financial statements for previous periods.

This Accounting Standard applies when an entity first adopts Ind-ASs.

Inapplicability Ind AS- 41 does not apply when, for example, an entity:

(a) stops presenting financial statements in accordance with national requirements, having previously presented them as well as another set of financial statements that contained an explicit and unreserved statement of compliance with Ind-ASs;

(b) presented financial statements in the previous year in accordance with national requirements and those financial statements contained an explicit and unreserved statement of compliance with Ind-ASs; or

(c) presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with Ind-ASs, even if the auditors qualified their audit report on those financial statements. This Accounting Standard does not apply to changes in accounting policies made by an entity that already applies Ind-ASs. Such changes are the subject of:

(a) requirements on changes in accounting policies in AS 5 (Revised 20XX) Accounting Policies, Changes in Accounting Estimates and Errors; and

(b) specific transitional requirements in other Ind-Asâ&#x20AC;&#x2122;s

Recognition

Ind-AS 41 details that an entity shall prepare and present an opening Ind-AS Balance Sheet at the date of transition to Ind-ASs. This is the starting point for its accounting in accordance with Ind-ASs.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

Consistent Accounting policies The Standard states that an entity shall use the same accounting policies in its opening Ind-AS Balance Sheet and throughout its first Ind-AS financial statements. Those accounting policies shall comply with each Ind-AS effective at the end of its first Ind-AS reporting period, except for the mandatory and optional exceptions provided in the Standard.

An entity shall not apply different versions of Ind-ASs that were effective at earlier dates. An entity may apply a new Ind-AS that is not yet mandatory if that Ind-AS permits early application.

Example: Consistent application of latest version of Ind-ASs Background

The end of entity Aâ&#x20AC;&#x2122;s first Ind-AS reporting period is 31 March 2012. Entity A presented financial statements in accordance with its previous GAAP annually to 31 March each year up to, and including, 31 March 2011. Application of requirements

Entity A is required to apply this Ind-ASs effective for financial year/periods ending on 31 March 2012 in:

(a) preparing and presenting its opening Ind-AS Balance Sheet as at 1 April , 2011; and (b) preparing and presenting its Balance Sheet (including statement of changes in equity annexed thereto) as at 31 March 2012,statement of profit and loss and statement of cash flows for the year ending 31 March 2012 and disclosures. If a new Ind-AS is not yet mandatory but permits early application, entity A is permitted, but not required, to apply that Ind-AS in its first Ind-AS financial statements.

However, it Entity A decides to present comparative information in those financial statements for one year, then its date of transition to Ind-AS is as on 1 April, 2010. Further, the requirements apply as follows. Entity A is required to apply the Ind-ASs effective for financial year/periods ending on 31 March 2012 in

preparing and presenting its opening Ind-AS Balance Sheet as at 1 April 1, 2010; and preparing and presenting its Balance Sheet as at 31 March 2012 (including comparative amounts for 31 March, 2011),statement of project and loss and statement of cash flows for the year ending 31 March 2012 (including comparative amounts for corresponding periods of year ending 31 March, 2011) and disclosures (including comparative information for previous period).

The transitional provisions in other Ind-ASs apply to changes in accounting policies made by an entity that already uses Ind-ASs; they do not apply to a firsttime adopterâ&#x20AC;&#x2122;s transition to Ind-ASs, except for specific situations mentioned in the Standard.

Measurement

Except for the mandatory and optional exceptions provided in the Standard, an entity shall, in its opening Ind-AS Balance Sheet:

(a) recognise all assets and liabilities whose recognition is required by Ind-ASs;

(b) not recognise items as assets or liabilities if Ind-ASs do not permit such recognition;

(c) reclassify items that it recognised in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind-ASs; and (d) apply Ind-ASs in measuring all recognised assets and liabilities.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide The accounting policies that an entity uses in its opening Ind-AS Balance Sheet may differ from those that it used for the same date using its previous GAAP. The resulting adjustments arise from events and transactions before the date of transition to Ind-ASs. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Ind-ASs.

3. Indian Roadmap for Conversion to IFRS and Clarification

PRESS RELEASE A meeting of the Core Group constituted by the Ministry of Corporate Affairs for convergence of Indian Accounting Standards with International Financial Reporting Standards (IFRS) from the year 2011 was held on 11th January, 2010 under the chairmanship Shri R. Bandyopadhyay, Secretary, Ministry of Corporate Affairs. The meeting was attended by the officials from Ministry of Finance, SEBI, RBI, IRDA, C&AG, PFRDA, ICAI, Industry representatives and other experts.

2. The Group agreed that in view of the roadmap for achieving convergence, there will be two separate sets of Accounting Standards u/s Section 211(3C) of the Companies Act, 1956.

First set would comprise of the Indian Accounting Standards which are converged with the IFRSs which shall be applicable to the specified class of companies. The second set would comprise of the existing Indian Accounting Standards and would be applicable to other companies, including Small and Medium Companies (SMCs). 3. The first set of Accounting Standards (i.e. converged accounting standards) will be applied to specified class of companies in phases:(a) Phase-I:- The following categories of companies will convert their opening

balance sheets as at 1st April, 2011, if the financial year commences on or after 1st April, 2011 in compliance with the notified accounting standards which are convergent with

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS. These companies are:-

a. Companies which are part of NSE â&#x20AC;&#x201C; Nifty 50

b. Companies which are part of BSE - Sensex 30

c. Companies whose shares or other securities are listed on stock exchanges outside India

d. Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

(b) Phase-II :- The companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000 crores will convert their opening balance sheet as at 1st April, 2013, if the financial year commences on or after 1st April, 2013 in compliance with the notified accounting standards which are convergent with IFRS.

(c) Phase-III :- Listed companies which have a net worth of Rs. 500 crores or less will convert their opening balance sheet as at 1st April, 2014, if the financial year commences

on or after 1st April, 2014, whichever is later, in compliance with the notified accounting standards which are convergent with IFRS

When the accounting year ends on a date other than 31st March, the conversion of the

opening Balance Sheet will be made in relation to the first Balance Sheet which is made on a date after 31st March.

4. Companies which fall in the following categories will not be required to follow the notified accounting standards which are converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified accounting standards which are not converged with the IFRS. These companies are: (a) Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listed on Stock Exchanges outside India. (b) Small and Medium Companies (SMCs).

5. Separate roadmap for banking and insurance companies will be submitted by the SubGroup I in consultation with the concerned regulators by 28th February, 2010.

6. The draft of the Companies (Amendment) Bill, proposing for changes to the Companies Act, 1956 will be prepared by February, 2010 incorporating the recommendation of Sub-Group 1 Report.

7. Revised Schedule VI to the Companies Act, 1956 according to the converged Accounting Standards has been submitted by the ICAI to NACAS which, after review, will submit to the Ministry by 31st January, 2010. Amendments to Schedule XIV will also be made in a time bound manner.

8. In respect of the converged Accounting Standards, the Chairman of the Accounting Standards Board of ICAI will submit the converged version of Accounting Standards to NACAS from time to time for recommendations and onward submission to Ministry. However, convergence of all the accounting standards will be competed by ICAI by 31st March, 2010 and NACAS will submit its recommendations to the Ministry by 30th April 2010.

Clarification on the Roadmap 12

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide SL No 1

Issue

Clarification

The companies, covered in the phase I, would be required to convert their opening balance sheet as at 1st April 2011 in compliance with the first set of Accounting Standards (i.e. the converged Accounting Standards). Accordingly, companies are not required to provide comparative figures for the year 201011 as first set of Accounting Standards (i.e. the converged Accounting Standards).

Companies covered in Phase I will prepare their financial statements for 2011-12 in accordance with the first

Whether companies can voluntarily opt to provide comparative figures for 2010-11 as per the first set of Accounting Standards (i.e. the converged Accounting Standards

set of Accounting Standards (i.e. the converged Accounting Standards) but

will show previous yearsâ&#x20AC;&#x2122; figures as per the financial statements for 2010-11 i.e. as per non-converged accounting standards.

However, the entity shall have the option to add an additional column to indicate what these figures could

have been if the first set of

Accounting Standards (i.e. converged accounting standards) had been applied in that previous year. Companies which make this

Whether companies covered in 2nd / 3rd phase for application of the first set of

Accounting Standards (i.e. the converged

Accounting Standards) can voluntarily opt to apply the same w.e.f accounting year 3

beginning on 1.4.2011? As per the roadmap, in phase I, the following categories of companies (other than banking companies, insurance companies and NBFCs) will convert their opening balance sheet as at 1st April, 2011 in compliance with the first set of Accounting Standards(i.e. the converged Accounting Standards) a. Companies which are part of NSE â&#x20AC;&#x201C; Nifty 50 b. Companies which are part of BSE â&#x20AC;&#x201C; Sensex 30

c. Companies whose shares or other securities

additional disclosure will, for this purpose, convert their opening balance sheet as at the date on which this previous year commences and, in that case, a further conversion of the opening balance sheet for the year for which the financial statements are prepared will not be necessary. Such Companies will have an option for application of the first set of accounting standards (i.e. the converged Accounting Standards) only for the financial year commencing on 1st April, 2011 or thereafter The date for determination of the criteria is the Balance Sheet as at 31st March 2009 or the first Balance Sheet prepared thereafter when the accounting year ends on another date.

IND-AS 41 – First Time Adoption: A Guide are listed on stock exchanges outside India

d. Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores

What is the cut-off date on which the aforesaid criteria shall be applied in order to determine the companies falling in each of the aforesaid four categories of companies which will convert their opening balance sheet as at 1st April, 2011 in compliance with the first set of Accounting Standards (i.e. the converged Accounting Standards)? As per the proposed roadmap for Banks and NBFCs, in phase I, the following categories will convert their opening balance sheet as at 1st April, 2013 in compliance with the notified accounting standards which are converged with IFRS: i) Banks

All scheduled commercial banks and those urban co-operative banks which have a net worth in excess of Rs. 300 crores will convert their opening balance

The date for determination of the criteria is the Balance Sheet as at 31st March 2011 or the first Balance Sheet prepared thereafter when the accounting year ends on another date

sheet as at 1st April, 2013 in compliance with the first set of accounting standards (i.e., converged accounting standards) ii) NBFCs

a. Companies which are part of NSE – Nifty 50 b. Companies which are part of BSE – Sensex 30

c. Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores What is the cut-off date on which the aforesaid criteria shall be applied in order to determine the scheduled commercial banks/

urban co-operative Banks/ NBFCs falling in each of the aforesaid categories which will convert their opening balance sheet as at 1st April, 2013 in compliance with the first set of Accounting Standards (i.e. the converged Accounting Standards)? There might be a situation where the parent company is covered in any one of the three phases for specified class of companies for applying the first set of Accounting Standards (i.e. converged Accounting

Standards), while the other group companies (subsidiaries, joint ventures or associates) are not covered under such phasing plan. In such a scenario, whether it would be permissible for the companies, which are not individually covered under the phasing plan for application of the first set of Accounting

Standards (i.e. converged Accounting Standards), to voluntarily opt for application of the first set of Accounting standards(i.e. converged Accounting Standards, even for their standalone financial statements?

May also clarify the position in a situation where the phasing plan for application of the first set of Accounting Standards (i.e. the converged Accounting Standards) gets attracted to one of the entity in the group while the parent company is not covered

The criteria is to be considered for each company's standalone accounts. The companies covered in a particular phase having subsidiaries, joint ventures or associates not

covered in those phase/phases will prepare their consolidated financial

statements according to the first set of Accounting standards (i.e. the converged Accounting Standards)

When one or more companies in a group fall in a phase other than the phase applicable to the parent company, they will continue to prepare

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide standalone accounts according to the phase applicable to them but the parent may need to make amendments to these accounts for the purposes of consolidation as per converged accounting standards. Such subsidiaries, joint ventures or associate companies may have the option for early adoption of

Once a company gets covered in the specified class of companies in any one of the phases, as identified in the roadmap issued by the Ministry and converts its

opening Balance Sheet as per the specified date in accordance with the first set of Accounting Standards(i.e. the converged Accounting Standards), whether it would have to continue to follow the same set of accounting standards in the future as well even if it no longer satisfies the specified criteria? Will it be possible for such a company to revert to existing Indian accounting standards? What are the rules for calculation of qualifying net worth to be recommended to the companies in order to determine their applicability for applying the first set of

converged accounting standards. Once a company starts following the first set of Accounting standards (i.e. the converged Accounting Standards) on the basis of the eligibility criteria, it will be required to follow such

Accounting standards for all the subsequent financial statements even if any of the eligibility criteria does not subsequently apply to it For the purpose of calculation of qualifying net worth of companies, the following rules will

Accounting Standards (i.e. converged accounting standards

apply:

a. The net worth will be calculated as per the audited balance sheet of the company as at 31st March 2009 or the first balance sheet for accounting periods which end after that date. b. The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account.

c. For companies which are not inexistence on 31st March 2009, the net worth will be calculated on the basis of the first balance sheet ending after that date. The calculation of net worth is for the purpose of the criteria only since "net

What are the rules for calculation of qualifying net worth to be recommended to the scheduled commercial Banks/ urban

worth" is a part of the criteria. For the purpose of calculation of qualifying net worth of scheduled

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide cooperative Banks/ NBFCs in order to determine their applicability for applying the first set of Accounting Standards (i.e. the converged Accounting Standards)?

commercial Banks/ urban cooperative Banks/ NBFCs, the following rules will apply a. The net worth will be calculated as per the audited balance sheet of the scheduled commercial Banks/ urban cooperative

Bank/NBFC as at 31st March 2011 or the first balance sheet for accounting periods which ends after that date.

b. The net worth will be calculated as the Share Capital plus Reserves less Revaluation Reserve, Miscellaneous Expenditure and Debit Balance of the Profit and Loss Account.

c. For scheduled commercial Banks/ urban co-operative Banks/NBFCs which are not in existence on 31st March 2011, the net worth will be calculated on the basis of the first balance sheet ending after that date The calculation of net

worth is for the purpose of the criteria only since "net worth" is a part of the criteria In case the notified converged accounting standard is not fully consistent with the IAS/IFRS (i.e., despite intention to converge, some deviations remain), as issued by the IASB, it is presumed that Indian companies will continue to follow the first set of Accounting Standards (i.e. converged accounting standards) as notified by the Government of India and not adopt IFRS in toto.

Companies will follow the first set of Accounting Standards (i.e. the converged Accounting Standards) and not the IFRS

IND-AS 41 – First Time Adoption: A Guide

4. Ind AS-41: The Steps

IND-AS 41 – First Time Adoption: A Guide

5. IFRS Opening Balance Sheet

Conversion to IFRS commences with the preparation of an IFRS Opening Balance Sheet. The Standard mentions that using the same consistent accounting policies mandated by it, an entity should: (a) recognise all assets and liabilities whose recognition is required by Ind-ASs;

(b) not recognise items as assets or liabilities if Ind-ASs do not permit such recognition;

The only exception to this requirement is the Mandatory and Optional Exceptions given in the Standard. Ind-AS accounting policies have to be followed for both recognition and measurement. There are differences between the present Indian Accounting Standards and IFRS ( see Chapters ). An entity would have to compare their present accounting standards with those as per Ind-AS and follow the norms mentioned in Ind-AS. For instance, Ind AS-14 on Business Combinations recognizes only the Purchase Method for recognizing and measuring Business Combination whereas the present AS-14 permits the Pooling of Interests Method too. After deciding on whether to opt for the optional exceptions for Business Combinations, an entity should follow the Purchase Method only for accounting for Business Combinations.

Electing for Ind-AS accounting policies could result in differences in the financial results. The Standard recommends that these differences be a part of Retained Earnings or any other Component of Equity.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide The requirements of Ind-AS 41 regarding the IFRS Opening Balance-Sheet mention about Assets and Liabilities giving rise to a question whether this would also include items of income and expenses. In the opinion of the author, retained earnings flow from income and expenses and hence Ind-AS-41 requirements should apply to components of the Profit and Loss Account too.

Mandatory and Optional Exceptions

Mandatory Exceptions 1. Estimates

2. De-recognition of financial assets and liabilities 3.Hedge accounting

4. Non-controlling Interest ( NCI)

Optional Exemptions 1. Some Aspects of Business Combinations 2. share-based payment transactions 3. insurance contracts

4. deemed cost 5. leases

6. employee benefits

7. cumulative translation differences

8. investments in subsidiaries, jointly controlled entities and associates

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 9. assets and liabilities of subsidiaries, associates and joint ventures 10. compound financial instruments

11.designation of previously recognised financial instruments

12. fair value measurement of financial assets or financial liabilities at initial recognition 13. decommissioning liabilities included in the cost of property, plant and equipment

14. financial assets or intangible assets accounted for in accordance with Appendix A to AS 7 (Revised 20XX) Service Concession Arrangements 15. transfers of assets from customers

16. extinguishing financial liabilities with equity instruments

17. non-current assets held for sale and discontinued operations

1. Mandatory Exceptions Topic

Applicable Standard

Estimate

AS-28

Summary of the Exceptions Not required to revise estimates made as at date of transition to Ind-AS 41 unless there is evidence that those estimates were in error. Subsequent information about a change in an estimate need not revalue the

estimate but can be reflected in the subsequent period. The exceptions to the above are:

- the distinction between finance leases and operating leases

- the restrictions in AS 26(Revised 20XX) Intangible Assets that prohibit capitalisation of expenditure on an internally generated intangible asset if the asset did not qualify for recognition when the expenditure was incurred

c) the distinction between financial liabilities and equity instruments Derecognition of Financial Assets and Liabilities

AS 29, 30, 31

Hedge Accounting

AS 29, 30 and 31

Option to apply the derecognition requirements in AS 29, 30 and 31 prospectively to transactions that occurred after date of transition -All derivatives to be measured at Fair Value -All losses and gains to be

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide eliminated

Transact - Transactions entered into before the date of transition to IndASs shall not be retrospectively designated as hedges. Minority Interest

All requirements regarding Minority Interest to be applied prospectively

2. Optional Exceptions Topic

Applicable Standard

Business Combinations

AS-14

Summary of the Exceptions -Option not to apply the Standard to past business combinations. Once opted, all business combinations after that date would have to be accounted for as per Ind AS-14 -Option not to not apply AS 11 (Revised 20XX) The Effects of Changes in Foreign Exchange Rates retrospectively to fair value adjustments and

goodwill arising in business combinations unless opted for as above - Exemption also applies to Investments in Associates and Joint Ventures Share-based payment transactions

AS 33

Insurance Contracts

AS 39

Deemed Cost

AS 10

Leases

AS 19

Employee Benefits Cumulative translation differences

AS 16 AS 12

- Encouraged but not mandated to follow AS-33 to equity instruments that vested before the date of transition to Ind-AS - Encouraged but not mandated to apply AS 39 for annual periods beginning or on after the date of transition to IndAS Option to use Fair Value as Deeemed Cost for Property, Plant and Equipment, Investment Property and Intangible Assets Option to determine whether an arrangement contains a lease as on date of transition to Ind-AS Option to disclose Option to make translation differences zero as on date of transition( not reflecting them in OCI)

IND-AS 41 – First Time Adoption: A Guide Investments in subsidiaries, associates and Joint Ventures

AS 21

Subsidiary becomes firsttime adopter later than its parent

AS 21

Subsidiary becomes firsttime adopter earlier than its parent

AS 21

Compound Financial Instruments

AS 31

Designation of previously recognized financial instrument

AS 30

Fair value measurement of financial assets or financial liabilities at initial recognition

AS 30

Decommissioning Liabilities

AS10

Measuring the investment at cost can be 1) cost as per AS 21 2) Fair Value ( Deemed Cost) 3) Cost as per previous GAAP Option to measure carrying amounts of assets and liabilities at either subsidiary’s or parents’ date of transition Parent shall measure carrying amounts of all assets and liabilities at subsidiary’s date of transition Option not to separate a compound financial instrument into two portions if the liability component is no longer outstanding AFS/Fair Value through Profit and Loss Account categorization as at date of transition Option to use the Valuation Technique as provided for in AS-30 prospectively to transactions entered into on or after the date of transition to IFRS. Option not to add/deduct specified changes in decommissioning, restoration or other

Financial Assets or Intangible Assets in Service Concession Arrangements

AS 7

AS 9

Non-current assets held for sale and discontinuing operations

AS 24

(a) recognise financial assets and intangible assets that existed at the date of transition;

(b) use the previous carrying amounts of those financial and intangible assets (however previously classified) as their carrying amounts as at that date; and

Transfers of Assets from Customers Extinguishing financial liability with equity instruments

liabilities to the cost of asset

AS 30

(c) test financial and intangible assets recognised at that date for impairment, unless this is not practicable, in which case the amounts shall be tested for impairment as at the start of the current period Option to apply transfers of assets from Customers after date of transition to Ind-AS. Option to apply provisions regarding extinguishment of financial liability with equity instruments from the date of transition to Ind-As Option to measure such assets at the lower of carrying value and fair value less cost to sell as at the date of transition to Ind-ASs in accordance with AS 24. Difference between this value and carrying value hits retained earnings.

IND-AS 41 – First Time Adoption: A Guide

Mandatory Exceptions 1. Estimates The Standard states that an entity’s estimates in accordance with Ind-ASs at the date of transition to Ind ASs shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. An entity may receive information after the date of transition to Ind-ASs about estimates that it had made under previous GAAP. In accordance with Ind-AS 41, an entity shall treat the receipt of that information in the same way as non-adjusting events after the reporting period in accordance with AS 4 (Revised 20XX) Events after the Reporting Period. For example, assume that an entity’s date of transition to Ind-ASs is 1 April , 2011 and new information on 15 May 2011 requires the revision of an estimate made in accordance with previous GAAP at 31 March 2011. The entity shall not reflect that new information in its opening Ind-AS Balance Sheet (unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error). Instead, the entity shall reflect that new information in profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 March 2012. An entity may need to make estimates in accordance with Ind-ASs at the date of transition to Ind-ASs that were not required at that date under previous GAAP. To achieve consistency with AS 4 (Revised 20XX), those estimates in accordance with Ind-ASs shall reflect conditions that existed at the date of transition to Ind-ASs. In particular, estimates at the date of transition to Ind-ASs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.

However, the Application Guidance to Ind- AS 41 states that these provisions do not override requirements in other Ind-ASs that base classifications or measurements on circumstances existing at a particular date such as a) the distinction between finance leases and operating leases

b) the restrictions in AS 26 (Revised 20XX) Intangible Assets that prohibit capitalisation of expenditure on an internally generated intangible asset if the asset did not qualify for recognition when the expenditure was incurred; and c) the distinction between financial liabilities and equity instruments

2. De-recognition of Financial Assets and Liabilities A first-time adopter shall apply the derecognition requirements in AS 30 (Revised 20XX) Financial Instruments: Recognition and Measurement prospectively for transactions occurring on or after date of transition to Ind-AS. In other words, if a first-time adopter derecognised non-derivative financial assets or non-derivative financial liabilities in accordance with its previous GAAP as a result of a transaction that occurred before date of transition to Ind-AS, it shall not recognise those assets and liabilities in accordance with Ind-ASs (unless they qualify for recognition as a result of a later transaction or event). However, an entity may apply the derecognition requirements in AS 30 (Revised 20XX) retrospectively from a date of the entityâ&#x20AC;&#x2122;s choosing, provided that the information needed to apply AS 30 (Revised 20XX) to financial assets and financial liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions

3. Hedge Accounting An entity shall:

(a) measure all derivatives at fair value; and

(b) eliminate all deferred losses and gains arising on derivatives that were reported in accordance with previous GAAP as if they were assets or liabilities.

An entity shall not reflect in its opening Ind-AS Balance Sheet a hedging relationship of a type that does not qualify for hedge accounting in accordance with AS 30 (Revised 20XX) (for example, many hedging relationships where the

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide hedging instrument is a cash instrument or written option; where the hedged item is a net position; or where the hedge covers interest risk in a held-to-maturity investment). However, if an entity designated a net position as a hedged item in accordance with previous GAAP, it may designate an individual item within that net position as a hedged item in accordance with Ind-ASs, provided that it does so no later than the date of transition to Ind-ASs. If, before the date of transition to Ind-ASs, an entity had designated a transaction as a hedge but the hedge does not meet the conditions for hedge accounting in AS 30 (Revised 20XX), the entity shall apply paragraphs 91 and 101 of AS 30 (Revised 20XX) to discontinue hedge accounting. Transactions entered into before the date of transition to Ind-ASs shall not be retrospectively designated as hedges.

4. Non-controlling Interests ( Minority Interests)

A first-time adopter shall apply the following requirements of AS 21 (Revised 20XX) prospectively from the date of transition to Ind-ASs:

(a) the requirement that total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the noncontrolling interests having a deficit balance;

(b) the requirements for accounting for changes in the parentâ&#x20AC;&#x2122;s ownership interest in a subsidiary that do not result in a loss of control; and (c) the requirements for accounting for a loss of control over a subsidiary, and the related requirements of paragraph 8A of AS 24 (Revised 20XX) Non-current Assets Held for Sale and Discontinued Operations. However, if a first-time adopter elects to apply AS 14 (Revised 20XX) Business Combinations retrospectively to past business combinations, it shall also apply AS 21 (Revised 20XX) in accordance with paragraph C1 of this Ind-AS.

OPTIONAL EXCEPTIONS 1. BUSINESS COMBINATIONS A first-time adopter may elect not to apply AS XX (Revised 20XX) Business Combinations retrospectively to past business combinations (business combinations that occurred before the date of transition to Ind-ASs). However, if a first-time adopter restates any business combination to comply with AS XX (Revised 20XX), it shall restate all later business combinations and shall also apply AS 21 (Revised 20XX) from that same date. For example, if a first-time adopter elects to restate a business combination that occurred on 30 June 2006, it shall restate all business combinations that occurred between 30 June 2006 and the date of transition to Ind-ASs, and it shall also apply AS 21 (Revised 20XX) from 30 June 2006.

An entity need not apply AS 11 (Revised 20XX) The Effects of Changes in Foreign Exchange Rates retrospectively to fair value adjustments and goodwill arising in business combinations that occurred before the date of transition to Ind-ASs. If the entity does not apply AS 11 (Revised 20XX) retrospectively to those fair value adjustments and goodwill, it shall treat them as assets and liabilities of the entity rather than as assets and liabilities of the acquiree. Therefore, those goodwill and fair value adjustments either are already expressed in the entityâ&#x20AC;&#x2122;s functional currency or are non-monetary foreign currency items, which are reported using the exchange rate applied in accordance with previous GAAP.

An entity may apply AS 11 (Revised 20XX) retrospectively to fair value adjustments and goodwill arising in either:

(a) all business combinations that occurred before the date of transition to IndASs; or

(b) all business combinations that the entity elects to restate to comply with IndAS 3, as permitted by paragraph C1 above. If a first-time adopter does not apply Ind-AS 3 retrospectively to a past business combination, this has the following consequences for that business combination:

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (a) The first-time adopter shall keep the same classification (as an acquisition by the legal acquirer, a reverse acquisition by the legal acquiree, or a uniting of interests) as in its previous GAAP financial statements.

(b) The first-time adopter shall recognise all its assets and liabilities at the date of transition to Ind-ASs that were acquired or assumed in a past business combination, other than:

(i) some financial assets and financial liabilities derecognised in accordance with previous GAAP and

(ii) assets, including goodwill, and liabilities that were not recognised in the acquirerâ&#x20AC;&#x2122;s consolidated Balance Sheet in accordance with previous GAAP and also would not qualify for recognition in accordance with Ind-ASs in the separate Balance Sheet of the acquiree

The first-time adopter shall recognise any resulting change by adjusting retained earnings (or, if appropriate, another category of equity), unless the change results from the recognition of an intangible asset that was previously subsumed within goodwill.

(c) The first-time adopter shall exclude from its opening Ind-AS Balance Sheet any item recognised in accordance with previous GAAP that does not qualify for recognition as an asset or liability under Ind-ASs. The first-time adopter shall account for the resulting change as follows:

(i) the first-time adopter may have classified a past business combination as an acquisition and recognised as an intangible asset an item that does not qualify for recognition as an asset in accordance with AS 26 (Revised 20XX) Intangible Assets. It shall reclassify that item (and, if any, the related deferred tax and noncontrolling interests) as part of goodwill (unless it deducted goodwill directly from equity in accordance with previous GAAP, see (g)(i) and (i) below). (ii) the first-time adopter shall recognise all other resulting changes in retained earnings.

(d) Ind-ASs require subsequent measurement of some assets and liabilities on a basis that is not based on original cost, such as fair value. The first-time adopter

shall measure these assets and liabilities on that basis in its opening Ind-AS Balance Sheet, even if they were acquired or assumed in a past business combination. It shall recognise any resulting change in the carrying amount by adjusting retained earnings (or, if appropriate, another category of equity), rather than goodwill. (e) Immediately after the business combination, the carrying amount in accordance with previous GAAP of assets acquired and liabilities assumed in that business combination shall be their deemed cost in accordance with Ind-ASs at that date. If Ind-ASs require a cost-based measurement of those assets and liabilities at a later date, that deemed cost shall be the basis for cost-based depreciation or amortisation from the date of the business combination

(f) If an asset acquired, or liability assumed, in a past business combination was not recognised in accordance with previous GAAP, it does not have a deemed cost of zero in the opening Ind-AS Balance Sheet. Instead, the acquirer shall recognise and measure it in its consolidated Balance Sheet on the basis that Ind-ASs would require in the Balance Sheet of the acquiree. To illustrate: if the acquirer had not, in accordance with its previous GAAP, capitalised finance leases acquired in a past business combination, it shall capitalise those leases in its consolidated financial statements, as AS 19 (Revised 20XX) Leases would require the acquiree to do in its Ind-AS Balance Sheet. Similarly, if the acquirer had not, in accordance with its previous GAAP, recognised a contingent liability that still exists at the date of transition to Ind-ASs, the acquirer shall recognise that contingent liability at that date unless AS 29 (Revised 20XX) Provisions, Contingent Liabilities and Contingent Assets would prohibit its recognition in the financial statements of the acquiree. Conversely, if an asset or liability was subsumed in goodwill in accordance with previous GAAP but would have been recognised separately under Ind-AS 3, that asset or liability remains in goodwill unless Ind-ASs would require its recognition in the financial statements of the acquiree. (g) The carrying amount of goodwill in the opening Ind-AS Balance Sheet shall be its carrying amount in accordance with previous GAAP at the date of transition to Ind-ASs, after the following two adjustments:

(i) If required by (c)(i) above, the first-time adopter shall increase the carrying amount of goodwill when it reclassifies an item that it recognised as an intangible asset in accordance with previous GAAP. Similarly, if (f) above requires the first-

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide time adopter to recognise an intangible asset that was subsumed in recognised goodwill in accordance with previous GAAP, the first-time adopter shall decrease the carrying amount of goodwill accordingly (and, if applicable, adjust deferred tax and non-controlling interests). (ii) Regardless of whether there is any indication that the goodwill may be impaired, the first-time adopter shall apply AS 28 (Revised 20XX) in testing the goodwill for impairment at the date of transition to Ind-ASs and in recognising any resulting impairment loss in retained earnings (or, if so required by AS 28 (Revised 20XX), in revaluation surplus). The impairment test shall be based on conditions at the date of transition to Ind-ASs. (h) No other adjustments shall be made to the carrying amount of goodwill at the date of transition to Ind-ASs. For example, the first-time adopter shall not restate the carrying amount of goodwill: (i) to exclude in-process research and development acquired in that business combination (unless the related intangible asset would qualify for recognition in accordance with AS 26 (Revised 20XX) in the Balance Sheet of the acquiree); (ii) to adjust previous amortisation of goodwill;

(iii) to reverse adjustments to goodwill that AS 28 (Revised 20XX) would not permit, but were made in accordance with previous GAAP because of adjustments to assets and liabilities between the date of the business combination and the date of transition to Ind-ASs.

(i) If the first-time adopter recognised goodwill in accordance with previous GAAP as a deduction from equity: (i) it shall not recognise that goodwill in its opening Ind-AS Balance Sheet. Furthermore, it shall not reclassify that goodwill to profit or loss if it disposes of the subsidiary or if the investment in the subsidiary becomes impaired. (ii) adjustments resulting from the subsequent resolution of a contingency affecting the purchase consideration shall be recognised in retained earnings.

(j) In accordance with its previous GAAP, the first-time adopter may not have consolidated a subsidiary acquired in a past business combination (for example, because the parent did not regard it as a subsidiary in accordance with previous GAAP or did not prepare consolidated financial statements). The first-time adopter shall adjust the carrying amounts of the subsidiary’s assets and liabilities to the amounts that Ind-ASs would require in the subsidiary’s Balance Sheet. The deemed cost of goodwill equals the difference at the date of transition to Ind-ASs between: (i) the parent’s interest in those adjusted carrying amounts; and

(ii) the cost in the parent’s separate financial statements of its investment in the subsidiary.

(k) The measurement of non-controlling interests and deferred tax follows from the measurement of other assets and liabilities. Therefore, the above adjustments to recognised assets and liabilities affect non-controlling interests and deferred tax.

The exemption for past business combinations also applies to past acquisitions of investments in associates and of interests in joint ventures. Furthermore, the date selected for paragraph C1 applies equally for all such acquisitions.

Business Combinations – Ind AS 41 not applied retrospectively

Thought past business combinations have been listed as an optional exception, it cannot be inferred that one can ignore the values of assets acquired and liabilities assumed in a past business combination in the Ind-AS Opening Balance Sheet. The provisions are tabulated below:

1. All Assets acquired and liabilities assumed in the Business Combination to be recognized except financial assets and liabilities derecognized as per previous GAAP and assets, including goodwill, and liabilities that were not recognised in the acquirer’s consolidated Balance Sheet in accordance with previous GAAP and also would not qualify for recognition in accordance with Ind-ASs in the separate Balance Sheet of the acquiree. All differences hit retained earnings.

IND-AS 41 – First Time Adoption: A Guide 2. The first-time adopter shall exclude from its opening Ind-AS Balance Sheet any item recognised in accordance with previous GAAP that does not qualify for recognition as an asset or liability under Ind-As’s. All differences would be parked in Retained Earnings except for Intangible Assets which would be adjusted to Goodwill.

3. If Ind-AS required measurement of assets at Fair Value, an entity should use that method for Ind-AS Opening Balance Sheet. Differences hit retained earnings. 4. If an asset acquired, or liability assumed, in a past business combination was not recognised in accordance with previous GAAP, it does not have a deemed cost of zero in the opening Ind-AS Balance Sheet. Instead, the acquirer shall recognise and measure it in its consolidated Balance Sheet on the basis that Ind-ASs would require in the Balance Sheet of the acquiree. 5. Goodwill in the Ind-AS Opening Balance Sheet would be the value recognized at the time of the Business Combination plus value of any Intangible Assets that did not qualify for recognition as Intangible Asset. Goodwill in the Ind-As Opening Balance Sheet would also have to be tested for impairment.

Share-based payment transactions

A first-time adopter is encouraged, but not required, to apply AS 33 (Revised 20XX) Share-based Payment to equity instruments that vested before date of transition to Ind-ASs. However, if a first-time adopter elects to apply AS 33 (Revised 20XX) to such equity instruments, it may do so only if the entity has disclosed publicly the fair value of those equity instruments, determined at the measurement date, as defined in AS 33 (Revised 20XX). For all grants of equity instruments to which AS 33 (Revised 20XX) has not been applied i.e. equity instruments vested but not settled before date of transition to Ind-ASs, a first-time adopter shall nevertheless disclose the information required by paragraphs 44 and 45 of AS 33 (Revised 20XX). If a first-time adopter modifies the terms or conditions of a grant of equity instruments to which AS 33 (Revised 20XX) has not been applied, the entity is not required to apply paragraphs 26–29 of AS 33 (Revised 20XX) if the modification occurred before the date of transition to IndASs. A first-time adopter is encouraged, but not required, to apply AS 33 (Revised

20XX) to liabilities arising from share-based payment transactions that were settled before the date of transition to Ind-ASs.

Insurance contracts

An entity shall apply AS 39 (Revised 20XX) Insurance Contracts for annual periods beginning on or after date of transition to Ind-AS. Earlier application is encouraged. If an entity applies this AS 39 (Revised 20XX) for an earlier period, it shall disclose that fact. In applying paragraph 39(c)(iii), of AS 39 (Revised 20XX) an entity need not disclose information about claims development that occurred earlier than five years before the end of the first financial year in which it applies AS 39 (Revised 20XX). Furthermore, if it is impracticable, when an entity first applies AS 39 (Revised 20XX), to prepare information about claims development that occurred before the beginning of the earliest period for which an entity presents information that complies with this IFRS, the entity shall disclose that fact.

When an insurer changes its accounting policies for insurance liabilities, it is permitted, but not required, to reclassify some or all of its financial assets as 'at fair value through profit or loss'. This reclassification is permitted if an insurer changes accounting policies when it first applies AS 39 (Revised 20XX) and if it makes a subsequent policy change permitted by paragraph 22. The reclassification is a change in accounting policy and AS 5 (Revised 20XX) applies.

Deemed cost

An entity may elect to measure an item of property, plant and equipment at the date of transition to Ind-ASs at its fair value and use that fair value as its deemed cost at that date. A first-time adopter may elect to use a previous GAAP revaluation of an item of property, plant and equipment at, or before, the date of transition to Ind-ASs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to: (a) fair value; or

IND-AS 41 – First Time Adoption: A Guide (b) cost or depreciated cost in accordance with Ind-ASs, adjusted to reflect, for example, changes in a general or specific price index. The elections in paragraphs D5 and D6 are also available for:

(a) investment property, if an entity elects to use the cost model in AS 37 (Revised 20XX) Investment Property; and (b) intangible assets that meet:

(i) the recognition criteria in AS 26 (Revised 20XX) (including reliable measurement of original cost); and

(ii) the criteria in AS 26 (Revised 20XX) for revaluation (including the existence of an active market). An entity shall not use these elections for other assets or for liabilities.

A first-time adopter may have established a deemed cost in accordance with previous GAAP for some or all of its assets and liabilities by measuring them at their fair value at one particular date because of an event such as a privatisation or initial public offering. It may use such event-driven fair value measurements as deemed cost for Ind-ASs at the date of that measurement.

Under some national accounting requirements exploration and development costs for oil and gas properties in the development or production phases are accounted for in cost centres that include all properties in a large geographical area. A firsttime adopter using such accounting under previous GAAP may elect to measure oil and gas assets at the date of transition to Ind-ASs on the following basis: (a) exploration and evaluation assets at the amount determined under the entity’s previous GAAP; and (b) assets in the development or production phases at the amount determined for the cost centre under the entity’s previous GAAP. The entity shall allocate this amount to the cost centre’s underlying assets pro rata using reserve volumes or reserve values as of that date.

The entity shall test exploration and evaluation assets and assets in the development and production phases for impairment at the date of transition to Ind-ASs in accordance with AS 26 (Revised 20XX) Exploration for and Evaluation of Mineral Resources or AS 28 (Revised 20XX) respectively and, if necessary, reduce the amount determined in accordance with (a) or (b) above. For the purposes of this paragraph, oil and gas assets comprise only those assets used in the exploration, evaluation, development or production of oil and gas.

Leases

A first-time adopter may apply paragraphs 6-9 of the Appendix C of AS 19 (Revised 20XX) to determine whether an arrangement existing at the date of transition to Ind-ASs contains a lease on the basis of facts and circumstances existing at the date of transition to Ind-AS.

If a first-time adopter made the same determination of whether an arrangement contained a lease in accordance with previous GAAP as that required by Appendix C of AS 19 (Revised 20XX) - Determining whether an Arrangement contains a Lease but at a date other than that required by D9 above, the first-time adopter need not reassess that determination when it adopts Ind-ASs. For an entity to have made the same determination of whether the arrangement contained a lease in accordance with previous GAAP, that determination would have to have given the same outcome as that resulting from applying AS 19 (Revised 20XX) Leases and Appendix C of AS 19 (Revised 20XX) - Determining whether an Arrangement contains a Lease.

Employee benefits An entity may disclose the amounts required by paragraph 120A(p) of AS 15 (Revised 20XX) as the amounts are determined for each accounting period prospectively from the date of transition to Ind-ASs. Cumulative translation differences

AS 11 (Revised 20XX) requires an entity:

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (a) to recognise some translation differences in other comprehensive income and accumulate these in a separate component of equity; and

(b) on disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation (including, if applicable, gains and losses on related hedges) from equity to profit or loss as part of the gain or loss on disposal.

However, a first-time adopter need not comply with these requirements for cumulative translation differences that existed at the date of transition to Ind-ASs. If a first-time adopter uses this exemption: (a) the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Ind-ASs; and

(b) the gain or loss on a subsequent disposal of any foreign operation shall exclude translation differences that arose before the date of transition to Ind-ASs and shall include later translation differences.

Investments in subsidiaries, jointly controlled entities and associates

When an entity prepares separate financial statements, AS 21 (Revised 20XX) requires it to account for its investments in subsidiaries, jointly controlled entities and associates either: (a) at cost; or

(b) in accordance with AS 30 (Revised 20XX).

If a first-time adopter measures such an investment at cost in accordance with AS 21 (Revised 20XX), it shall measure that investment at one of the following amounts in its separate opening Ind-AS Balance Sheet:

(a) cost determined in accordance with AS 21 (Revised 20XX); or

(b) deemed cost. The deemed cost of such an investment shall be its:

(i) fair value (determined in accordance with AS 30 (Revised 20XX)) at the entity’s date of transition to Ind-ASs in its separate financial statements; or (ii) previous GAAP carrying amount at that date.

A first-time adopter may choose either (i) or (ii) above to measure its investment in each subsidiary, jointly controlled entity or associate that it elects to measure using a deemed cost.

Assets and liabilities of subsidiaries, associates and joint ventures

If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall, in its financial statements, measure its assets and liabilities at either: (a) the carrying amounts that would be included in the parent’s consolidated financial statements, based on the parent’s date of transition to Ind-ASs, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary; or (b) the carrying amounts required by the rest of this Ind-AS, based on the subsidiary’s date of transition to Ind-ASs. These carrying amounts could differ from those described in (a):

(i) when the exemptions in this Ind-AS result in measurements that depend on the date of transition to Ind-ASs.

(ii) when the accounting policies used in the subsidiary’s financial statements differ from those in the consolidated financial statements. For example, the subsidiary may use as its accounting policy the cost model in AS 16 (Revised 20XX) Property, Plant and Equipment, whereas the group may use the revaluation model. A similar election is available to an associate or joint venture that becomes a firsttime adopter later than an entity that has significant influence or joint control over it. However, if an entity becomes a first-time adopter later than its subsidiary (or

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide associate or joint venture) the entity shall, in its consolidated financial statements, measure the assets and liabilities of the subsidiary (or associate or joint venture) at the same carrying amounts as in the financial statements of the subsidiary (or associate or joint venture), after adjusting for consolidation and equity accounting adjustments and for the effects of the business combination in which the entity acquired the subsidiary. Similarly, if a parent becomes a first-time adopter for its separate financial statements earlier or later than for its consolidated financial statements, it shall measure its assets and liabilities at the same amounts in both financial statements, except for consolidation adjustments.

Compound financial instruments

AS 31(Revised 20XX) Financial Instruments: Presentation requires an entity to split a compound financial instrument at inception into separate liability and equity components. If the liability component is no longer outstanding, retrospective application of AS 31(Revised 20XX) involves separating two portions of equity. The first portion is in retained earnings and represents the cumulative interest accreted on the liability component. The other portion represents the original equity component. However, in accordance with this Ind-AS, a first-time adopter need not separate these two portions if the liability component is no longer outstanding at the date of transition to Ind-ASs.

Designation of previously recognised financial instruments

AS 30 (Revised 20XX) permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provided it meets certain criteria) to be designated as a financial asset or financial liability at fair value through profit or loss. Despite this requirement exceptions apply in the following circumstances:

(a) an entity is permitted to make an available-for-sale designation at the date of transition to Ind-ASs. 47

(b) an entity is permitted to designate, at the date of transition to Ind-ASs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria as per AS 30 (Revised 20XX) at that date.

If it is impracticable (as defined in AS 5) for an entity to apply retrospectively the effective interest method or the impairment requirements in paragraphs 58–65 and AG84–AG93 of AS 30 (Revised 20XX), the fair value of the financial asset at the date of transition to IFRSs shall be the new amortised cost of that financial asset at the date of transition to IFRSs.

Fair value measurement of financial assets or financial liabilities at initial recognition Notwithstanding the requirements of paragraphs 7 and 9, an entity may apply the requirements in the last sentence of AS 30 (Revised 20XX) paragraph AG76 and in paragraph AG76A, prospectively to transactions entered into after financial years beginning on or after date of transition to Ind-ASs

Decommissioning liabilities included in the cost of property, plant and equipment Appendix ‘A’ to AS 10 (Revised 20XX) Changes in Existing Decommissioning, Restoration and Similar Liabilities requires specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. A first-time adopter need not comply with these requirements for changes in such liabilities that occurred before the date of transition to Ind-ASs. If a first-time adopter uses this exemption, it shall: (a) measure the liability as at the date of transition to Ind-ASs in accordance with AS 29 (Revised 20XX);

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (b) to the extent that the liability is within the scope of Appendix A of AS 10 (Revised 20XX), estimate the amount that would have been included in the cost of the related asset when the liability first arose, by discounting the liability to that date using its best estimate of the historical risk-adjusted discount rate(s) that would have applied for that liability over the intervening period; and (c) calculate the accumulated depreciation on that amount, as at the date of transition to Ind-ASs, on the basis of the current estimate of the useful life of the asset, using the depreciation policy adopted by the entity in accordance with IndASs. An entity that uses the exemption in paragraph D8A(b) (for oil and gas assets in the development or production phases accounted for in cost centres that include all properties in a large geographical area under previous GAAP) shall, instead of applying paragraph D21 or Appendix A of AS 10 (Revised 20XX):

(a) measure decommissioning, restoration and similar liabilities as at the date of transition to Ind-ASs in accordance with AS 29 (Revised 20XX); and (b) recognise directly in retained earnings any difference between that amount and the carrying amount of those liabilities at the date of transition to Ind-ASs determined under the entityâ&#x20AC;&#x2122;s previous GAAP.

Financial assets or intangible assets accounted for in accordance with Appendix A to AS 7 (Revised 20XX)

A first-time adopter may apply the following provisions while applying the Appendix A to AS 7 (Revised 20XX):

i) Subject to paragraph (ii), changes in accounting policies are accounted for in accordance with AS 5 (Revised 20XX), i.e. retrospectively.

ii) If, for any particular service arrangement, it is impracticable for an operator to apply this Appendix retrospectively at the date of transition, it shall:

(a) recognise financial assets and intangible assets that existed at the date of transition;

(b) use the previous carrying amounts of those financial and intangible assets (however previously classified) as their carrying amounts as at that date; and

iii) There are two aspects to retrospective determination: reclassification and remeasurement. It will usually be practicable to determine retrospectively the appropriate classification of all amounts previously included in an operator's balance sheet, but that retrospective remeasurement of service arrangement assets might not always be practicable. However, the fact should be disclosed.

Transfers of assets from customers

A first time adopter shall apply Appendix D of AS 9 (Revised 20XX) prospectively to transfers of assets from customers received on or after the date of transition to Ind-AS, Earlier application is permitted provided the valuations and other information needed to apply Appendix D of AS 9 (Revised 20XX) to past transfers were obtained at the time those transfers occurred. An entity shall disclose the date from which the Appendix D of AS 9 (Revised 20XX) was applied.

Extinguishing financial liabilities with equity instruments

A first-time adopter may apply Appendix E of AS 30 (Revised 20XX) Extinguishing Financial Liabilities with Equity Instruments from the date of transition to Ind-AS.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

Non-current assets held for sale and discontinued operations AS 24 (Revised 20XX) requires non-current assets (or disposal groups) that meet the criteria to be classified as held for sale, non-current assets (or disposal groups) that are held for distribution to owners and operations that meet the criteria to be classified as discontinued and carry it at lower of its carrying amount and fair value less cost to sell on the initial date of such identification. A first time adopter can: (a) measure such assets or operations at the lower of carrying value and fair value less cost to sell as at the date of transition to Ind-ASs in accordance with AS 24 (Revised 20XX); and (b) recognise directly in retained earnings any difference between that amount and the carrying amount of those assets at the date of transition to Ind-ASs determined under the entityâ&#x20AC;&#x2122;s previous GAAP.

7. Application Guidance

1. ESTIMATES Situation Entity Aâ&#x20AC;&#x2122;s first Ind-AS financial statements are for a period that ends on 31 March 2012. In its previous GAAP financial statements for 31 March 2011, entity A: (a) made estimates of accrued expenses and provisions at those dates; (b) accounted on a cash basis for a defined benefit pension plan; and

(c) did not recognise a provision for a court case arising from events that occurred in December 2010. When the court case was concluded on 30 June 2011, entity A was required to pay Rs,1,000* and paid this on 10 July 2011.

In preparing its first Ind-AS financial statements, entity A concludes that its estimates in accordance with previous GAAP of accrued expenses and provisions at 31 March 2011 were made on a basis consistent with its accounting policies in accordance with Ind-ASs. Although some of the accruals and provisions turned out to be overestimates and others to be underestimates, entity A concludes that its estimates were reasonable and that, therefore, no error had occurred. As a result, accounting for those overestimates and underestimates involves the routine adjustment of estimates in accordance with AS 5 (Revised 20XX).

Solution

In preparing its opening Ind-AS Balance Sheet at April 1, 2011, entity A:

(a) does not adjust the previous estimates for accrued expenses and provisions; and

IND-AS 41 – First Time Adoption: A Guide (b) makes estimates (in the form of actuarial assumptions) necessary to account for the pension plan in accordance with AS 15 Employee Benefits. Entity A’s actuarial assumptions at April 1, 2011 do not reflect conditions that arose after those dates. For example, entity A’s: (i) discount rates at March 31, 2011 for the pension plan and for provisions reflect market conditions at those dates; and (ii) actuarial assumptions at March 31, 2011 about future employee turnover rates do not reflect conditions that arose after those dates—such as a significant increase in estimated employee turnover rates as a result of a curtailment of the pension plan in 2011-12.

The treatment of the court case at 31 March 2011 depends on the reason why entity A did not recognise a provision in accordance with previous GAAP at that date.

Assumption 1 –Previous GAAP was consistent with AS 29 (Revised 20XX) Provisions, Contingent Liabilities and Contingent Assets. Entity A concluded that the recognition criteria were not met. In this case, entity A’s assumptions in accordance with Ind-ASs are consistent with its assumptions in accordance with previous GAAP. Therefore, entity A does not recognise a provision at 31 March 2011. Assumption 2 – Previous GAAP was not consistent with AS 29 (Revised 20XX). Therefore, entity A develops estimates in accordance with AS 29 (Revised 20XX). Under AS 29 (Revised 20XX), an entity determines whether an obligation exists at the end of the reporting period by taking account of all available evidence, including any additional evidence provided by events after the reporting period. Similarly, in accordance with AS 4 (Revised 20XX) Events after the Reporting Period, the resolution of a court case after the reporting period is an adjusting event after the reporting period if it confirms that the entity had a present obligation at that date. In this instance, the resolution of the court case confirms that entity A had a liability in December 31, 2010 (when the events occurred that gave rise to the court case). Therefore, entity A recognises a provision at 31 March 2011. Entity A measures that provision by discounting the Rs 1,000 paid on 10 September 2011 to its present value, using a discount rate that complies with AS 29 (Revised 20XX) and reflects market conditions at 31 March 2011.

2. BUSINESS COMBINATIONS Situation Entity Bâ&#x20AC;&#x2122;s first Ind-AS financial statements are for a period that ends on 31 March 2012.and has elected not to provide comparative information for the year ending 31 March, 2011 under Ind-AS On 1 July 2010, entity B acquired 100 per cent of subsidiary C. In accordance with its previous GAAP, entity B: (a) classified the business combination as an acquisition by entity B.

(b) measured the assets acquired and liabilities assumed at the following amounts in accordance with previous GAAP at 1 April 2011 (date of transition to Ind-ASs):

(i) identifiable assets less liabilities for which Ind-ASs require cost-based measurement at a date after the business combination: Rs 200 (with a tax base of Rs150 and an applicable tax rate of 30 per cent).

(ii) pension liability (for which the present value of the defined benefit obligation measured in accordance with AS 15 (Revised 20XX) Employee Benefits is Rs 130 and the fair value of plan assets is Rs100): nil (because entity B used a pay-as-you-go cash method of accounting for pensions in accordance with its previous GAAP). The tax base of the pension liability is also nil. (iii) goodwill: Rs180.

(c) did not, at the acquisition date, recognise deferred tax arising from temporary differences associated with the identifiable assets acquired and liabilities assumed

Solution

In its opening (consolidated) Ind-AS Balance Sheet, entity B:

(a) classifies the business combination as an acquisition by entity B even if the business combination would have qualified in accordance with Ind-AS 3 as a reverse acquisition by subsidiary C (paragraph C4(a) of this Ind-AS).

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (b) does not adjust the accumulated amortisation of goodwill. Entity B tests the goodwill for impairment in accordance with AS 28 (Revised 20XX) Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Ind-ASs. If no impairment exists, the carrying amount of the goodwill remains at Rs 180 (paragraph C4(g) of this Ind-AS). (c) for those net identifiable assets acquired for which Ind-ASs require cost-based measurement at a date after the business combination, treats their carrying amount in accordance with previous GAAP immediately after the business combination as their deemed cost at that date (paragraph C4(e) of this Ind-AS).

(d) does not restate the accumulated depreciation and amortisation of the net identifiable assets in (c), unless the depreciation methods and rates in accordance with previous GAAP result in amounts that differ materially from those required in accordance with Ind-ASs (for example, if they were adopted solely for tax purposes and do not reflect a reasonable estimate of the assetâ&#x20AC;&#x2122;s useful life in accordance with Ind-ASs). If no such restatement is made, the carrying amount of those assets in the opening Ind-AS Balance Sheet equals their carrying amount in accordance with previous GAAP at the date of transition to Ind-ASs (Rs 200) if there is any indication that identifiable assets are impaired, tests those assets for impairment, based on conditions that existed at the date of transition to Ind-ASs (see AS 28 (Revised 20XX)).

(f) recognises the pension liability, and measures it, at the present value of the defined benefit obligation (Rs130) less the fair value of the plan assets (Rs 100), giving a carrying amount of Rs 30, with a corresponding debit of Rs 30 to retained earnings (paragraph C4(d) of this Ind-AS). However, if subsidiary C had already adopted Ind-ASs in an earlier period, entity B would measure the pension liability at the same amount as in subsidiary Câ&#x20AC;&#x2122;s financial statements (paragraph D17 of this Ind-AS and IG Example 9). (g) recognises a net deferred tax liability of Rs 6 (Rs 20 at 30 per cent) arising from:

(i)the taxable temporary difference of Rs 50 (Rs 200 less Rs 150) associated with the identifiable assets acquired and non-pension liabilities assumed, less (ii) the deductible temporary difference of Rs 30 (Rs 30 less nil) associated with the pension liability.

The entity recognises the resulting increase in the deferred tax liability as a deduction from retained earnings (paragraph C4(k) of this Ind-AS). If a taxable temporary difference arises from the initial recognition of the goodwill, entity B does not recognise the resulting deferred tax liability (paragraph 15(a) of AS 22 (Revised 20XX) Income Taxes).

Situation

Entity Dâ&#x20AC;&#x2122;s first Ind-AS financial statements are for a period that ends on 31 March 2012 and has elected not to provide comparative information for the year ending 31 March, 2011 under Ind-AS. On 1 January 2011, entity D acquired 100 per cent of subsidiary E. In accordance with its previous GAAP, entity D recognised an (undiscounted) restructuring provision of Rs 100 that would not have qualified as an identifiable liability in accordance with AS XX (Revised 20XX) . The recognition of this restructuring provision increased goodwill by Rs100. At 31 March 2011 (date of transition to Ind-ASs ), entity D:

(a) had paid restructuring costs of Rs 60; and

(b) estimated that it would pay further costs of Rs 40 in 2011-12 and that the effects of discounting were immaterial. At 31 March 2011 , those further costs did not qualify for recognition as a provision in accordance with AS 29 (Revised 20XX) Provisions, Contingent Liabilities and Contingent Assets.

Solution In its opening Ind-AS Balance Sheet, entity D:

(a) does not recognise a restructuring provision (paragraph C4(c) of this Ind-AS).

(b) does not adjust the amount assigned to goodwill. However, entity D tests the goodwill for impairment in accordance with AS 28 (Revised 20XX) Impairment of Assets, and recognises any resulting impairment loss (paragraph C4(g) of this Ind-AS ).

(c) as a result of (a) and (b), reports retained earnings in its opening Ind-AS Balance Sheet that are higher by Rs 40 (before income taxes, and before recognising any impairment loss) than in the Balance Sheet at the same date in accordance with previous GAAP

IND-AS 41 – First Time Adoption: A Guide

Situation Entity F’s first Ind-AS financial statements are for a period that ends on 31 March 2012 and has elected not to provide comparative information for the year ending 31 March, 2011 under Ind-AS. On 1 October 2009entity F acquired 75 per cent of subsidiary G. In accordance with its previous GAAP, entity F assigned an initial carrying amount of Rs 200 to intangible assets that would not have qualified for recognition in accordance with AS 26 (Revised 20XX) Intangible Assets. The tax base of the intangible assets was nil, giving rise to a deferred tax liability (at 30 per cent) of Rs 60.

On 31 March 2011 (the date of transition to Ind-ASs) the carrying amount of the intangible assets in accordance with previous GAAP was Rs 160, and the carrying amount of the related deferred tax liability was Rs 48 (30 per cent of Rs 160).

Solution

Because the intangible assets do not qualify for recognition as separate assets in accordance with AS 26 (Revised 20XX), entity F transfers them to goodwill, together with the related deferred tax liability (Rs 48) and non-controlling interests (paragraph C4(g)(i) of this Ind-AS). The related non-controlling interests amount to Rs 28 (25 per cent of [Rs 160 –Rs 48 = Rs 112]). Thus, the increase in goodwill is Rs 84—intangible assets (Rs 160) less deferred tax liability (Rs 48) less non-controlling interests (Rs 28). Entity F tests the goodwill for impairment in accordance with AS 28 (Revised 20XX) Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Ind-ASs (paragraph C4(g)(ii) of this Ind-AS).

Situation

Entity H acquired a subsidiary before the date of transition to Ind-ASs. In accordance with its previous GAAP, entity H: (a) recognised goodwill as an immediate deduction from equity;

(b) recognised an intangible asset of the subsidiary that does not qualify for recognition as an asset in accordance with AS 26 (Revised 20XX) Intangible Assets; and

(c) did not recognise an intangible asset of the subsidiary that would qualify in accordance with AS 26 (Revised 20XX) for recognition as an asset in the financial statements of the subsidiary. The subsidiary held the asset at the date of its acquisition by entity H.

Solution

In its opening Ind-AS Balance Sheet, entity H:

(a) does not recognise the goodwill, as it did not recognise the goodwill as an asset in accordance with previous GAAP (paragraph C4(g)–(i) of this Ind-AS).

(b) does not recognise the intangible asset that does not qualify for recognition as an asset in accordance with AS 26 (Revised 20XX). Because entity H deducted goodwill from equity in accordance with its previous GAAP, the elimination of this intangible asset reduces retained earnings (paragraph C4(c)(ii) of this Ind-AS).

(c) recognises the intangible asset that qualifies in accordance with AS 26 (Revised 20XX) for recognition as an asset in the financial statements of the subsidiary, even though the amount assigned to it in accordance with previous GAAP in entity H’s consolidated financial statements was nil (paragraph C4(f) of this Ind-AS). The recognition criteria in AS 26 (Revised 20XX) include the availability of a reliable measurement of cost (paragraphs IG45–IG48) and entity H measures the asset at cost less accumulated depreciation and less any impairment losses identified in accordance with AS 28 (Revised 20XX)Impairment of Assets. Because entity H deducted goodwill from equity in accordance with its previous GAAP, the recognition of this intangible asset increases retained earnings (paragraph C4(c)(ii) of this Ind-AS). However, if this intangible asset had been subsumed in goodwill recognised as an asset in accordance with previous GAAP, entity H would have decreased the carrying amount of that goodwill accordingly (and, if applicable, adjusted deferred tax and non-controlling interests) (paragraph C4(g)(i) of this Ind-AS).

Situation

Parent J’s date of transition to Ind-ASs is 1 April 2011. In accordance with its previous GAAP, parent J did not consolidate its 75 per cent subsidiary K, acquired in a business combination on 15 October 2009. On 1 April 2011:

IND-AS 41 – First Time Adoption: A Guide (a) the cost of parent J’s investment in subsidiary K is Rs 180.

(b) in accordance with Ind-ASs, subsidiary K would measure its assets at Rs 500 and its liabilities (including deferred tax in accordance with AS 22 (Revised 20XX)Income Taxes) at Rs 300. On this basis, subsidiary K’s net assets are Rs 200 in accordance with Ind-ASs.

Solution

Parent J consolidates subsidiary K. The consolidated Balance Sheet at 1 April 2011 includes: (a) subsidiary K’s assets at Rs 500 and liabilities at Rs 300;

(b) non-controlling interests of Rs 50 (25 per cent of [Rs 500 –Rs 300]); and

(c) goodwill of Rs 30 (cost of Rs180 less 75 per cent of [Rs 500 –Rs 300]) (paragraph C4(j) of this Ind-AS). Parent J tests the goodwill for impairment in accordance with AS 28 (Revised 20XX) Impairment of Assets and recognises any resulting impairment loss, based on conditions that existed at the date of transition to Ind-ASs (paragraph C4(g)(ii) of this Ind-AS).

Situation

Parent L’s date of transition to Ind-ASs is 1 April 2011. Parent L acquired subsidiary M on 15 April 2009 and did not capitalise subsidiary M’s finance leases. If subsidiary M prepared financial statements in accordance with Ind-ASs, it would recognise finance lease obligations of 300 and leased assets of 250 at 1 April 2011..

Solution

In its consolidated opening Ind-AS Balance Sheet, parent L recognises finance lease obligations of Rs 300 and leased assets of Rs 250, and charges Rs 50 to retained earnings (paragraph C4(f)).

Situation Parent N presents its (consolidated) first Ind-AS financial statements for the year ended March 31, 2012. Its foreign subsidiary O, wholly owned by parent N since formation, prepares information in accordance with Ind-ASs for internal consolidation purposes from that date, but subsidiary O does not present its first Ind-AS financial statements until March 31, 2014

Solution

If subsidiary O applies paragraph D16(a) of this Ind-AS, the carrying amounts of its assets and liabilities are the same in both its opening Ind-AS Balance Sheet at 1 April 2014 and parent N’s consolidated Balance Sheet (except for adjustments for consolidation procedures) and are based on parent N’s date of transition to Ind-ASs.

Alternatively, subsidiary O may, in accordance with paragraph D16(b) of this Ind-AS, measure all its assets or liabilities based on its own date of transition to Ind-ASs (1 April 1, 2014). However, the fact that subsidiary O becomes a first-time adopter in 2014-15 does not change the carrying amounts of its assets and liabilities in parent N’s consolidated financial statements

Situation

Parent P presents its (consolidated) first Ind-AS financial statements in 2013-14. Its foreign subsidiary Q, wholly owned by parent P since formation, presented its first Ind-AS financial statements in 2011-12. Until 2013-2014, subsidiary Q prepared information for internal consolidation purposes in accordance with parent P’s previous GAAP.

Solution

The carrying amounts of subsidiary Q’s assets and liabilities at 1 April 2013 are the same in both parent P’s (consolidated) opening Ind-AS Balance Sheet and subsidiary Q’s financial statements (except for adjustments for consolidation procedures) and are based on subsidiary Q’s date of transition to Ind-ASs. The fact that parent P becomes a first-time adopter in 2013-14 does not change those carrying amounts (paragraph D17 of this IndAS).

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

Situation Entity Râ&#x20AC;&#x2122;s first Ind-AS financial statements are for a period that ends on 31 March 2012, and its first interim financial report in accordance with AS 25 (Revised 20XX) is for the quarter ended 30 June 2011. Entity R prepared previous GAAP annual financial statements for the year ended 31 March 2011, and prepared quarterly reports throughout 2010-11 .

Solution

In each quarterly interim financial report for 2011-12, entity R includes reconciliations of:

a) its equity reported in accordance with previous GAAP to its equity in accordance with Ind-ASs on the date of transition to Ind-ASs; and

b) its total comprehensive income (or, if it did not report such a total, profit or loss) in accordance with previous GAAP and the total comprehensive income in accordance with Ind-AS as at the end of June 30, 2011 assuming the previous GAAP would have continued to be applied for those periods. However, where an entity has decided to present the comparative financial information in accordance with Ind-AS then it shall additionally provide (i) reconciliation with equity in accordance with previous GAAP at the end of the comparable quarter i.e. 30 June, 2010, and (ii) reconciliation to its total comprehensive income prepared in accordance with Ind-AS with the previous GAAP for the comparable quarter i.e. for the quarter ending 30 June, 2010

Each of the above reconciliations gives sufficient detail to enable users to understand the material adjustments to the Balance Sheet and statement of comprehensive income. Entity R also explains the material adjustments to the statement of cash flows. If entity R becomes aware of errors made in accordance with previous GAAP, the reconciliations distinguish the correction of those errors from changes in accounting policies.

If entity R did not, in its most recent annual financial statements in accordance with previous GAAP, disclose information material to an understanding of the current interim period, its interim financial reports for 2011-12 disclose that information or include a cross-reference to another published document that includes it.

Situation An entity’s first Ind-AS financial statements are for a period that ends on 31 March 2012 and with transition date of 1 April, 2011.

The entity acquired an energy plant on 1 April 2008, with a life of 40 years. As at the date of transition to Ind-ASs, the entity estimates the decommissioning cost in 37 years’ time to be Rs 470, and estimates that the appropriate risk-adjusted discount rate for the liability is 5 per cent. It judges that the appropriate discount rate has not changed since 1 April 2008.

Solution

The decommissioning liability recognised at the transition date is Rs 77 (Rs 470 discounted for 37 years at 5 per cent). Discounting this liability back for a further three years to 1 April 2008 gives an estimated liability at acquisition, to be included in the cost of the asset, of Rs 67. Accumulated depreciation on the asset is Rs 67 × 3/40 = Rs 5. The amounts recognised in the opening Ind-AS Balance Sheet on the date of transition to Ind-ASs (1April,2011) are, in summary

Decommissioning Cost……………………….67

Accumulated Depreciation………………….. (5)

Decommissioning Liability………………… (77)

Net Assets/Retained earnings………………. (15)

Situation

An entity’s first Ind-AS financial statements are for a period that ends on 31 March 2012. Its date of transition to Ind-ASs is therefore 1 April 2011.

On 1 April 2010 the entity entered into a take-or-pay arrangement to supply gas.

On 1 April 2011, there was a change in the contractual terms of the arrangement

IND-AS 41 – First Time Adoption: A Guide

Solution On 1 April 2011 the entity may determine whether the arrangement contains a lease by applying the criteria in paragraphs 6–9 of Appendix C to AS 19 (Revised 20XX) on the basis of facts and circumstances existing on that date. Alternatively, the entity applies those criteria on the basis of facts and circumstances existing on 1 April 2010 and reassesses the arrangement on 1 April 2011. If the arrangement is determined to contain a lease, the entity follows the guidance in paragraphs IG14–IG16

8. Comparative Information

One of the key requirements of IFRS is that comparative information too should be restated as per IFRS norms. For instance, if an entity has chosen 31st March 2011 as its first IFRS financial statements, the financial statements for the comparative period 31st March 2010 too should be IFRS-compliant. Ind-AS 41 has chosen to give an option to first-time adopters as follows: 1) the entity need not provide comparative financial statements for the corresponding previous period. For example, under this Ind-AS, the first time adopter for whom the first reporting period is financial statements for the year ending March 31, 2012 would only provide two Balance Sheets(including two statements of changes in equity annexed thereto) i.e. April 1, 2011 and March 31, 2012 and one statement of profit and loss, one statement of cash flows and related notes for the financial year ending March 31, 2012

2) Voluntarily provide one year comparative information for the corresponding previous period. For example, under this Ind-AS, the first time adopter for whom the first reporting period is financial statements for the year ending March 31, 2012 would provide three Balance Sheets(including two statements of changes in equity annexed thereto) i.e. April 1, 2010 (the transition date), April 1, 2011 and March 31, 2012 and two statements of profit and loss , two statements of cash flows and and related notes i.e. for the financial year ending March 31, 2012 and for the corresponding comparative period.

The Standard also clarifies that Some entities present historical summaries of selected data for periods before the first period for which they present full comparative information in accordance with Ind-ASs. This Ind-AS does not require such summaries to comply with the recognition and measurement requirements of Ind-ASs. Furthermore, some entities present comparative information in accordance with previous GAAP as well as the comparative information required by AS 1(Revised 20XX). In any financial statements containing historical summaries or comparative information in accordance with previous GAAP, an entity shall:

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (a) label the previous GAAP information prominently as not being prepared in accordance with Ind-ASs; and (b) disclose the nature of the main adjustments that would make it comply with Ind-ASs. An entity need not quantify those adjustments

If an entity did not present financial statements for previous periods, its first IFRS Ind-AS financial statements shall disclose that fact.

Would it amount to compliance with IFRS?

A debate has arisen whether choosing the option for comparatives above would amount to compliance with IFRS. IFRS standards emphasise the need for entities to make an explicit

and unreserved statement of compliance with IFRS. Not providing comparatives would not amount to explicit and unreserved compliance with IFRS. However, if the Companies Act accepts Ind-AS 41 as a Standard, it could be concluded that there will be compliance with Ind-AS. However, there could be issues for subsidiaries of foreign companies who follow Ind-AS and the principal follows IFRS. It appears that it would be practical to provide comparatives as per IFRS.

Reconciliations and Disclosures

The Standard states that:

An entityâ&#x20AC;&#x2122;s first Ind-AS financial statements shall include:

(a) reconciliations of its equity reported in accordance with previous GAAP to its equity in accordance with Ind-ASs on the date of transition to Ind-ASs

(b) reconciliation to its total comprehensive income (i.e., sum of the profit or loss for the period and other comprehensive income). in accordance with Ind-AS and the equity as at the end of first Ind-AS financial statements assuming the previous GAAP would have continued to be applied for those periods. For example, the first time adopter for whom the first reporting period is financial statements for the year ending March 31, 2012 would provide a reconciliation explaining the impact on the comprehensive income for the year ending on that date and on the equity as at March 31, 2012 arising from adoption of the Ind-AS. For this purpose, the first time adopter assumes that the previous GAAP would have continued to be applied for the same period. (c) if the entity recognised or reversed any impairment losses for the first-time in preparing its opening Ind-AS Balance Sheet, the disclosures that AS 28 (Revised 20XX) Impairment of Assets would have required if the entity had recognised those impairment losses or reversals in the period beginning with the date of transition to Ind-ASs.

(d) where however, an entity decides to provide one year comparative period in accordance with Ind-AS then in addition to the above disclosures such an entity shall provide (a) balance sheet as at the end of the latest period presented in the entityâ&#x20AC;&#x2122;s most recent annual financial statements in accordance with previous GAAP and (b) provide the reconciliation of total comprehensive income(i.e. sum of the profit or loss for the period and other comprehensive income) for the corresponding previous year.

The reconciliations required by paragraph 24(a),(b) and (d) shall give sufficient detail to enable users to understand the material adjustments to the Balance Sheet and statement of profit and loss If an entity presented a statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the statement of cash flows.

IND-AS 41 – First Time Adoption: A Guide If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 24(a),(b) and (d) shall distinguish the correction of those errors from changes in accounting policies.

AS 5 (Revised 20XX) does not deal with changes in accounting policies that occur when an entity first adopts Ind-ASs. Therefore, AS 5 (Revised 20XX)’s requirements for disclosures about changes in accounting policies do not apply in an entity’s first Ind-AS financial statements except to the extent required in 24(b). If an entity did not present financial statements for previous periods, its first IFRS Ind-AS financial statements shall disclose that fact.

SPECIFIC DISCLOSURES •

An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or a financial asset as available for sale in accordance with paragraph D19. The entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements

• If an entity uses fair value in its opening Ind-AS Balance Sheet as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset (see paragraphs D5 and D7), the entity’s first Ind-AS financial statements shall disclose, for each line item in the opening Ind-AS Balance Sheet: (a) the aggregate of those fair values; and

(b) the aggregate adjustment to the carrying amounts reported under

previous GAAP

• if an entity uses a deemed cost in its opening Ind-AS Balance Sheet for an investment in a subsidiary, jointly controlled entity or associate in its separate financial statements (see paragraph D15), the entity’s first Ind-AS separate financial statements shall disclose:

(a)the aggregate deemed cost of those investments for which deemed cost is their previous GAAP carrying amount;

(b) the aggregate deemed cost of those investments for which deemed cost is fair value; and (c) the aggregate adjustment to the carrying amounts reported under previous GAAP

•

If an entity uses the exemption in paragraph D8A(b) for oil and gas assets, it shall disclose that fact and the basis on which carrying amounts determined under previous GAAP were allocated • if an entity presents an interim financial report in accordance with AS 25 (Revised 20XX) for part of the period covered by its first Ind-AS financial statements, the entity shall, in addition to the requirements of AS 25 (Revised 20XX), include the reconciliations described in paragraph 24(a) and (b) (supplemented by the details required by paragraphs 25 and 26) or a cross-reference to another published document that includes these reconciliations. However, where an entity decides to present comparative information in those financial statements for one year (see paragraph 21), then each such interim report shall additionally include: (i) a reconciliation of its equity in accordance with previous GAAP at the end of that comparable interim period to its equity under Ind-AS at that date; and

a reconciliation to its total comprehensive income in accordance with Ind-ASs for that comparable interim period (current and year to date). The starting point for that reconciliation shall be total comprehensive income in accordance with previous GAAP for that period or, if an entity did not report such a total, profit or loss in accordance with previous GAAP.

AS 25 (Revised 20XX) requires minimum disclosures, which are based on the assumption that users of the interim financial report also have access to the most recent annual financial statements. However, AS 25 (Revised 20XX) also requires an entity to disclose ‘any events or transactions that are material to an understanding of the current interim period’. Therefore, if a first-time adopter did not, in its most recent annual financial statements in accordance with previous GAAP, disclose information material to an understanding of the current interim period, its interim financial report shall disclose that information or include a cross-reference to another published document that includes it.

IND-AS 41 – First Time Adoption: A Guide

RECONCILIATION AND DISCLOSURES EXAMPLES EXAMPLE 1 – PROVIDED FOR IN IND-AS 41 RECONCILIATION OF EQUITY AS ON 1 APRIL 2011 Previous GAAP

Effect of

GAAP

transition

Ind-AS's

to Ind-As Notes 1

Property,Plant and Equipment

8299

100

8399

Goodwill

1220

150

1370

Intangible Assets

208

-150

Financial Assets

3471

420

3891

TOTAL NON-CURRENT ASSETS

13198

520

13718

Trade and Other Receivables

3710

Inventories

2962

400

3362

Other Receivables

333

431

764

Cash and Cash Equivalents

748

TOTAL CURRENT ASSETS

7753

831

8584

TOTAL ASSETS

20951

1351

22302 0

Interest-bearing Loans

9396

Trade and Other Payables

4124

Employee Benefits

Restructuring Provision

250

-250

Current Tax Liability

Deferred Tax Liability

579

460

1039

TOTAL LIABILITIES

14391

276

14667

Total Assets less Total Liabilities

6560

1075

7635

0 Issued Capital

1500

Other Reserves

294

5, 9

Retained Earnings

5060

781

5841 0

Total Equity

6560

1075

7635

NOTE THE RECONCILIATION TO EQUITY AT 1 APRIL 2011 1. Depreciation was influenced by tax requirements in accordance with previous GAAP but in accordance with Ind-Ass reflects the useful life of the assets. The cumulative adjustment increased the carrying amount of Property, Plant and Equipment by Rs 100/-.

2. Intangible Assets in accordance with previous GAAP included Rs 150/- for items that are transferred to goodwill because they do not qualify for recognition as Intangible Assets in accordance with Ind As’s.

3. Financial Assets are all classified as at available for sale in accordance with IndAS’s and are carried at their Fair Value of Rs 3891/-. They were carried at a cost of Rs 3471/- in accordance with previous GAAP. The resulting gains of Rs 294 ( Rs 420 less related Deferred tax of Rs 126) are included in Other Reserves.

4. Inventories include fixed and variable production overhead of Rs 400 in accordance with Ind-As;s but this overhead was excluded in accordance with previous GAAP.

5, Unrealised gains of Rs 431/- on unmatured foreign exchange contracts are recognized in accordance with Ind-As’s but were not recognized in accordance with previous GAAP. The resulting gains of Rs 302 ( Rs 431 less related Deferred tax of Rs 129) are included in the retained earnings.

IND-AS 41 – First Time Adoption: A Guide 6. A pension liability of Rs 66 is recognized in accordance with Ind-As’s but was not recognized in accordance with previous GAAP which used a cash basis.

7. A restructuring provision of Rs 250 relating to head office activities was recognized in accordance with previous GAAP but does not qualify for recognition as liability in accordance with Ind-As’s. 8. The above changes increased the Deferred tax liability as follows: Rs

Other Reserves ( Note 3) -- 126

Retained earnings -- 334 Total -- 460

Because the tax base as at 1 April 2011 of the items reclassified from Intangible Assets to goodwill ( note 2) equaled their carrying amount to date, it is assumed for the purposes of this illustration that the reclassification did not affect deferred tax liabilities. 9. The adjustments to retained earnings are as follows: Rs

Depreciation 100

Production Overhead 400 Pension Liability ( 66)

Restructuring provision 250 Unrealised gain on forward Contracts 431

Tax effect of the above (334)

Total adjustment to retained earnings 781 RECONCILIATION OF TOTAL COMPREHENSIVE INCOME FOR 201112

Note s

Revenu e 1,2,3 Cost of Sales , Gross Profit 1 Distribution Costs 1,4 Administrative Expenses 7 Forward Contract Finance Income Finance Costs Profit before tax 5 Tax Expense Profit/Loss for the year 6 Available for sale financial assets 8 Tax relating to other comprehensive income Other Comprehensive Income Total Comprehensive Income

Previou s GAAP GAAP

Effect of

Ind-AS's

20910

5627 -1907 -2842 0 1446 -1902 422 -158 264 0

-97 -30 -300 -40 0 0 -467 140 -299 180

5530 -1937 -3142 -40 1446 -1902 -45 -18 -35 180 0 -60 120 147

-15283

0 0 264

transition to Ind-As

-97

-60 120 -179

-15380

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

1. A pension liability is recognised in accordance with Ind-AS, but was not to be recognised in accordance with previous GAAP. The pension liability increased by Rs. 130 during 2011-12, which caused increases in cost of sales (Rs 50), distribution costs (Rs 30) and administrative expenses (Rs 50). 2 Cost of sales is higher by Rs.47 in accordance with Ind-ASs because inventories include fixed and variable production overhead in accordance with Ind-ASs but not in accordance with previous GAAP. 3 Depreciation was influenced by tax requirements in accordance with previous GAAP, but reflects the useful life of the assets in accordance with Ind-ASs. The effect on the profit for 2011-12 was not material. 4 A restructuring provision of Rs 250 which was accounted in accordance with previous GAAP prior to transition date i.e April 1, 2011 in this example, but did not qualify for recognition in accordance with Ind-ASs until subsequent to the transition date. This increases administrative expenses for 2011-12 in accordance with Ind-ASs.

5 Deleted.

6 Available-for-sale financial assets carried at fair value in accordance with Ind-ASs increased in value by Rs 180 during 2011-12 . They were carried at cost in accordance with previous GAAP. Fair value changes have been included in other comprehensive income.. 7 The fair value of forward foreign exchange contracts decreased by Rs 40 during 2011-12 . 8 Adjustments 1-4 and 7 above lead to a reduction of Rs 140 in deferred tax expenses and adjustment 6 above lead to an increase of Rs 60 in deferred tax expense. Explanation of material adjustments to the statement of cash flows for 2011-12: Income taxes of Rs 133 paid during 2011-12 are classified as operating cash flows in accordance with Ind-ASs, but were included in a separate category of tax cash flows in accordance with previous GAAP. There are no other material differences between the statement of cash flows presented in accordance with Ind-ASs and the statement of cash flows presented in accordance with previous GAAP.

EXAMPLE 2- WIPRO LTD Transition to IFRS As stated in Note 2, the Company’s consolidated financial statements for the year ending March 31, 2010 would be the first annual consolidated financial statements prepared to comply with IFRS. All interim financial statements are also prepared in compliance with IFRS. The adoption of IFRS was carried out in accordance with IFRS 1, using April 1, 2008 (the

“Transition date”) as the transition date. The transition was carried out from Indian GAAP, which

was considered as the Previous GAAP. The effect of adopting IFRS has been summarized in the reconciliations provided below.

All applicable IFRS has been applied consistently and retrospectively, wherever, required. The resulting difference between the carrying amounts of the assets and liabilities in the consolidated financial statements under both IFRS and Indian GAAP as of the transition date are recognized directly in equity at the date of transition to IFRS.

In preparing these consolidated financial statements, the Company has availed itself of certain exemptions and exceptions in accordance with IFRS 1.

IND-AS 41 – First Time Adoption: A Guide Exceptions from retrospective application: (i) Business Combination Exemption The Company has applied the exemption as provided in IFRS 1 on non-application of IFRS 3, “Business Combinations” to business combinations consummated prior to the date of

Transition. Pursuant to this, exemption goodwill arising from business combination has been stated at the carrying amount under Previous GAAP. Further, intangible assets net of related

taxes, which were subsumed in goodwill under Previous GAAP were not recognized in the opening statement of financial position as at April 1, 2008 since these did not qualify for recognition in the separate statement of financial position of the acquired entities. The Company has adjusted goodwill relating to past business combinations, for contingent

consideration if it is probable that such consideration would be paid and can be measured reliably.

(ii) Share–based payment transaction exemption The Company has elected to apply the share based payment exemption available under IFRS 1

on application of IFRS 2,”Share Based Payment”, to only grants made after November 7, 2002 which remained unvested as of the Transition date. (iii) Borrowing costs

The Company had the policy of capitalizing borrowing costs under its Previous GAAP for all qualifying assets. Accordingly, the Company has capitalized borrowing cost in respect of

qualifying costs prior to the Transition date. However, there is a difference in the bases of

capitalizing such costs between IFRS and Previous GAAP, which has been recorded as a reconciling item as a part of the transition.

Exceptions from full retrospective application: (i) Hedge accounting exception The Company had followed hedge accounting under Previous GAAP which is aligned to IFRS. Accordingly, this exception of not reflecting in its opening IFRS statement of financial position

a hedging relationship of a type that does not qualify for hedge accounting under IAS 39, is not applicable to the Company. (ii) Estimates exception

Upon an assessment of the estimates made under Previous GAAP, the Company has concluded

that there was no necessity to revise such estimates under IFRS, except where estimates were required by IFRS and not required by Previous GAAP. Reconciliations:

The following reconciliations provide a quantification of the effect of the transition to IFRS from the

IND-AS 41 – First Time Adoption: A Guide Previous GAAP in accordance with IFRS 1 – equity as at April 1, 2008;

– equity as at September 30, 2008; – equity as at March 31, 2009;

– profit for the three months ended September 30, 2008; – profit for the six months ended September 30, 2008;

– profit for the year ended March 31, 2009; and

- explanation of material adjustments to cash flow statements.

RECONCILIATION OF EQUITY AS ON APRIL 1, 2008 Amt as per previous Goodwil l Property, Plant and Equipment and intangible Assets Available for sale financial assets Investment in equity accounted investees

GAAP

Effect of transiti on to ifrs

Amount as per

Relevant notes for adjustments

41583

-239

42635 41344

568 14679

42209

14679 1343

426 568

IFRS

1343

1,2

Invento ries Trade Receivables Unbilled Revenues Cash and cash equivalents Net tax assets ( including deferred taxes) Other Assets

6664

Share Capital and Share Premium Share Application money pending allotment Retained earnings Cash flow hedging reserve Other Reserves Total Equity

28296

TOTAL ASSETS

Minority Interest Loans and Borrowings, accrued expenses and liabilitie s Unearned revenues Employee benefit obligations Other Liabilities TOTAL LIABILITIES

TOTAL LIABILITIES AND EQUITY

40453 8514 39270 3632 13980

212327 40

87908 -1097 1807 116954 116 44850

-100 0 854

1399 2908 0

-40

6820 1851 8631 -116

28675

15379 0 215235 0 28296 94728 -1097 3658 125585 0 0 44850

2(a), 4, 9 10

3,7,11 11

4269

14726

-5607

212327

2908

95373

40453 8514 39270 4486

28675

4269 2737

6564

-5723

2737 9119

89650 215235

6,8,10,12

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

Notes:

1) Under IFRS, the amortization charge in respect of finite life intangible assets is recorded in proportion of economic benefits consumed during the period to the expected total economic benefits from the intangible asset. Under Previous GAAP, finite life intangible assets are amortized usually on a straight line basis over their useful life. As a result, the accumulated amortization under IFRS is lower by Rs 101 as at April 1, 2008.

2) Listed below are the key differences in property, plant and equipment between IFRS and Previous GAAP:

a) Under IFRS, leases of land are classified as operating leases unless the title to the leasehold land is expected to be transferred to the Company at the end of the lease term. Lease rentals paid n

advance and lease deposits are recognized as other assets. Under Previous GAAP, the lease

rentals paid in advance and lease deposits are recognized in property, plant and equipment. Under IFRS, Rs. 645 of such payments towards lease of land has been reclassified from property, plant and equipment to other assets. This adjustment has no impact on equity. b) Difference in the basis of interest capitalization between Previous GAAP and IFRS resulted in

higher interest capitalization by Rs 305 under IFRS, net of related depreciation impact.

3) Under IFRS, available for sale investments are measured at fair value at each reporting date. The changes in fair value of such investments, net of taxes, are recognized directly in equity. Under Previous GAAP, short-term investments are measured at lower of cost or fair value. Consequently, carrying value of the available for sale investments under IFRS is higher by Rs. 568 (tax effect Rs. 165). 4) Under IFRS an entity is required to allocate revenue to separately identifiable components of a

multiple deliverable customer arrangement. The revenue relating to these components are recognized when the appropriate revenue recognition criteria is met. Under IFRS, the Company has deferred revenues primarily relating to installation services. Under Previous GAAP, installation services are considered to be incidental / perfunctory to product delivery. Entire revenue is recognized, when the products are delivered in accordance with the contractual terms, and expected cost of installation services is also recognized.

Consequently, under IFRS the Company has deferred revenue of Rs. 100 and reversed Rs. 78 of cost accrued for installation services. The deferred revenues are recognized when the related installation services is performed.

5) Under IFRS, tax benefits from carry forward tax losses is recognized if it is probable that sufficient taxable profits would be available in the future to realize the tax benefits. Under Previous GAAP, deferred tax asset in respect of carry forward tax losses is recognized if it is virtually certain that sufficient future taxable income would be available in the future to realize the tax benefits. Further, Previous GAAP requires an entity to follow the income statement approach for recognizing deferred taxes, while IFRS mandates the balance sheet approach in recognizing deferred taxes. As a result, net deferred tax assets under IFRS are higher by Rs. 854. 6) Under Previous GAAP, liability is recognized in respect of proposed dividend, eventhough the dividend is expected to be approved by the shareholders subsequent to the reporting date. Under IFRS, liability for dividend is recognized only when it is approved by shareholders. Accordingly, provisions under IFRS is lower by Rs. 6,839. 7) The Company grants share options to its employees. These share options vest in a graded manner over the vesting period. Under IFRS, each tranche of vesting is treated as a separate award and the stock compensation expense relating to that tranche is amortized over the vesting period of the underlying tranche. This results in accelerated amortization of stock compensation expense in the initial years following the grant of share options. Previous GAAP permits an entity to recognize the stock compensation expense, relating to share options which vest in a graded manner, on a straight-line basis over the requisite vesting period for the entire award. However, the amount of compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date.

Accordingly, the stock compensation expense recognized under IFRS is higher by Rs. 1,332 as at

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide April 1, 2008 in respect of the unvested awards.

8) Under IFRS, contingent consideration relating to acquisitions is recognized if it is probable that such consideration would be paid and can be measured reliably. Under Previous GAAP, contingent consideration is recognized only after the contingency is resolved and additional consideration becomes payable. As a result, under IFRS, the Company has recognized Rs 426 of contingent consideration as additional goodwill and liability. 9) Under IFRS, loans and receivables are recognized at amortized cost. As a result, the carrying value of such loans and receivables under IFRS is lower by Rs. 154.

10) Indian tax laws, levies Fringe benefit Tax (FBT) on all stock options exercised on or after April 1, 2007. The Company has modified share options plan to recover FBT from the employees. Under IFRS 2, Share based payment, the FBT paid to the tax authorities is recorded as a liability over the period that the employee renders services. Recovery of the FBT from the employee is accounted as a reimbursement right under IAS 37, Provisions, contingent liabilities and contingent assets, as it is virtually certain that the Company will recover the FBT from the employee. Accordingly, under IFRS, the Company has recognized the reimbursement right as a separate asset, not to exceed the FBT liability recognized at each reporting period. Under Previous GAAP, FBT liability and the related FBT recovery from the employee is recorded at the time of exercise of stock option by the employee. Accordingly, under IFRS the Company has recognized Rs. 766 as provision and reimbursement right in respect of outstanding stock options. This adjustment has no impact on equity. 11) Under IFRS, minority interest is reported as a separate item within equity whereas Previous GAAP requires minority interest to be presented separately from equity. This presentation difference between IFRS and Previous GAAP has resulted in an increase in equity under IFRS by Rs.116 as at April 1, 2008.

12) Under IFRS, share application money pending allotment is reported under other liabilities where as Previous GAAP requires share application money pending allotment to be presented as a separate item within equity. This presentation difference between IFRS and Previous GAAP has resulted in an increase in equity under Previous GAAP by Rs. 40 as at April 1, 2008.

RECONCILIATION OF PROFIT Amt as per previous GAAP

Effect of transiti on to ifrs

Amount as per

Relevant notes for adjustments

Revenu es

65534

-51

65483

Cost of Revenues Gross Profit

-45947

Selling and Marketing Expenses General and Administrative Expenses Foreign Exchange gains(losses) net Results from operating activities

19407

-193

-4582

160

Finance and other income/expenses

Share of profits of equity invested investees Profit before tax Income tax expense Profit for the period

-3490 -281

-244 -24

11056

-110

301

-68

106

11463

-178

9803

-78

-1659

100

IFRS

0 -46140 0 19163 0 -4422 -3514 -281

1,2 5

1ÂŠ, 2,3,5 2,5

10946 0 233 0 106

11285 0 -1559 9725

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Attributable to Equity holders of the company Minority Interest

9781 22

0 9704 22

Notes:

1) The following are the primary differences in revenue between IFRS and Previous GAAP: a) Under Previous GAAP, revenue is reported net of excise duty charged to customers. Under

IFRS, revenue includes excise duty charged to customers. As a result, revenues and cost of revenues under IFRS is higher by Rs. 301.

b) Under IFRS, revenue relating to product installation services is recognized when the

installation services are performed. Under Previous GAAP, the entire revenue relating to the supply and installation of products is recognized when products are delivered in accordance with the terms of contract. Installation services are considered to be incidental / perfunctory

to product delivery and the cost of installation services is recognized upon delivery of the product. Accordingly, revenue and cost of revenue under IFRS is lower by Rs. 84 and Rs. 59, respectively.

c) Under IFRS, generally cash payments to customers pursuant to sales promotional activities

are considered as sales discounts and reduced from revenue. Under Previous GAAP, they are considered as cost of revenue and selling and marketing expense. As a result, under

IFRS, revenue is lower by Rs. 268 and cost of revenues and selling and marketing expenses

are lower by Rs. 81 and Rs. 187, respectively.

Under IFRS, the Company amortizes stock compensation expense, relating to share options, which vest in a graded manner, on an accelerated basis. Under Previous GAAP, the stock compensation expense is recorded on a straight-line basis. As a result, under IFRS the Company has recognized lower stock compensation expense for the quarter amounting to Rs. 1 in cost of revenue, Rs. 1 in selling and marketing expenses and Rs. 1 in general and administrative expenses. 3) Under IFRS, the amortization charge in respect of finite life intangible assets is recorded in the proportion of economic benefits consumed during the period to the expected total economic benefits from the intangible asset. Under Previous GAAP, such finite life intangible assets are amortized on a straight-line basis over the life of the asset.

Further, the Company recorded additional amortization in respect of customer related intangible arising out of business combination consummated subsequent to the Transition date. Accordingly, amortization under IFRS is higher by Rs. 2.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 4) This includes difference in the basis of capitalizing interest expense under IFRS and Previous GAAP.

5) Under Indian tax laws, the Company is required to pay Fringe Benefit Tax (FBT) on certain

expenses incurred by the Company. Under Previous GAAP, FBT is reported in the income statement as a separate component of income tax expense. Under IFRS, FBT does not meet the definition of income tax expense and is recognized in the related expense line items. Accordingly, the cost of revenue, selling and marketing expenses and general and administrative expenses under IFRS are higher by Rs. 33, Rs. 25 and Rs. 25, respectively. EXAMPLE 3- SOFTWARE AG

This company was one of the European companies to convert to IFRS. One can notice a difference in the reconciliation statement wherein the company has bifurcated the statement into differences between local GAAP and IFRS that affect recognition and measurement and those that affect classification. Though Ind-41 does not prescribe a particular format for preparation of the Reconciliation Statement, it is generally felt that this presentation gives a better picture of the differences that have arisen due to recognition, measurement and reclassification. This also serves as an representative example of an Ind-AS Opening Balance-Sheet. Accounting policies

Pursuant to IFRS 1, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) are applied retrospectively upon their initial adoption. Figures from previous periods are adjusted as if they were originally reported under IAS/IFRS. The application of new standards published as part of the International Accounting Standards Board Improvement Project in December 2003 was not compulsory until January 1, 2005. They have only been applied to these financial statements where explicitly stated in these notes. During fiscal 2004, new standards were published that come into force January 1, 2005 or later. Of these, Software AG chose to apply the provisions of IFRS 3 relating to the impairment testing of goodwill. Accounting and valuation rules that differ significantly from the German Commercial Code include:

• Goodwill is subject to regular impairment tests; no scheduled amortization is undertaken. • Securities available-for-sale are measured at fair value, even if this exceeds cost. Price gains or losses are excluded from income and recorded as other reserves in shareholders’ equity. • Derivatives are measured at market value, even if this exceeds cost. Price losses and gains are reported in the income statement. • Revenue of fixed price contracts is recognized according to the stage of completion. • Buildings are depreciated according to the anticipated useful life and not according to tax scales. • Leases that qualify as finance leases under the more restrictive IFRS requirements are reported under both assets and lease liabilities in the balance sheet. • Provisions are only created for obligations to third parties provided the probability of an outflow of resources is regarded as more likely to occur than not. Medium and long-term provisions are recorded at net present value. Provisions for neglected maintenance and other expense provisions are no longer created. • Pension provisions are calculated according to the projected unit credit method • Under IFRS deferred tax liabilities and deferred tax assets should be recognized for all temporary differences arising between taxable balance and trade balance; quasi-permanent differences are also classified as temporary. Deferred taxes are measured on the basis of tax rates expected to apply at the anticipated time of the reversal of the deferral – i.e. when the asset is realized or the liability settled – according to the legal situation prevailing in the individual countries at the time the financial statements are prepared. According to the provisions of the German Commercial Code only deferred tax assets and deferred tax liabilities related to consolidation measures are required to be recorded. Deferred taxes are thereby calculated based on tax rates applicable at the balance sheet date. Deferred taxes may not be recorded for quasi-permanent differences between amounts in the financial statements for tax purposes and the consolidated financial statements that will only be realized in the longer term or in the case of sale of an asset or liquidation. A deferred tax asset should be recognized for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilized. Under German accounting law, deferred tax assets for tax loss carry forwards were only permitted to be created starting in fiscal 2003

IND-AS 41 – First Time Adoption: A Guide pursuant to DRS 10. Deferred tax assets, netted against deferred tax liabilities that may be offset, increase by €38,060 thousand as of January 1, 2003. This is to a great degree the result of additional utilization of tax loss carry forwards, as well as the accounting and measurement of provisions. According to IFRS deferred tax liabilities of €17,006 thousand should be recorded; they pertain mainly to deferred taxes arising from deferred revenue and carrying amounts in property, plant and equipment

• Monetary items in foreign currency are measured at the rate applicable on the balance sheet date and recognized in net income for the period. Translation differences from long-term, intercompany monetary items that are part of a net investment in a foreign company constitute an exception to the above and are included in other reserves in shareholders’ equity without impacting income

Reconciliation of the Balance-Sheet from HGB to IFRS at January 1, 2003

Assets

Note

a. CURRENT ASSETS

Cash on Hand and Bank Balances Securities Inventories Trade Receivables Deferred Expenses Securities

1 1 2

b. NON-CURRENT ASSETS

Intangible Assets Goodwill Property, Plant and Equipment Financial Assets Trade Receivables Deferred Taxes Intangible Assets Liabilities

TOTAL ASSETS

A. CURRENT LIABILITIES

3 4 5

Current Financial Liabilities Trade Payables Other Current Liabilities Current Provisions Tax Provisions Deferred Income

6 7 7 8

Non-current financial liabilities

b. NON-CURRENT LIABILITIES

HGB

Income Statement/ Equity changes

Reclassifications

IFRS

616 1048

-3873 3873 0 0

75423 0 755 105680 11443 6947

1551 176591 37000 5937

440820

65409

1.1.2003 75423 0 4628 101191 10395 6947

20969 188

3395 13992 18046 71645 26305 81728

15776 9909 0 38060

3016 -16110

8395

-3588 0

-3588

8474 12934 -28705

1.1.2003

0 1551 176591 52776 12258 0 20969 38248 502641

6411 22466 30980 26830 26305 81728 8395

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Trade Payables Provisions for pension Non-current provisions Deferred Taxes Non-current financial liabilities

7 9 7 5

C. EQUITY

Share Capital Capital Reserve Retained Earnings Consolidated Income Currency translation differences Other Reserves Equity TOTAL EQUITY AND LIABILITIES

448 8781 2012

81800 132 132959 10

-423 0 214468 440820

10653 14994

198

3511

34552

-18153

9909 44461 65409

-3588

423 17730

0 646 19434 3511 17006

81800 132 149358 0 0 27639 258929 502641

Comments to the reconciliation of the Balance Sheet from HGB to IFRS at January 1, 2003:

(1) Work in progress as defined by HGB was recognized and posted as noninvoiced receivables according to the percentage of completion method (including a portion of the margin). (2) Derivative instruments are valued at fair market value, even where this exceeds the cost of acquisition.

(3) Depreciation of property was adjusted to take account of expected useful economic life. Assets from capital leases were capitalized.

(4) This change is a result of the fair-market valuation of securities. The change is included in 89

other comprehensive income under equity, but not recognized in net profit or loss for the period.

(5) Deferred tax assets are primarily formed for loss carry forwards and provisions. Deferred tax liabilities are primarily formed for deferred expense and property, plant and equipment. (6) Long and short-term financial liabilities include capitalized liabilities from capital leases.

(7) Certain provisions under HGB were reclassified as short or long-term liabilities to comply with IFRS.

(8) The adjustment of provisions (recognized in net profit or loss) primarily comprises dissolved provisions for expenses (maintenance, guarantees) and provisions where the probability of the obligation having to be settled is less than 50 percent (legal costs, contingent losses, general risks). Reclassifications comprise provisions which, according to IFRS, are to be posted as liabilities. See also note (7).

(9) The increase in pension provisions is primarily a result of the requirement under IFRS to

include indirect pension obligations at SAG UK. These were not previously included, in accordance with the option granted by Article 28 of the Introductory Act to the German Commercial Code (EGHGB).

(10) Other reserves includes unrealized gains from the fair-market valuation of securities and

differences from the translation of long-term intra-Group cash positions in foreign

currencies (i.e. not in euros).

IND-AS 41 – First Time Adoption: A Guide

Equity in accordance with HGB as on 01.01.2003

Revenue recognised according to percentage of completion Depreciation of buildings Finance leases Market value of securities and financial derivatives Deferred tax assets Adjustments to other accruals Adjustments ot pension accrual Deferred tax liabilities Equity in accordance with IFRS at 01.01.2003

Note 1 3 3,6 2,4 5 8 9 5

Amount 214468 616 8884 -4519 10957 38060 16110 -10653 -14994 258929

4. THE NOIDA TOLL BRIDGE COMPANY LIMITED EXPLANATORY NOTES TO THE RECONCILIATION OF EQUITY 1. The cost of US $ 136,486,711 pertaining to the Delhi Noida Toll Bridge including Mayur Vihar Link Road, previously capitalised under the PPE model, revaluation of land and accumulated depreciation have been de-recognised on adoption of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model.

2. Intangible Asset of US $ 136,456,372 is the net book value of the Delhi Noida Toll Bridge alongwith Mayur Vihar Link Road under IFRS. The Bridge is being amortised on a straight-line basis over the estimated useful life of the intangible asset as per the provisions of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model.

3. NTBCL had filed a Scheme of Amalgamation with its 100% subsidiary DND Flyway Limited in the Honorable High Courts of Allahabad and Delhi which has been approved on 22nd March 2007 and 21st May 2007 by the respective courts. As per the Scheme the Company has recognised a Toll Equalisation receivable which pertains to part of the 20% return guaranteed under the Concession Agreement over the useful life of the bridge. Some of the adjustments which are

not in conformity with the International Accounting Standard have not been considered in preparation of these financial statements in accordance with IFRS.

4. Quoted investments measured at cost under Indian GAAP have been classified as available-for-sale financial assets under IAS 39, Financial Instruments – Recognition and Measurement and re-measured at fair value. Changes in the fair value of these financial assets are recognised directly in equity through the statement of changes in equity.

5. Interest-bearing loans and borrowings have been restated to amortised cost using the effective interest rate method under IAS 39, Financial Instruments – Recognition and Measurement with the discount being accreted through the Profit and Loss Account. 6. The Group has recognised a provision for road resurfacing upon adoption of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model. The provision for the first resurfacing, which is due in year ended 31 March 2009, is being built up in accordance with the provisions of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. 7. Interest-bearing loan and borrowings include unsecured loans taken for the construction of the Mayur Vihar Link Road.

8. Stock Option expense has been recognised with a corresponding entry to equity over the vesting period of the Option under IFRS 2, Share-based Payments. Stock Option Account relating to options exercised has been transferred to SecuritiesPremium Account. Stock Option Account relating to options lapsed has been transferred to General Reserve.

9. Under Indian GAAP, Property, Plant & Equipment had been revalued. This Revaluation Reserve pertaining to land received under the Concession Agreement has been reversed on the adoption of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model as the Delhi Noida Toll Bridge is being accounted for as an intangible asset.

10. NTBCL has promoted a subsidiary company i.e. ITNL Toll Management Services Limited (ITMSL) on 22nd June 2007 with the object of carrying out the services and consultancy in the area of operations of toll collection, routine and

IND-AS 41 – First Time Adoption: A Guide procedure maintenance, engineering, design, supply, installation, commissioning of toll and traffic management system. NTBCL holds 50.99% equity share capital of the ITMSL. EXPLANATORY NOTES TO THE RECONCILIATION OF THE INCOME STATEMENT

1. Construction of the Mayur Vihar Link commenced in 2006-07. NTBCL has obtained land from Noida for the construction of the Mayur Vihar Link vide Supplement to Noida Land Lease Deed executed between them. As per the terms of said Lease deed Mayur Vihar Link Road will form part of the Noida Bridge Project and the expenditure incurred by NTBCL on it shall be included in the cost of the Noida Bridge with respect to the Concession Agreement. As the Mayur Vihar Link falls under the jurisdiction of Delhi Government, Municipal Corporation of Delhi vide Confirmation Agreement dated 9th January 2005 agreed not to declare the Mayur Vihar Link as a public street and to recognise the right of NTBCL to operate and maintain the Mayur Vihar Link as a private street and charge users a ‘user fee’ in respect thereof. This right has been recognised as an intangible asset, received in exchange for the construction services provided to the grantor of the Concession Agreement. The intangible asset received has been measured at fair value of construction services. The Group has recognised a profit of US$ 2,392,871 during the year which is the difference between the cost of construction services rendered (the cost of project asset of US$ 7,161,689) and the fair value of the construction services.

2. NTBCL had filed a Scheme of Amalgamation with its 100% subsidiary DND Flyway Limited in the Honorable High Courts of Allahabad and Delhi which was approved on 22nd March 2007 and 21st May 2007 by the respective courts. As per the Scheme the Company has recognised a Toll Equalisation receivable account which pertains to part of the 20% return guaranteed under the Concession Agreement over the useful life of the bridge. Some of the adjustments which are not in conformity with the International Accounting Standard have not been considered in preparation of these financial statements in accordance with IFRS. 3. Operating Expenses as per Indian GAAP have been adjusted for recognition of expenses under IFRS. Major movements include US$ 153,437 of expenditure in the nature of repairs and maintenance previously capitalised under Indian GAAP,

which has now been expensed off. An amount of US$ 91,511 has been charged for the build up of resurfacing provisions.

4. Administrative Expenses have been adjusted for certain expenses which were recognised under IFRS in March 2007 but under Indian GAAP during March 2008.

5. Depreciation charge adjustment of US$ 1,741,849 to the Indian GAAP amount has arisen due to re-computation and adjustment of depreciation pertaining to the Delhi Noida Toll Bridge capitalised under the PPE model, recognised as intangible asset on adoption of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model. 6. Amortisation charge of US$ 1,947,499 pertains to the intangible asset recognised on the adoption of IFRIC 12 Service Concession Arrangements – The Intangible Asset Model. This asset is being amortised on a straight-line basis over a period of 70 years, the estimated useful life of the asset.

7. Finance charges pertain to accretion of interest on loans and borrowings using the effective interest rate method in accordance with IAS 39, Financial Instruments – Recognition and Measurement.

IND-AS 41 – First Time Adoption: A Guide

10. Major Differences between Ind-AS 41 and IFRS-1

As in all Indian Accounting Standards, Ind-AS 41 is modeled on IFRS-1, First-time Adoption of International Financial Reporting Standards. However Ind-AS 41 is not a replica of IFRS-1 and contains some differences that are summarized here.

1. IFRS 1 First-time Adoption of International Financial Reporting Standards was first issued by the International Accounting Standards Board in June 2003 and thereafter has been amended many times to accommodate the changes to other relevant IASs and IFRSs and the first time accommodation required arising from those changes. For the purposes of Ind-AS 41, the IFRS 1, as restructured and issued in 2008 has been used as the basis and updated to reflect subsequent amendments upto November 2009 excluding the amendments so far as they relate to changes arising from introduction of IFRS 9, â&#x20AC;&#x201C; Financial Instruments. To that extent, Ind-AS 41 reflects only the current set of provisions and exemptions and does not present all the evolution.

2. Generally, there is only one transition date for a country transitioning to IFRS. In India, as the converged IFRS standards become applicable in a phased manner it is expected that Ind-AS 41 would be available to each company considering its relevant transition date.

3. IFRS 1 defines transitional date as beginning of the earliest period for which an entity presents full comparative information under IFRS. It is this date which is the starting point for IFRS and it is on this date the cumulative impact of transition is recorded based on assessment of conditions at that date. Ind-AS 41, however, provides an entity with a choice to either consider the beginning of the current period or the comparative period as the transition date. Thus, the transition date has been defined as the beginning date of financial year on or after 1 April, 2011 for which an entity presents financial information under

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Ind-AS in its first Ind-AS financial statements but where an entity voluntarily decides to provide a prior period comparatives in accordance with Ind-AS then the date of transition would be the beginning of the earliest period for which an entity presents full comparative information under Ind-AS in its first Ind-AS financial statements i.e. beginning of financial year on or after 1 April, 2010.

Arising from this fundamental change, there are other consequential changes to Ind-AS 41. For example, disclosures required under paragraph 21 and reconciliations under paragraphs 24 to 26 Ind-AS 41 have been modified to accommodate this option available under Ind-AS 41. The relevant Implementation Guidance and illustrative examples have been appropriately modified to reflect the option provided to transitioning entities.

4. IFRS 1 provides for various optional exemptions that an entity can seek while and entity transitions to IFRS from its previous GAAP. Similar provisions have been retained under Ind AS-41. These can be broadly categorized as follows:

(a) Elimination of effective dates prior to transition date. IFRS 1 provides for various dates from which a standard could have been implemented. For example, under paragraph B2 of IFRS 1, an entity would have had to adopt the derecognition requirements for transactions entered after 1 January, 2004. However, for Ind-AS 41 purposes, all these dates have been changed to coincide with the transition date elected by the entity adopting this converged standards;

(b) Deletion of certain exemptions not relevant for India. For example, paragraph D10 of IFRS 1 provided an entity that adopted the corridor approach for recording actuarial gain and losses arising from accounting for employee obligations with an option to recognize the entire such gain or loss to retained earnings, at the date of transition, rather than requiring them to split such gains and losses as recognized and unrecognized gains and losses. In India, since corridor approach is not elected, the resultant first time transition provision has been deleted; and (c) Inclusion/modification of existing exemptions to make it relevant for India. For example, paragraph D 26 has been added to provide for transitional relief while applying AS 24 (Revised 20XX) - Non-current Assets Held for Sale and Discontinued Operations. Paragraph D26 provides an entity to use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell.

5. Different terminology is used in this Exposure Draft as compared to IFRS 1, for example, the term ‘Balance Sheet’ is used instead of ‘Statement of Financial Position’ and ‘Statement of Profit and Loss’ instead of ‘Statement of Comprehensive Income.

IND-AS 41 – First Time Adoption: A Guide

11. Differences Between Indian GAAP and IFRS

Note: The differences tabled below are on the basis of the original Accounting Standards issued by the Institute of Chartered Accountants of India ( ICAI) and not on the basis of the Converged Accounting Standards issued. Some of these differences could have changed due to a change in the Accounting Standard or the issue of Accounting Standard Interpretations. The table below is intended to give insight into the differences that existed prior to the issue of the Converged Indian Accounting Standards since many entities could be following the same.

Indian GAAP/IFRS Comparison IFRS Introduction Basic Concept Mix of historical cost and fair valuation.

True and fair over-ride In extremely rare circumstances when management concludes that compliance with a requirement in an IFRS or an Interpretation of a Standard would be misleading, and therefore that departure from a requirement is necessary to achieve a fair presentation, an entity should disclose:

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Indian GAAP

Mix of historical cost and fair valuation. However critical standards that use fair valuation such as financial instruments and accounting for business combinations are either not issued or not yet applicable. True and fair override is generally not permitted under Indian GAAP. Further in terms of hierarchy local legislations are more superior. The Accounting Standards by their very nature cannot and do not override the local regulations which govern the preparation and presentation of

IND-AS 41 – First Time Adoption: A Guide IFRS (a) that management has concluded that the financial statements fairly present the entity’s financial position, financial performance and cash flows; (b) that it has complied in all material respects with applicable IIFRS except that it has departed from a Standard in order to achieve a fair presentation; (c) the Standard from which the entity has departed, the nature of the departure, including the treatment that the Standard would require, the reason why that treatment would be misleading in the circumstances and the treatment adopted; and (d) the financial impact of the departure on the entity’s net profit or loss, assets, liabilities, equity and cash flows for each period presented.

Indian GAAP financial statements in the country. However, ICAI requires disclosure of such departures to be made in the financial statements.

Clause 49 does contain provisions relating to the true and fair over-ride; however, no practical guidance is available.

The override does not apply where there is a conflict between local company law and IFRS; in such a situation, the IFRS requirements must be applied.

When assessing whether a departure from a specific requirement in IFRS is necessary, consideration is given to: (a) the objective of the requirement and why that objective is not achieved or is not relevant in the particular circumstances; and (b) the way in which the entity’s circumstances differ from those of other entities which follow the requirement. Accounting Policies 101

IFRS Management should select and apply accounting policies so that the financial statements comply with all the requirements of each applicable International Financial Reporting Standard and Interpretation of the International Financial Reporting Interpretations Committee. Where there is no specific requirement, management should develop policies to ensure that the financial statements provide information that is: (a) relevant to the decision-making needs of users; and (b) reliable in that they (i) represent faithfully the results and financial position of the entity; (ii) reflect the economic substance of events and transactions and not merely the legal form; (iii) are neutral, that is free from bias; (iv) are prudent; and (v) are complete in all material respects. Component of financial statements Balance sheet, Income statement, Statement of changes in equity (SOCIE), cash flow and notes to accounts. Statement of Recognised Income and Expenses (SORIE) can be presented separately from SOCIE, if the entity so chooses. Disclosure of Critical Judgements IAS 1 requires disclosure of critical judgements and estimates made by management in applying accounting policies Comparatives Comparative information shall be disclosed in respect of the previous

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Indian GAAP Though no specific guidance available the same principles as enunciated in IFRS would apply.

Balance sheet, Income statement, cash flow and notes to accounts. The concept of SOCIE does not prevail; however, they are represented by the captions share capital and reserves and surplus in the balance sheet. There is no such specific disclosure requirement in AS 1 or Schedule VI to the Companies Act. Requires one year of comparatives for all numerical information in the

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP period for all amounts reported in the financial statements. financial statements. Comparative information shall be included for narrative and descriptive information when it is relevant to an understanding of the current period's financial statements. Reporting currency for presentation of financial statements An entity can present its financial No concept of functional currency in statement in any currency. However, Indian GAAP. In India, Schedule VI all items needs to be recorded in requires presentation to be made in functional currency. The company Indian Rupees. translates the financial statement from functional currency to presentation currency. The balance sheet items are translated at closing rate. P&L items at average rate. The exchange difference arising in such process is shown as separate component of equity. Balance sheet format Illustrative format has been provided Even though AS 1 does not prescribe under IFRS as there is no prescribed any minimum structure of financial rigid format. Under IAS 1 each entity statements, Schedule VI of the should present current and nonCompanies Act prescribes a detail current assets and current and nonformat for balance sheet. Though current liabilities as separate Schedule VI does not prescribe a classifications on the face of the format for profit and loss account, the balance sheet except when a various items that need to be disclosed presentation based on liquidity have been specified. Current v Nonprovides information that is reliable current classification does not exist and is more relevant. Whichever under Schedule VI, though EAC has method of presentation is adopted, an taken a view in some of its opinions entity should disclose, for each asset that current and non-current and liability item that combines classification should be provided, amounts expected to be recovered or though not required under Schedule settled both before and after twelve VI. However current v non-current classification should be provided if

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IFRS months from the balance sheet date.

IAS 1 prescribes minimum line items to be included on the face of the balance sheet. An entity should disclose, either on the face of the balance sheet or in the notes to the balance sheet, further sub-classifications of the line items presented, classified in a manner appropriate to the entityâ&#x20AC;&#x2122;s operations. Each item should be sub-classified, when appropriate, by its nature and, amounts payable to and receivable from the parent entity, fellow subsidiaries and associates and other related parties should be disclosed separately. Income statement format There is no prescribed rigid format. IFRS sets out the line items that are required to be disclosed on the face of the income statement as a minimum. Additional line items, headings and sub-totals should be presented on the face of the income statement when required by an International Financial Reporting Standard, or when such presentation is necessary to present fairly the entityâ&#x20AC;&#x2122;s financial performance. IFRS permits the expenses to be based on either the nature of expenses or their function within the entity, whichever provides information that is reliable and more relevant. Under the nature of expense method expenses are aggregated in the income statement according to their

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Indian GAAP required under a mandatory accounting standard, for example, deferred taxes are disclosed as noncurrent items separate from current items. Another example is in respect of lease payables and receivables.

Determined by multiple regulatory agencies. Most companies have to comply with the Schedule VI requirements, though banking, electricity and insurance companies are governed by their respective Acts. In addition, enterprises also have to ensure that the disclosure requirement under the various Accounting Standards have been complied. Noncorporate entities such as partnership firms or sole proprietor organisations do not have to follow Schedule VI requirements and therefore the financial statement format used by these organisations in India is very disparate. These organisations nevertheless should comply with the disclosure requirement of mandatory

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS nature, (for example depreciation, purchases of materials, transport costs, wages and salaries, advertising costs), and are not reallocated amongst various functions within the entity. This method is simple to apply in many smaller entities because no allocation of operating expenses between functional classifications is necessary. The second analysis is referred to as the function of expense or â&#x20AC;&#x2DC;cost of salesâ&#x20AC;&#x2122; method and classifies expenses according to their function as part of cost of sales, distribution or administrative activities. This presentation often provides more relevant information to users than the classification of expenses by nature, but the allocation of costs to functions can be arbitrary and involves considerable judgement. Entities classifying expenses by function should disclose additional information on the nature of expenses, including depreciation and amortisation expense and staff costs. The entity is allowed to present the income statement using the mixed approach with certain additional disclosures in the notes. The choice of analysis between the cost of sales method and the nature of expenditure method depends on both historical and industry factors and the nature of the organisation. Both methods provide an indication of those costs which might be expected to vary,

Indian GAAP accounting standards.

Even within the Companies Act the disclosure requirements are provided at various other places other than Schedule VI. For example, donations to political parties are required to be disclosed under Section 293A of the Companies Act. RBI also has imposed certain disclosure requirements, for example, it requires maximum amount due on Commercial Papers during the year to be disclosed. SEBI has significantly impacted the disclosure requirements for listed corporate entities. Quarterly disclosures are made purely based on SEBI format and not based on ICAI Standards. SEBI and RBI both play major role in respect of the accounting and control framework for non-banking finance companies and mutual funds.

No standard format prescribed for the income statement under Schedule VI. However Schedule VI requires certain specific disclosures which are required in Income statement. An entity can prepare income statement by function or nature; however, the specific disclosures under Schedule VI are required to be made. Thus it is convenient to present income statement based on the nature of expenses. Some companies particularly software companies follow the functional classification

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IFRS directly or indirectly, with the level of sales or production of the entity. . However, because information on the nature of expenses is useful in predicting future cash flows, additional disclosure is required when the cost of sales classification is used.

Exceptional Items Does not use the term exceptional items but requires the separate disclosure of items of income and expense that are of such size, nature or incidence that their separate disclosure is necessary to explain the performance of the entity for the period. Disclosure may be on the face of the income statement or in the notes. Extraordinary items Disclosure as extraordinary items either on the face of the income statement or in the notes prohibited.

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Indian GAAP method, but provide the necessary information on the nature of expenses as required by Schedule VI.

Since under Schedule VI no format is prescribed for the income statement theoretically an essay on the income statement would comply with Schedule VI as long as the necessary disclosures relating to nature of expenses required therein are made. With the advent of new Standards in India, a large number of instances have come to notice where the disclosure requirement under the Standard and Schedule VI are either irrelevant, contradictory or inconsistent. Similar to IFRS except that disclosure requirement is only for profit and loss account.

Are defined as income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly, eg, earthquake. Such items should be disclosed in the P&L as a part of net profit or loss for the period. The nature and the amount

IND-AS 41 – First Time Adoption: A Guide IFRS

Indian GAAP of each extraordinary item should be separately disclosed in the statement of P&L in a manner that its impact on current profit or loss can be perceived. Statements of changes in shareholders’ equity (SOCIE) & Statement of changes in recognized gains and losses (SORIE) On the face of SOCIE, the following shall SOCIE/SORIE is not applicable under be disclosed: Indian GAAP. All items are recognized in the income statement in accordance with AS-5 unless an Accounting a) profit or loss for the period; Standard requires or permits otherwise. Credit for certain items are b) each item of income/expense that are required by IFRSs to be recognized directly taken to reserves and surplus, for eg, revaluation of fixed assets. The directly in equity; transitional provisions of certain standards require first time c) total of (a)+(b), with allocation to adjustment and their consequential tax parent and minority interest; and effect to be made directly into reserves and surplus. Schedule is given for d) the effects of changes in accounting equity and reserves and surplus policies/corrections or errors per IAS showing opening, closing position as 8, for each equity component. on the balance sheet date and movements along with other The total of gains and losses recognised disclosures prescribed by Schedule VI in the period comprises net income and of the Companies Act, 1956. the following gains and losses recognised directly in equity: § fair value gains (losses) on land and buildings, available-for-sale investments and certain financial instruments; § foreign exchange translation differences;

§ the cumulative effect of changes in

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IFRS accounting policy; and

Indian GAAP

ยง changes in fair values on certain financial instruments if designated as cash flow hedges, net of tax, and cash flow hedges reclassified to income and/or the relevant hedged asset/liability. ยง those required by the transitional provision of a standard and the consequential tax effect.

A statement of changes in equity that comprises only these items shall be titled a statement of recognized income and expense. On the face of SOCIE or in the notes, an entity shall also present the following: (a) transactions with equity holders in their capacity as equity holders, showing separately distributions to them (b) retained earning at beginning and end of period, and changes during the period (c) reconciliation between closing and opening balance of each class of contributed equity and reserve, with separate disclosure of each change. First-time Adoption IFRS 1 gives guidance on preparation of first IFRS financial statements. A number of mandatory and optional exemptions are provided to enable companies to convert from their respective GAAP to IFRSs

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No specific standard. Full retrospective application would be required

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Small and Medium-Sized Enterprises Standard issued.

Inventory Measurement At cost or net realizable value whichever is lower. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Reversal (limited to the amount of the original write-down) is required for a subsequent increase in value of inventory previously written down. Inventories of producers and dealers of agricultural and forest products and minerals and mineral products and for broker-dealersâ&#x20AC;&#x2122; inventories of commodities allowed at net realisable value even if above cost. Cost formulae Specific identification, FIFO and

Indian GAAP Detailed standard, prescribes 3 levels of entities, with different disclosure levels. Generally recognition exemptions have not been allowed, except that for level 2 and 3 the applicability date of the standards have been generally extended and in some cases the recognition criteria though applicable, have been simplified, eg, determination of impairment charge. Recently, Companies Accounting Standard Rules have reduced the level from three to two (SMC and Non-SMC). In regard to non-corporate entities, three levels will continue. Similar to IFRS. However, inventories of commodity brokers is not scoped out from AS-2, though inventories relating to mineral products, agriculture and forest products, etc are scoped out and can be valued at NRV based on industry practice.

Similar to IFRS except that it is not

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IFRS Indian GAAP Weighted average are acceptable expressly mandated in AS 2 to use the method of determining cost. However, same cost formula consistently for all same cost formula should be used inventories that have a similar nature consistently for all inventories that and use to the entity. LIFO is have a similar nature and use to the prohibited. entity. LIFO is prohibited. Biological assets A biological asset should be measured No guidance available. However, on initial recognition and at each principles of IFRS may be followed. balance sheet date at its fair value less estimated point-of-sale costs. All changes in fair value should be recognised in the income statement in the period in which they arise. Inventories acquired on deferred settlement terms IAS 2 specifically requires that where There is no express requirement under inventory is acquired on deferred AS 2 specifying treatment of settlement terms, the excess over the inventories acquired on deferred normal price is to be accounted as settlement terms. interest over the period of financing. Inventories of a service provider IAS-2 includes provisions relating to AS 2 excludes work in progress arising the work-in-progress of a service in the ordinary course of business of provider. Under IAS-2 such WIP service providers. Depending on the consists primarily of the labour and nature of the contract, such service other costs of personnel directly contracts would be governed by AS 9 engaged in providing the service, ‘Revenue Recognition’ or AS 7 including supervisory personnel, and ‘Accounting for Construction attributable overheads. Labour and contracts’. These principles relate to other costs relating to sales and recognising revenue either on general administrative personnel are completion of the service or pro-rata not included but are recognised as over the period of the service taking expenses in the period in which they into consideration the work completed are incurred. Service providers to date. The revised AS 7 only permits generally accumulate costs in respect the percentage of completion method of each service for which a separate and has introduced some form of selling price will be charged. Therefore, surrogate for the completed contract

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IND-AS 41 – First Time Adoption: A Guide IFRS each such service is treated as a separate item.

Indian GAAP method.

Commodity broker-traders IAS 2 does not apply to the AS-2 applies to commodity brokermeasurement of inventories of traders. commodity traders or brokers. The broker-traders measure such inventories at fair value less cost to sell. Cash Flow statement Applicability No exemption. Cash flow is not mandatory for SME’s. Cash and Cash Equivalents Cash comprises not only cash on hand Cash comprises cash on hand and but also demand deposits with banks demand deposits with banks. There is or other financial institutions. Cash no stipulation in AS 3 for classification equivalents are short-term, highly of bank overdrafts. Cash equivalents liquid investments that are readily are short term, highly liquid convertible to known amounts of cash investments that are readily and that are subject to an insignificant convertible into known amounts of risk of changes in value. An investment cash and which are subject to an normally qualifies as a cash equivalent insignificant risk of changes in value. only when it has a maturity of three months or less from its acquisition date. Bank borrowings are normally part of financing activities. Nonetheless, bank overdrafts that are repayable on demand and that form an integral part of an entity’s cash management are included in cash equivalents. Format and content of cash flow statement The cash flow statement may be Similar to IFRS. However, in case of

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IFRS Indian GAAP prepared using either the direct listed companies SEBI requires only method (cash flows derived from indirect method. aggregating cash receipts and payments associated with operating activities) or the indirect method (cash flows derived from adjusting net income for transactions of a non-cash nature such as depreciation). The latter is more common in practice. The cash flow should be classified into operating, investing and financing cash flow. Cash flow associated with extraordinary items Separate disclosure is prohibited. The The cash flows associated with concept of extra-ordinary items has extraordinary items should be been made redundant under IFRS. classified as arising from operating, investing or financing activities as appropriate and separately disclosed. Disclosure of Interest paid and received Operating in case of financing entity. Operating in case of financing For other entities, interest paid should enterprise. For other enterprises, it be disclosed as operating or financing. should be disclosed as financing. Interest received is usually disclosed as investing cash flow. Disclosure of dividend paid Operating or financing Financing Disclosure of dividend received Operating in case of financing entity. Operating in case of financing Operating or investing in case of other enterprise. Investing in case of other entity enterprises Disclosure of taxes paid Operating â&#x20AC;&#x201C; unless specific Operating â&#x20AC;&#x201C; unless specific identification with financing or identification with financing or investing activity investing activity Hedging transactions Cash flows from a contract that is No guidance available

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP accounted for as a hedge of an identifiable position should be classified in the same manner as the cash flows of the position being hedged. Foreign currency transaction Cash flows denominated in a foreign Cash flows arising from transaction in currency and cash flows of a foreign foreign currency should be recorded subsidiary should be translated into using the exchange rate at the date of the parentâ&#x20AC;&#x2122;s reporting currency using the cash flow or the weighted average the exchange rate at the date of the rate. No guidance is given for cash flow or an appropriate weighted translation of cash flow of the foreign average rate, i.e. that used for income subsidiary in the reporting currency. statement purposes. Under the indirect method, unrealised gains and losses for the period on cash and cash equivalents balances denominated in a foreign currency, should be reported as a reconciling item in the cash flow statement, separate from operating, investing and financing activities. Payments by lessee relating to finance lease. IAS 7 requires additional disclosure of No such requirement under AS 3 cash payments by a lessee relating to finance lease under financing activities. Additional disclosures in CFS IAS 7 deals with issues relating to No such guidance under AS 3 disclosure in cash flow statement in CFS like undistributed profits of associate and minority interests, foreign exchange cash flows of foreign subsidiary. Acquisition of subsidiaries IAS 7 requires further disclosure on No such requirement under AS 3 cash and cash equivalents of acquired subsidiary and all other assets acquired.

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IFRS Other disclosures IAS 7 also encourages disclosure of the following items:

· The amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of the facilities

Indian GAAP AS 3 modeled on IAS 7 also requires the disclosure, except that set out in the last two bullet points. Segment cash flow disclosure are however encouraged under AS 17.

· The aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity

· The aggregate amounts of the cash flows from operating, investing, and financing activities related to interests in joint ventures reported using proportionate consolidation

· The amount of the cash flows arising from the operating, investing, and financing activities of each reported industry and geographical segment. Accounting policies, changes in accounting estimates and errors Change in accounting policies An entity shall account for a change in As per AS 5, ‘Any change in an accounting policy resulting from the accounting policy which has a material initial application of a Standard or an effect should be disclosed. The impact Interpretation in accordance with the of, and the adjustments resulting from, specific transitional provisions, if any, such change, if material, should be in that Standard or Interpretation; and shown in the financial statements of when an entity changes an accounting the period in which such change is policy upon initial application of a made, to reflect the effect of such Standard or an Interpretation that does change. Where the effect of such

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively. Comparative information is restated, and the amount of the adjustment relating to prior periods is adjusted against the opening balance of retained earnings of the earliest year presented. An exemption applies when it is impracticable to change comparative information.

Prior Period Items An entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by restating the comparative

Indian GAAP change is not ascertainable, wholly or in part, the fact should be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adoptedâ&#x20AC;&#x2122;. AS 5 requires the impact of change in an accounting policy to be adjusted against current periods income statement. However, AS 5 is silent on whether a change in an accounting policy should be made retrospectively or prospectively. There is no specific guidance on how changes in accounting policies are dealt with, except few specific items, like change in the method of depreciation or change arising out of a new standard.

Policy changes made on the adoption of a new standard must be accounted for in accordance with that standardâ&#x20AC;&#x2122;s transitional provisions. If transitional provisions are not specified then the method described above must be used. Reported as a prior-period adjustment in current year results. Comparatives are not restated.

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IFRS amounts for the prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. Definition of prior period items The definition of prior period items is much broader under IAS 8 as compared to AS 5 since IAS 8 covers all the items in financial statements. As per IAS 8 prior period items are defined as :

Indian GAAP

Prior period errors are omissions from, and misstatements in, the entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

AS 5 covers only items of income and expenses under the definition of prior period items. It defines prior period items as : The term 'prior period items', as defined in this Statement, refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. AS-5 does not include balance sheet misclassification, which do not have an income statement impact.

b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. Change in accounting estimate Changes in accounting estimates are accounted for prospectively in the income statement when identified. .Change in method of depreciation is regarded as a change in accounting

Similar to IFRS except for change in method of depreciation which is considered as a change in an accounting policy rather than a change in an accounting estimate.

a) was available when financial statements for those periods were authorised for issue; and

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP estimate and hence the effect is given prospectively. Additional disclosure IAS 8 requires disclosure of an No such specific requirement under AS impending change in accounting policy 5 when an entity has yet to implement a new Standard or Interpretation that has been issued but not yet come into effect. In addition, it requires disclosure of known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity's financial statements in the period of initial application Events occurring after Balance-sheet date Adjusting and non-adjusting event Amounts recognized in the financial Similar to IFRS. Under AS 4, nonstatements should be adjusted for adjusting events are required to be events that provide additional evidence disclosed in the report of the of conditions that existed at the balance approving authority, for example, the sheet date and should not be adjusted board report. for events that provide evidence of conditions that did not exist at the balance sheet date. Nevertheless where these events are of such nature that disclosure of them is required to prevent the financial statements form being misleading, the entity should disclose nature of event and estimate of its financial effect. Authorisation date for issue of financial statements The date of authorization for issue of No such requirement financial statements should be specifically mentioned in the financial statements itself as required by IAS 10

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IFRS Proposed dividend If dividends to holders of equity instruments are proposed or declared after the balance sheet date, an entity should not recognise those dividends as a liability at the balance sheet date. Proposed dividend is a non-adjusting event. Entity to disclose the amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorised for issue. Income Taxes Approach IAS 12 Income Taxes requires entities to account for taxation using the balance sheet liability method, which focuses on temporary differences in accounting for the expected future tax consequences of events. Temporary differences are differences between the tax bases of assets or liabilities and their book values that will result in taxable or tax deductible amounts in future years. The taxation recognised in income comprises the current tax and the change in deferred tax assets and liabilities of the entity except to the extent that tax arises from transaction or event which is recognized, in the same or the different period directly in equity or a business combination

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Indian GAAP The companies are required to make provision for proposed dividend, eventhough the same are declared after the balance sheet date.

Deferred tax is accounted using the Income statement approach, which focuses on timing differences. Timing differences are the differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods. The taxation recognised in income comprises the current tax and the change in deferred tax assets and liabilities of the entity except to the extent that tax arises from transaction or event which is recognized, in the reserves and surplus Deferred taxes are not determined for temporary differences such as: 路 Revaluation of fixed assets 路 Business combinations

IND-AS 41 – First Time Adoption: A Guide IFRS

Exceptions No deferred tax in respect of: · Non deductible goodwill

· Initial recognition of an asset/liability other than in a business combination and affects neither accounting profit nor taxable profit at the time of the transaction Recognition of Deferred tax assets Deferred tax assets should be recognised to the extent that it is probable that future taxable profits will be available to offset the deductible temporary differences or carry forward of unused tax losses and unused tax credits. To the extent that it is no longer probable that sufficient taxable profit will be available, the carrying amount of a deferred tax asset should be reduced. When realization is based on future taxable profits, those need to be demonstrated with convincing evidence. However, unlike Indian GAAP, taxable profits need not be determined with virtual certainty. When an entity has a history of tax losses, the entity recognizes a DTA only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profits

Indian GAAP · Consolidation adjustments · Undistributed profits

Not applicable since DTA/DTL is created using the timing difference approach.

Deferred tax assets should be recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. However, where an enterprise has unabsorbed depreciation or carry forward of losses under tax laws, all deferred tax assets should be recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised. MAT credit is based on convincing evidence (no requirement for virtual certainty)

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IFRS will be available. Fringe benefit tax Included as part of the related expense which gave rise to FBT.

Indian GAAP

Disclosed as a separate line item after PAT on the face of the P&L. In other words, treated at par with income-tax. Recognition of deferred tax on Investment made in subsidiaries, branches, associates and joint ventures (undistributed profits) An entity should recognise a deferred No deferred tax recognized. tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint ventures, except to the extent that the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and it is probable that the temporary difference will not reverse in the foreseeable future. Recognition of deferred tax on items taken directly to equity Deferred tax should be charged or ICAI has issued an announcement credited directly to equity if the tax which requires any item of income or relates to items that are credited or expense adjusted directly to reserves charged, in the same or a different and/or Securities Premium Account period, directly to equity. Eg. should be net of its tax effect. Also, Revaluation of PPE revised AS-15 requires the consequential deferred tax impact of opening AS-15 adjustment to be made to revenue reserves as well. As regards revaluation of PPE, deferred tax would not be recognized, since AS-22 is based on timing difference rather than temporary difference approach. Deferred tax arising on business combination Deferred tax is provided on difference There is no one standard that deals

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS between fair value of assets recorded in books and tax base of those assets unless tax base is also stepped up to fair value.

Indian GAAP with business combination. AS-21, which deals with acquisition of a subsidiary, requires acquisition accounting in the CFS based on book values rather than fair values. Therefore the question of recognizing deferred taxes on acquiring a subsidiary does not arise, since it does not affect the financial position of the individual entities which for tax as well as accounting purposes continue to operate as separate entities. Further deferred taxes in the CFS is a simple aggregation of the deferred tax recognized by all the group entities. If the acquisition results in amalgamation, deferred taxes would be determined based on ASI-11, which prescribes separate treatment depending upon whether the amalgamation is the nature of merger or in the nature of an acquisition. However, it may be noted that ASI-11 is not included in the Companies (Accounting Standards) Rules. See above

Deferred tax asset on previously unrecognized tax losses of acquirer is recognized on acquisition if recognition criteria are met, and the credit is taken to the income statement. Deferred tax asset on carry forward tax See above losses of acquiree is recognized on acquisition if recognition criteria are met, and the credit is taken to goodwill Recognition of deferred tax on elimination of intra-group transactions Deferred tax should be recognized on Deferred tax is not recognized. The

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IFRS Indian GAAP temporary differences that arise from deferred taxes in the CFS is a simple the elimination of profits and losses aggregation of the deferred tax resulting from intragroup transactions. recognized by the group entities. Recognition of deferred tax on Foreign non-monetary assets / liabilities when the tax reporting currency is not the functional currency Deferred tax is recognised on the No deferred tax is recognized. temporary difference which arise when the non-monetary assets and liabilities of an entity are measured in its functional currency but the taxable profit or tax loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency Presentation and Disclosure Deferred tax assets and liabilities Deferred tax assets and liabilities should be presented as separate line should be disclosed under a separate items in the balance sheet. Offset of heading in the balance sheet of the DTA and DTL is permitted only when enterprise, separately from current the entity has a legally enforceable assets and current liabilities. ASI 7 right to offset current tax assets and requires DTA to be disclosed on the current tax liabilities and tax is levied face of the balance sheet separately by the same tax authority, which allows after the head ‘Investments’ and DTL tax netting. If an entity presents a to be disclosed on the face of the classified balance sheet, it should not balance sheet separately after the head report deferred tax assets and ‘Unsecured Loans’. An enterprise liabilities as current assets and should offset DTA and DTL if the liabilities. enterprise has a legally enforceable right to set-off assets against liabilities representing current tax; and the DTA and the DTL relates to taxes on income levied by the same governing taxation laws. Reconciliation of actual and expected Only major components of deferred tax expense is required. The same is tax asset and liabilities are required to computed by applying the applicable be disclosed. tax rates to accounting profit,

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IND-AS 41 – First Time Adoption: A Guide IFRS disclosing also the basis on which the applicable tax rates are computed. No guidance. However, disclosure will be same as Indian GAAP

Indian GAAP

Unutilized MAT credit is shown as Loans and Advances. Utilised amount is deducted from provision for taxation.

Segment Reporting The IASB has issued IFRS 8 Operating Segments. IFRS 8 sets out requirements for disclosures of information about an entity’s operating segments and also about the entity’s product and services, the geographical areas in which it operates, and its major customers. It replaces IAS 14 Segment Reporting. IFRS 8 is applicable for annual financial statements for the period beginning on or after January 1, 2009. This document is based on IAS 14. Scope Entities whose equity or debt securities Segment disclosures are required to be are publicly traded, and those that are given by all public companies ( listed in the process of issuing equity or debt or in process of getting listed), Banks, securities in the public securities financial Institutions, entities carrying markets, must report segment Insurance business, enterprises having information. Segment information only turnover above Rs.50 crores or needs to be reported on a consolidated borrowings above Rs. 10 crores during level if the entity publishes both parent the preceding accounting year. Holding and CFS. Similarly, if the financial and subsidiaries of such enterprises statements of an entity’s equity method are also required to give segment investments or joint ventures are disclosures. attached to its financial statements, segment information only needs to be Where an annual report contains the reported on the basis of the entity’s CFS and individual components, own financial statements. segment information may be given only at the CFS level. Entities that voluntarily report segment information need to prepare Entities that voluntarily report that information in accordance with segment information need to prepare IAS 14 Segment Reporting. that information in accordance with AS-17. Identification of segment A business segment or geographical Similar to IFRS. As per IAS-14, a

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IFRS segment is a reportable segment when: (a) it derives the majority of its revenue from sales to external customers;

(b) its internal and external revenue exceeds 10% of total revenue of all segments;

(c) its segment result â&#x20AC;&#x201C; as an absolute percentage â&#x20AC;&#x201C; exceeds 10% of greater of (1) the combined results of all profitable segments or (2) the combined results of all segments in loss; (d) its assets are in excess of 10% of the total assets of all segments.

If reported segments are below 75% of total consolidated entity revenue, additional segments are reported till 75% threshold is reached. Additional operating segments may be considered reportable and separately disclosed where management believes that disclosure would be useful. Disclosures Under IAS for changes in segment accounting policies, prior period segment information is required to be restated, unless impracticable to do so

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Indian GAAP segment identified as a reportable segment in the immediately preceding period because it satisfied the relevant 10% criteria should continue to be a reportable segment for the current period notwithstanding that its revenue, result and assets all no longer exceed the 10% criteria, if the management of the enterprise judges the segment to be of continuing significance. The Indian standard is stricter in this regard as the option to management to make an exception of the above provision based on its judgement on continuing significance of the segment is not available.

If reported segments are below 75% of total, additional segments are reported till 75% threshold is reached. Additional operating segments may be considered reportable and separately disclosed where management believes that disclosure would be useful.

Under Indian standards, for change in segment accounting policies disclosure of the impact arising out of the change is required to be made as is the case for changes in accounting policies relating to the enterprise as a whole. Prior period figures are not restated; ie no retroactive restatement is required.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Vertical segments By limiting reportable segments to those that earn a majority of their revenue from sales to external customers, IAS 14 does not require that the different stages of vertically integrated operations be identified as separate business segments. However, in some industries, current practice is to report certain vertically integrated activities as separate business segments even if they do not generate significant external sales revenue. For instance, many international oil companies report their upstream activities (exploration and production) and their downstream activities (refining and marketing) as separate business segments even if most or all of the upstream product (crude petroleum) is transferred internally to the enterpriseâ&#x20AC;&#x2122;s refining operation. Similarly in the case of electricity companies, the vertical segments that are disclosed are generation/production, transmission, and distribution. For textile companies, it may be spinning, weaving, dyeing, etc IAS 14 encourages, but does not require, the voluntary reporting of vertically integrated activities as separate segments. Under IAS 14, if an enterpriseâ&#x20AC;&#x2122;s internal reporting system treats vertically integrated activities as separate segments and the enterprise does not choose to report them

Indian GAAP Under AS 17, the reporting threshold for a segment amongst other factors is based on revenue, which includes both internal and external revenue. The exemption from disclosing vertical segments under IAS 14 has been deliberately omitted under AS 17. Therefore under AS 17 vertical segments are required to be disclosed.

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IFRS externally as business segments, the selling segment should be combined into the buying segment(s) in identifying externally reportable business segments unless there is no reasonable basis for doing so, in which case the selling segment would be included as an unallocated reconciling item. Property, plant and equipment Definition Property, plant and equipment are defined as tangible assets that (1) are held by the entity for use in the production or supply of goods or services, for rental to others, or for administrative purposes and (2) are expected to be used during more than one period. Cost of PPE Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other IFRSs. The costs include a. the purchase price (less any discounts and rebates), import duties, non-refundable taxes and any directly attributable costs of bringing the asset to its working condition; b. the initial estimate of the costs of

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Indian GAAP

Fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. PPE is generally referred to as fixed assets. Similar to IFRS except that capitalization of borrowing costs is mandatory if the appropriate recognition criteria are fulfilled. Also, no general guidance is given for capitalization of dismantling and site restoration cost. However, ICAIâ&#x20AC;&#x2122;s guidance note on oil and gas activities states that enterprise should capitalize the dismantling and site restoration cost.

IAS 16 expressly provides that cost of abnormal amounts of wasted materials, labour or other resources incurred in the production of a selfconstructed asset is not included in the

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

c. borrowing costs in the period of getting the asset ready for its intended use may be capitalised in accordance with the requirements of IAS 23 Borrowing Costs

d. general and administrative overheads and start-up costs other than those necessary to bring the asset to its working condition may not be capitalised; and

e. where government grants have been received in connection with the acquisition of property, plant and equipment, the carrying amount may be reduced by the amount of the grant in accordance with the requirements of IAS 20 Accounting for Government Grants and Disclosure of Government Assistance Component Accounting Required

Subsequent cost Subsequent routine maintenance expenditure is expensed as incurred. Replacement of parts can be capitalized

Indian GAAP cost of the asset and is recognised immediately as an expense. By contrast, under AS 10 if the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses (other than borrowing costs) incurred during this period are charged to the profit and loss statement. However, the expenditure incurred during this period is also sometimes treated as deferred revenue expenditure to be amortised over a period not exceeding 3 to 5 years after the commencement of commercial production.

Not mandatory, but may be adopted under certain circumstances

Subsequent routine and non-routine maintenance expenditure is expensed. Only expenditure that increases the

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IFRS when the recognition criteria are met. At the same time the carrying amount of the replaced part has to be decapitalised regardless of whether the replaced part had been depreciated separately. The cost of a major inspection or overhaul occurring at regular intervals is capitalized as a replacement where the recognition criteria are satisfied. Revaluation of PPE If an asset's carrying amount is increased as a result of a revaluation, the increase shall be credited directly to equity under the heading of revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an asset's carrying amount is decreased as a result of a revaluation, the decrease shall be recognised in profit or loss. However, the decrease shall be debited directly to equity under the heading of revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Depreciation on revalued portion cannot be recouped out of revaluation reserve If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.

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Indian GAAP future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value. There is no requirement as such for decapitalising the carrying amount of the replaced part under AS 10.

Similar to IFRS

Depreciation on revalued portion can be recouped out of revaluation reserve When revaluations do not cover all the assets of the given class, it is appropriate that the selection of the asset to be revalued be made on systematic basis. For eg, an enterprise

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS

The revaluations must be kept sufficiently up to date so that the carrying amount does not differ materially from the fair value. This requires regular revaluations of all PPE when the revaluation policy is adopted. Management must consider at each year end whether fair value is materially different from carrying value. The fair value of building is normally the market value, which is normally determined by appraisal under taken by experts. The fair values of plant and equipment, are their market values determined by appraisal. When there is no evidence of market value because of the specialized nature of the plant and equipment and because these items are rarely sold, except as a part of a continuing business, they are valued at their depreciated replacement cost. Depreciation An item of property, plant and equipment should be depreciated over its estimated useful life, and the depreciation charge must be recognised as an expense unless it has to be included in the carrying amount of another asset. A depreciation charge must be recognised even when the value of the asset exceeds its carrying amount. There is significant emphasis on separate accounting and depreciation of components of fixed

Indian GAAP may revalue a whole class of assets within a unit.. No such requirement to perform revaluation at regular intervals.

A common method of restating fixed assets is by appraisal, normally undertaken by competent valuers. Other methods allowed under AS 10 are indexation and reference to current prices which when applied are cross checked periodically by appraisal method.

The depreciable amount of each asset should be allocated on a systematic basis over its useful life. In some cases, each significant part of a fixed asset is considered separately and depreciated separately, for e.g. aircraft engine. All companies needs to ensure that minimum depreciation is provided as per rates prescribed in schedule XIV of the Companies Act, 1956. Further top up depreciation should be charged to comply with AS-6 requirements.

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IFRS assets. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Periodic review of depreciation method required. Change in depreciation method is treated as change in accounting estimate and accounted for prospectively Decommissioning and Restoration To the extent it relates to the fixed asset, the changes are added/deducted (after discounting) from the asset in the relevant period. However, the amount deducted is restricted to the carrying value of the relevant asset. The unwinding of discount, is taken to the profit and loss account as a finance charge. Leases Initial direct costs IAS 17 prescribes initial direct cost

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Indian GAAP Estimate of residual value, once determined is not reviewed.

Permitted method of depreciation is SLM and WDV.

Periodic review of depreciation method not required. Change in depreciation method is treated as change in accounting policy. AS 6 requires retrospective recomputation of depreciation and any excess/deficit on such recomputation is required to be adjusted in the period in which the change is effected. No guidance under Indian GAAP. Discounting is prohibited under Indian GAAP. The Guidance Note on Oil and Gas Accounting contains more specific provision relating to such costs, to the extent it relates to oil and gas.

AS 19 requires initial direct cost

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS incurred by lessor to be included in lease receivable amount in case of finance lease and in the carrying amount of the asset in case of operating lease and does not mandate any accounting policy related disclosure.

Sale and leaseback If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount shall not be immediately recognised as income by a seller-lessee. Instead, it shall be deferred and amortised over the lease term.

If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss shall be recognized immediately. If the sale price is below fair value, any profit or loss shall be recognised immediately except that, if the loss is compensated for by future lease payments at below market price, it shall be deferred and amortised in proportion to the lease payments over the period for which the

Indian GAAP incurred by lessor with respect to finance lease to be either charged off at the time of incurrence or to be amortised over the lease period and requires disclosure for accounting policy relating thereto in the financial statements of the lessor. Initial direct costs incurred specifically to earn revenues from an operating lease are either deferred and allocated to income over the lease term in proportion to the recognition of rent income, or are recognised as an expense in the statement of profit and loss in the period in which they are incurred. Similar to IFRS, except that on sale and leaseback which results in a finance lease, AS 19 requires excess/deficiency both to be deferred and amortised over the lease term in proportion to the depreciation of the leased asset.

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IFRS Indian GAAP asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortised over the period for which the asset is expected to be used. Incentive on operating leases received by lessee Recognised over the term of the lease. No guidance. Lease of land IAS 17 deals with lease of land. As per AS 19 excludes lease of land (and IAS 17, leases of land are classified as therefore composite leases) from its operating or finance leases in the same scope. As per the recent Expert way as leases of other assets. However, Advisory Committee opinion, lease of a characteristic of land is that it land which is for a period of 99 years normally has an indefinite economic and is renewable for a similar period life and, if title is not expected to pass has the effect of passing significant to the lessee by the end of the lease rights of ownership to the parties term, the lessee normally does not concerned. Thus, such a lease would be receive substantially all of the risks and in the nature of sale of plots and rewards incidental to ownership, in should be accounted for accordingly. which case the lease of land will be an operating lease. Revenue Definition Revenue is the gross inflow of Revenue is the gross inflow of cash, economic benefits during the period receivables or other consideration arising in the course of the ordinary arising in the course of the ordinary activities of an entity when those activities of an enterprise from the sale inflows result in increases in equity, of goods, from the rendering of other than increases relating to services, and from the use by others of contributions from equity participants. enterprise resources yielding interest, royalties and dividends.

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ICAI has issued a recent clarification which prohibits recognition of interdivision sales. As regards excise duty, the same is reduced from turnover. Sales-tax currently can be included or

IND-AS 41 – First Time Adoption: A Guide IFRS

Measurement Revenue should be measured at the fair value of the consideration received or receivable. Where the inflow of cash or cash equivalents is deferred, discounting to a present value is required to be done. Recognition criteria for sale of goods Revenue from the sale of goods should be recognised when all the following conditions have been satisfied: · the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;

Indian GAAP excluded in turnover. As per a recent Guidance note on VAT issued by ICAI, it is recommended that sales should be disclosed net of VAT. Revenue is measured by the charges made to the customers or clients for goods supplied or services rendered by them and by the charges and rewards arising from the use of resources by them. In case of instalment sales, discounting would be required (see annexure to AS-9). Broadly based on IFRS, though IFRS criteria are more elaborate and detailed.

· the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; · the amount of revenue can be measured reliably;

· it is probable that the economic benefits associated with the transaction will flow to the entity; and

· the costs incurred or to be incurred in respect of the transaction can be measured reliably.

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IFRS Indian GAAP Revenue Recognition – services rendered When the outcome of a transaction Similar to IFRS except that AS 9 involving the rendering of services can permits both completed contract be estimated reliably, revenue method and proportionate completion associated with the transaction should method to be used in measurement of be recognised by reference to the stage performance while recognizing of completion of the transaction at the revenue from rendering of services. balance sheet date. In other words only proportionate completion method is recognized here. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: · the amount of revenue can be measured reliably;

· it is probable that the economic benefits associated with the transaction will flow to the entity;

· the stage of completion of the transaction at the balance sheet date can be measured reliably; and

· the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

When the outcome cannot be estimated reliably, the surrogate of completed contract method is applied. As per this method, revenue equal to cost is recognized. If loss is anticipated on the contract the entire loss is recognized upfront. Interest, Royalties and dividend

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IND-AS 41 – First Time Adoption: A Guide IFRS Revenue arising from the use by others of entity assets yielding interest, royalties and dividends should be recognised if :

Indian GAAP Similar to IFRS except that interest is recognised based on time-proportion basis based on rates applicable.

· it is probable that the economic benefits associated with the transaction will flow to the entity; and · the amount of the revenue can be measured reliably.

Revenue shall be recognised on the following bases:

· interest shall be recognised using the effective interest method · royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement; and

· dividends shall be recognised when the shareholder's right to receive payment is established. Specific revenue recognition issues Software revenue recognition No specific guidance.

No specific guidance other than in respect of Dot-com companies. Accounting for multiple-element contracts No detailed guidance for multipleNo specific guidance other than an EAC element revenue recognition opinion (in the context of cargo arrangements exits. The recognition handling) which requires revenue to criteria are usually applied separately be recognized by attributing the fair to each transaction. However, they are value to individual components.

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IFRS applied to two or more transactions together when they are linked in such a way that the whole commercial effect cannot be understood without reference to the series of transactions as a whole. US GAAP guidance may be followed. Barter transactions When goods or services are exchanged or swapped for goods or services that are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. Revenue on exchanges of dissimilar goods or services is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. If the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred Real Estate Sales D-21 a draft IFRIC interpretation deals with real estate sales. This is still in draft stage. According to D-21, real estate sales by developers is to be treated as product sales, and consequently revenue is recognised when the real estate is eventually delivered to the buyer. This is dealt in detail in a separate chapter in the book. Detailed Guidance

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Indian GAAP

No specific guidance other than in the Guidance Note on “Accounting for Dotcom Companies”. It deals with advertising barter transactions. Revenue from barter transactions should be recognized only when the fair values of similar transactions are readily determinable from the entity’s history.

As per the Guidance Note on Recognition of Revenue by Real Estate Developers, issued by the ICAI, revenue on real estate sales by developers is recognised on a percentage of completion method once the sale deed is executed with the buyer, even though the real estate may not be ready for transfer or possession by the buyer.

IND-AS 41 – First Time Adoption: A Guide IFRS IFRS provides more detailed guidance in respect of financial service fees, franchise fees, licence fees, etc Employee Benefits Accounting for defined benefit plans Discount rate to be used for determining defined benefit obligation is by reference to market yields at the balance sheet date on high quality corporate bonds (or, in countries where there is no deep market in such bonds, government bonds) of a currency and term consistent with the currency and term of the postemployment benefit obligations. Actuarial gains and losses IAS 19 provides options to recognize actuarial gains and losses as follows: · all actuarial gains and losses can be recognized immediately in the P&L

Indian GAAP Detailed guidance is available for dotcom companies and oil and gas producing companies. Discount rate to be used for determining defined benefit obligation is by reference to market yields at the balance sheet date on government bonds of a currency and term consistent with the currency and term of the post-employment benefit obligations. Actuarial gain or loss should be recognized immediately in P&L A/c.

· all actuarial gains and losses can be recognized immediately in SORIE

· actuarial gains and losses below the 10% of the present value of the defined benefit obligation at that date (before deducting plan assets) and fair value of plan assets at that date (referred to as “corridor”) need not be recognized and above the 10% corridor can be deferred over the remaining service period of employees or on accelerated basis. · any policy applied should be applied

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IFRS consistently and the same policy should be applied for actuarial gains and losses Termination benefits An entity should recognise termination benefits only when it is demonstrably committed to either: 路 terminate the employment of employees before the normal retirement date; or

路 provide termination benefits after employees have accepted voluntary redundancy in exchange for termination benefits.

Indian GAAP

Termination benefits are accounted only when employee accepts VRS scheme. Termination benefits are expensed off immediately in the P&L or are considered as deferred revenue expenditure. AS-15 transitional provision provides an option to defer termination benefits over the pay-back period. However, the expenditure cannot be carried forward to accounting periods commencing on or after 1st April, 2010.

If the termination benefits fall due more than one year after the balance sheet date they should be discounted, using a rate determined by reference to the market yields on high quality corporate bonds at the balance sheet date. In countries where there is no deep market in such bonds, the market yields (at the balance sheet date) on government bonds should be used. Government Grants Grants in the form of non-monetary assets IAS 20 provides an option to entities to AS 12 does not provide such option. It account for government grants in the requires government grants in the form of non-monetary assets, given at a form of non-monetary assets, given at concessional rate, either at their fair a concessional rate, to be accounted value or at the acquisition cost. for on the basis of their acquisition cost only. In case a non-monetary asset is given free of cost, it should be recorded at a nominal value.

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IND-AS 41 – First Time Adoption: A Guide IFRS Indian GAAP Grants in the nature of promoter’s contribution IAS 20 does not recognise the concept AS 12 requires certain grants, viz., on recognising grants directly in grants in the nature of promoter’s reserves. Government grants shall be contribution and grants related to nonrecognised as income over the periods depreciable assets which do not have necessary to any conditions attached to them, to be recognised directly in ‘capital reserve’ which is a part of ‘shareholders’ funds’. match them with the related costs which they are intended to compensate, on a systematic basis. They shall not be credited directly to shareholders’ interests. Refundable grants In case government grant related to a In case government grant related to a specific fixed asset becomes specific fixed asset becomes refundable, IAS 20 requires refundable, AS 12 requires retrospective re-computation of depreciation on the revised book value depreciation to be done. It also to be provided prospectively over the requires that cumulative additional remaining useful life of the asset. depreciation that would have been recognised to date as an expense in the absence of the grant should be recognised immediately as an expense. Disclosures IAS 20 requires additional disclosure of AS 12 doesn’t require any such unfulfilled conditions and other additional disclosure. contingencies attached to government assistance that has been recognized Accounting for exchange differences Integral & Non-integral foreign operation There is no distinction being made The revised AS 11 distinguishes between integral & non-integral between integral and non-integral foreign operation as per the revised foreign operations and accordingly IAS 21. There is a concept of functional prescribes separate accounting currency (see below). All enterprises treatment for integral operations and

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IFRS are required to prepare their financial statements in functional currency. Any exchange gain/loss to record a transaction in its functional currency is recognized in the P&L A/c. If the financial statements are presented in any other currency other than functional currency, the assets/liabilities are translated at closing rate and income/expenses at an average rate. The resultant exchange gain/loss is recognized in SOCIE.

Indian GAAP non-integral one.

The financial statements of an integral foreign operation should be translated using the principles and procedures as if the transactions of the foreign operation had been those of the reporting enterprise itself.

In translating the financial statements of a non-integral foreign operation for incorporation in its financial statements, the reporting enterprise should use the following procedures:

路 the assets and liabilities, both monetary and non-monetary, of the non-integral foreign operation should be translated at the closing rate

路 income and expense items of the nonintegral foreign operation should be translated at exchange rates at the dates of the transactions, and

Concept of Functional Currency Functional currency is defined as the currency of the primary economic environment in which the entity operates. IAS 21 provides factors for determination of functional currency, factors providing evidence of functional currency and additional

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路 all resulting exchange differences should be accumulated in foreign currency translation reserve until the disposal of the net investment.

There is no concept of determining the functional currency by the entities involved as per revised AS 11. The reporting entity here has to follow the prescribed methods given for conversion based on integral or nonintegral operations of the respective

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS factors for determining functional currency. As per revised IAS 21, when a reporting entity prepares financial statements, each individual entity included in the reporting entitywhether it is a stand-alone entity, an entity with foreign operations (such as a parent) or a foreign operation (such as a subsidiary or branch) has to determine its functional currency and measure its results and financial position in that currency. Capitalization of exchange differences Prohibited, other than those included as borrowing costs. Borrowing cost Recognition IAS 23 Benchmark treatment All borrowing costs should be recognised as an expense in the period in which they are incurred. IAS 23 Alternative treatment

The entity has an option to capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Qualifying assets Qualifying assets are those assets that require a substantial period of time to get ready for their intended use or sale;

Indian GAAP entity.

Though earlier required by Schedule VI, the Companies (Accounting Standards) Rules now prohibits it. For non-corporate entities, prohibited by AS-11. Borrowing cost should be recognised as an expense in the period in which they are expensed. However, entity must capitalize borrowing cost that are directly attributable to the acquisition, construction or production of a qualifying asset.

Similar to IFRS. However, substantial period of time has been defined to generally mean more than 12 months.

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IFRS are not routinely produced in large quantities or on a repetitive basis over a short period of time; and are not ready for their intended use or sale when acquired. Capitalisation rate The disclosure requirements of IAS 23 require the entity to disclose separately the capitalization rate used to determine the amount of borrowing costs. Related Party disclosures Identification of related parties IAS 24 uses the term ‘financial and operating decisions’ in defining related party.

IFRS include post employment benefit plans as related parties. IAS 24 includes close members of the families of KMPs as related party as well as of persons who exercise control/significant influence. Definition of control IAS 24 contains principle based definition of the term ‘Control’. As per IAS 24, control is the power to govern the financial and operating policies of

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Indian GAAP

No such separate disclosure is required under AS 16

AS 18 definition of related party is ‘Parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions’. Therefore, it appears that AS 18 definition is more stringent in this regard. Unlike IFRS, AS 18 does not include post employment benefit plans as related parties. AS 18 covers only relatives of KMPs.

AS 18 defines control as (i) ownership, directly, or indirectly, of more than one half of the voting power of an entity, (ii) control of composition of the board

IND-AS 41 – First Time Adoption: A Guide IFRS an entity so as to obtain benefits from its activities. Significant influence As per IAS 24, significant influence is the power to participate in both financial and operating policy decisions of an entity, but is not control over those policies. Under IFRS, significant influence may be gained by share ownership, statute or agreement. IAS 24, however, does not specify any particular share holding or voting power which would result into significant influence.

Close relatives IAS 24 adopts a more ‘substance over form’ based approach in defining relatives as close members of the family, i.e., they are those who influence and can be influenced by the individual in his/ her dealings with the reporting entity. IAS 24 does not limit the same to any specific relations. Information to be disclosed Relationships between parents and subsidiaries shall be disclosed irrespective of whether there have been transactions between those related parties. An entity shall disclose the name of the entity’s parent and, if

Indian GAAP of directors or the governing body; or (iii) a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/ or operating policies of an entity.

As per AS 18, an entity is considered to have significant influence over the other entity even if it has the power to participate in either financial or operating policy decisions or both of the other entity, but not control of those policies. AS 18 specifies rebuttable presumptions that an entity is considered to have a substantial interest in another entity if that entity owns, directly or indirectly, 20 per cent or more interest in the voting power of the other entity. AS 18 includes specific relations as relatives.

Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the

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IFRS different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed. If there have been transactions between related parties, an entity shall disclose the nature of the related party relationship as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements. At a minimum, disclosures shall include: (a) the amount of the transactions;

(b) the amount of outstanding balances and:

(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and (ii) details of any guarantees given or received; (c) provisions for doubtful debts related to the amount of outstanding balances; and

(d) the expense recognised during the period in respect of bad or doubtful

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Indian GAAP related parties.

If there have been transactions between related parties, during the existence of a related party relationship, the reporting entity should disclose the following:

· the name of the transacting related party; · a description of the relationship between the parties; · a description of the nature of transactions;

· volume of the transactions either as an amount or as an appropriate proportion; · any other elements of the related party transactions necessary for an understanding of the financial statements;

· the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties

IND-AS 41 – First Time Adoption: A Guide IFRS debts due from related parties.

Indian GAAP at that date; and

· amounts written off or written back in the period in respect of debts due from or to related parties. AS 18 has no such stipulation on substantiation of related party transactions when the same is disclosed to be on arm’s length basis.

IAS 24 provides that an entity discloses that the terms of related party transactions are equivalent to those that prevail in arm’s length transactions only if such terms can be substantiated. IAS 24 requires disclosure of terms and There is no such disclosure conditions of outstanding items requirement under AS 18. pertaining to related parties Definition of Key Management Personnel The definition of KMP under IAS 24 AS-18/ASI-18 excludes non-executive includes any director whether directors from the definition of KMP. executive or otherwise. This means that even non-executive directors are covered under KMP definition and would be a related party. IFRS requires disclosure of the AS 18 does not require break-up of compensation of key management compensation cost to be disclosed. personnel in total and by category of However elaborate disclosures are compensation. required under Schedule VI. Exemption from disclosures There is no exemption provided for Related party disclosure requirements disclosure under IFRS in cases where as laid down in AS 18 do not apply in disclosure of information would circumstances where providing such conflict with duties of confidentiality in disclosures would conflict with the terms of statute or regulating reporting enterprise's duties of authority. confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority. No such exemption. No disclosure is required in the financial statements of state-controlled

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IFRS

10% materiality provision does not exist. Consolidated Financial Statements Presentation of CFS All parents shall present CFS in which it consolidates its investments in subsidiaries except that parent which satisfies following conditions :

路 the parent is itself a wholly-owned subsidiary or it is a partially owned subsidiary of another entity and its owners, including those not otherwise entitled to vote, have been informed about, and do not object to nonpreparation of CFS 路 Parents debt or equity instruments are not traded in a public market

路 the parent did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and 路 the ultimate or any intermediate parent of the parent produces CFS available for public use that comply

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Indian GAAP enterprises as regards related party relationships with other statecontrolled enterprises and transactions with such enterprises. For the purposes of giving aggregated disclosures rather than detailed disclosures the 10% materiality rule would apply. It is not mandatory for companies to prepare CFS under AS-21. However, listed enterprises are mandatorily required by the terms of listing agreement of SEBI to prepare and present CFS.

Even if a listed parent company, is a subsidiary of another company, it would be required to prepare consolidated financial statements. AS 21 does not apply to unlisted companies, unless an unlisted company voluntarily consolidates in which case AS 21 would have to be fully complied with.

IND-AS 41 – First Time Adoption: A Guide IFRS with IFRS. CFS includes all subsidiaries. A subsidiary that meets, on acquisition, the criteria to be classified as held for sale in accordance with IFRS 5, Non Current Assets Held for Sale and Discontinued Operation, applies the presentation for assets held for sale (ie separate presentation of assets and liabilities to be disposed), rather than normal line by line consolidation.

Meaning of subsidiary A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent). Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Indian GAAP CFS includes all subsidiaries other than a subsidiary when control over that subsidiary is likely to be temporary. Considers a subsidiary to be temporarily controlled when it is acquired and held exclusively with a view to its subsequent disposal in the near future. Also precludes consolidation of a subsidiary that operates under severe long term restrictions, which significantly impair its ability to transfer funds to the parent. In the CFS, the precluded subsidiaries are accounted as per AS13 and the reasons for not consolidating are disclosed. A subsidiary is an enterprise that is controlled by another enterprise (known as the parent). Control means (a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. As per ASI 24, an entity can be subsidiary of two entities when as per definition of the term ‘control’ the entity is controlled by both entities – one by control over the governing

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IFRS

SIC 12 states that a special purpose entity (SPE) should be consolidated when the substance of the relationship between an enterprise and the SPE indicates that the SPE is controlled by that enterprise. The following circumstances, indicate an entity controls an SPE and should therefore consolidate the SPE:

· in substance, the activities of the SPE are being conducted on behalf of the entity according to its specific business needs so that the entity obtains benefits from the SPE operation;

· in substance, the entity has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an ‘autopilot’ mechanism, the entity has delegated these decision making powers; · in substance, the entity has the rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incident to the activities of the SPE; · in substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets, in order to obtain benefits from its

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Indian GAAP body and other through majority in voting power. No specific guidance is available for consolidation of SPE or VIE. Under IFRS and US GAAP, an entity could be consolidated even if the controlling entity does not hold a single share in the controlled entity. Instances of consolidation, under such circumstances is rare under Indian GAAP.

IND-AS 41 – First Time Adoption: A Guide IFRS Indian GAAP activities Determination of control – potential voting rights Potential voting shares, which are No guidance in Indian GAAP. As per currently exercisable, should be ASI-18, potential voting rights are not considered for determining control. considered for determining significant influence in the case of an associate. An analogy can be drawn from this accounting that they are not to be considered for determining control as well, in the case of a subsidiary. Parent only financial statements IAS 27 also provides guidance for the Under AS 21, in a parents separate accounting for investments in financial statements, investments in subsidiaries in a parent’s separate subsidiary should be accounted for in financial statements. IAS 27 requires accordance with AS 13, Accounting for that a parent’s investment in a Investments, which is at cost as subsidiary be accounted for in the adjusted for any diminution other than parent’s separate financial statements temporary in value of those (a) at cost, (b) as available-for-sale investments. financial assets as described in IAS 39. Under IFRS parent only financial statements are not required to be prepared. However, respective national regulations may require parent only financial statements. Consolidation procedure Acquisition accounting Based on fair values. Acquisition accounting requires drawing up of financial statements as on the date of acquisition for computing parent’s portion of equity in a subsidiary.

Based on carrying value. Under AS 21, for computing parent’s portion of equity in a subsidiary at the date on which investment is made, the financial statements of immediately preceding period can be used as a basis of consolidation if it is impracticable to draw financial statement of the subsidiary as on the

149

IFRS

Intra-group elimination Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full. Intragroup losses may indicate an impairment that requires recognition in the CFS. Deferred tax should be calculated on temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions. Reporting periods The financial statements of the parent and its subsidiaries used in the preparation of the CFS shall be prepared as of the same reporting date. When the reporting dates of the parent and a subsidiary are different, the subsidiary prepares, for consolidation purposes, additional financial statements as of the same date as the financial statements of the parent unless it is impracticable to do so. When the financial statements of a subsidiary used in the preparation of CFS are prepared as of a reporting date different from that of the parent, adjustments shall be made for the

150

Indian GAAP date of investment. Adjustments are made to these financial statements for the effects of significant transactions or other events that occur between the dates of such financial statements. Similar to IFRS, except no deferred tax is recognised on elimination of intragroup transactions.

Similar to IFRS except that the difference between reporting dates should not be more than six months.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS effects of significant transactions or events that occur between that date and the date of the parentâ&#x20AC;&#x2122;s financial statements. In any case, the difference between the reporting date of the subsidiary and that of the parent shall be no more than three months. The length of the reporting periods and any difference in the reporting dates shall be the same from period to period. Uniform accounting policy Compliance with uniform accounting policies is mandatory.

Minority interest Minority interests shall be presented in the consolidated balance sheet within equity, separately from the parent shareholders' equity. Minority interests in the profit or loss of the group shall also be separately disclosed. Investment in associates Exemptions IAS 28 does not apply to investments in associates held by (i) mutual funds or

Indian GAAP

CFS should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the CFS, that fact should be disclosed together with the proportions of the items in the CFS to which the different accounting policies have been applied. Though uniform accounting policies are not mandatory, it is important to note that those policies, nevertheless, have to be in compliance with Indian GAAP.

Minority interests should be presented in the consolidated balance sheet separately from liabilities and the equity of the parent's shareholders. Minority interests in the income of the group should also be separately presented. There is no such exemption under AS 23. Thus, entities such as mutual funds

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IFRS (ii) venture capital organisations, etc., that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with IAS 39.

Significant influence Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Method of accounting Investment in associate should be accounted using equity method of

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Indian GAAP and venture capital organisations would be required to account for their investments in associates as per AS 23 in their CFS.

Recently, with the issuance of accounting standards on financial instruments, ICAI has also made a limited revision to AS 23. As per the revision, a similar exclusion has been provided in AS 23 also. This revision is effective for periods beginning on or after April 1, 2009 (recommendatory) or April 1, 2011 (mandatory). Similar to IFRS. Under AS 23 significant influence is the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies. The word â&#x20AC;&#x2DC;orâ&#x20AC;&#x2122; is not there in IAS 28. Therefore under IAS 28 the power to participate should exist for both financial and operating policies; whereas under AS 23, either one would suffice to determine significant influence. As per ASI 18, potential voting rights are not considered for determining significant influence in the case of an associate.

Similar to IFRS, except that goodwill amount is not determined in

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS accounting in CFS. Under the equity method, the investment in an associate is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. If an investorâ&#x20AC;&#x2122;s share of losses of an associate equals or exceeds its interest in an associate, the investors discontinues recognizing its share of further losses. The interest in an associate is the carrying amount of the investment in the associate under the equity method together with any long term interest that, in substance form part of the investorâ&#x20AC;&#x2122;s net investment in the associate. The investor's share of the profit or loss of the investee is recognised in the investor's profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor's proportionate interest in the investee arising from changes in the investee's equity that have not been recognised in the investee's profit or loss. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor's share of those changes is recognised directly in equity of the investor. The investor must account for the difference, on acquisition of the

Indian GAAP accordance with IFRS 3. Goodwill determination is based on book values rather than fair values of the investee.

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IFRS investment, between the cost of the acquisition and investorâ&#x20AC;&#x2122;s share of identifiable assets, liabilities and contingent liabilities is accounted for in accordance with IFRS 3. Goodwill relating to associate is included in the carrying amount of investment. In separate financial statements, investments are carried at cost or in accordance with IAS 39.

The entire investment in associate including goodwill is tested for impairment. Impairment is tested if the investment has objective evidence of one of the impairment indicators. In the estimation of future cash flows, the investor may use its share of future net cash flows in the investment, or the cash flows expected to arise from dividends. The investeeâ&#x20AC;&#x2122;s goodwill is not subject to direct impairment testing by the investor. Exceptions to associate accounting Equity accounting applied except

154

Indian GAAP

In separate financial statements, investments are carried at cost less decline in value other than temporary.

Recently, with the issuance of accounting standards on financial instruments, ICAI has also made a limited revision to AS 23. As per the revision, investment in an associate be accounted for in the separate financial statements either (a) at cost, or (b) in accordance with AS 30. This revision is effective for periods beginning on or after April 1, 2009 (recommendatory) or April 1, 2011 (mandatory). Impairment testing of associate investment is required and the practice would be to apply AS-28 principles. If an other-than-temporary impairment is determined to exist,, such reduction is determined and made for each investment individually.

Associates are accounted using the equity method in the CFS accounts

IND-AS 41 – First Time Adoption: A Guide IFRS when:

· investments in associate held for sale is accounted in accordance with IFRS 5 · the reporting entity is also a parent and is exempt from preparing CFS under IAS 27

· where reporting entity is not a parent, and (a) the investor is a wholly owned subsidiary itself or a partially owned subsidiary, and its other owners, including those not entitled to vote, have been informed about and do not object to the investor not applying the equity method (b) the investors debt/equity are not publicly traded (c) the investor is not planning a public issue of any of its securities (d) the ultimate or immediate parent of the investor produces CFS available for public and comply with IFRS Where the reporting entity is not a parent, but has associates, it will need to equity accounts its associates in its own financial statements, if the above exemptions do not apply. These are not separate financial statements. Reporting period The most recent available financial statements of the associate are used by the investor in applying the equity method. When the reporting dates of the investor and the associate are different, the associate prepares, for

Indian GAAP only when CFS accounts are prepared. However, equity accounting is not applied when: · the investment is acquired and held with a view to its subsequent disposal in the near future, or · the associate operates under severe long term restrictions which significantly impair its ability to transfer funds to the investor.

The above exempted investments are accounted as per AS-13 in the CFS (and stand alone).

The most recent available financial statements of the associate are used by the investor in applying the equity method; they are usually drawn up to the same date as the financial statements of the investor. When the

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IFRS the use of the investor, financial statements as of the same date as the financial statements of the investor unless it is impracticable to do so. The financial statements of an associate used in applying the equity method if prepared as of a different reporting date from that of the investor, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the investor's financial statements. In any case, the difference between the reporting date of the associate and that of the investor shall be no more than three months. The length of the reporting periods and any difference in the reporting dates shall be the same from period to period. Uniform accounting policies The investor's financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.

Display of goodwill

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Indian GAAP reporting dates of the investor and the associate are different, the associate often prepares, for the use of the investor, statements as at the same date as the financial statements of the investor. When it is impracticable to do this, financial statements drawn up to a different reporting date may be used. The consistency principle requires that the length of the reporting periods, and any difference in the reporting dates, are consistent from period to period. Unlike IFRS there is no limit of 3 months between reporting dates.

Investor usually prepares CFS using uniform accounting policies for the like transactions and events in similar circumstances. In case an associate uses accounting policies other than those adopted for the CFS for like transactions and events in similar circumstances, appropriate adjustments are made to the associateâ&#x20AC;&#x2122;s financial statements when they are used by the investor in applying the equity method. If it is not practicable to do so, that fact is disclosed along with a brief description of the differences between the accounting policies.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Goodwill or capital reserves within the investment amount are not required to be separately identified. Investments in non-associate IAS 39, Financial Instruments: Recognition and Measurement, requires investments in equity securities to be carried at fair value, except for those whose fair value cannot be reliably measured (generally limited to some equity securities with no quoted market price and forwards and options on unquoted equity securities). Disposition of associate An investor shall discontinue the use of the equity method from the date that it ceases to have significant influence over an associate and shall account for the investment in accordance with IAS 39 from that date, provided the associate does not become a subsidiary or a joint venture. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset in accordance with IAS 39. Accounting for joint-ventures Exclusions IAS 31 does not apply to interests in joint ventures held by (i) mutual funds or (ii) venture capital organisations, etc., that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in

Indian GAAP Goodwill or capital reserves within the investment amount are required to be separately identified.

Under AS 13 these investments would be accounted for based on the long term/current classification. Long term investments would be valued at cost less diminution other than temporary, whereas current investments would be valued at lower of cost or market.

Similar to IFRS. Investment in an entity that ceases to be an associate shall be accounted for in accordance with AS 13.

There is no such exemption under AS 27. Thus, entities such as mutual funds and venture capital organisations would be required to account for their interests in joint ventures as per AS 27 in their CFS.

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IFRS accordance with IAS 39.

Definition of Joint-venture A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control.

Indian GAAP Recently, with the issuance of accounting standards on financial instruments, ICAI has also made a limited revision to AS 27. As per the revision, a similar exclusion has been provided in AS 27 also. This revision is effective for periods beginning on or after April 1, 2009 (recommendatory) or April 1, 2011 (mandatory).

Similar to IFRS. However, sometimes though a contractual arrangement may suggest a joint venture, the investee is accounted as a subsidiary if the investors share in the investee’s equity is greater than 50%.

IAS 31 does not apply if the parent is exempt from preparing CFS under IAS 27. Similar exemption for investor satisfying same conditions as parent. There is no such specific provision under AS 27. Accounting for jointly controlled entities A venturer shall recognise its interest Accounting for jointly controlled in a jointly controlled entity in its CFS entities is required to be done using using proportionate consolidation proportionate consolidation method in (benchmark treatment) or equity CFS. method (alternative treatment) of accounting. However, proportionate method of accounting is the more recommended. Proportionate Consolidation or Equity Exceptions to proportionate accounting applied except when: consolidation: · investments in JCE held for sale is

158

· JCE is acquired and held exclusively with a view to its subsequent disposal

IND-AS 41 – First Time Adoption: A Guide IFRS accounted in accordance with IFRS 5

· the reporting entity is also a parent and is exempt from preparing CFS under IAS 27

· where reporting entity is not a parent, and (a) the investor is a wholly owned subsidiary itself or a partially owned subsidiary, and its other owners, including those not entitled to vote, have been informed about and do not object to the investor not applying the equity method (b) the investors debt/equity are not publicly traded (c) the investor is not planning a public issue of any of its securities (d) the ultimate or immediate parent of the investor produces CFS available for public and comply with IFRS Where the reporting entity is not a parent, but has JCE, it will need to equity account or proportionately consolidate its JCE in its own financial statements, if the above exemptions do not apply. These are not separate financial statements. In separate financial statements, JCE are accounted at cost or in accordance with IAS 39

Indian GAAP in the near future

· Operates under severe long term restriction which significantly impair its ability to transfer fund to the investor.

In separate financial statements, JCE are accounted at cost less impairment. Recently, with the issuance of accounting standards on financial instruments, ICAI has also made a limited revision to AS 27. As per the revision, interest in JCE be accounted for in the separate financial statements either (a) at cost, or (b) in accordance

159

IFRS

Indian GAAP with AS 30. This revision is effective for periods beginning on or after April 1, 2009 (recommendatory) or April 1, 2011 (mandatory) Discontinuance of joint venture accounting IAS 31 requires cessation of both the A venturer should discontinue the use benchmark and the allowed alternative of proportionate consolidation from treatments for accounting for jointly the date that it ceases to have joint controlled entities when the venturer control over a jointly controlled entity ceases to have joint control. It also but retains, either in whole or in part, requires that an investor in a joint its interest in the entity; or the use of venture that does not have joint control the proportionate consolidation is no reports its interest in the joint venture longer appropriate because the jointly in its consolidated financial statements controlled entity operates under in accordance with IAS 39, Financial severe long-term restrictions that Instruments: Recognition and significantly impair its ability to Measurement, or in accordance with transfer funds to the venturer. From IAS 28, Accounting for Investments in the date of discontinuing the use of the Associates, if it has significant influence proportionate consolidation, interest in the joint venture. in a jointly controlled entity should be accounted for in accordance with Accounting Standard (AS) 21, Consolidated Financial Statements, if the venturer acquires unilateral control over the entity and becomes parent within the meaning of that Standard; and in all other cases, as an investment in accordance with Accounting Standard (AS) 13, Accounting for Investments, or in accordance with Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements, as appropriate. Reporting period The most recent available financial The financial statements of the jointly statements of the JCE are used by the controlled entity used in applying

160

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS investor in applying the equity method. When the reporting dates of the investor and the JCE are different, the JCE prepares, for the use of the investor, financial statements as of the same date as the financial statements of the investor unless it is impracticable to do so. The financial statements of a JCE used in applying the equity method if prepared as of a different reporting date from that of the investor, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the investor's financial statements. In any case, the difference between the reporting date of the JCE and that of the investor shall be no more than three months. The length of the reporting periods and any difference in the reporting dates shall be the same from period to period. Uniform Accounting Policies The venturerâ&#x20AC;&#x2122;s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.

Earning per share Applicability IAS 33 shall be applied by entities

Indian GAAP proportionate consolidation are usually drawn up to the same date as the financial statements of the venturer. When the reporting dates are different, the jointly controlled entity often prepares, for applying proportionate consolidation, statements as at the same date as that of the venturer. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. In such a case, adjustments are made for the effects of significant transactions or other events that occur between the date of financial statements of the jointly controlled entity and the date of the venturerâ&#x20AC;&#x2122;s financial statements. The consistency principle requires that the length of the reporting periods, and any difference in the reporting dates, are consistent from period to period. The venturer usually prepares consolidated financial statements using uniform accounting policies for like transactions and events in similar circumstances. If it is not practicable to do so, that fact is disclosed together with the proportion of the items in the CFS to which different accounting policies have been applied. Every company who are required to

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IFRS whose ordinary shares or potential ordinary shares are publicly traded and by entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets.

Basic EPS An entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period. For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity holders

162

Indian GAAP give information under Part IV of schedule VI is required to disclose and calculate earning per share in accordance with AS-20. In other words, all companies are required to disclose EPS.

IAS 33 allows omission of EPS disclosures in parent only financial statements and requires disclosure only in Consolidated Financial Statements on the basis of information used in such financial statements. AS 20, on the other hand, requires disclosure of basic and diluted EPS information in the parent only as well as consolidated financial statements. Basic earnings per share should be calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. For the purpose of calculating basic earnings per share, the net profit or loss for the period attributable to equity shareholders should be the net profit or loss for the period after deducting preference dividends and any attributable tax thereto for the period. For the purpose of calculating basic earnings per share, the number of equity shares should be the weighted average number of equity

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS of the parent entity in respect of:

a) profit or loss from continuing operations attributable to the parent entity; and

Indian GAAP shares outstanding during the period.

b) profit or loss attributable to the parent entity

shall be the amounts in (a) and (b) adjusted for the after-tax amounts of preference dividends, differences arising on the settlement of preference shares, and other similar effects of preference shares classified as equity. Restatements IAS 33 provides that EPS calculation of Since under Indian GAAP retroactive all periods presented (including prior restatement is not permitted for year comparatives) should be adjusted changes in accounting policies and for effects of fundamental errors and prior period items, the effect of these adjustments resulting from changes in items are felt in the EPS of current accounting policies. period. Written put option Contracts that require the entity to No specific guidance. repurchase its own shares, such as written put options and forward purchase contracts, are reflected in the calculation of diluted earnings per share if the effect is dilutive. If these contracts are 'in the money' during the period (ie the exercise or settlement price is above the average market price for that period), the potential dilutive effect on earnings per share shall be calculated Treatment of share application money No specific guidance. Guidance given in Share application money pending

163

IFRS Indian GAAP can also be applied in IFRS.

Treatment of preference dividend (i) The after-tax amount of preference dividends that is deducted from profit or loss is (a) the after-tax amount of any preference dividends on noncumulative preference shares declared in respect of the period; and (b) the after-tax amount of the preference dividends for cumulative preference shares required for the period, whether or not the dividends have been declared. The amount of preference dividends for the period does not include the amount of any preference dividends for cumulative preference shares paid or declared during the current period in respect of previous periods. (ii) Preference shares that provide for a low initial dividend to compensate an entity for selling the preference shares at a discount, or an above-market dividend in later periods to compensate investors for purchasing preference shares at a premium, are sometimes referred to as increasing rate preference shares. Any original

164

Indian GAAP allotment or any advance share application money as at the balance sheet, which is not statutorily required to be kept separately and is being utilised in the business of the enterprise, is treated in the same manner as dilutive potential equity shares for the purpose of calculation of diluted earnings per share.

The amount of preference dividends for the period that is deducted from the net profit for the period is (a) the amount of any preference dividends on non-cumulative preference shares provided for in respect of the period; and (b) the full amount of the required preference dividends for cumulative preference shares for the period, whether or not the dividends have been provided for. The amount of preference dividends for the period does not include the amount of any preference dividends for cumulative preference shares paid or declared during the current period in respect of previous periods. AS 20 does not provide any specific guidance on points (ii) to (v). However, normally, such practices are not followed under Indian GAAP.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS issue discount or premium on increasing rate preference shares is amortised to retained earnings using the effective interest method and treated as a preference dividend for the purposes of calculating earnings per share.

Indian GAAP

(iii) Preference shares may be repurchased under an entityâ&#x20AC;&#x2122;s tender offer to the holders. The excess of the fair value of the consideration paid to the preference shareholders over the carrying amount of the preference shares represents a return to the holders of the preference shares and a charge to retained earnings for the entity. This amount is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.

(iv) Early conversion of convertible preference shares may be induced by an entity through favourable changes to the original conversion terms or the payment of additional consideration. The excess of the fair value of the ordinary shares or other consideration paid over the fair value of the ordinary shares issuable under the original conversion terms is a return to the preference shareholders, and is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.

165

IFRS Indian GAAP (v) Any excess of the carrying amount of preference shares over the fair value of the consideration paid to settle them is added in calculating profit or loss attributable to ordinary equity holders of the parent entity. Shares issued as part of cost of business combination Ordinary shares issued as part of the AS 20 deals only with treatment of cost of a business combination are equity shares issued as part of included in the weighted average consideration in an amalgamation. As number of shares from the acquisition per AS 20, equity shares issued as part date. This is because the acquirer of the consideration in an incorporates into its income statement amalgamation in the nature of the acquireeâ&#x20AC;&#x2122;s profits and losses from purchase are included in the weighted that date. average number of shares as of the date of the acquisition because the transferee incorporates the results of the operations of the transferor into its statement of profit and loss as from the date of acquisition.

166

Equity shares issued during the reporting period as part of the consideration in an amalgamation in the nature of merger are included in the calculation of the weighted average number of shares from the beginning of the reporting period because the financial statements of the combined entity for the reporting period are prepared as if the combined entity had existed from the beginning of the reporting period. Therefore, the number of equity shares used for the calculation of basic earnings per share in an amalgamation in the nature of merger is the aggregate of the

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS

Disclosures In addition to disclosure of EPS on continuing operations, an entity that reports a discontinuing operation shall disclose the basic and diluted amounts per share for the discontinuing operation either on the face of the income statement or in the notes to the financial statements. IFRS does not consider any item as extra-ordinary and such disclosures are prohibited. Thus the question of disclosure of EPS pre and post extra-ordinary items does not arise. Disclosure is required for instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are antidilutive for the period(s) presented. A description of ordinary share transactions or potential ordinary share transactions, other than those accounted for that occur after the balance sheet date and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the

Indian GAAP weighted average number of shares of the combined entities, adjusted to equivalent shares of the entity whose shares are outstanding after the amalgamation. Basic and diluted EPS with and without extra-ordinary items is required. Basic and diluted EPS may also be provided voluntarily based on other measurements. AS 20 does not require any separate EPS disclosure for continuing and discontinuing operations.

No such requirement

Not mandatory

167

IFRS reporting period. No such requirement Interim financial Reporting Applicability Full compliance required. Does not consider law over-riding requirement of IAS 34.

Indian GAAP The nominal value of shares along with the earnings per share figures is required to be disclosed

If a statute governing an enterprise or a regulator requires an enterprise to prepare and present certain information at an interim date which is different in the form and/or content as required by AS 25, the statute would apply. Minimum content of Interim financial reporting Condensed balance sheet, condensed Similar to IFRS except that statement Income statement, Condensed of changes in equity is not applicable. statement of changes in equity, Clause 41 of the listing agreement condensed cash flow, explanatory prescribes specific format in which all notes and disclosures like EPS etc. are listed companies should publish their required. quarterly results. Disclosure of compliance with GAAP If an entity’s interim financial report is No such requirement even though in compliance with this IAS 34, that fact interim financial statements should should be disclosed. An interim comply with all Accounting Standards. financial report should not be described as complying with IFRS unless it complies with all of the requirements of each applicable Standard/IFRIC. Change in accounting policy A change in accounting policy, other SEBI clause 41 and AS 5 does not than one for which the transition is require retroactive restatement. specified by a new Standard or Rather changes in accounting policies Interpretation, shall be reflected by are given effect to in the current year. · restating the financial statements of

168

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP prior interim periods of the current financial year and the comparable interim periods of any prior financial years that will be restated in the annual financial statements in accordance with IAS 8; or

Âˇ when it is impracticable to determine the cumulative effect at the beginning of the financial year of applying a new accounting policy to all prior periods, adjusting the financial statements of prior interim periods of the current financial year, and comparable interim periods of prior financial years to apply the new accounting policy prospectively from the earliest date practicable. Accounting for Leave benefits in interim financials Accumulating compensated absences No specific guidance are those that are carried forward and can be used in future periods if the current period's entitlement is not used in full. IAS 19, Employee Benefits, requires that an entity measure the expected cost of and obligation for accumulating compensated absences at the amount the entity expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date. That principle is also applied at interim financial reporting dates. Conversely, an enterprise recognises no expense or liability for nonaccumulating compensated absences at an interim reporting date, just as it recognises none at an annual reporting

169

IFRS Indian GAAP date. Interim period manufacturing cost variances Price, efficiency, spending, and volume No specific guidance variances of a manufacturing enterprise are recognised in income at interim reporting dates to the same extent that those variances are recognised in income at financial year end. Deferral of variances that are expected to be absorbed by year end is not appropriate because it could result in reporting inventory at the interim date at more or less than its portion of the actual cost of manufacture. Deferred tax IAS 34 requires a discrete approach for AS 25 is the same as IAS 34. However, taxes. However unrecognized DTA, ICAIs â&#x20AC;&#x153;Guidance Note on Measurement which becomes recognizable are of Income tax Expense in the Context accounted for by adjusting the effective of AS 25â&#x20AC;? seems to be suggesting use of tax rate rather than entirely in the integral approach. quarter in which it becomes recognizable. Similarly where progressive taxation applies, the tax rate applied is based on averaging (integral approach). Impairment of assets Scope IAS 36 is applicable to financial assets Under Indian GAAP since impairment classified as investment in subsidiaries, provision for investments in associates and joint ventures in standsubsidiaries, associates and joint alone accounts. However, it does not ventures is governed by AS 13 by way apply to Investment property and of provision for diminution in the biological assets. value of investments, AS 28 doesnâ&#x20AC;&#x2122;t specifically cover the above items but it does apply to investment property When should impairment review be conducted An entity shall assess at each reporting An enterprise should assess at each

170

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS date whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, an entity shall also test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test may be performed at any time during an annual period, provided it is performed at the same time every year. Different intangible assets may be tested for impairment at different times. However, if such an intangible asset was initially recognised during the current annual period, that intangible asset shall be tested for impairment before the end of the current annual period. Also goodwill acquired in a business combination is tested for impairment annually. Reversal of Impairment losses An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Indian GAAP balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the enterprise should estimate the recoverable amount of the asset.

However, intangibles which are not yet available for use or intangibles which are amortised for greater than 10 years are tested for impairment annually irrespective of whether there are any indications for impairment.

An impairment loss recognized for goodwill should not be reversed in a subsequent period unless the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur and subsequent external

171

IFRS

Allocation of goodwill in case of CGU For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirerâ&#x20AC;&#x2122;s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes; and not be larger than a segment based on either the entityâ&#x20AC;&#x2122;s primary or the entityâ&#x20AC;&#x2122;s secondary reporting format determined in accordance with IAS 14 Segment Reporting.

In testing a cash-generating unit for impairment, an entity shall identify all the corporate assets that relate to the

172

Indian GAAP events have occurred that reverse the effect of that event.

Goodwill is allocated to CGU based on bottom-up approach, i.e identify whether allocated to a particular CGU on consistent and reasonable basis and then, compare the recoverable amount of the cash-generating unit under review to its carrying amount and recognize impairment loss. However, if none of the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and if, in performing the 'bottom-up' test, the enterprise could not allocate the carrying amount of goodwill on a reasonable and consistent basis to the cash-generating unit under review, the enterprise should also perform a 'topdown' test, that is, the enterprise should identify the smallest cashgenerating unit that includes the cashgenerating unit under review and to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis (the 'larger' cashgenerating unit); and then, compare the recoverable amount of the larger cash-generating unit to its carrying amount and recognize impairment loss. As regards corporate assets, both bottom-up and top-down approach is required to be followed.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS cash-generating unit under review. If a portion of the carrying amount of a corporate asset:

Indian GAAP

(a) can be allocated on a reasonable and consistent basis to that unit, the entity shall compare the carrying amount of the unit, including the

portion of the carrying amount of the corporate asset allocated to the unit, with its recoverable amount.

(b) cannot be allocated on a reasonable and consistent basis to that unit, the entity shall: (i) compare the carrying amount of the unit, excluding the corporate asset, with its recoverable amount and recognise any impairment loss;

(ii) identify the smallest group of cashgenerating units that includes the cashgenerating unit under review and to which a portion of the carrying amount of the corporate asset can be allocated on a reasonable and consistent basis; and

(iii) compare the carrying amount of that group of cash-generating units, including the portion of the carrying amount of the corporate asset allocated to that group of units, with the recoverable amount of the group of

173

IFRS units.

Indian GAAP

Non-current assets held for sale These are measured at lower of Valued at lower of carrying cost and carrying amount and fair value less NRV. cost to sell. Provisions, contingent liabilities and contingent assets Scope IAS 37 does not apply to financial AS 29 applies to financial instruments instruments. that are not carried at fair value. AS 30 will apply to all financial instruments with effect from 1 April 2009 (recommendatory) and 1 April 2011 (mandatory). Recognition criteria Fully recognizes constructive Similar to IFRS, except that obligation. restructuring provisions are based on legal obligation rather than constructive obligation. Measurement Current settlement is rarely an Provision based on best estimate. No alternative for provisions, owing to the detailed guidance available. nature of the obligations that underlie them. IAS 37 acknowledges that fact: “It will often be impossible or prohibitively expensive to settle or transfer an obligation at the balance sheet date”. However, IAS 37 maintains that “the amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date” and describes different techniques for developing a best estimate of the settlement price that

174

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS would exist if settlement were available in the marketplace. Those techniques should be understood in the context of estimating the fair value of the provision, rather than in accumulation of costs common to many U.S. pronouncements (costaccumulation approach). IAS 37 employs the statistical notion of expected value in estimating the settlement value of a provision. For example, an enterprise might estimate that the ultimate cost to be incurred has a 40 percent probability of 100 and a 60 percent probability of 10. Given those estimates, the expected cost is 46. Present value Where the effect of the time value of money is material, the amount of a provision should be the present value of the expenditures expected to be required to settle the obligation. The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Restructuring provision Restructuring provision should be made based on constructive obligation. A constructive obligation to restructure arises only when an entity has a detailed formal plan for the

Indian GAAP

Provision based on best estimate. No detailed guidance available.

Entity is not permitted to discount the provision to its present value.

Restructuring provision should be made based on legal obligation. Restructuring provision should be made only when an enterprise is committed to sale and there is binding

175

IFRS restructuring identifying certain prescribed elements and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Onerous contract If an enterprise has a contract that is onerous, the present obligation under the contract should be recognised and measured as a provision.

Contingent asset A contingent asset is disclosed in financial statements where an inflow of economic benefits is probable

Indian GAAP sale agreement. VRS provision is made when the employee signs-up for the VRS scheme.

AS-29 was subsequently revised to require provision for onerous contracts. The requirements are similar to IFRS, except that discounting of the onerous provision is prohibited. A contingent asset cannot be disclosed in financial statements. However, the same can be disclosed in directorâ&#x20AC;&#x2122;s report.

Future legislations IAS 37 allows an enterprise to consider IFRS may be applied. the effect of new legislation if there is evidence that the proposed legislation is â&#x20AC;&#x153;virtually certain to be enactedâ&#x20AC;?. Decommissioning and restoration liabilities Liability is recognized with a Provision is at undiscounted amounts. corresponding effect to PPE. Changes in estimates or discount rates are recognized immediately with the corresponding effect to PPE. The unwinding of discount is taken to the income statement. Intangible assets Intangibles acquired as a part of business combination In accordance with IFRS 3 Business If an intangible asset is acquired in an

176

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Combinations, if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. The intangible is recorded by the acquirer irrespective of whether the asset had been recognised by the acquiree before the business combination

Research and development Research or development expenditure that relates to an in-process research or development project acquired separately or in a business combination is recognised as an intangible asset if the project meets the definition of an intangible asset and its fair value can be measured reliably. Subsequent expenditure based on principle mentioned above. Subsequent Measurement An entity shall choose either the cost model or the revaluation model as its accounting policy. If an intangible asset is accounted for using the revaluation model, all the other assets in its class shall also be accounted for using the same model, unless there is no active market for those assets. Revaluation

Indian GAAP amalgamation in the nature of purchase, the same should be accounted at cost or fair value if the cost/fair value can be reliably measured. If the same is not reliably measurable it is included as a part of goodwill. Intangible is recorded even if that intangible asset had not been recognised in the financial statements of the transferor. Intangible assets acquired in an amalgamation in the nature of merger, or acquisition of a subsidiary are recorded at book values, which means that if the intangible asset was not recognized by the acquiree, the acquirer would not be able to record the same.

No specific guidance on separately acquired in-process R&D. Since consolidation is based on book values rather than fair values, in-process R&D of an acquired subsidiary is not accounted for in the CFS.

After initial recognition, an intangible asset should be carried at its cost less any accumulated amortisation and any accumulated impairment losses. Revaluation is prohibited. 177

IFRS model is permitted only where there is an active market for the underlying intangibles. Useful life An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units that would constitute useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity. Amortisation The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset is available for use, ie when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations and the date that the asset is derecognised. The amortisation method used shall reflect the pattern in which the assetâ&#x20AC;&#x2122;s future economic benefits are expected to be consumed

178

Indian GAAP

There is a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use.

Amortisation is based on allocation of depreciable amount on a systematic basis done over best estimate of useful life but should not exceed 10 years, unless there is persuasive evidence for amortising over a longer period. Both finite life and indefinite life intangibles are required to be amortised.

IND-AS 41 – First Time Adoption: A Guide IFRS by the entity. If that pattern cannot be determined reliably, the straight-line method shall be used. Impairment Intangible asset with finite life is required to be tested for impairment as per provisions of IAS 36. An intangible asset with an indefinite useful life and which is not yet available for use should be tested for impairment annually and whenever there is an indication that the intangible asset may be impaired.

Financial Instruments Definition of financial instrument A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. A financial asset is any asset that is (a) cash, (b) an equity instrument of another entity; (c) contractual right to (i) to receive cash or another financial asset from another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or (d) a contract that will or may be settled in the entity’s own equity instruments

Indian GAAP

In addition to the requirements of AS28, an enterprise should estimate the recoverable amount of the following intangible assets at least at each financial year end even if there is no indication that the asset is impaired: · an intangible asset that is not yet available for use; and

· an intangible asset that is amortised over a period exceeding ten years from the date when the asset is available for use. No specific standard on financial instrument. AS-30, AS-31 and AS-32 will apply from 1 April, 2009 (recommendatory) or 1 April, 2011 (mandatory). These standards are aligned to the respective IFRSs. However, some provisions in these standards would be inconsistent with law such as those relating to preference capital, securities premium, etc. The ICAI is also considering whether to revise AS 30, 31 and 32 as per the new IFRS-9 or by the amended IAS 39. On implementation, there will only be a few disclosure differences between IFRS and Indian GAAP.

179

IFRS Indian GAAP and is (i) a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.

A financial liability is any liability that is: (a) a contractual obligation (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (b) a contract that will or may be settled in the entity’s own equity instruments and is (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or

180

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP delivery of the entityâ&#x20AC;&#x2122;s own equity instruments. Classification of financial instrument between liability and equity The issuer of a financial instrument See above. shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument. The instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met.

(a) The instrument includes no contractual obligation (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the issuer.

(b) If the instrument will or may be settled in the issuerâ&#x20AC;&#x2122;s own equity instruments, it is a non-derivative that includes no contractual obligation for the issuer to deliver a variable number of its own equity instruments; or a derivative that will be settled only by the issuer exchanging a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. For this purpose the

181

IFRS Indian GAAP issuer’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the issuer’s own equity instruments. Accounting for compound financial instruments Compound financial instruments are No specific standard on financial subjected to split accounting whereby instrument. No split accounting is liability and equity component is done. Financial instrument is classified recorded separately. as either liability or equity, depending on primary nature of instrument. A convertible debenture would be treated as a liability, and a convertible preference share would be treated as an equity. Treasury Shares If an entity reacquires its own equity No specific standard on financial instruments, those instruments instrument. When an entity’s own (‘treasury shares’) shall be deducted shares are repurchased, the shares are from equity. No gain or loss shall be cancelled and shown as a deduction recognised in profit or loss on the from shareholders’ equity (they cannot purchase, sale, issue or cancellation of be held as treasury stock and cannot an entity’s own equity instruments. be re-issued). If the buy back is funded Such treasury shares may be acquired through free reserves, amount and held by the entity or by other equivalent to buy-back should be members of the consolidated group. credited to Capital Redemption Consideration paid or received shall be Reserve. No guidance available for recognised directly in equity. accounting for premium payable on buy-back. Various alternatives available – adjusting the same against securities premium, etc. Financial asset Financial asset is classified in four No specific standard on financial categories: financial asset at fair value instruments. However, AS 13 classifies through profit and loss (which includes investment into long-term and current held for trading), held to maturity, investment. Long term investments loans and receivables and available for are recorded at cost less diminution

182

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS sale.

The pre-revised standard allowed the fair value through profit and loss account to be used as a residual category. However, a revision of the standard has imposed significant restrictions on using fair value through profit and loss account. The same can be used when the financial assets are meant for trading, or are being managed on a portfolio basis or contain embedded derivatives that need to be measured at fair value. Derivatives are measured at fair values. Fair value is also used when it eliminates measurement or recognition inconsistency. Held-to-maturity investments are nonderivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity. Initial measurement is at fair value plus transaction cost. Subsequent measurement is at amortised cost using effective interest method. When an entity sells more than an insignificant amount of HTM assets, it is prohibited from using the HTM classification for two full annual reporting periods. The entity should also reclassify all its HTM assets as AFS assets. Loans and receivables are nonderivative financial assets with fixed or

Indian GAAP other than temporary. Current investments are recorded at lower of cost or market. Detail classification exists for banks as per RBI guidelines.

No specific standard on financial instrument. As per AS-13, HTM investments are recognized at cost and interest is based on time proportion basis.

No specific standard on financial instrument. Loans and receivables are

183

IFRS determinable payments that are not quoted in an active market. Initial measurement is at fair value plus transaction cost. Subsequent measurement is at amortised cost using effective interest method. Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss. Initial measurement is at fair value plus transaction cost. Subsequent measurement is at fair value. Changes in fair value are accounted in equity and are recycled to profit and loss when those are realized or impaired. Foreign exchange gains/losses on debt securities are recognized in the income statement. Financial asset at fair value through profit or loss has two sub-categories: financial assets held for trading, and those designated to the category at inception. A financial asset may, on initial recognition, be classified as fair value through profit or loss only when the contract contains one or more embedded derivatives that satisfy certain conditions, or when doing so results in more relevant information. However, this is an irrevocable decision to classify a financial asset at fair value through profit or loss. Asset held for trading includes debt and

184

Indian GAAP stated at cost. Interest income on loans is recognized based on timeproportion basis as per the rates mentioned in loan agreement. No specific standard on financial instrument. No such classification.

No specific standard on financial instruments.

IND-AS 41 – First Time Adoption: A Guide IFRS equity instruments held for sale in short term. Derivatives should also be classified in this category. Initial measurement is at fair value. Subsequent changes in fair value are taken to income statement. Reclassification of financial assets Reclassifications between categories are relatively uncommon under IFRS and are prohibited into and out of the fair value through profit or loss category.

Reclassifications from the held-tomaturity category as a result of a change of intent or ability are treated as sales and, other than in exceptional circumstances, result in the whole category being “tainted”. The most common reason for a reclassification out of the category, therefore, is when the whole category is tainted and has to be reclassified as available-for-sale for two years. In such circumstances, the assets are remeasured to fair value, with any difference recognised in equity. An instrument may be reclassified into the category where the tainted held-to-maturity portfolio has been “cleansed”. In this case, the financial asset’s carrying value at the date of reclassification is recharacterised as amortised cost. Any unrealised gains and losses already recognised remain in equity until the asset is impaired or derecognized, if the financial asset does not have a fixed

Indian GAAP

No specific standard on financial instrument. No such classification. Where long-term investments are reclassified as current investments, transfers are made at the lower of cost and carrying amount at the date of transfer. Where investments are reclassified from current to long-term, transfers are made at the lower of cost and fair value at the date of transfer.

185

IFRS maturity. In case of a financial asset with a fixed maturity, the gain or loss shall be amortised to profit or loss over the remaining life of the HTM investment using effective interest method. Reversal of Impairment For assets carried at amortised cost and AFS debt securities, if the amount of the impairment loss decreases in a subsequent period and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed.

Indian GAAP

On long term investments, diminution other than temporary is provided for. AS-13 does not however lay down impairment indicators. The diminution is adjusted for increase/decrease, with the effect being taken to the income statement.

IAS 39 prohibits the reversal of an impairment charge on AFS equity securities through profit or loss.

IFRS prohibits reversal of impairment on unquoted equity instruments which are carried at cost because their fair value can not be measured reliably. Derecognition An entity shall derecognise a financial asset when, (a) the contractual rights to the cash flows from the financial asset expire; or (b) when the entity has transferred substantially all risks and rewards from the financial assets; or (c) when the entity has (1) neither transferred substantially all, nor retained substantially all, the risks and rewards from the financial asset but (2) at the same time has assumed an obligation to pay those cash flows to

186

Guidance Note on Accounting for Securitisation requires derecognition of financial asset if the originator loses control of the contractual rights that comprise the securitized assets.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS one or more entities. Financial liability Classification and measurement Financial liability is classified into two categories 1) financial liability at fair value through P&L b) residual category. All derivatives that are liabilities (except qualifying hedging instruments) are â&#x20AC;&#x153;Fair Value through Profit &Lossâ&#x20AC;? liabilities.. Initial measurement is at cost, being the fair value of a consideration received, less transaction costs. Financial liabilities at fair value through profit or loss (including trading) liabilities are measured at fair value (the change is recognised in the income statement for the period). All other (non-trading) liabilities are carried at amortised cost. Through a revision, significant restrictions have been imposed on using the fair value through profit and loss category. Derecognition An entity shall remove a financial liability (or a part of a financial liability) from its balance sheet when, and only when, it is extinguished-ie when the obligation specified in the contract is discharged or cancelled or expires. A liability is also considered extinguished if there is a substantial modification in the terms of the instrument or there is an exchange between an existing borrower and lender of debt instruments with

Indian GAAP

No specific standard on financial instruments.

No specific standard on financial instrument.

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IFRS substantially different terms – for example, where the discounted present value on new cash flows is different from the previous cash flows by atleast 10%.

The difference between the carrying amount of a liability extinguished or transferred and the amount paid for it should be recognized in income statement. Derivatives and hedging Definition A derivative is a financial instrument or other contract within the scope of IAS 39 with all three of the following characteristics :

· its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the 'underlying');

· it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and · it is settled at a future date.

188

Indian GAAP

No specific standard on financial instrument. Accounting for plain vanilla foreign exchange forward contracts is based on AS 11. Accounting for exchange traded futures and options are accounted as per “Guidance Note on Accounting for Equity Index and Equity Stock Futures and Options”. As per this Guidance Note, mark to market losses are recognized but gains are not recognized. Other derivative instruments should be accounted as per a recent Announcement of the ICAI whereby the mark to market losses are required to be recognized in the income statement.

IND-AS 41 – First Time Adoption: A Guide IFRS Measurement of derivatives Derivatives are initially recognised at fair value. After initial recognition, an entity shall measure derivatives that are at their fair values, without any deduction for transaction costs. Changes in fair value are recognised in income statement unless it satisfies hedge criteria. Embedded derivatives need to be separated and fair valued. Hedge accounting Criteria for hedge accounting Hedge accounting is permitted if at the inception of the hedge and on an ongoing basis, the expectation is that the hedge will be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated and “actual” results are within the 80-125% range. Stringent documentation criteria’s have also been prescribed. Hedged items If the hedged item is a financial asset or financial liability, it may be a hedged item with respect to the risks associated with only a portion of its cash flows or fair value (such as one or more selected contractual cash flows or portions of them or a percentage of the fair value) provided that effectiveness can be measured. A Firm commitment to acquire a business cannot be a hedged item, except for foreign exchange risk, because the other risks that are hedged

Indian GAAP See above

See above

See above 189

IFRS cannot be specifically identified and measured. 路 If the hedged item is a non-financial asset or liability, it may be designated as a hedged item only for foreign currency risk, or in its entirety because of the difficulty of isolating other risks

Indian GAAP

See above

路 If similar assets or liabilities are aggregated and hedged as a group, the change in fair value attributable to the hedged risk for individual items should be proportionate to the change in fair value for the group 路 HTM assets cannot be designated for interest-rate or prepayment risks

路 The foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in CFS provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit and loss Hedging instrument Can be a derivative, embedded derivative or a non-derivative financial asset/liability. Under IFRS only instruments that involve an external party can be designated as hedging instruments. Written options do not qualify as hedging instruments; unless combined

190

See above See above See above

IND-AS 41 – First Time Adoption: A Guide IFRS with a purchase option and a net premium is paid. One instrument can hedge more than one risk in two or more hedged items, under certain circumstances Hedge relationship Hedging relationships are of three types:

Indian GAAP

See above See above

· fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss.

· cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss.

· hedge of a net investment in a foreign operation Measurement Fair value hedge shall be accounted for as follows: · the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the

See above

191

IFRS foreign currency component of its carrying amount measured in accordance with IAS 21 (for a nonderivative hedging instrument) shall be recognised in profit or loss; and

· the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is an available-for-sale financial asset. Cash flow hedge shall be accounted for as follows:

Indian GAAP

See above

· the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised directly in equity through the statement of changes in equity; and

· the ineffective portion of the gain or loss on the hedging instrument shall be recognised in profit or loss.

Gains and losses on financial instruments used to hedge forecasted asset and liability acquisitions may be included in the cost of the non-financial asset or liability – but this is not permitted for financial assets or liabilities. Hedges of a net investment in a foreign

192

See above

IND-AS 41 – First Time Adoption: A Guide IFRS operation, including a hedge of a monetary item that is accounted for as part of the net investment, shall be accounted for similarly to cash flow hedges i.e. the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognised directly in equity through the statement of changes in equity; and the ineffective portion shall be recognised in profit or loss. The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognised directly in equity shall be recognised in profit or loss on disposal of the foreign operation. Disclosures IFRS 7 require entities to provide detailed disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance; and

(b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

The disclosures required under IFRS 7 include quantitative as well as qualitative information.

Indian GAAP

There is no accounting standard in India corresponding to IFRS 7 requiring such disclosures. An equivalent standard will soon be issued. The Announcement on ‘Disclosure regarding Derivative Instruments’, issued by the ICAI, requires the following disclosures to be made in the financial statements:

(a) category-wise quantitative data about derivative instruments that are outstanding at the balance sheet date,

(b) the purpose, viz., hedging or speculation, for which such derivative instruments have been acquired, and

193

IFRS

Investment property Definition Investment property is property (land or a building-or part of a building-or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: use in the production or supply of goods or services or for administrative purposes; or sale in the ordinary course of business. Initial measurement An investment property shall be measured initially at its cost. Transaction costs shall be included in the initial measurement. The cost of a purchased investment property comprises its purchase price and any directly attributable costs such as professional fees for legal services, property transfer taxes and other transaction costs. Self-constructed property must be accounted for as PPE until construction or development is complete when it becomes an investment property. A property interest that is held by a lessee under an operating lease may be classified and accounted for as investment property if, and only if, the property would otherwise meet the definition of an investment property and the lessee uses the fair value model for the asset recognised. This

194

Indian GAAP are not hedged by a derivative instrument or otherwise. An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.

Similar to IFRS; however, no guidance in respect of self-constructed property

No guidance under Indian GAAP.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS classification alternative is available on a property-by-property basis. Subsequent measurement An entity has an option to apply either cost model or fair value model. If fair value model is adopted, then changes in fair value are recognised in P&L A/c. In the fair value model the carrying amount is not depreciated. In the cost model, the asset is carried at cost less depreciation.

Indian GAAP

AS 13 required investment properties to be accounted for in the same manner as long term investments, i.e., these should be carried in the financial statements at cost, less provision for diminution to recognise other than temporary decline in the value. Depreciation on investment property is required to be provided as per DCA Circular (10) CL â&#x20AC;&#x201C; VI/61 dated 27-91961 and as per AS 6. Hence, depreciated cost model is applied for subsequent measurement. Impairment is provided for where applicable, and reversal of impairments is permitted. Transfers to/from investment property When there is a change in use of the No guidance. investment property, the standard provides detailed guidance for subsequent classification. Investment property to be sold is re-classified as inventories, and investment property to be owner-occupied is reclassified as PPE. Frequency/basis of revaluations The fair value model differs from the Revaluation is not permitted revaluation model that is permitted for some non-financial assets. The fair value of investment property must reflect the actual market conditions and circumstances as of the balance sheet date. The standard does not require an independent and qualified valuer, but it is encouraged.

195

IFRS Revaluations must be made with sufficient regularity that the carrying amount does not differ materially from fair value. Share-based payment Scope IFRS 2 applies to both employee and non-employee stock based compensation. IFRIC 8 further interprets that IFRS 2 applies to transactions in which the entity cannot identify specifically some or all of the goods or services received. Recognition An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cashsettled share-based payment transaction. When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognised as expenses. For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received,

196

Indian GAAP

ICAI guidance note on Share based payment covers only employee share based payment.

ICAI has issued guidance note on employee share based payment. According to it, ESOP/ESPP can be accounted for either using intrinsic value method or fair value method. When intrinsic method is applied, disclosures would be made in the notes to account relating to the fair value.

No specific guidance is available for other than employee share based payments.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to1 the fair value of the equity instruments granted.

Indian GAAP

If the entity is unable to estimate reliably the fair value of equity instruments granted at the measurement date, the entity shall instead measure the equity instruments at their intrinsic value, initially at the date the entity obtains the goods or services and subsequently at each reporting date and at the date of final settlement, with any change in intrinsic value recognised in profit and loss. For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall remeasure the fair value of the liability at each reporting date and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

For share-based payment transactions in which the terms of the arrangement provide either the entity or the

197

IFRS counterparty with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity shall account for that transaction, or the components of that transaction, as a cash-settled sharebased payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or as an equity-settled sharebased payment transaction if, and to the extent that, no such liability has been incurred. Business combinations Scope IFRS 3 applies to most business combination â&#x20AC;&#x201C; both amalgamation (where acquiree loses its identity) and acquisition (where acquiree continues its existence). IFRS 3 does not apply to common control transactions, formation of JVs, combinations involving mutual entities and combinations by contract alone. Method of accounting Use of pooling of interest is prohibited. All business combinations should be accounted under purchase method. There is no guidance under IFRS 3 for the IFRS 3 scoped out category and therefore these could be accounted for in a number of ways.

198

Indian GAAP

There is no one comprehensive standard. AS-14 applies only to amalgamation. AS-21, 23, 27 applies to accounting for investments in subsidiaries, associates and joint ventures respectively. AS-10 would apply where a demerged division is acquired on a lump-sum basis by another entity. Amalgamations are accounted for by applying either Purchase method or Pooling of interest method. There are five conditions, all of which need to be fulfilled for application of the pooling of interests method.

In addition to amalgamation, one company may acquire all or part of the shares of another company. In the stand-alone accounts of the investor

IND-AS 41 – First Time Adoption: A Guide IFRS

Indian GAAP the same would be accounted for as investment at cost. In the CFS of the investor, the same would be accounted for as investment, subsidiary, joint venture or associate as the case may be. When business is acquired i.e. net assets are acquired for a lump-sum price, assets and liabilities are recorded at fair value. Excess of consideration paid over fair value of net assets taken over is accounted for as goodwill.

Acquisition date The date on which the acquirer effectively obtains control of the acquiree. Cost of acquisition The acquirer shall measure the cost of a business combination as the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity

Acquisition accounting under AS-21, 23 and 27 are done on book value basis. Acquisition accounting under AS-10 is done on fair value basis. Acquisition accounting under AS-14 in respect of “amalgamation in the nature of purchase” is done on the basis of either fair value or book value. Pooling of interest method is required in case of “amalgamation in the nature of merger”. Goodwill under all the above cases will change accordingly. The date of amalgamation as defined in Amalgamation/acquisition scheme. The consideration for the amalgamation may consist of securities, cash or other assets. In determining the value of the consideration, an assessment is made

199

IFRS instruments issued by the acquirer, in exchange for control of the acquiree; plus any costs directly attributable to the business combination. Assets given and liabilities incurred or assumed by the acquirer in exchange for control of the acquiree are required to be measured at their fair values at the date of exchange. The published price at the date of exchange of a quoted equity instrument provides the best evidence of the instrumentâ&#x20AC;&#x2122;s fair value and shall be used, except in rare circumstances. Contingent consideration When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the acquirer shall include the amount of that adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. However, when a business combination agreement provides for such an adjustment, that adjustment is not included in the cost of the combination at the time of initially accounting for the combination if it either is not probable or cannot be measured reliably. If that adjustment subsequently becomes probable and can be measured reliably, the additional consideration shall be treated as an adjustment to the cost of the combination. Any revision to the estimate is subsequently adjusted

200

Indian GAAP of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values As per AS-14 â&#x20AC;&#x153;Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinableâ&#x20AC;?. Other than the above there is no guidance relating to contingent consideration in the context of AS-21, AS-23, AS-27 and AS-10. However the practice is to adjust the goodwill amount.

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS Indian GAAP against goodwill. There is no time barring period for making this adjustment. Accounting for identifiable assets and liabilities taken over The acquirer shall, at the acquisition In purchase method of accounting, the date, allocate the cost of a business transferee company accounts for the combination by recognising the amalgamation either by incorporating acquireeâ&#x20AC;&#x2122;s identifiable assets, liabilities the assets and liabilities at their and contingent liabilities at their fair existing carrying amounts or by values at that date, except for allocating the consideration to noncurrent assets (or disposal groups) individual identifiable assets and that are classified as held for sale which liabilities of the transferor company on shall be recognised at fair value less the basis of their fair values at the date costs to sell. It is irrelevant if the of amalgamation. The identifiable acquiree had recorded those assets and liabilities may include assets/liabilities. assets and liabilities not recorded in the financial statements of the transferor company. No specific guidance is given for accounting for contingent liabilities and asset held for sale. However, the normal practice is not to record contingent liability in books of acquirer. In merger accounting, the transferee accounts for the amalgamation by incorporating the assets/liabilities/reserves at their carrying amount.

Step acquisitions Each step is treated separately for the purpose of determining the cost of acquisition and the amount of goodwill. Any existing goodwill is not

Acquisition accounting under AS-21, 23 and 27 are done on book value basis. Acquisition accounting under AS-10 is done on fair value basis.

AS-21 recognises step acquisitions; however at each step the valuation is done on the basis of book values rather than fair values.

201

IFRS remeasured. The adjustment to any previously held interests of the acquirer in the acquiree’s net assets is treated as a revaluation. Reverse Acquisitions Acquisition accounting is based on substance. Accordingly legal acquirer is treated as acquiree and legal acquiree is treated as acquirer for IFRS 3 purposes. Restructuring provisions The acquirer recognises the liability as part of the acquisition accounting only if the acquiree has an existing liability at the acquisition date in accordance with IAS 37. Existing liability is based on legal or constructive obligation. Contingent liabilities The acquiree’s contingent liabilities are recognized separately at the acquisition date as part of acquisition accounting, provided their fair values can be measured reliably. Minority interests at acquisition Stated at minority’s proportion of the net fair value of assets and liabilities assumed in an acquisition. Accounting for goodwill The acquirer shall, at the acquisition date recognise goodwill acquired in a business combination as an asset; and initially measure that goodwill at its cost, being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. After

202

Indian GAAP

Acquisition accounting is based on form. Legal acquirer is treated as acquirer and legal acquiree is treated as acquiree for legal as well as accounting purposes.

Similar to IFRS but liability is recorded only if there is legal liability rather than constructive liability.

AS 14 permits recognition of liabilities not recorded in the financial statements of the transferor company. However, in practice, Contingent liabilities are not recognized. Valued at historical book value.

Treatment of goodwill differs in different accounting standards. Goodwill arising on amalgamation in nature of purchase is amortised to P&L over 5 years. Goodwill under AS-21, 23 and 27 need not be amortised though there is no prohibition. In case of amalgamation in nature of merger, excess amount over net assets taken

IND-AS 41 – First Time Adoption: A Guide IFRS Indian GAAP initial recognition, the acquirer shall over is adjusted against revenue measure goodwill acquired in a reserves. AS 10 recommends business combination at cost less any amortization of goodwill arising on accumulated impairment losses. business purchase. All goodwill is Goodwill amortization is prohibited. tested for impairment. Accounting for negative goodwill If the acquirer’s interest in the net fair If the acquirer’s interest in the net fair value of the identifiable assets, value of the identifiable assets, liabilities and contingent liabilities liabilities and contingent liabilities recognised exceeds the cost of the recognised exceeds the cost of the business combination, the acquirer business combination, the excess shall shall reassess the identification and be disclosed as “capital reserve”. measurement of the acquiree’s identifiable assets, liabilities and contingent liabilities and the measurement of the cost of the combination; and recognise immediately in profit or loss any excess remaining after that reassessment. Subsequent adjustments to assets and liabilities A 12 months window period is allowed No change is permitted, except for to get the acquisition accounting right. certain deferred tax adjustment. Upto 12 months period, any adjustments to the fair value of assets/liabilities taken over are recognized with a corresponding effect to goodwill. After the 12 months period, any adjustments to the fair value of assets/liabilities taken over are recognized in the income statement. In respect of adjustments arising out of contingent consideration, correction of errors and deferred taxes, the 12 months time barring period is not applicable and any adjustments on these accounts, the corresponding effect is taken to goodwill, even if the

203

IFRS Indian GAAP same is made after 12 months. Deferred taxation A DTL/DTA should be recognized for If the acquisition results in differences between the assigned amalgamation, deferred taxes would values and the tax base of be determined based on ASI-11, which assets/liabilities taken over. No DTL is prescribes separate treatment recognized upon initial recognition of depending upon whether the goodwill. Under IAS 12, if a DTA of an amalgamation is the nature of merger acquiree which was not recognized at or in the nature of an acquisition. It the time of the combination is may be noted that ASI-11 has not been subsequently recognized, the resulting included in the Companies (Accounting credit is taken to income for the period. Standards) Rules. The credit is offset by an expense to reduce the carrying amount of goodwill to the amount that would have been recognized had the DTA been recognized at the time of business combination. Asset held for sale and discontinuing/discontinued operations Definition A discontinued operation under IFRS 5 A discontinuing operation is a is a component of an entity that either component of an enterprise: has been disposed of, or is classified as held for sale; and, (1) represents a (a that the enterprise, pursuant to a separate major line of business or single plan, is (i) disposing of geographical area of operations; or (2) substantially in its entirety, such as by is part of a single co-ordinated plan to selling the component in a single dispose of a separate major line of transaction or by demerger or spin off business or geographical area of of ownership of the component to the operations, or (3) is a subsidiary enterpriseâ&#x20AC;&#x2122;s shareholders; (ii) acquired exclusively with a view to disposing of piecemeal, such as by resale. A component of an entity selling off the componentâ&#x20AC;&#x2122;s assets and comprises operations and cash flows settling its liabilities individually; or that can be clearly distinguished from (iii) terminating through the rest of the entity, both abandonment; operationally and for financial reporting purposes. (b that represents a separate major

204

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS

Method of discontinuance Operations and cash flows that have been disposed of are classified as held for sale Period of disposal Completed within a year, with limited exceptions. Starting date for disclosure From the date on which a component has been disposed of or, if earlier, is classified as held for sale. Measurement principles Lower of carrying value or fair value less costs to sell.

Presentation A single amount is presented on the face of the income statement comprising the post tax profit or loss or discontinued operations and an analysis of this amount either on the face of the income statement or in the notes for both current and prior periods. Separate classification on the balance sheet for assets and liabilities for the current period only.

Indian GAAP line of business or geographical area of operations; and ( that can be distinguished operationally and for financial reporting purposes

Pursuant to a single plan, either substantially in its entirety or piecemeal or terminated through abandonment. No time-frame specified.

Earlier of the date of announcement of a board approved detailed formal plan or entering into a binding sale agreement. Apply the relevant standards, for eg, for impairment AS-28 is applied, for provisions AS-29 is applied, etc.

The following is separately disclosed on the face of the profit and loss account separately from continuing operations: Âˇ pre-tax profit or loss and related taxes Âˇ pre-tax gain or loss on disposal

Income/expense line items from continuing and discontinuing

205

IFRS

Disclosure · Description of disposal group

· Expected manner/timing of disposal · Facts/circumstances leading to sale/disposal · Segment of disposal group

· Assets and liabilities of related disposal groups classified as held for sale are disclosed separately on the balance sheet

· Revenue, expenses, pre-tax result, tax and cash flows for current and prior periods of discontinued operations · Gain/losses recognized on classification as held for sale

Indian GAAP operations are segregated and disclosed in the notes to account; but is presented on a combined basis in the income statement. No separate presentation is required for balance sheet items. AS-24 requires the following disclosures:

· description of the discontinuing operation(s);

· the business or geographical segment(s) in which it is reported as per AS 17, Segment Reporting; · the date and nature of the initial disclosure event;

· the date or period in which the discontinuance is expected to be completed if known or determinable; · the carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total liabilities to be settled;

· the amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period;

206

· the amount of pre-tax profit or loss

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS

Indian GAAP from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto; and

Âˇ the amounts of net cash flows attributable to the operating, investing, and financing activities of the discontinuing operation during the current financial reporting period. Exploration for and evaluation of natural resources Scope An entity shall apply the IFRS-6 to No specific accounting standard. exploration and evaluation However, ICAI has issued guidance expenditures that it incurs. The IFRS note on accounting for oil and gas does not address detail aspects of producing activities. As per the accounting by entities engaged in the guidance note, accounting for exploration for and evaluation of acquisition, exploration and mineral resources. Particularly the development cost can be done either standard does not prescribe the through successful effort method or accounting method, ie, full cost method full cost method. or successful effort method. Measurement at cost Exploration and evaluation assets shall No specific standard apart from be measured at cost. An entity shall guidance for oil and gas producing determine a policy specifying which activities. expenditures are recognised as exploration and evaluation assets and apply the policy consistently. In making this determination, an entity considers the degree to which the expenditure can be associated with finding specific mineral resources. Expenditures related to the development of mineral resources shall not be recognised as exploration and evaluation assets

207

IFRS Indian GAAP Measurement after changes After recognition, an entity shall apply No specific standard apart from either the cost model or the revaluation guidance for oil and gas producing model to the exploration and activities. evaluation assets. If the revaluation model is applied it shall be consistent with the classification of the assets. Biological asset and agricultural produce Recognition An entity should recognise a biological No specific guidance. asset or agricultural produce when, and only when the entity controls the asset as a result of past events; it is probable that future economic benefits associated with the asset will flow to the entity; and the fair value or cost of the asset can be measured reliably. Measurement A biological asset should be measured No specific guidance on initial recognition and at each balance sheet date at its fair value less estimated point-of-sale costs, except for the case where the fair value cannot be measured reliably. Agricultural produce harvested from No specific guidance an entity's biological assets should be measured at its fair value less estimated point-of-sale costs at the point of harvest except when fair value cannot be measured reliably. Such measurement is the cost at that date when applying IAS 2, Inventories, or another applicable International Financial Reporting Standard. Gains/losses A gain or loss arising on initial No specific guidance recognition of a biological asset at fair

208

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide IFRS value less estimated point-of-sale costs and from a change in fair value less estimated point-of-sale costs of a biological asset should be included in profit or loss for the period in which it arises. A gain or loss arising on initial recognition of agricultural produce at fair value less estimated point-of-sale costs should be included in profit or loss for the period in which it arises.

Indian GAAP

No specific guidance

209

12. Comparison Between Converged Indian Accounting Standards and IFRS

Traditionally, Indian Accounting Standards have followed International Accounting Standards in structure and content. However, there still existed differences between the two. Even in the Converged Indian Accounting Standards, there are some differences with IFRS since some of the Converged Indian Accounting Standards have been tuned for Indian conditions. The principal differences are presented below:

1. Different Terminology

Many of the Converged Indian Accounting Standards have followed a different terminology as compared to IFRS. For instance, the term “ Balance Sheet” and “ Profit and Loss Account” are used instead of the IFRS terms “ Statement of Financial Position” and “ Income Statement”. This difference exists in the following Converged Indian Accounting Standards:Converged Indian Accounting Standard AS 40- Financial Instruments AS-14 – Business Combinations AS -24- Non Current Assets held for Sale and Discontinued Operations AS-11- The Effects of Changes in Foreign Exchange Rates As-38- Agriculture AS-39- Insurance Contracts

210

IFRS IFRS 9- Financial Instruments IFRS-3- Business Combinations IFRS-5- Non-Current Assets held for Sale IAS-21- The effects of Changes in Foreign Exchange Rates IAS-41- Agriculture IFRS-4- Insurance Contracts

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide AS-33- Share-based payments AS-28- Impairment of Assets AS-27-Interests in Joint Ventures AS-17- Segment Reporting AS-9- Revenue

IFRS-2- Share-Based Payments IAS 36- Impairment of Assets IAS 31- Interests in Joint Ventures IFRS-8- Segment Reporting IAS-18- Revenue

2. Transitional Provisions Many International Financial Reporting Standards contain transitional provisions as a part of the Standard. The ICAI has chosen not to opt for this method and has incorporated all transitional provisions in Ind-AS 41. Hence, in many Standards the difference between Indian Accounting Standards and IFRS is the non-mention of transitional provisions as a part of the Standard. Converged Indian Accounting Standard AS-10 â&#x20AC;&#x201C; Property, Plant and Equipment AS-14- Business Combinations AS -24- Non Current Assets held for Sale and Discontinued Operations AS-11- The Effects of Changes in Foreign Exchange Rates AS-35- Exploration for and Evaluation of Mineral Resources AS-7- Construction Contracts AS 37-Investment Property AS21- Consolidated and Separate Financial Statements AS 29- Provisions, Contingent Liabilities and Contingent Assets As-38- Agriculture

IFRS IAS 16- Property, Plant and Equipment IFRS-3-Business Combinations IFRS-5- Non-Current Assets held for Sale IAS-21- The effects of Changes in Foreign Exchange Rates IFRS-6- Exploration for and Evaluation of Mineral Resources IAS-11- Construction Contracts IAS 40- Investment Property IAS 27- Consolidated and Separate Financial Statements IAS 37- - Provisions, Contingent Liabilities and Contingent Assets IAS-41- Agriculture

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AS-33- Share-based payments AS-28- Impairment of Assets AS-27-Interests in Joint Ventures AS-9-Revenue

IFRS-2- Share-Based Payments IAS 36- Impairment of Assets IAS 31- Interests in Joint Ventures IAS-18- Revenue

3. Non-Current Assets Held for Sale: Requirements regarding presentation of discontinued operations in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approaches in AS 1 (Revised 20XX). AS 1 (Revised 20XX) requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.

4. Statement of Cash Flows The Exposure Draft of AS 3 (revised) differs from International Accounting Standard (IAS) 7, Statement of Cash Flows, in the following major respects:

(i) In case of other than financial entities, IAS 7 gives an option to classify the interest paid and interest and dividends received as an item of operating cash flows. However, the Exposure Draft of AS 3 (revised), as in the existing AS 3, does not provide such option and requires these items to be classified as items of financing activity and investing activity, respectively

(ii) IAS 7 gives an option to classify the dividend paid as an item of operating activity. However, the Exposure Draft of AS 3 (revised), as in the existing AS 3, requires it to be classified as a part of financing activity only

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5. Borrowing Costs IAS 23 and AS 16 on Borrowing Costs differ in that IAS 23 does not specifically prohibit applying the Standard to borrowing costs that are directly attributable to the acquisition, construction or production of inventories that are manufactured or otherwise produced in large quantities on a repetitive basis whereas there is a specific prohibition on this in AS-16.

6. Investments in Associates

There is no major difference between the Exposure Draft of AS 23 (Revised 20XX) and IAS 28 except that where the financial statements of an associate used in applying equity method are prepared as of a different date from that of the investor, IAS 28 requires that this difference should not be more than three months. However, the Exposure Draft of AS 23 (Revised 20XX) provides that this difference should not be more than three months, unless impracticable. This change has been made because there can be a situation, e.g., where an entity is an associate of two investors and difference between the reporting dates of the associate and one of the investors is more than three months. In that case, a problem will arise in applying the requirements of IAS 28 that the associate will have to prepare additional financial statements for use by the concerned investor. Since the investor does not have ‘control’ over the associate, the investor may not be able to influence the associate to prepare additional financial statements. Therefore, to cover such situations, the words ‘unless it is impracticable to do so’ have been added.

7. Earnings per Share

IAS 33 provides that when an entity presents both consolidated financial statements and separate financial statements, it may give EPS related information in consolidated financial statements only, whereas, the Exposure Draft of AS 20 (Revised 20XX) requires EPS related information to be disclosed both in consolidated financial statements and separate financial statements 213

8. Related Party Disclosures 1. In the Exposure Draft of revised AS 18, disclosures which conflict with confidentiality requirements of statute/regulations are not required to be made since Accounting Standards can not override legal/regulatory requirements.

2. In the Exposure Draft of the revised AS 18, father, mother, brother and sister are included in the definition of the â&#x20AC;&#x2DC;close members of the family of a person

3. Paragraph 17A has been included in Exposure Draft of revised AS 18. It provides for additional disclosure requirements with respect to related parties, if required by any statute.

4. Paragraph 24A has been included in the Exposure Draft of revised AS 18 on the lines of existing AS 18. It provides additional clarificatory guidance regarding aggregation of transactions for disclosure.

9. Employees Benefit

The draft of AS 15(Revised 20XX) differs from International Accounting Standard (IAS) 19, Employee Benefits, in the following major respects:

1. IAS 19 permits various options for treatment of actuarial gains and losses whereas draft of AS 15(Revised 20XX) requires immediate recognition of the same in profit or loss.

2. The transitional provisions given in IAS 19 and portions related thereto have not been given in the draft of AS 15, keeping in view that IFRS 1, First-time Adoption of International Financial Reporting Standard, provides that transitional provisions in other IFRSs do not apply to a first-time adopterâ&#x20AC;&#x2122;s transition to IFRSs, unless otherwise permitted in IFRS 1. It is noted that IFRS 1 does not permit use of the transitional provisions provided in IAS 19. Accordingly, deleting or retaining the said paragraph would have the same effect.

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IND-AS 41 – First Time Adoption: A Guide 3. The AS 15 (Revised 20XX) unlike IAS 19 gives guidance that detailed actuarial valuation of defined benefit obligations may be made at intervals not exceeding three years.

4. According to AS 15 (Revised 20XX) the rate to be used to discount postemployment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19, the government bonds can be used only where there is no deep market of high quality corporate bonds. 5. Different terminology is used, to make it with consistent with existing laws e.g., term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’

10. Intangible Assets and SIC Interpretation 32 Intangible Assets—Web Site Costs

1. With regard to the acquisition of an intangible asset by way of a government grant, IAS 38, Intangible Assets, provides the option to an entity to recognize both asset and grant initially at fair value or at a nominal amount plus any expenditure that is directly attributable to preparing the asset for its intended use.

The draft of the revised AS 26 allows only fair value for recognising the assets and grant in accordance with the draft of AS12 (Revised 20XX). 2 The transitional provisions have not been included in the Exposure Draft of AS 26 (Revised 20XX), since these are not relevant in the present Indian context.

3. Different terminology is used, to make it consistent existing laws e.g., term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’ 215

11. Accounting and Reporting by Retirement Benefit Plans The Exposure Draft of AS 36 (Issued 20XX), Accounting and Reporting by Retirement Benefit Plans and International Accounting Standard (IAS)26, Accounting and Reporting by Retirement Benefit Plans removes the alternatives permitted in contents of financial statements of a defined benefit plan under paragraph 17; use of salary level for calculating present value of expected payments by a retirement benefit plan (paragraph 23); and formats of presenting actuarial information in a defined benefit plan (paragraph 28). The aforesaid have consequential effects on other paragraphs which have been changed accordingly.

12. Income Taxes

There are following differences between the Exposure Draft of AS 22 (Revised 20XX), Income Taxes and International Accounting Standard (IAS) 22, Income Taxes, SIC 21, Income Taxes—Recovery of Revalued Non-Depreciable Assets and SIC 25, Income Taxes—Changes in the Tax Status of an Entity or its Shareholders (amended upto January 2010) issued by the International Accounting Standards Board:

1. The transitional provisions given in SIC 21 and SIC 25 regarding changes in accounting policy have not been given in the Exposure Draft of AS 22 (Revised 20XX), since IFRS 1, First-time Adoption of International Financial Reporting Standards, provides that transitional provisions in other IFRSs do not apply to a first-time adopter’s transition to IFRSs, unless otherwise permitted in IFRS 1. It is noted that IFRS 1 does not permit use of these transitional provisions. Accordingly, deleting or retaining the said paragraph would have the same effect.

2. Different terminology is used, as used in existing laws e.g., term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’. Words ‘approved for

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IND-AS 41 – First Time Adoption: A Guide issue’ have been used instead of ‘authorised for issue’ in the context of financial statements considered for the purpose of events after the reporting period.

3. Requirements regarding presentation of tax expense (income) in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approach in AS 1 (Revised 20XX). AS 1 (Revised 20XX) requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.

13. Non-current Assets Held for Sale and Discontinued Operations

1. The transitional provisions given in IFRS 5 have not been given in the Exposure Draft of AS 24 (Revised 20XX), since IFRS 1, First-time Adoption of International Financial Reporting Standards, provides that transitional provisions in other IFRSs do not apply to a first-time adopter’s transition to IFRSs, unless otherwise permitted in IFRS 1. It is noted that IFRS 1 does not permit use of these transitional provisions. Accordingly, deleting or retaining the said paragraph would have the same effect.

2. Different terminology is used, as used in existing laws e.g., term ‘balance sheet’ is used instead of ‘Statement of financial position’, ‘Statement of profit and losses is used instead of ‘Statement of comprehensive income’. Words ‘approval of the financial statements for issue have been used instead of ‘authorisation of the financial statements for issue ’ in the context of financial statements considered for the purpose of events after the reporting period.

3. Requirements regarding presentation of discontinued operations in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approaches in AS 1 (Revised 20XX). AS 1 (Revised 20XX) requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.

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In spite of these differences, the ICAI makes a mention in most of these Standards that these differences would not amount to differences with IFRS.

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IND-AS 41 – First Time Adoption: A Guide

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13. Differences Between Converged Indian Accounting Standards (CIAS) & Indian Accounting Standards (IAS)

The differences between Indian Accounting Standards and IFRS were tabulated above. This Chapter provides the differences between the Converged Indian Accounting Standards ( CIAS) and Indian Accounting Standards. These differences are critical since many entities would be following the Indian Accounting Standards and would have to re-align their accounting policies to prepare the IndAS Opening Balance Sheet as per Ind-AS. Most of these differences have been gathered from the Converged Indian Accounting Standards.

1. IAS -1

The Draft of revised AS 1 generally deals with presentation of financial statements, whereas existing AS 1 (issued1979) deals only with the disclosure of accounting policies. The scope covered by the draft is thus much wider and line by line comparison of the difference with the present standard is not possible. However, the major requirements as laid down in the draft are as follows.

• An enterprise shall make an explicit statement in the financial statements of compliance with all the Accounting Standards. Further, the draft allows deviation from a requirement of an accounting standard in case the management concludes that compliance with ASs will be misleading and if the regulatory framework requires or does not prohibit such a departure. • The draft of revised AS 1 requires presentation and provides criteria for classification of Current / Non- Current assets / liabilities. • The draft of revised AS 1 prohibits presentation of any item as extraordinary Item in the Statement of Comprehensive Income.

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IND-AS 41 – First Time Adoption: A Guide • The draft of revised AS 1 requires disclosure of judgments made by management while framing of accounting polices. Also, it requires disclosure of key assumptions

about the future and other sources of measurement uncertainty that have significant

risk of causing a material adjustment to the carrying amounts of assets and liabilities within next financial year.

• The draft of revised AS 1 requires classification of expenses to be presented either based on nature or function of expenses. If classification is based on function, additional information on the nature of expenses should be disclosed. • The draft of revised AS 1 requires presentation of statement of financial position as at the beginning of the earliest period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in the financial statements, or when it reclassifies items in its financial statements. • The draft of revised AS 1 requires presentation of components of comprehensive income (i.e. non-owner changes in equity) are required to be presented in the Statement of Other Comprehensive Income. • In respect of reclassification of items, the draft of revised AS 1 requires disclosure of nature, amount and reason for reclassification in the notes to financial statements. • The draft of revised AS 1 requires the financial statements to include a Statement of Changes in Equity which, inter alia, includes reconciliation between opening and closing balance for each component of equity

2. AS 2, Valuation of Inventories

The Exposure Draft of AS 2 (revised) differs from the existing AS 2 in the following major respects: (i) On the lines of IAS 2, the Exposure Draft of revised AS 2 deals with the subsequent recognition of cost/carrying amount of inventories as an expense, whereas the existing AS 2 does not provide the same

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(ii) The Exposure Draft of revised AS 2 provides explanation with regard to inventories of service providers whereas the existing AS 2 does not contain such an explanation

(iii) The existing AS 2 explains that inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets. The Exposure Draft of revised AS 2 does not contain specific explanation in respect of such spares as this aspect is covered under revised AS 10.

(iv) The Exposure Draft of revised AS 2 does not apply to measurement of inventories held by commodity broker-traders, who measure their inventories at fair value less costs to sell. However, this aspect is not there in the existing AS 2. Accordingly, revised AS 2 defines fair value and provides an explanation in respect of distinction between ‘net realisable value’ and ‘fair value’. The existing AS 2 does not contain the definition of fair value and such explanation.

(v) The Exposure Draft of revised AS 2 provides detailed guidance in case of subsequent assessment of net realisable value. It also deals with the reversal of the write-down of inventories to net realisable value to the extent of the amount of original write-down, and the recognition and disclosure thereof in the financial statements. The existing AS 2 does not deal with such reversal.

(vi) The Exposure Draft of revised AS 2 excludes from its scope only the measurement of inventories held by producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products though it provides guidance on measurement of such . However, the existing AS 2 excludes from its scope such types of inventories.

(vii) The existing AS 2 specifically provides that the formula used in determining the cost of an item of inventory should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition whereas the Exposure Draft of revised AS 2 does not specifically state so and requires the use of consistent cost formulas for all inventories having a similar nature and use to the entity. The Exposure Draft of revised AS 2 also explains this aspect

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IND-AS 41 – First Time Adoption: A Guide (viii) The Exposure Draft of revised AS 2 uses the term ‘operating segment’ in paragraph 29 thereof in expectation of issuance of Accounting Standard corresponding to IFRS 8, Operating Segments, whereas the existing AS 2 uses ‘business segment’ in its corresponding paragraph 21 in view of the term used in the existing Accounting Standard (AS) 17, Segment Reporting.

(ix) The Exposure Draft of revised AS 2 requires more disclosures as compared to the existing AS 2.

3. AS 3, Cash Flow Statements

The Exposure Draft of AS 3 (revised) differs from the existing AS 3 in the following major respects:

(i) On the lines of IAS 7, the Exposure Draft of revised AS 3 specifically includes bank overdrafts which are repayable on demand as a part of cash and cash equivalents, whereas the existing AS 3 is silent on this aspect (refer paragraph 8 of the Exposure Draft of revised AS 3).

ii) The Exposure Draft of revised AS 3 provides the treatment of cash payments to manufacture or acquire assets held for rental to others and subsequently held for sale in the ordinary course of business as cash flows from operating activities. Further, treatment of cash receipts from rent and subsequent sale of such assets as cash flow from operating activity is also provided. The existing AS 3 does not contain such requirements. (iii) The Exposure Draft of revised AS 3 includes the following new examples of cash flows arising from financing activities

(a) cash payments to owners to acquire or redeem the entity’s shares

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(b) cash proceeds from mortgages

(iv) As compared to the existing AS 3, the Exposure Draft of revised AS 3 specifically mentions to adjust the profit or loss for the effects of â&#x20AC;&#x2DC;undistributed profits of associates and

non-controlling interestsâ&#x20AC;&#x2122; while determining the net cash flow from operating activities using the indirect method

(v) The existing AS 3 requires cash flows associated with extraordinary activities to be separately classified as arising from operating, investing and financing activities, whereas the

Exposure Draft of revised AS 3 does not contain this requirement on the lines of IAS 7.

(vi) As compared to the existing AS 3, the Exposure Draft of revised AS 3 requires to disclose the amount of cash and cash equivalents and other assets and liabilities in the subsidiaries or other businesses over which control is obtained

(vii) The Exposure Draft of revised AS 3 requires to classify cash flows arising from changes

in ownership interests in a subsidiary that do not result in a loss of control as cash flows from financing activities. The existing AS 3 does not contain such a requirement.

(viii) The Exposure Draft mentions the use of Equity or Cost method while accounting for an investment in an associate or a subsidiary on the lines of IAS 7 . It also specifically deals with the reporting of interest in a jointly controlled entity using proportionate consolidation and using equity method on the lines of IAS 7 . The existing AS 3 does not contain such requirements.

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IND-AS 41 – First Time Adoption: A Guide (ix) The Exposure Draft of revised AS 3 uses the term ‘functional currency’ instead of

‘reporting currency’ (as used in the existing AS 3) on the lines of IAS 7. The Exposure Draft also deals with translation of cash flows of a foreign subsidiary whereas in the existing AS 3, it is not dealt with.

(x) The Exposure Draft of revised AS 3 requires more disclosures as compared to the existing AS 3

4. Major Differences between the Exposure Draft of AS 4 (Revised 20XX) and existing AS 4 (i) In the exposure draft of AS 4 (Revised 20XX), the term ‘events after the reporting period’ has been defined as those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are authorised for issue, and date of authorisation for issue has been adequately explained through examples. Whereas, the existing AS 4 does not use the term ‘authorised for issue’ and defines the events occurring after the balance sheet date as those significant events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in case of a company, and by the corresponding approving authority in case of any other entity.

(ii) In the exposure draft of AS 4 (Revised 20XX), material non-adjusting events are required to be disclosed in the financial statements, whereas the existing AS 4 requires the same to be disclosed in the report of approving authority. (iii) As per the exposure draft of AS 4 (Revised 20XX) dividend proposed or declared after the reporting period, cannot be recognised as a liability in the financial statements because it does not meet the criteria of a present obligation as per AS 29 (Revised 20XX). Such dividend is required to be disclosed in the notes in

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the financial statements as per AS 1 (Revised 20XX), whereas as per the existing AS 4 the same is required to be adjusted in financial statements because of the requirements prescribed in the Schedule VI to the Companies Act, 1956.

(iv) If after the reporting date, it is determined that the fundamental accounting assumption of going concern is no longer appropriate, the exposure draft of AS 4 (Revised 20XX) requires a fundamental change in the basis of accounting. Whereas existing AS 4 requires assets and liabilities to be adjusted for events occurring after the balance sheet date that indicate that the fundamental accounting assumption of going concern is not appropriate. In this regard, the exposure draft of AS 4 (Revised 20XX) refers to AS 1 (Revised 20XX), which requires an entity to make the following disclosures:

- the fact that the financial statements are not prepared on a going concern basis together with the basis on which the financial statements are prepared - the reason why the entity is not regarded as a going concern.

Existing AS 4 does not require any such disclosure, However, existing AS 1 requires the disclosure of the fact in case going concerns assumption is not followed.

(v) Exposure Draft of AS 4 (Revised 20XX) requires certain additional disclosures as compared to existing AS 4, such as, the date when the financial statements were authorised for issue and who gave that authorisation. If the entityâ&#x20AC;&#x2122;s owners or others have the power to amend the financial statements after issue, that fact is also required to be disclosed as per the Exposure Draft of AS 4(Revised 20XX).

(vi) Exposure Draft of AS 4(Revised 20XX) gives guidance on accounting for noncash distributions to owners whereas the existing AS 4 does not contain this guidance.

5. Major differences between the Exposure Draft of AS 5 (Revised 20XX), 226

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

Accounting Policies, Changes in Accounting Estimates and Errors and existing AS 5 (Revised 1997) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies 1. Objective of existing AS 5 is to prescribe the classification and disclosure of certain items in the statement of profit and loss for uniform preparation and presentation of financial statements. Objective of the Exposure Draft of AS 5 (Revised 20XX) is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Exposure Draft intends to enhance the relevance and reliability of an entityâ&#x20AC;&#x2122;s financial statements and the comparability of those financial statements over time and with the financial statements of other entities.

2. Keeping in view that AS 1 (Revised 20XX), Presentation of Financial Statements, prohibits the presentation of any items of income or expense as extraordinary items and deals with Profit or loss for the period, and in accordance with the objective of AS 5 (Revised 20XX), this Exposure Draft does not deal with the same, which at present is dealt with by existing AS 5.

3. Existing AS 5 restricts the definition of accounting policies to specific accounting principles and the methods of applying those principles while the Exposure Draft of AS 5

(Revised 20XX) broadens the definition to include bases, conventions, rules and practices (in addition to principles) applied by an entity in the preparation and presentation of financial statements.

4. In addition to the situations allowed under the Exposure Draft of AS 5 (Revised 20XX) for change in accounting policy, existing AS 5 allows the situation where change in accounting policy is required by statute .

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5. The Exposure Draft of AS 5 (Revised 20XX) requires that changes in accounting policies should be accounted for with retrospective effect subject to limited exceptions viz., where it is impracticable to determine the period specific effects or the cumulative effect of applying a new accounting policy. Whereas, existing AS 5 does not specify how change in accounting policy should accounted for except that the change should be accounted for as per the transitional provisions of the Standard where change is effected consequent upon adoption of an Accounting Standard.

6. Existing AS 5 defines prior period items as incomes or expenses which arise in the current period as a result of errors or omissions in the preparation of financial statements of one or more prior periods. The Exposure Draft of AS 5 (Revised 20XX) uses the term errors and relates it to errors or omissions arising from a failure to use or misuse of reliable information (in addition to mathematical mistakes, mistakes in application of accounting policies etc.) that was available when the financial statements of the prior periods were approved for issuance and could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements. The Exposure Draft of AS 5 (Revised 20XX) specifically states that errors include frauds, which is not covered in existing AS 5.

7. The Exposure Draft of AS 5 (Revised 20XX) requires rectification of material prior period errors with retrospective effect subject to limited exceptions viz., where it is impracticable to determine the period specific effects or the cumulative effect of applying a new accounting policy. Whereas, existing AS 5 requires the rectification of prior period items with prospective effect.

8. Disclosure requirements given in the Exposure Draft of AS 5 (Revised 20XX) are more detailed as compare to the disclosure requirements given in the existing AS 5

6. Major Differences between the Exposure Draft of AS 12 (revised), Accounting for Government Grants and Disclosure of Government Assistance, and 228

IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide

preexisted AS 12, Accounting for Government Grants (1991) The Exposure Draft of AS 12 (revised) differs from AS 12 (1991) in the following major respects:

(i) On the lines of IAS 20, the Exposure Draft of AS 12 (revised) also deals with the other

forms of government assistance which do not fall within the definition of government grants. It requires that an indication of other forms of government assistance from which the entity has directly benefited should be disclosed in the financial statements. However, AS 12 (1991) does not deal with such government assistance. (ii) AS 12 (1991) requires that in case the grant is in respect of non-depreciable assets, the

amount of the grant should be shown as capital reserve which is a part of shareholdersâ&#x20AC;&#x2122; funds. It further requires that if a grant related to a non-depreciable asset requires the fulfilment of certain obligations, the grant should be credited to income over the same period over which the cost of meeting such obligations is charged to income. AS 12 (1991) also gives an alternative to treat such grants as a deduction from the cost of such asset. As compared to the above, the Exposure Draft of AS 12 (revised), on the lines of IAS 20, is

based on the principle that all government grants would normally have certain obligations attached to them and these grants should be recognised as income over the periods which bear the cost of meeting the obligation. It, therefore, specifically prohibits recognition of grants directly in the shareholdersâ&#x20AC;&#x2122; funds.

(iii) AS 12 (1991) recognises that some government grants have the characteristics similar to

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those of promoters’ contribution. It requires that such grants should be credited directly to

capital reserve and treated as a part of shareholders’ funds. However, the Exposure Draft of AS 12 (revised), on the lines of IAS 20, does not recognise government grants of the nature of promoters’ contribution. As stated at (ii) above, the Exposure Draft of AS 12 (revised) is based on the principle that all government grants would normally have certain obligations attached to them and it, accordingly, requires all grants to be recognised as income over the periods which bear the cost of meeting the obligation.

(iv) AS 12 (1991) requires that government grants in the form of non-monetary assets, given

at a concessional rate, should be accounted for on the basis of their acquisition cost. In case a non-monetary asset is given free of cost, it should be recorded at a nominal value. However, as compared to this, the Exposure Draft of AS 12 (revised), on the lines of IAS 20, provides an option to value non-monetary grants at their fair value, since it results into presentation of more relevant information and is conceptually superior as compared to valuation at a nominal amount.

Major differences between the exposure draft of AS 16 (revised), Borrowing Costs, and existing AS 16 (issued 2000)

(i) The exposure draft of revised AS 16 does not require an entity to apply this standard to borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset measured at fair value, for example, a biological asset whereas the existing AS 16 does not provide for such scope relaxation. The exposure draft of revised AS 16 excludes the application of this Standard to borrowing costs directly attributable to the acquisition, construction or production of inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis whereas existing AS 16 does not provide for such

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IND-AS 41 – First Time Adoption: A Guide scope relaxation and is applicable to borrowing costs related to all inventories that require substantial period of time to bring them in saleable condition. (ii) As per existing AS 16, Borrowing Costs, inter alia, include the following:

(a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings; (b) amortisation of discounts or premiums relating to borrowings;

In the exposure draft of revised AS 16, item (a) above has been amended to calculate the interest expense using the effective interest rate method as described in AS 30 Financial Instruments: Recognition and Measurement. Items (b) and (c) above have been deleted, as some of these components of borrowing costs are broadly equivalent to the components of interest expense calculated using the effective interest rate method.

(iii) Existing AS 16 gives explanation for meaning of ‘substantial period of time’ appearing in the definition of the term ‘qualifying asset’. It also gives explanation for computation of exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to interest costs. This explanation is also illustrated. Both these explanations and the illustration are not included in the exposure draft of revised AS 16.

(iv) The exposure draft of revised AS 16 provides that when the Standard on Financial Reporting in Hyperinflationary Economies is applied, part of the borrowing costs that compensates for inflation should be expensed as required by that Standard (and not capitalised in respect of qualifying assets). The existing AS 16 standard does not contain a similar clarification because at present, in India, there is no Standard on Financial Reporting in Hyperinflationary Economies.

(v) The exposure draft of revised AS 16 specifically provides that in some circumstances, it is appropriate to include all borrowings of the parent and its subsidiaries when computing a weighted average of the borrowing costs while in

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other circumstances, it is appropriate for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings. This specific provision is not found in the existing AS 16.

(vi) The exposure draft of revised AS 16 requires disclosure of capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation. The existing AS 16 does not have this disclosure requirement.

Major differences between the Exposure Draft of AS 19 (Revised 20XX), Leases, and existing AS 19 (Issued 2001)

1. The existing AS 19 excludes leases of land from its scope whereas the Exposure Draft of revised AS 19 does not have such scope exclusion. Exposure Draft of revised AS 19 has specific provisions dealing with leases of land and building. Further, the Exposure Draft of revised standard does not be apply as the basis of measurement of property held by lessees/provided by lessors under operating leases but treated as investment property and biological assets held by lessees/provided by lessors under operating lease dealt with in the Accounting Standard on Agriculture. The existing standard does not contain similar provisions. 2. The definition of residual value appearing in the existing standard has been deleted in the Exposure Draft of revised standard.

3. Consequent upon difference between the existing standard and the Exposure Draft of revised standard in respect of treatment of initial direct costs incurred by a nonmanufacturer/ non-dealer-lessor in respect of a finance lease, the term ‘initial direct costs’ has been specifically defined in the Exposure Draft of revised standard and definition of the term ‘interest rate implicit in the lease’ as per the existing standard has been modified in the Exposure Draft of the revised standard. 4. The Exposure Draft of the revised standard makes a distinction between inception of lease and commencement of lease. In the existing standard, though both the terms are used at some places, these terms have not been defined and

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide distinguished. Further, the Exposure Draft of the revised standard deals with adjustment of lease payments during the period between inception of the lease and the commencement of the lease term. This aspect is not dealt with in the existing standard. Also, as per the Exposure Draft of the revised standard, the lessee shall recognise finance leases as assets and liabilities in balance sheet at the commencement of the lease term whereas as per the existing standard such recognition is at the inception of the lease.

5. Treatment of initial direct costs under the Exposure Draft of the revised standard differs from the treatment prescribed under the existing standard. This is tabulated below: Subject Finance leaselessor accounting

Nonmanufacturer/ Non-dealer Operating lease-

Lessor

accounting

Existing Standard Either recognised as expense immediately or allocated against the finance income over the lease term

Either deferred and allocated to income over the lease term in proportion to the recognition of rent income, or recognised as expense in the period in which incurred.

ED of Revised Standard Interest rate implicit in the lease is defined in such a way that the initial direct costs included automatically in the finance lease receivable; there is no need to add them separately Added to the carrying amount of the leased asset and recognised as expense over the lease term on the same basis as lease income

6. The Exposure Draft of the revised standard requires current/non-current classification

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of lease liabilities if such classification is made for other liabilities. Also, it makes reference to Accounting Standard on Non-current Assets Held for Sale and Discontinued Operations. These matters are not addressed in the existing standard.

7. As per the existing standard, if a sale and leaseback transaction results in a finance lease, excess, if any, of the sale proceeds over the carrying amount shall be deferred and amortised by the seller-lessee over the lease term in proportion to depreciation of the leased asset. While the Exposure Draft of the revised standard retains the deferral and amortisation principle, it does not specify any method of amortisation.

8. The Exposure Draft of the revised standard provides guidance on accounting for incentives in the case of operating leases, evaluating the substance of transactions involving the legal form of a lease and determining whether an arrangement contains a lease. The existing standard does not contain such guidance.

9. There are some differences in disclosure requirements as per the existing standard and disclosure requirements as per the Exposure Draft of the revised standard.

Major differences between the Exposure Draft of AS 25 (Revised 20XX), Interim Financial Reporting, and existing AS 25 (Issued 2002) 1. Under the existing AS 25, if an entity is required or elects to prepare and present an interim financial report, it should comply with that standard. The revised standard applies only if an entity is required or elects to prepare and present an interim financial report in accordance with Accounting Standards. Consequently, it is specifically stated in the revised standard that the fact that an entity may not have provided interim financial reports during a particular financial year or may have provided interim financial reports that do not comply with the revised

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IND-AS 41 – First Time Adoption: A Guide standard does not prevent the entity’s annual financial statements from conforming to Accounting Standards if they otherwise do so.

2. In the revised standard, the term ‘complete set of financial statements’ appearing in the definition of interim financial report has been expanded as complete set of financial statements (as described in AS 1(Revised 20XX) The Presentation of Financial Statements). Accordingly, the said term includes a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

3. As per the existing standard, the contents of an interim financial report include, at a minimum, a condensed balance sheet, a condensed statement of comprehensive income, presented as either (i) a condensed single statement or (ii) a condensed separate income statement and a condensed statement of comprehensive income, a condensed cash flow statement and selected explanatory notes. The revised standard requires, in addition to the above, a condensed statement of changes in equity. (Consequential to change in AS 1 (Revised 20XX)) 4. The revised standard prohibits reversal of impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost. There is no such specific prohibition in the existing standard.

5. Under the existing standard, if an entity’s annual financial report included the consolidated financial statements in addition to the separate financial statements, the interim financial report should include both the consolidated financial statements and separate financial statements, complete or condensed. The revised standard states that it neither requires nor prohibits the inclusion of the parent's separate statements in the entity's interim report prepared on a consolidated basis.

6. The existing standard requires the Notes to interim financial statements, (if material and not disclosed elsewhere in the interim financial report), to contain a statement that the same accounting policies are followed in the interim financial statements as those followed in the most recent annual financial statements or, in case of change in those policies, a description of the nature and effect of the

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change. The revised standard additionally requires the above information in respect of methods of computation followed.

7. The existing standard requires furnishing information, in interim financial report, of dividends, aggregate or per share (in absolute or percentage terms), for equity and other shares. The revised standard requires furnishing of information, in interim financial report, on dividends paid, aggregate or per share separately for equity and other shares. 8. While the existing standard requires furnishing of information on contingent liabilities only, the revised standard requires furnishing of information on both contingent liabilities and contingent assets.

9. Reference to extraordinary items (in the context of materiality) in the existing standard is deleted in the revised standard in line with the AS 1 (Revised 20XX).

10. The revised standard requires that, where an interim financial report has been prepared in accordance with the requirements of the revised standard, that fact should be disclosed. Further, an interim financial report should not be described as complying with Accounting Standards unless it complies with all of the requirements of Accounting Standards. (The latter statement is applicable when interim financial statements are prepared on complete basis instead of â&#x20AC;&#x2DC;condensed basisâ&#x20AC;&#x2122;). The existing standard does not contain these requirements.

11. Under the existing standard, a change in accounting policy, other than one for which the transitional provisions are specified by a new Standard, should be reflected by restating the financial statements of prior interim periods of the current financial year. The revised standard additionally requires restatement of the comparable interim periods of prior financial years that will be restated in annual financial statements in accordance with the AS 5 (Revised 20XX), subject to special provisions when such restatement is impracticable. 12. Convergence of all other standards with IFRSs also has impact on interim financial reporting. For example, treatment of constructive obligation in AS 29 (Revised 20XX), treatment of foreign exchange differences in AS 11 (Revised 20XX) etc. will have impact in interim financial reporting which could be different in the context of relevant existing standards. There are other consequential impacts also. For example, the existing standard requires disclosure of Earnings

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Per Share (EPS)- basic and diluted- in accordance with AS 20 (Revised 20XX). The existing AS 20 requires EPS with and without extraordinary items. Since the concept of extraordinary items is no longer valid in the context of AS 1 (Revised 20XX) the question of EPS with and without extraordinary items does not arise in the context of AS 20 (Revised 20XX). This changed requirement of AS 20 (Revised 20XX) is equally applicable to interim financial reporting under the AS 25 (Revised 20XX). 13. Illustration B to the revised standard (not an integral part of the standard), inter alia, gives example of application of Accounting Standard on Financial Reporting in Hyperinflationary Economies to interim periods. Similar example was not given in the existing standard, there being no Indian standard on accounting in hyperinflationary economies.

14. Under the existing standard, when an interim financial report is presented for the first time in accordance with that Standard, an entity need not present, in respect of all the interim periods of the current financial year, comparative statements of profit and loss for the comparable interim periods (current and year-to-date) of the immediately preceding financial year and comparative cash flow statement for the comparable year-to-date period of the immediately preceding financial year. The revised standard removes this transitional provision.

Major differences between the Exposure Draft of AS 11 (Revised 20XX), The Effects of Changes in Foreign Exchange Rates, and existing AS 11 (Revised 2003) 1. The Exposure Draft of AS 11 (Revised 20XX) excludes from its scope forward exchange contracts and other similar financial instruments., which are treated in accordance with AS 30 (Revised 20XX) Financial Instruments: Recognition and Measurement. The existing AS 11 does not make such exclusion. This difference has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

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2. The existing AS 11 is based on integral foreign operations and non-integral foreign operations approach, whereas the Exposure Draft of AS 11 (Revised 20XX) is based on the functional currency approach. However, in the Exposure Draft of AS 11 (Revised 20XX) the factors to be considered in determining an entityâ&#x20AC;&#x2122;s functional currency are similar to the indicators in existing AS 11 to determine the foreign operations as a non-integral foreign operations. As a result, despite the difference in the term, there are no substantive differences.

3. As per the Exposure Draft of AS 11 (Revised 20XX), presentation currency can be different from local currency and it gives detailed guidance on this, whereas the existing AS 11 does not explicitly states so.

Major Differences between the Exposure Draft of AS 10 (Revised 20XX) Property, Plant and Equipment, and existing AS 10, Accounting for Fixed Assets and AS 6, Depreciation Accounting

Exposure Draft of AS 10 (Revised 20XX) deals with accounting for property, plant and equipment which are covered by existing AS 10, Accounting for Fixed Assets. The revised Standard also deals with depreciation of property, plant and equipment which is presently covered by AS 6, Depreciation Accounting. Therefore, the major differences mentioned below are between the Exposure Draft of AS 10 (Revised 20XX) and existing AS 10 and existing AS 6. (i) Existing AS 10 specifically excludes accounting for real estate developers from its scope, whereas the Exposure Draft of AS 10 (Revised 20XX) does not exclude such developers from its scope.

(ii) Exposure Draft of AS 10 (Revised 20XX), apart from defining the term property, plant and equipment, also lays down the following criteria which should be satisfied for recognition of items of property, plant and equipment:

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (a) it is probable that future economic benefits associated with the item will flow to the entity, and (b) the cost of the item can be measured reliably. Existing AS 10 does not lay down any specific recognition criteria for recognition of a fixed asset. As per the standard, any item which meets the definition of a fixed asset should be recognised as a fixed asset.

(iii) As per the Exposure Draft of AS 10 (Revised 20XX), initial costs as well as the subsequent costs are evaluated on the same recognition principles to determine whether the same should be recognised as an item of property, plant and equipment. Existing AS 10 on the other hand, prescribes separate recognition principles for subsequent expenditure. As per existing AS 10, subsequent expenditures related to an item of fixed asset are capitalised only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance

(iv) Exposure Draft of AS 10 requires that major spare parts qualify as property, plant and equipment when an entity expects to use them during more than one period and when they can be used only in connection with an item of property, plant and equipment. As per existing AS 10, only those spares are required to be capitalised which can be used only in connection with a fixed asset and whose use is expected to be irregular.

(v) Exposure Draft of AS 10 is based on the component approach. Under this approach, each major part of an item of property plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. As a corollary, cost of replacing such parts is capitalised, if recognition criteria are met with consequent derecognition of carrying amount of the replaced part. The cost of replacing those parts which have not been depreciated separately is also capitalised with the consequent derecognition of the replaced parts. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. Existing AS 10, however, does not mandatorily require full adoption of the component approach. It recognises the said approach in only one paragraph by stating that accounting for a tangible fixed asset may be improved if total cost thereof is allocated to its various parts. Apart from this, neither existing AS 10 nor existing AS 6 deals with the aspects such as separate depreciation of components, capitalising the cost of replacement, etc.

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(vi) Exposure Draft of AS 10 requires that the cost of major inspections should be capitalised with consequent derecognition of any remaining carrying amount of the cost of the previous inspection. Existing AS 10 does not deal with this aspect.

(vii) In line with the requirement of AS 29, (Revised 20XX) Provisions, Contingent Liabilities and Contingent Assets, for creating a provision towards the costs of dismantling and removing the item of property plant and equipment and restoring the site on which it is located at the time the item is acquired or constructed, the Exposure Draft AS 10 (Revised 20XX) requires that the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located should be included in the cost of the respective item of property plant and equipment. Existing AS 10 does not contain any such requirement. ed 20XX) requires an entity to choose either the cost model or the revaluation model as its accounting policy and to apply that policy to an entire class of property plant and equipment. It requires that under revaluation model, revaluation be made with reference to the fair value of items of property plant and equipment. It also requires that revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Existing AS 10 recognises revaluation of fixed assets. However, the revaluation approach adopted therein is ad hoc in nature, as it does not require the adoption of fair value basis as its accounting policy or revaluation of assets with regularity. It also provides an option for selection of assets within a class for revaluation on systematic basis.

(ix) On the lines of IAS 16, the Exposure Draft of AS 10 provides that the revaluation surplus included in equity in respect of an item of property plant and equipment may be transferred to the retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between the depreciation based on the revalued carrying amount of the asset and depreciation based on its original cost. Transfers from revaluation surplus to the retained earnings are not made through profit or loss. As compared to the above, neither existing AS 10 nor existing AS 6 deals with the transfers from revaluation surplus. To deal with this aspect, the Institute has issued a Guidance Note on Treatment of Reserve Created on Revaluation of Fixed Assets. The Guidance Note provides that if a company has transferred the difference between the revalued figure and the book value of fixed assets to the

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IND-AS 41 – First Time Adoption: A Guide ‘Revaluation Reserve’ and has charged the additional depreciation related thereto to its profit and loss account, it is possible to transfer an amount equivalent to accumulated additional depreciation from the revaluation reserve to the profit and loss account or to the general reserve as the circumstances may permit, provided suitable disclosure is made in the accounts. However, the said Guidance Note also recognises that it would be prudent not to charge the additional depreciation arising due to revaluation against the revaluation reserve.

(x) With regard to self-constructed assets, the Exposure Draft of AS 10, on the lines of IAS 16, specifically states that the cost of abnormal amounts of wasted material, labour, or other resources incurred in the construction of an asset is not included in the cost of the assets. Existing AS 10 while dealing with self-constructed fixed assets does not mention the same.

(xi) In line with IAS 16, the Exposure Draft of AS 10 (Revised 20XX) provides that the cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with AS 16 (Revised 20XX). Similarly, the concept of cash price equivalent has been followed in case of disposal of fixed assets also. As this provision amounts to adopting the present value accounting, existing AS 10 does not contain this requirement. (xii) Existing AS 10 specifically deals with the fixed assets owned by the entity jointly

with others. The Exposure Draft of AS 10 (Revised 20XX) does not specifically deal with this aspect as these would basically be covered by AS 27 (Revised 20XX) as jointly controlled assets. (Paragraph 15.2 of existing AS 10)

(xiii) Existing AS 10 specifically deals with the situation where several assets are purchased for a consolidated price. It provided that the consideration should be

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apportioned to the various assets on the basis of their respective fair values. However, in line with IAS 16, the Exposure Draft of AS 16 (Revised 20XX) does not specifically deal with this situation. (xiv) On the lines of IAS 16, the Exposure Draft of AS 10 requires that the residual

value and useful life of an asset be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) should be accounted for as a change in an accounting estimate in accordance with AS 5. Under existing AS 6, such a review is not obligatory as it simply provides that useful life of an asset may be reviewed periodically.

(xv) Exposure Draft of AS 10 (Revised 20XX) requires that the depreciation method applied to an asset should be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method should be changed to reflect the changed pattern. In existing AS 6, change in depreciation method can be made only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements. (xvi) On the lines of IAS 16, the revised AS 10 requires that change in depreciation method should be considered as a change in accounting estimate and treated accordingly. In existing AS 6, it is considered as a change in accounting policy and treated accordingly.

(xvii) On the lines of IAS 16, the Exposure Draft of AS 10 requires that compensation from third parties for items of property, plant and equipment that were impaired, lost or given up should be included in the statement of profit and loss when the compensation becomes receivable. Existing AS 10 does not specifically deal with this aspect.

(xviii) On the lines of IAS 16, the Exposure Draft of AS 10 specifically provides that gains arising on derecognition of an item of property, plant and equipment should not be treated as revenue as defined in AS 9. Existing AS 10 is silent on this aspect.

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IND-AS 41 – First Time Adoption: A Guide (xix) In line with IAS 16, the Exposure Draft of AS 10 (Revised 20XX) deals with the situation where entities hold the items of property, plant and equipment for rental to others and subsequently sell the same. No such provision is there in existing AS 10.

(xx) Exposure Draft of AS 10 does not deal with the assets ‘held for sale’ because the treatment of such assets is covered in the AS 24 (Revised 20XX) Non-current Assets Held for Sale and Discontinued Operations.

(xxi) The disclosure requirements of the Exposure Draft of AS 10 (Revised 20XX) are significantly elaborate as compared to AS 10 (1985)/ AS 6 (1994).

Major Differences between the Exposure Draft of AS 7 (Revised 20XX) Construction Contracts, and existing AS 7 (revised 2002)

1.Existing AS 7 includes borrowing costs as per AS 16, Borrowing Costs, in the costs that may be attributable to contract activity in general and can be allocated to specific contracts, whereas the Exposure Draft of AS 7 ((Revised 20XX) does not do so on the lines of IAS 11, Construction Contracts. 2. Existing AS 7 does not recognise fair value concept as contract revenue is measured at consideration received/receivable, whereas the Exposure Draft of AS 7 (Revised 20XX) requires that contract revenue shall be measured at fair value of consideration received/receivable.

3. Existing AS 7 does not deal with accounting for Service Concession Arrangements, i.e., the arrangement where private sector entity (an operator) constructs or upgrades the infrastructure to be used to provide the public service and operates and maintains that infrastructure for a specified period of time, whereas Appendix A and Appendix B of the Exposure Draft of AS 7 (Revised 20XX) deal with accounting and disclosure aspects involved in such arrangements.

Major Differences between the Exposure Draft of AS 21 (Revised 20XX) Consolidated and Separate Financial Statements, and existing AS 21, Consolidated Financial Statements

1. The Exposure Draft of AS 21 (Revised 20XX) makes the preparation of Consolidated Financial Statements mandatory for a parent except where parent

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meets certain conditions. Existing AS 21 does not mandate the preparation of Consolidated Financial Statements by a parent. As far as separate financial statements are concerned, as per existing AS 21 Consolidated Financial Statements are prepared in addition to separate financial statements. However, the Exposure Draft of AS 21 (Revised 20XX) does not mandate preparation of separate financial statements.

2. The Exposure Draft of AS 21 (Revised 20XX) deals with investments in jointly controlled entities and associates to be presented in the separate financial statements. Existing AS 21 does not deal with the same.

3. As per existing AS 21, subsidiary is excluded from consolidation when control is intended to be temporary or when subsidiary operates under severe long term restrictions. The Exposure Draft of AS 21 (Revised 20XX) does not give any such exemption from consolidation except that if a subsidiary meets the criteria to be classified as held for sale, in that case it shall be accounted for as per AS 24 (Revised 20XX), Non-current Assets held for Sale and Discontinued Operations.

Existing AS 21 explains where an entity owns majority of voting power because of ownership and all the shares are held as stock-in-trade, whether this amounts to temporary control. Existing AS 21 also explains the term â&#x20AC;&#x2DC;near futureâ&#x20AC;&#x2122;. However, the Exposure Draft of AS 21 (Revised 20XX) does not explain the same, as these are not relevant.

4. As per the definition given in the Exposure Draft of AS 21 (Revised 20XX), control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. However, the definition of control given in the existing AS 21 is rule-based, which requires the ownership, directly or indirectly through subsidiary(ies), of more than half of the voting power of an enterprise; or control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

Existing AS 21 also provides clarification regarding consolidation in case an entity is controlled by two entities. No clarification has been provided in this regard in the Exposure Draft of AS 21 (Revised 20XX), keeping in view that as per the definition of control given in the Exposure Draft, control of an entity could be with one entity only.

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IND-AS 41 – First Time Adoption: A Guide 5. For considering share ownership, potential equity shares of the investee held by investor are not taken into account as per existing AS 21. However, as per the Exposure Draft of AS 21 (Revised 20XX), existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has control over the subsidiary.

6. As per existing AS 21 minority interest should be presented in the consolidated balance sheet separately from liabilities and equity of the parent’s shareholders. However, as per the Exposure Draft of AS 21 (Revised 20XX) minority interests shall be presented in the consolidated balance sheet within equity separately from the parent shareholders’ equity.

7. Existing AS 21 permits the use of financial statements of the subsidiaries drawn upto a date different from the date of financial statements of the parent after making adjustments regarding effects of significant transactions. The difference between the reporting dates should not be more than six months. As per the Exposure Draft AS 21 (Revised 20XX), the length of difference in the reporting dates of the parent and the subsidiary should not be more than three months.

8. Both, the existing AS 21 and the Exposure Draft of AS 21 (Revised 20XX), require the use of uniform accounting policies. However, existing AS 21 specifically states that if it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. However, the Exposure Draft of AS 21 (Revised 20XX) does not recognise the situation of impracticability.

9. As per the existing AS 21, any goodwill arising on acquisition of a subsidiary is to be recognised as an asset in the consolidated financial statements. The Exposure Draft of AS 21 (Revised 20XX) requires the same to be treated in accordance with AS 14 Revised 20XX), Business Combinations. 10. The Exposure Draft of AS 21 (Revised 20XX) provides detailed guidance as compared to existing AS 21 regarding accounting in case of loss of control over subsidiary.

11. Existing AS 21 provides clarification regarding inclusion of notes appearing in the separate financial statements of the parent and its subsidiaries in the

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consolidated financial statements. However, the Exposure Draft of AS 21 (Revised 20XX) does not provide any clarification in this regard.

12. Existing AS 21 provides clarification regarding accounting for taxes on income in the consolidated financial statements. However, the same has not been dealt with in the Exposure Draft of AS 21 (Revised 20XX), as the same is dealt with in AS 22, (Revised 20XX), Income taxes. 13. Existing AS 21 provides clarification regarding disclosure of parentâ&#x20AC;&#x2122;s share in post-acquisition reserves of a subsidiary. The same has not been dealt with in the Exposure Draft of AS 21 (Revised 20XX).

14. Existing AS 21 does not provide guidance on consolidation of Special Purpose Entities (Spas), whereas Appendix A of the Exposure Draft of AS 21 (Revised 20XX) provides guidance on the same. Major differences between the Exposure Draft of AS 23 (Revised 20XX), Investments in Associates, and existing AS 23 (issued 2001)

1. The Exposure Draft of AS 23 (Revised 20XX) excludes from its scope, investments in associates held by venture capital organisations, mutual funds, unit trusts and similar entities including investment-linked insurance funds, which are treated in accordance with AS 30 (Revised 20XX) Financial Instruments: Recognition and Measurement. The existing AS 23 does not make such exclusion. This difference has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

2. As per the definition given in the Exposure Draft of AS 23 (Revised 20XX), control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The definition of control given in the existing AS 23 is rule-based, which requires the ownership, directly or indirectly through subsidiary(ies), of more than half of the voting power of an enterprise; or control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other entity so as to obtain economic benefits from its activities.

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IND-AS 41 – First Time Adoption: A Guide 3. In the existing AS 23, ‘Significant Influence’ has been defined as ‘power to participate in the financial and/or operating policy decisions of the investee but is not control over those policies’. In the Exposure Draft of AS 23 (Revised 20XX), the same has been defined as ‘power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies’. The Exposure Draft of AS 23 (Revised 20XX) defines the joint control also.

4. For considering share ownership for the purpose of significant influence, potential equity shares of the investee held by investor are not taken into account as per the existing AS 23. As per the Exposure Draft of AS 23 (Revised 20XX), existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether an entity has significant influence or not.

5. One of the exemptions from applying equity method in the existing AS 23 is where the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investee. No such exemption is provided in the Exposure Draft of AS 23 (Revised 20XX). The Exposure Draft of AS 23 (Revised20XX) wholly owned or a partially owned subsidiary of another entity and its other owners do

not object to not applying equity method, where investor’s debt or equity are not publicly

traded, where the investor did not file, nor is it in the process of filing, its financial statements with a Securities Regulator or other regulatory organisation, for the purpose of issuing any class of instruments in a public market, and where ultimate or

intermediate parent of investor prepares consolidated financial statements as per Accounting Standards.

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An explanation has been given in existing AS 23 regarding the term â&#x20AC;&#x2DC;near futureâ&#x20AC;&#x2122; used in another exemption from applying equity method, ie, where the investment is acquired

and held exclusively with a view to its subsequent disposal in the near future. This explanation has not been given in the Exposure Draft of AS 23 (Revised 20XX), as such situations are covered by AS 24 (Revised 20XX), Non-current Assets Held for Sale and Discontinued Operations. 6. As per the existing AS 23, where investment in an associate is not accounted for

as per the equity method, the same is accounted for in accordance with existing AS 13, Accounting for investments. As per the Exposure Draft of AS 23 (Revised 20XX), where

investment in an associate is not accounted for as per equity method, the same is to be accounted for in accordance with AS 30(Revised 20XX) Financial Instruments;

Recognition and Measurement. This difference has, however, been removed vide

limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

7. As per the existing AS 23, on acquisition of the investment in an associate, any

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IND-AS 41 – First Time Adoption: A Guide difference between the cost of acquisition and investor’s share of equity of the associate

is described as goodwill/Capital reserve, and the same is included in the carrying amount of investment in the associate but disclosed separately. For calculating goodwill/capital reserve, equity of the associate is determined on the basis of carrying amounts of assets and liabilities on the date of acquisition.

As per the Exposure Draft of AS 23 (Revised 20XX), on acquisition of the

investment in associate, any difference between the cost of acquisition and investor’s

share of the net fair value of the associate’s identifiable assets and liabilities is accounted for as follows:

(i) Goodwill relating to an associate is included in the carrying amount of the investment.

(ii) Any excess of the investor’s share of the net fair value of the associate’s

identifiable assets and liabilities over the cost of the investment is included as income in

the determination of the investor’s share of the associate’s profit or loss in the period in which the investment is acquired.

8. The existing AS 23 permits the use of financial statements of the associate 249

drawn upto a date different from the date of financial statements of the investor when it

is impracticable to draw the financial statements of the associate upto the date of the

financial statements of the investor. There is no limit on the length of difference in the reporting dates of the investor and the associate. As per the Exposure Draft of AS 23

(Revised 20XX), length of difference in the reporting dates of the investor and the associate should not be more than three months unless it is impracticable.

9. Both the existing AS 23 and the Exposure Draft of AS 23 (Revised 20XX) require that similar accounting policies should be used for preparation of investorâ&#x20AC;&#x2122;s financial

statements and in case an associate uses different accounting policies for like

transactions, appropriate adjustments shall be made to the accounting policies of the

associate. The existing AS 23 provides exemption to this that if it is not possible to make adjustments to the accounting policies of the associate, the fact shall be disclosed

along with a brief description of the differences between the accounting policies. This exemption is not available under the Exposure Draft of AS 23 (Revised 20XX).

10. As per existing AS 23, investorâ&#x20AC;&#x2122;s share of losses in the associate is recognised to

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IND-AS 41 – First Time Adoption: A Guide the extent of carrying amount of investment in the associate. As per the Exposure Draft

of AS 23 (Revised 20XX), carrying amount of investment in the associate as well as its other long term interests in the associate that, in substance form part of the investor’s

net investment in the associate shall be considered for recognising investor’s share of losses in the associate.

11. With regard to impairment, the existing AS 23 requires that the carrying amount

of investment in an associate should be reduced to recognise a decline, other than temporary, in the value of the investment. The Exposure Draft of AS 23 (Revised 20XX) requires that after application of equity method, including recognising the associate’s

losses, the requirements of AS 30 (Revised 20XX) shall be applied to determine whether it is necessary to recognise any additional impairment loss. This difference

has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

12. The Exposure Draft of AS 23 (Revised 20XX) requires more disclosures as 251

compared to the existing AS 23.

Major Differences between the Draft of AS 29 (Revised 20XX), Provisions, contingent Liabilities and Contingent Assets, and Existing AS 29 (issued 2003) 1. Unlike the existing AS 29, the Exposure Draft of AS 29(Revised 20XX) requires creation of provisions in respect of constructive obligations also. [However, the

existing standard requires creation of provision arising out of normal business

practices, custom and a desire to maintain good business relations or to act in an equitable manner]. This has resulted in some consequential changes also. For

example, definition of provision and obligating event have been revised in the

Exposure Draft of AS 29 (Revised 20XX), while the terms ‘legal obligation’ and

‘constructive obligation’ have been inserted and defined in the Exposure Draft of AS 29(Revised 20XX). Similarly, the portion of existing AS 29 pertaining to

restructuring provisions has been revised in the Exposure Draft of AS 29 (Revised 20XX). Additional examples have also been included in Appendices F and G of the Exposure Draft of AS 29 (Revised 20XX).

2. The existing AS 29 prohibits discounting the amounts of provisions. The

Exposure Draft of AS 29(Revised 20XX) requires discounting the amounts of

provisions, if effect of the time value of money is material.

3. The existing AS 29 notes the practice of disclosure of contingent assets in the

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide report of the approving authority but prohibits disclosure of the same in the financial statements. The Exposure Draft of AS 29 (Revised 20XX) requires

disclosure of contingent assets in the financial statements when the inflow of

economic benefits is probable. The disclosure, however, should avoid misleading indications of the likelihood of income arising.

4. The Exposure Draft of AS 29 (Revised 20XX) makes it clear that before a separate provision for an onerous contract is established, an entity should

recognise any impairment loss that has occurred on assets dedicated to that

contract in accordance with AS 28 (Revised). There is no such specific provision in the existing standard.

5. The existing AS 29 states that identifiable future operating losses up to the date of restructuring are not included in a provision. The Exposure Draft of AS 29

(Revised 20XX) gives an exception to this principle viz. such losses related to an onerous contract.

6. The Exposure Draft of AS 29 (Revised 20XX) gives guidance on (i) Rights to

Interests arising from Decommissioning, Restoration and Environmental

Rehabilitation Funds and (ii) Liabilities arising from Participating in a Specific Marketâ&#x20AC;&#x201D; Waste Electrical and Electronic Equipment

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Major Differences between the Exposure Draft of AS 20 (Revised 20XX), Earnings per Share, and existing AS 20, Earnings per Share 1. Existing AS 20 does not specifically deal with options held by the entity on its shares, e.g.,

purchased options, written put option etc. The Exposure Draft of AS 20 (Revised 20XX) deals with the same.

2. The Exposure Draft of AS 20 (Revised 20XX) requires presentation of basic and diluted

EPS from continuing and discontinued operations separately. However, existing AS 20 does not require any such disclosure. 3. Existing AS 20 requires the disclosure of EPS with and without extraordinary items. Since

as per AS 1 (Revised 20XX), Presentation of Financial Statements, no item can be presented as extraordinary item, the Exposure Draft of AS 20 (Revised 20XX) does not require the aforesaid disclosure. Major differences between the Exposure Draft of AS 18 (Revised 20XX), Related Party Disclosures, and the existing AS 18 (Issued 2000)

1. Existing AS 18 uses the term “relatives of an individual”, whereas, the Exposure Draft of revised AS 18 uses the term “a close member of that person’s family”. Definition of close members of family as per draft of revised AS 18 includes dependants of the person or of spouse. However, the existing AS 18 covers parents and siblings irrespective of their status as to dependence of an individual and it does not cover dependents.

2. Existing AS-18 defines state-controlled enterprise as “an enterprise which is under the control of the Central Government and/or any State Government(s)”. However in the, Exposure Draft of revised AS 18, there would be extended coverage of Government Enterprises, as it defines a government-related entity as

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IND-AS 41 – First Time Adoption: A Guide “an entity that is controlled, jointly controlled or significantly influenced by a government.” Further, “Government refers to government, government agencies and similar bodies whether local, national or international.” 3. Existing AS 18 covered key management personnel (KMPs) of the entity only, whereas, the Exposure Draft of revised AS 18 covers KMPs of the parent as well.

4. Under the Exposure Draft of revised AS 18 there is extended coverage in case of joint ventures. Two entities are related to each other in both their financial statements, if they are either co-ventures or one is a venture and the other is an associate. Whereas as per existing AS 18, co-ventures or co-associates are not related to each other.

5. Existing AS 18 mentions that where there is an inherent difficulty for management to determine the effect of influences which do not lead to transactions, disclosure of such effects is not required whereas the Exposure Draft of revised AS 18 does not specifically mentions this.

6. Existing AS 18 does not specifically cover entities that are post employment benefit plans, as related parties. However, the Exposure Draft of revised AS 18 specifically includes post employment benefit plans for the benefit of employees of an entity or its related entity as related parties.

7. Exposure Draft of the revised AS 18 requires an additional disclosure as to the name of the next most senior parent which produces consolidated financial statements for public use, whereas the existing AS-18 has no such requirement.

8. Exposure Draft of revised AS 18 requires extended disclosures for compensation of KMPs under different categories, whereas the existing AS 18 does not specifically require. 9. Exposure Draft of revised AS 18 requires “the amount of the transactions” need to be disclosed, whereas existing AS 18 gives an option to disclose the “Volume of the transactions either as an amount or as an appropriate proportion”. 10. Exposure Draft of AS 18 requires disclosures of certain information by the government related entities, whereas the existing AS 18 presently exempts the disclosure of such information.

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11. Existing AS 18 includes clarificatory text, primarily with regard to control, substantial interest (including 20% threshold),significant influence (including 20% threshold) . However, the Exposure Draft of AS 18 does not include such clarificatory text and allows respective standards to deal with the same. Major differences between the Exposure Draft of AS 17 (Revised 20XX), Operating Segments, and the existing AS 17 (Issued 2000)

1. Identification of segments under the Exposure Draft of AS 17 (Revised 20XX) is based on ‘management approach’ i.e. operating segments are identified based on the internal reports regularly reviewed by the entity’s chief operating decision maker. Existing AS 17 requires identification of two sets of segments—one based on related products and services, and the other on geographical areas based on the risks and returns approach. One set is regarded as primary segments and the other as secondary segments.

2. The Exposure Draft of AS 17 (Revised 20XX) requires that the amounts reported for each operating segment shall be measured on the same basis as used by the chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance. Existing AS 17 requires segment information to be prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements. Accordingly, existing AS 17 also defines segment revenue, segment expense, segment result, segment assets and segment liabilities. 3. The Exposure Draft of AS 17 (Revised 20XX) specifies aggregation criteria for aggregation of two or more segments. Existing AS 17 does not specify anything in this regard.

4. An explanation has been given in the existing AS 17 that in case there is neither more than one business segment nor more than one geographical segment, segment information as per this standard is not required to be disclosed. However, this fact shall be disclosed by way of footnote. The Exposure Draft of AS 17 (Revised 20XX) requires certain disclosures even in case of entities having single reportable segment. 5. An explanation has been given in the existing AS 17 that interest expense relating to overdrafts and other operating liabilities identified to a particular

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide segment should not be included as a part of the segment expense. It also provides that in case interest is included as a part of the cost of inventories and those inventories are part of segment assets of a particular segment, such interest should be considered as a segment expense. These aspects are specifically dealt with keeping in view that the definition of â&#x20AC;&#x2DC;segment expenseâ&#x20AC;&#x2122; given in AS 17 excludes interest. The Exposure Draft of AS 17 (Revised 20XX) requires the separate disclosures about interest revenue and interest expense of each reportable segment, therefore, these aspects have not been specifically dealt with.

6. The Exposure Draft of AS 17 (Revised 20XX) requires disclosures of revenues from external customers for each product and service. With regard to geographical information, it requires the disclosure of revenues from customers in the country of domicile and in all foreign countries, non-current assets in the country of domicile and all foreign countries. It also requires disclosure of information about major customers. Disclosures in existing AS 17 are based on the classification of the segments as primary or secondary segments. Disclosure requirements for primary segments are more detailed as compared to secondary segments. Major differences between the draft of AS 15 (Revised 20XX), Employees Benefits, and existing AS 15 (revised 2005)

1. In the revised standard employee benefits arising from constructive obligations are also covered whereas the existing AS 15 does not deal with the same.

2. As per the existing standard, the term employee includes whole-time directors whereas under the revised standard the term includes directors.

3. Definitions of short-term employee benefits, other long-term employee benefits, return on plan assets and past service cost as per the existing AS 15 have been changed in the revised standard. (Paragraph 7 of AS 15 (Revised 20XX)) 4. Revised Standard deals with situations where there is a contractual agreement between a multi-employer plan and its participants that determines how the surplus in the plan will be distributed to the participants (or the deficit funded). The existing AS 15 does not deal with it.

5. As per the revised standard, participation in a defined benefit plan sharing risks between various entities under common control is a related party transaction for

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each group entity and some disclosures are required in the separate or individual financial statements of an entity whereas the existing AS 15 does not contain similar provisions

6. Cross-reference to recognition of, or disclosure of information, of contingent liabilities under the Standard on Provisions, Contingent Liabilities, Contingent Assets, in the case of multi-employer plans, appearing in the existing standard has been amended in the revised standard as disclosure only, since, contingent liabilities should not be recognised as per the Standard on Provisions, Contingent Liabilities, Contingent Assets.

7. The revised standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations whereas the existing standard, though does not require involvement of a qualified actuary, does not specifically encourage the same. 8. In the existing AS 15, in respect of defined benefit plans, one of the limits for 'asset ceiling' comprises present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. In the revised standard, on the other hand, the said limit is the total of (i)any cumulative unrecognised past service cost and (ii) the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan

9. The revised standard makes it clear that financial assumptions shall be based on market expectations, at the end of the reporting period, for the period over which the obligations are to be settled whereas the existing standard does not clarify the same. 10. The revised standard contains the following clarifications which are not there in the existing standard: (i) negative past service cost arises when an entity changes the benefits attributable to past service so that the present value of the defined benefit obligation decreases.

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IND-AS 41 – First Time Adoption: A Guide (ii) a curtailment may arise from a reduction in the extent to which future salary increases are linked to the benefits payable for past service.

(iii) when a plan amendment reduces benefits, only the effect of the reduction for future service is a curtailment and that the effect of any reduction for past service is a negative past service cost. Further, with reference to curtailments, as against the requirement of ‘present

obligation’ in the existing standard, the revised standard requires ‘demonstrable commitment in respect of reduction in the number of employees’. Also, the terms ‘material reduction in the number of employees’ and ’material element of future service’ appearing in the existing standard have been replaced by the terms ‘significant reduction in the number of employees’ and ’significant element of future service’ respectively in the revised standard. 11 Under the revised standard, more guidance has been given for timing of recognition of termination benefits. Recognition criteria for termination benefits under the revised standard differ from the criteria prescribed in the existing standard. Measurement criteria have also been expanded in the revised standard to deal with voluntary redundancy. 12. The revised standard gives guidance on the interaction of ceiling of asset recognition and minimum funding requirement in the case of defined benefit obligations, whereas this guidance is not available in the existing standard

Major differences between the Exposure Draft of AS 26 (Revised 20XX), Intangible Assets, and the existing AS 26 (Issued 2002)

1. As per the existing standard (paragraph 5), accounting issues of specialized nature also arise in respect of accounting for discount or premium relating to borrowings and ancillary costs incurred in connection with the arrangement of borrowings, share issue expenses and discount allowed on the issue of shares. Accordingly, this Statement does not apply to such items also. The Exposure Draft of revised AS 26 does not include any such exclusion specifically as these aspects are covered by other accounting standards . 2. The existing standard defines an intangible asset as an identifiable nonmonetary asset without physical substance held for use in the production or

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supply of goods or services, for rental to others, or for administrative purposes whereas in the Exposure Draft of revised AS 26, the requirement for the asset to be held for use in the production or supply of goods or services, for rental to others, or for administrative purposes has been removed from the definition of an intangible asset. 3. The existing standard does not define â&#x20AC;&#x2DC;identifiabilityâ&#x20AC;&#x2122;, but states that an intangible asset could be distinguished clearly from goodwill if the asset was separable, but that separability was not a necessary condition for identifiability. The Exposure Draft of revised standard provides detailed guidance in respect of identifiability.

4. As per the Exposure Draft of the revised standard, in the case of separately acquired intangibles, the criterion of probable inflow of expected future economic benefits is always considered satisfied, even if there is uncertainty about the timing or the amount of the inflow. However, there is no such provision in the existing standard. 5. Under the Exposure Draft of the revised standard, if payment for an intangible asset is deferred beyond normal credit terms, the difference between this amount and the total payments is recognised as interest expense over the period of credit unless it is capitalised as per AS 16. However, there is no such provision in the existing standard.

6. The Exposure Draft of the revised Standard deals in detail in respect of intangible assets acquired in a business combination. On the other hand, the existing standard refers only to intangible assets acquired in an amalgamation in the nature of purchase and does not refer to business combinations as a whole. 7. The existing standard is silent regarding the treatment of subsequent expenditure on an in-process research and development project acquired in a business combination whereas the Exposure Draft of revised standard gives guidance for the treatment of such expenditure

8. The Exposure Draft of the revised standard requires that if an intangible asset is acquired in exchange of a non-monetary asset, it should be recognised at the fair value of the asset given up unless the fair value of the asset received is more

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide clearly evident. However, the existing standard requires the principles of existing AS 10 to be followed which includes an alternative accounting treatment.

9. As per the Exposure Draft of the revised standard, when intangible assets are acquired free of charge or for nominal consideration by way of government grant, an entity should, in accordance with AS 12, record both the grant and the intangible asset at fair value. As per the existing standard, intangible assets acquired free of charge or for nominal consideration by way of government grant is recognised at nominal value or at acquisition cost, as appropriate plus any expenditure that is attributable to making the asset ready for intended use.

10. The existing standard is based on the assumption that the useful life of an intangible asset is always finite, and includes a rebuttable presumption that the useful life cannot exceed ten years from the date the asset is available for use.

That rebuttable presumption has been removed from the Exposure Draft of revised standard. The exposure draft recognizes that the useful life of an intangible asset can even be indefinite subject to fulfillment of certain conditions, in which case it should not be amortised but should be tested for impairment.

11. In the Exposure Draft of the revised standard, guidance is available on cessation of capitalisation of expenditure, derecognition of a part of an intangible asset and useful life of a reacquired right in a business combination There is no such guidance in the existing standard on these aspects.

12. Exposure Draft of revised standard permits an entity to choose either the cost model or the revaluation model as its accounting policy, whereas in existing standard revaluation model is not permitted. 13. The Exposure Draft of the revised standard provides more guidance on recognition of intangible items recognised as expense. The Exposure Draft of the revised standard clarifies that in respect of prepaid expenses, recognition of an asset would be permitted only upto the point at which the entity has the right to access the goods or upto the receipt of services. Further, unlike the existing

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standard, mail order catalogues have been specifically identified as a form of advertising and promotional activities which are required to be expensed.

14. Paragraph 94 of the Exposure Draft of the revised standard acknowledges that the useful life of an intangible asset arising from contractual or legal rights may be shorter than the legal life. The existing standard does not include such a provision.

15. As per the existing standard , there will rarely, if ever, be persuasive evidence to support an amortisation method for intangible assets that results in a lower amount of accumulated amortisation than under straight-line method. The Exposure Draft of the revised standard does not contain any such provision.

16. Under the Exposure Draft of the revised standard, the residual value is reviewed at least at each financial year-end. If it increases to an amount equal to or greater than the assetâ&#x20AC;&#x2122;s carrying amount, amortisation charge is zero unless the residual value subsequently decreases to an amount below the assetâ&#x20AC;&#x2122;s carrying amount. However, the existing standard specifically requires that the residual value is not subsequently increased for changes in prices or value.

17. As per the existing standard, change in the method of amortisation is a change in accounting policy whereas as per the Exposure Draft of the revised standard this would be a change in accounting estimate.

18. The existing standard also requires annual impairment testing of asset not yet available for use. There is no such requirement in the Exposure Draft of revised standard.

19. As per the Exposure Draft of the revised standard, if payment of consideration on disposal of an intangible asset is deferred, the consideration is recognized initially at the cost is cash price equivalent. There is no such provision in the existing standard. 20. The Exposure Draft of AS 26 (Revised) also requires certain additional disclosures as compared to existing AS 26.

21. Intangible assets retired from use and held for sale are covered by the existing standard. However, the Exposure Draft of the revised standard does not include such intangible assets since they would be covered by AS 24 (Revised 20XX).

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IND-AS 41 – First Time Adoption: A Guide AS 9 (Revised 20XX), Revenue, and the existing AS 9 (Issued 1985) 1. Definition of ‘revenue’ given in the Exposure Draft of AS 9 (Revised 20XX) is broad compared to the definition of ‘revenue’ given in existing AS 9 because it covers all economic benefits that arise in the ordinary course of activities of an entity which result in increases in equity, other than increases relating to contributions from equity participants. On the other hand, as per the existing AS 9, revenue is gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and from the use by others of enterprise resources yielding interest, royalties and dividends.

2. Measurement of revenue is briefly covered in the definition of revenue in the existing AS 9, while the Exposure Draft of AS 9 (Revised 20XX) deals separately in detail with measurement of revenue. As per existing AS 9, revenue is recognised at the nominal amount of consideration receivable. The Exposure Draft of AS 9 (Revised 20XX) requires the revenue to be measured at fair value of the consideration received or receivable.

3. The Exposure Draft of AS 9 (Revised 20XX) specifically deals with the exchange of goods and services with goods and services of similar and dissimilar nature. In this regard specific guidance is given regarding barter transactions involving advertising services. This aspect is not dealt with in the existing AS 9.

4. The Exposure Draft of AS 9 (Revised 20XX) provides guidance on application of recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. Existing AS 9 does not specifically deal with the same.5. For recognition of revenue in case of rendering of services, existing AS 9 permits the use of completed service contract method. The Exposure Draft of AS 9 (Revised 20XX) requires recognition of revenue using percentage of completion method only.

6. Existing AS 9 requires the recognition of revenue from interest on time proportion basis. The Exposure Draft of AS 9 (Revised 20XX) requires interest to be recognized using effective interest rate method.

7. Disclosure requirements given in the Exposure Draft of AS 9 (Revised 20XX) are more detailed as compared to existing AS 9.

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8. The Exposure Draft of AS 9 (Revised 20XX) specifically provides guidance regarding revenue recognition in case the entity is under any obligation to provide free or discounted goods or services or award credits to its customers due to any customer loyalty programme. Existing AS 9 does not deal with this aspect.

9. The Exposure Draft deals with accounting of agreements for construction of real estate. Existing AS 9 does not deal with this aspect.

10. The Exposure Draft of AS 9 (Revised 20XX) deals with accounting of transfer of property, plant and equipment by the customers to the entity, which are used by the entity to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. Existing AS 9 does not deal with this aspect. 11. Existing AS 9 specifically deals with disclosure of excise duty as a deduction from revenue from sales transactions. The Exposure Draft of AS 9 (Revised 20XX) does not specifically deal with the same. AS 22 (Revised 20XX), Income Taxes, and the existing AS 22 (Issued 2001)

1. The Exposure Draft of AS 22 (Revised 20XX) is based on balance sheet approach. It requires recognition of tax consequences of differences between the carrying amounts of assets and liabilities and their tax base. Existing AS 22 is based on income statement approach. It requires recognition of tax consequences of differences between taxable income and accounting income. For this purpose differences between taxable income and accounting income are classified into permanent and timing differences.

2. As per the Exposure Draft of AS 22 (Revised 20XX), subject to limited exceptions, deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, The criteria for recognising deferred tax assets arising from the carry forward of unused tax losses and tax credits are the same that for recognising deferred tax assets arising from deductible temporary differences. However, the existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the

entity As per the existing AS 22, deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. Where deferred tax asset is recognized against unabsorbed depreciation or carry forward of losses under tax laws, it is recognised only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.

4. As per the Exposure Draft of AS 22 (Revised 20XX), current and deferred tax are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from a transaction or event which is recognised outside profit or loss, either in other comprehensive income or directly in equity, in those cases tax is also recognised in other comprehensive income or in equity, as appropriate. Existing AS 22 does not specifically deal with this aspect.

5. Existing AS 22 deals with disclosure of deferred tax assets and liabilities in the balance sheet. The Exposure Draft of AS 22 (Revised 20XX) does not deal with this aspect except that it requires that income tax relating to each component of other comprehensive income shall be disclosed as current or non-current asset/liability in accordance with the requirements of AS 1 (Revised 20XX). 6. Disclosure requirements given in the Exposure Draft of AS 22 (Revised 20XX) are more detailed as compared to existing AS 22.

7. The Exposure Draft of AS 22 (Revised 20XX) provides guidance that deferred tax asset/liability arising from revaluation of assets shall be measured on the basis of tax consequences from the sale of asset rather than through use. Existing AS 22 does not deal with this aspect. 8. The Exposure Draft of AS 22 (Revised 20XX) provides guidance as to how an entity should account for the tax consequences of a change in its tax status or that of its shareholders. Existing AS 22 does not deal with this aspect.

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9. Existing AS 22 explains virtual certainty supported by convincing evidence. Since the concept of virtual certainty does not exist in the Exposure Draft of AS 22 (Revised 20XX), this explanation is not included.

10. Existing AS 22 specifically provides guidance regarding recognition of deferred tax in the situations of Tax Holiday under Sections 80-IA and 80-IB and Tax Holiday under Sections 10A and 10B of the Income Tax Act, 1961. Similarly, existing AS 22 provides guidance regarding recognition of deferred tax asset in case of loss under the head â&#x20AC;&#x2DC;capital gainsâ&#x20AC;&#x2122;. The Exposure Draft of AS 22 (Revised 20XX) does not specifically deal with these situations.

10. Existing AS 22 specifically provides guidance regarding tax rates to be applied in measuring deferred tax assets/liability in a situation where a company pays tax under section 115JB. The Exposure Draft of AS 22 (Revised 20XX) does not specifically deal with this aspect

AS 28(Revised 20XX), Impairment of Assets, and existing AS 28 (issued 2002)

1. The Exposure Draft of AS 28 (Revised 20XX) applies to financial assets classified as: (I) subsidiaries, as defined in AS 21 (Revised 20XX), (ii) associates as defined in AS 23 (Revised 20XX)

(iii) joint ventures as defined in AS 27 (Revised 20XX)

The existing AS 28 does not apply to the same . This difference has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009. 2. Revised AS 28 specifically excludes biological assets related to Agricultural activity. Existing AS 28 does not specifically exclude biological assets.

3. Revised AS 28 requires annual impairment testing for an intangible asset with an indefinite useful life or not yet available for use and goodwill acquired in a business combination. The existing AS 28 does not require the annual impairment testing for the goodwill unless there is an indication of impairments.

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 4. Revised AS 28 gives additional guidance on, inter alia, the following aspect compared to the existing AS 28: (i) estimating the value in use of an asset;

(ii) for managements to assess the reasonableness of the assumptions on which cash flows are based; and (iii) using present value techniques in measuring an assetâ&#x20AC;&#x2122;s value in use.

5. The existing AS 28 requires that the impairment loss recognised for goodwill should be reversed in a subsequent period when it was caused by a specific external event of an exceptional nature that is not expected to recur and subsequent external events that have occurred that reverse the effect of that event whereas the revised AS 28 prohibits the recognition of reversals of impairment loss for goodwill.

6. In the existing AS 28, goodwill is allocated to CGUs only when the allocation can be done on a reasonable and consistent basis. If that requirement is not met for a specific CGU under review, the smallest CGU to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis must be identified and the impairment test carried out at this level. Thus, when all or a portion of goodwill cannot be allocated reasonably and consistently to the CGU being tested for impairment, two levels of impairment tests are carried out, viz., bottom-up test and top-down test. In revised AS 28, goodwill is allocated to cash-generating units (CGUs) or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. There is no bottom-up or top down approach for allocation of goodwill. 7. Revised AS 26 requires certain extra disclosures as compared to the existing AS 28. AS 27(Revised 20XX), Interests in Joint Ventures and existing

AS 27 (issued 2002) 1. The scope of Exposure Draft of AS 27 (Revised 20XX) specifically excludes joint venture investments made by venture capital organization, mutual funds, unit

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trusts and similar entities including investment- linked insurance funds which are treated in accordance with AS 30 (Revised 20XX) Financial Instruments: Recognition and Measurement. The existing AS 27 does not make such exclusion. This difference has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

2. Existing AS 27 provides that in some exceptional cases, an enterprise by a contractual arrangement establishes joint control over an entity which is a subsidiary of that enterprise within the meaning of Accounting Standard (AS) 21, Consolidated Financial Statements. In those cases, the entity is consolidated under AS 21 by the said enterprise, and is not treated as a joint venture. Exposure Draft of AS 27 (Revised 20XX) does not recognise such cases keeping in view the definition of control given in AS 21 (Revised 20XX).

3. Exposure Draft of AS 27 (Revised 20XX) provides that a venturer can recognise its interest in jointly controlled entity using either proportionate consolidation method or equity method. Existing AS 27 prescribes the use of proportionate consolidation method only.

4. Existing AS 27 requires application of the proportionate consolidation method only when the entity has subsidiaries and prepares Consolidated Financial Statements. Exposure Draft AS 27 (Revised 20XX) requires consolidation of jointly controlled entities subject to a few exemptions, even if the venturer does not have any subsidiary in the financial statements.

5. In case of separate financial statements under existing AS 27, interest in jointly controlled entity is accounted for as per AS 13, Accounting for Investments, i.e., at cost less provision for other than temporary decline in the value of investment. The Exposure Draft of AS 27 (Revised 20XX) refers to AS 21 (Revised 20XX) in this regard, which requires it to be recognised at cost or in accordance with AS 30 (Revised 20XX). This difference has, however, been removed vide limited revision issued as a consequence to issuance of AS 30, which has become recommendatory from 1.4.2009.

6. An explanation has been given in existing AS 27 regarding the term â&#x20AC;&#x2DC;near futureâ&#x20AC;&#x2122; used in an exemption given from applying proportionate consolidation method, ie, where the investment is acquired and held exclusively with a view to its

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IND-AS 41 – First Time Adoption: A Guide subsequent disposal in the near future. This explanation has not been given in the Exposure Draft of AS 27 (Revised 20XX), as such situations are now covered by AS 24 (Revised 20XX), Non-current Assets Held for Sale and Discontinued Operations.

7. Existing AS 21 provides clarification regarding disclosure of venturer’s share in postacquisition reserves of a jointly controlled entity. The same has not been dealt with in the Exposure Draft of AS 27 (Revised 20XX).

8. The Exposure Draft of AS 27 (Revised 20XX) specifically deals with the venturer’s accounting for non-monetary contributions to a jointly controlled entity. Existing AS 27 does not deal with this aspect.

AS 24 (Revised 20XX), Non-current Assets Held for Sale and Discontinued

Operations, and the existing AS 24 (issued 2002) 1 The Exposure Draft of AS 24 (Revised 20XX) specifies the accounting for noncurrent

assets held for sale, and the presentation and disclosure of discontinued operations. The existing AS 24 establishes principles for reporting information about discontinuing operations. It does not deal with the non-current assets held for disposal as these are dealt in existing AS 10, Accounting for Fixed Assets. 2 In the existing AS 24, requirements related to cash flow statement are applicable when the enterprise presents a cash flow statement. The Exposure Draft of AS 24 (Revised 20XX) does not mention so. 3 Under the Exposure Draft of AS 24 (Revised 20XX), a discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. In the existing AS 24, there is no concept of discontinued operations but it deals with discontinuing operations.

4 As per the Exposure Draft of AS 24 (Revised 20XX), the sale should be expected to qualify for recognition as a completed sale within one year from the date of

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classification with certain exceptions. The existing AS 24 does not specify any time period in this regard as it relates to discontinuing operations 5 The existing AS 24 specifies about the initial disclosure event in respect to a discontinuing operation. The Exposure Draft of AS 24 (Revised 20XX) does not mention so as it relates to discontinued operation.

6 Under the Exposure Draft of AS 24 (Revised 20XX), non-current assets (disposal groups) held for sale are measured at the lower of carrying amount and fair value less costs to sell, and are presented separately in the balance sheet. The existing AS 24 requires to apply the principles set out in other relevant Accounting Standards, e.g., the existing AS 10 requires that the fixed assets retired from active use and held for disposal should be stated at the lower of their net book value and net realisable value and shown separately in the financial statements. 7 The Exposure Draft of AS 24 (Revised 20XX) specifically mentions that abandonment of assets should not be classified as held for sale. In the existing AS 24, abandonment of assets is classified as discontinuing operations; however changing the scope of an operations or the manner in which it is conducted is not abandonment and hence not a discontinuing operation.

8 The Exposure Draft of AS 24 (Revised 20XX) provides guidance regarding measurement of changes to a plan of sale. The existing AS 24 does not give any specific guidance regarding this aspect

9 As per the Exposure Draft of AS 24 (Revised 20XX), a discontinued operation is a component of an entity that represents a separate major line of business or geographical area, or is a subsidiary acquired exclusively with a view to resale.

Under the existing AS 24, a discontinuing operation is a component of an entity that represents the major line of business or geographical area of operations and that can be distinguished operationally and for financial reporting purposes.

10 Under the Exposure Draft of AS 24 (Revised 20XX), the discontinued operations are presented in the statement of profit and loss. In the existing AS 24, some disclosures are required to be presented on the face of statement of profit and loss and for some others there is an option to present on the face of statement of profit and loss or in notes.

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IND-AS 41 – First Time Adoption: A Guide Major Differences between the Exposure Draft of AS 14 (Revised 20XX), Business Combinations, and existing AS 14, Accounting for Amalgamations 1. The Exposure Draft of revised AS 14 defines business combination which has a wider scope whereas the existing AS 14 deals only with amalgamation. 2. Under the existing AS 14 there are two methods of accounting for amalgamation- The pooling of interest method and the purchase method. The Exposure Draft of the revised AS 14 prescribes only the acquisition method for each business combination.

3. Under the existing AS 14, the acquired assets and liabilities are recognised at their existing book values or at fair values under the purchase method. The Exposure Draft of revised AS 14 requires the acquired identifiable assets liabilities and noncontrolling interest to be recognised at fair value under acquisition method.

4. The Exposure Draft of revised AS 14 requires that for each business combination, the acquirer shall measure any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. On other hand, the existing AS 14 states that the minority interest is the amount of equity attributable to minorities at the date on which investment in a subsidiary is made and it is shown outside shareholders’ equity. 5. Under the Exposure Draft of revised AS 14, the goodwill is not amortised but tested for impairment on annual basis in accordance with AS 28 (Revised 20XX).The existing AS 14 requires that the goodwill arising on amalgamation in the nature of purchase is amortised over a period not exceeding five years.

6. The Exposure Draft of revised AS 14 deals with reverse acquisitions whereas the existing AS 14 does not deal with the same 7. In the Exposure Draft of revised AS 14, the consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement. The existing AS 14 does not provide specific guidance on this aspect.

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8. The Exposure Draft of revised AS 14 requires the recognition of gain on bargain purchase, being the excess of the value of net assets acquired over the consideration for acquisition in profit or loss on acquisition date after reassessing the identification and measurement of the assets acquired. The existing AS 14 does not require the reassessment. The excess amount is treated as capital reserve.

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IND-AS 41 – First Time Adoption: A Guide

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14. Summary of IFRS-1

FIRST TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Objective IFRS 1 First-time Adoption of International Financial Reporting Standards sets out the procedures that an entity must follow when it adopts IFRSs for the first time as the basis for preparing its general purpose financial statements. Definition of first-time adoption

A first-time adopter is an entity that, for the first time, makes an explicit and unreserved statement that its general purpose financial statements comply with IFRSs

An entity may be a first-time adopter if, in the preceding year, it prepared IFRS financial statements for internal management use, as long as those IFRS financial statements were not made available to owners or external parties such as investors or creditors. If a set of IFRS financial statements was, for any reason, made available to owners or external parties in the preceding year, then the entity will already be considered to be on IFRSs, and IFRS 1 does not apply. An entity can also be a first-time adopter if, in the preceding year, its financial statements:

asserted compliance with some but not all IFRSs, or included only a reconciliation of selected figures from previous GAAP to IFRSs. (Previous GAAP means the GAAP that an entity followed immediately before adopting to IFRSs.) â&#x20AC;˘ â&#x20AC;˘

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IND-AS 41 – First Time Adoption: A Guide However, an entity is not a first-time adopter if, in the preceding year, its financial statements asserted:

• Compliance with IFRSs even if the auditor's report contained a qualification with respect to conformity with IFRSs. • Compliance with both previous GAAP and IFRSs.

Overview for an entity that adopts IFRSs for the first time in its annual financial statements for the year ended 31 December 2009 Accounting policies Select accounting policies based on IFRSs effective at 31 December 2009. IFRS reporting periods

Prepare at least 2009 and 2008 financial statements and the opening balance sheet (as of 1 January 2008 or beginning of the first period for which full comparative financial statements are presented, if earlier) by applying the IFRSs effective at 31 December 2009. [IFRS 1.7]

Since IAS 1 requires that at least one year of comparative prior period financial information be presented, the opening balance sheet will be 1 January 2008 if not earlier. This would mean that an entity's first financial statements should include at least: [IFRS 1.21] o three balance sheets (statements of financial position) o two statements of comprehensive income o two separate income statements (if presented) o two statements of cash flows o two statements of changes in equity and o related notes, including comparative information • If a 31 December 2009 adopter reports selected financial data (but not full financial statements) on an IFRS basis for periods prior to 2008, in addition to full financial statements for 2008 and 2009, that does not change the fact that its opening IFRS balance sheet is as of 1 January 2008. •

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Adjustments required to move from previous GAAP to IFRSs at the time of first-time adoption Derecognition of some previous GAAP assets and liabilities The entity should eliminate previous-GAAP assets and liabilities from the opening balance sheet if they do not qualify for recognition under IFRSs For example:

• IAS 38 does not permit recognition of expenditure on any of the following as an intangible asset: o research o start-up, pre-operating, and pre-opening costs o training o advertising and promotion o moving and relocation

If the entity's previous GAAP had recognised these as assets, they are eliminated in the opening IFRS balance sheet • If the entity's previous GAAP had allowed accrual of liabilities for "general reserves", restructurings, future operating losses, or major overhauls that do not meet the conditions for recognition as a provision under IAS 37, these are eliminated in the opening IFRS balance sheet • If the entity's previous GAAP had allowed recognition of contingent assets as defined in IAS 37.10, these are eliminated in the opening IFRS balance sheet

Recognition of some assets and liabilities not recognised under previous GAAP

Conversely, the entity should recognise all assets and liabilities that are required to be recognised by IFRS even if they were never recognised under previous GAAP. For example: • IAS 39 requires recognition of all derivative financial assets and liabilities, including embedded derivatives. These were not recognised under many local GAAPs. • IAS 19 requires an employer to recognise a liability when an employee has provided service in exchange for benefits to be paid in the future. These are not

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IND-AS 41 – First Time Adoption: A Guide just post-employment benefits (eg, pension plans) but also obligations for medical and life insurance, vacations, termination benefits, and deferred compensation. In the case of 'over-funded' defined benefit plans, this would be a plan asset. • IAS 37 requires recognition of provisions as liabilities. Examples could include an entity's obligations for restructurings, onerous contracts, decommissioning, remediation, site restoration, warranties, guarantees, and litigation. • Deferred tax assets and liabilities would be recognised in conformity with IAS 12. Reclassification

The entity should reclassify previous-GAAP opening balance sheet items into the appropriate IFRS classification. Examples:

• IAS 10 does not permit classifying dividends declared or proposed after the balance sheet date as a liability at the balance sheet date. If such liability was recognised under previous GAAP it would be reversed in the opening IFRS balance sheet. • If the entity's previous GAAP had allowed treasury stock (an entity's own shares that it had purchased) to be reported as an asset, it would be reclassified as a component of equity under IFRS. • Items classified as identifiable intangible assets in a business combination accounted for under the previous GAAP may be required to be reclassified as goodwill under IFRS 3 because they do not meet the definition of an intangible asset under IAS 38. The converse may also be true in some cases. • IAS 32 has principles for classifying items as financial liabilities or equity. Thus mandatorily redeemable preferred shares that may have been classified as equity under previous GAAP would be reclassified as liabilities in the opening IFRS balance sheet.

Note that IFRS 1 makes an exception from the "split-accounting" provisions of IAS 32. If the liability component of a compound financial instrument is no longer outstanding at the date of the opening IFRS balance sheet, the entity is not required to reclassify out of retained earnings and into other equity the original equity component of the compound instrument.

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• The reclassification principle would apply for the purpose of defining reportable segments under IFRS 8. • The scope of consolidation might change depending on the consistency of the previous GAAP requirements to those in IAS 27. In some cases, IFRS will require consolidated financial statements where they were not required before. • Some offsetting (netting) of assets and liabilities or of income and expense items that had been acceptable under previous GAAP may no longer be acceptable under IFRS.

Measurement

The general measurement principle – there are several significant exceptions noted below – is to apply effective IFRSs in measuring all recognised assets and liabilities How to recognise adjustments required to move from previous GAAP to IFRSs

Adjustments required to move from previous GAAP to IFRSs at the time of firsttime adoption should be recognised directly in retained earnings or, if appropriate, another category of equity at the date of transition to IFRSs. Estimates

In preparing IFRS estimates at the date of transition to IFRSs retrospectively, the entity must use the inputs and assumptions that had been used to determine previous GAAP estimates as of that date (after adjustments to reflect any differences in accounting policies). The entity is not permitted to use information that became available only after the previous GAAP estimates were made except to correct an error.

Changes to disclosures

For many entities, new areas of disclosure will be added that were not requirements under the previous GAAP (perhaps segment information, earnings per share, discontinuing operations, contingencies and fair values of all financial instruments) and disclosures that had been required under previous GAAP will be broadened (perhaps related party disclosures).

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Disclosure of selected financial data for periods before the first IFRS balance sheet If a first-time adopter wants to disclose selected financial information for periods before the date of the opening IFRS balance sheet, it is not required to conform that information to IFRS. Conforming that earlier selected financial information to IFRSs is optional

If the entity elects to present the earlier selected financial information based on its previous GAAP rather than IFRS, it must prominently label that earlier information as not complying with IFRS and, further, it must disclose the nature of the main adjustments that would make that information comply with IFRS. This latter disclosure is narrative and not necessarily quantified Disclosures in the financial statements of a first-time adopter

IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS affected the entity's reported financial position, financial performance and cash flows This includes:

1. reconciliations of equity reported under previous GAAP to equity under IFRS both (a) at the date of the opening IFRS balance sheet and (b) the end of the last annual period reported under the previous GAAP. (For an entity adopting IFRSs for the first time in its 31 December 2009 financial statements, the reconciliations would be as of 1 January 2008 and 31 December 2008.) 2. reconciliations of total comprehensive income for the last annual period reported under the previous GAAP to total comprehensive income under IFRSs for the same period 3. explanation of material adjustments that were made, in adopting IFRSs for the first time, to the balance sheet, income statement and cash flow statement 4. if errors in previous GAAP financial statements were discovered in the course of transition to IFRSs, those must be separately disclosed 5. if the entity recognised or reversed any impairment losses in preparing its opening IFRS balance sheet, these must be disclosed 6. appropriate explanations if the entity has elected to apply any of the specific recognition and measurement exemptions permitted under IFRS 1 â&#x20AC;&#x201C; for instance, if it used fair values as deemed cost 279

Disclosures in interim financial reports If an entity is going to adopt IFRSs for the first time in its annual financial statements for the year ended 31 December 2009, certain disclosure are required in its interim financial statements prior to the 31 December 2009 statements, but only if those interim financial statements purport to comply with IAS 34 Interim Financial Reporting. Explanatory information and a reconciliation are required in the interim report that immediately precedes the first set of IFRS annual financial statements. The information includes reconciliations between IFRS and previous GAAP. Exceptions to the retrospective application of other IFRSs

Prior to 1 January 2010, there were three exceptions to the general principle of retrospective application. On 23 July 2009, IFRS 1 was amended, effective 1 January 2010, to add two additional exceptions with the goal of further simplifying the transition to IFRSs for first-time adopters. The five exceptions are IAS 39 – Derecognition of financial instruments

A first-time adopter shall apply the derecognition requirements in IAS 39 prospectively for transactions occurring on or after 1 January 2004. However, the entity may apply the derecognition requirements retrospectively provided that the needed information was obtained at the time of initially accounting for those transactions. IAS 39 – Hedge accounting

The general rule is that the entity shall not reflect in its opening IFRS balance sheet (statement of financial position) a hedging relationship of a type that does not qualify for hedge accounting in accordance with IAS 39. However, if an entity designated a net position as a hedged item in accordance with previous GAAP, it may designate an individual item within that net position as a hedged item in accordance with IFRS, provided that it does so no later than the date of transition to IFRSs. IAS 27 – Non-controlling interest

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IND-AS 41 – First Time Adoption: A Guide IFRS 1.B7 lists specific requirements of IAS 27(2008) that shall be applied prospectively. Full-cost oil and gas assets.

Entities using the full cost method may elect exemption from retrospective application of IFRSs for oil and gas assets. Entities electing this exemption will use the carrying amount under its old GAAP as the deemed cost of its oil and gas assets at the date of first-time adoption of IFRSs. Determining whether an arrangement contains a lease

If a first-time adopter with a leasing contract made the same type of determination of whether an arrangement contained a lease in accordance with previous GAAP as that required by IFRIC 4 Determining whether an Arrangement Contains a Lease, but at a date other than that required by IFRIC 4, the amendments exempt the entity from having to apply IFRIC 4 when it adopts IFRSs. Optional exemptions from the basic measurement principle in IFRS 1

There are some further optional exemptions to the general restatement and measurement principles set out above. The following exceptions are individually optional. They relate to:

business combinations and 14 others share-based payment transactions insurance contracts fair value or revaluation as deemed cost leases employee benefits cumulative translation differences investments in subsidiaries, jointly controlled entities, associates and joint ventures o assets and liabilities of subsidiaries, associated and joint ventures o compound financial instruments o designation of previously recognised financial instruments • • o o o o o o o

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o fair value measurement of financial assets or financial liabilities at initial recognition o decommissioning liabilities included in the cost of property, plant and equipment o financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concession Arrangements o borrowing costs

Some, but not all, of them are described below.

Business combinations that occurred before opening balance sheet date

IFRS 1 includes Appendix C explaining how a first-time adopter should account for business combinations that occurred prior to transition to IFRS. An entity may keep the original previous GAAP accounting, that is, not restate:

previous mergers or goodwill written-off from reserves the carrying amounts of assets and liabilities recognised at the date of acquisition or merger or â&#x20AC;˘ how goodwill was initially determined (do not adjust the purchase price allocation on acquisition) â&#x20AC;˘ â&#x20AC;˘

However, should it wish to do so, an entity can elect to restate all business combinations starting from a date it selects prior to the opening balance sheet date. In all cases, the entity must make an initial IAS 36 impairment test of any remaining goodwill in the opening IFRS balance sheet, after reclassifying, as appropriate, previous GAAP intangibles to goodwill. The exemption for business combinations also applies to acquisitions of investments in associates and of interests in joint ventures. Fair value or revaluation as deemed cost

Assets carried at cost (e.g. property, plant and equipment) may be measured at their fair value at the opening IFRS balance sheet date. Fair value becomes the

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IND-AS 41 – First Time Adoption: A Guide 'deemed cost' going forward under the IFRS cost model. Deemed cost is an amount used as a surrogate for cost or depreciated cost at a given date. [IFRS 1.D6]

If, before the date of its first IFRS balance sheet, the entity had revalued any of these assets under its previous GAAP either to fair value or to a price-indexadjusted cost, that previous GAAP revalued amount at the date of the revaluation can become the deemed cost of the asset under IFRS. [IFRS 1.D6]

If, before the date of its first IFRS balance sheet, the entity had made a one-time revaluation of assets or liabilities to fair value because of a privatisation or initial public offering, and the revalued amount became deemed cost under the previous GAAP, that amount would continue to be deemed cost after the initial adoption of IFRS

This option applies to intangible assets only if an active market exists. IAS 19 – Employee benefits: actuarial gains and losses

An entity may elect to recognise all cumulative actuarial gains and losses for all defined benefit plans at the opening IFRS balance sheet date (that is, reset any corridor recognised under previous GAAP to zero), even if it elects to use the IAS 19 corridor approach for actuarial gains and losses that arise after first-time adoption of IFRS. If a first-time adopter uses this exemption, it shall apply it to all plans IAS 21 – Accumulated translation reserves

An entity may elect to recognise all translation adjustments arising on the translation of the financial statements of foreign entities in accumulated profits or losses at the opening IFRS balance sheet date (that is, reset the translation reserve included in equity under previous GAAP to zero). If the entity elects this exemption, the gain or loss on subsequent disposal of the foreign entity will be adjusted only by those accumulated translation adjustments arising after the opening IFRS balance sheet date IAS 27 – Investments in separate financial statements

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In May 2008, the IASB amended the standard to change the way the cost of an investment in the separate financial statements is measured on first-time adoption of IFRSs. The amendments to IFRS 1:

• allow first-time adopters to use a 'deemed cost' of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in subsidiaries, jointly controlled entities and associates in the separate financial statements • remove the definition of the cost method from IAS 27 and add a requirement to present dividends as income in the separate financial statements of the investor • require that, when a new parent is formed in a reorganisation, the new parent must measure the cost of its investment in the previous parent at the carrying amount of its share of the equity items of the previous parent at the date of the reorganisation

Assets and liabilities of subsidiaries, associates and joint ventures: different IFRS adoption dates of investor and investee If a subsidiary becomes a first-time adopter later than its parent, IFRS 1 permits a choice between two measurement bases in the subsidiary's separate financial statements. In this case, a subsidiary should measure its assets and liabilities as either:

• the carrying amount that would be included in the parent's consolidated financial statements, based on the parent's date of transition to IFRSs, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary or • the carrying amounts required by IFRS 1 based on the subsidiary's date of transition to IFRSs

A similar election is available to an associate or joint venture that becomes a firsttime adopter later than an entity that has significant influence or joint control over it.

If a parent becomes a first-time adopter later than its subsidiary, the parent should in its consolidated financial statements, measure the assets and liabilities of the subsidiary at the same carrying amount as in the separate financial statements of

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide the subsidiary, after adjusting for consolidation adjustments and for the effects of the business combination in which the parent acquired the subsidiary. The same approach applies in the case of associates and joint ventures

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15. Frequently Asked Questions

1. What is Ind-AS 41? Ind AS-41 gives detailed guidance on First-time adoption of Indian Accounting Standards. India has decided to move to IFRS in phases. Every entity that needs to prepare its financial statements are per IFRS norms need guidance as to the policies and procedures to be adopted. Ind AS-41 seeks to provide this Guidance.

2. What are the objectives of Ind-AS 41?

As per Ind-AS 41, the objective of this Accounting Standard is to ensure that an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that: (a) is transparent for users and comparable over all periods presented;

(b) provides a suitable starting point for accounting in accordance with Indian Accounting Standards (Ind-ASs); and (c)can be generated at a cost that does not exceed the benefits

3. What is the scope of Ind-AS 41? An entity shall apply this Ind-AS in:

(a) its first Ind-AS financial statements3; and

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 4. What are the first financial statements of an entity? Financial statements in accordance with Ind-ASs are an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements if, for example, the entity:

(a) presented its most recent previous financial statements:

(i) in accordance with national requirements that are not consistent with Ind-ASs in all respects;

(ii) in conformity with Ind-ASs in all respects, except that the financial statements did not contain an explicit and unreserved statement that they complied with IndASs;

(iii) containing an explicit statement of compliance with some, but not all, Ind-ASs; (iv) in accordance with national requirements inconsistent with Ind-ASs, using some individual Ind-ASs to account for items for which national requirements did not exist; or (v) in accordance with national requirements, with a reconciliation of some amounts to the amounts determined in accordance with Ind-ASs;

(b) prepared financial statements in accordance with Ind-ASs for internal use only, without making them available to the entityâ&#x20AC;&#x2122;s owners or any other external users;

Ind AS 41 does not apply when, for example, an entity: 287

(c) presented financial statements in the previous year that contained an explicit and unreserved statement of compliance with Ind-ASs, even if the auditors qualified their audit report on those financial statements. 6. What is the starting point to convert to Ind-AS?

The starting point or trigger to convert to Ind-AS is the preparation of an Opening Ind-AS Balance-Sheet? 7. How is the Opening Ind-AS Balance Sheet to be prepared? In the Opening Ind-AS Balance Sheet an entity is to:

(a) recognise all assets and liabilities whose recognition is required by Ind-ASs;

(b) not recognise items as assets or liabilities if Ind-ASs do not permit such recognition;

8. Are all Ind-AS to be followed in the Opening Ind-AS Balance-Sheet? Ind-AS 41 provides four mandatory exceptions and 17 optional exceptions while preparing the Opening Ind-AS Balance-Sheet. The mandatory exceptions have to be followed, while an entity has an option with the optional exceptions.

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 9. What are the mandatory and optional exceptions? The mandatory and Optional Exceptions are presented below: Mandatory Exceptions 1. Estimates

2. De-recognition of financial assets and liabilities 3. Hedge Accounting

4. Non-controlling interest ( Minority Interest)

Optional Exceptions 1. Some Aspects of Business Combinations

2. Share-based payment transactions 3. Insurance contracts 4. deemed cost 5. leases

6. employee benefits

7. cumulative translation differences

8. investments in subsidiaries, jointly controlled entities and associates

9. assets and liabilities of subsidiaries, associates and joint ventures 10. compound financial instruments

11.designation of previously recognised financial instruments

12. fair value measurement of financial assets or financial liabilities at initial recognition

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13. decommissioning liabilities included in the cost of property, plant and equipment 14. financial assets or intangible assets accounted for in accordance with Appendix A to AS 7 (Revised 20XX) Service Concession Arrangements 15. transfers of assets from customers 16. extinguishing financial liabilities with equity instruments

17. Non-current assets held for sale and discontinued operations

10. Is it possible for an entity not to opt for the mandatory exceptions? No

11. Does an entity have to opt for all Optional Exceptions or can it pick-andchoose exceptions? Though Ind-AS 41 is silent on this point, it appears that an entity can pick-andchoose the optional exceptions it opts for. For instance, an entity can opt for the exemption to account for past business combinations as per Ind-AS but may decide to account for share-based payments prospectively. 12. From when is Ind-AS 41 applicable?

Ind AS-41 is applicable from the date an entity decides to present its first financial statements as per Ind-AS.

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 13. Would Ind-AS 41 be applicable for Interim Financial Reporting too? Ind- AS 41 would be applicable for every quarterly financial report after the first Ind-AS financial statements of an entity. Hence, the Standard would be applicable for Interim Financial Reporting too. 14. An entity has a Deferred Tax Liability of Rs 1 crore in its Balance-Sheet? Would this be carried forward as per Ind-AS 41?

Apart from the mandatory and optional exceptions, all assets and liabilities would have to be restated as per Ind-AS 41. Since there is no specific exception for Deferred Taxes, the liability would have to computed as per the applicable Ind-AS and the difference reflected in retained earnings or a component of it.

15. An entity has a Revaluation Reserve of Rs 75 lakhs as on 31st March 2010 from a Revaluation done in 2005? Would this be carried forward to the IndAS Opening Balance Sheet? Apart from the mandatory and optional exceptions, all assets and liabilities would have to be restated as per Ind-AS 41. Since there is no specific exception for Revaluation Reserves, the liability would have to recomputed as per the applicable Ind-AS and the difference reflected in retained earnings or a component of it. One of the optional exceptions as per Ind-AS 41 is that fair value can be taken as Deemed Cost for Property, Plant and Equipment. 16. Would Capital Reserves be carried forward to the Ind-AS Opening Balance-Sheet?

Apart from the mandatory and optional exceptions, all assets and liabilities would have to be restated as per Ind-AS 41. Since there is no specific exception for Capital Reserves, the liability would have to recomputed as per the applicable Ind-AS and the difference reflected in retained earnings or a component of it. If Ind-AS do not permit capitalization of Reserves, the balance would be a part of Retained Earnings or any other part of equity. 17. Ind-AS 41 mentions that the effect of the differences between Ind-AS and IAS shall be reflected in Retained Earning or if appropriate, another

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component of Equity? Is it permissible to reflect this difference in Capital Reserve? The critical word in Ind-AS 41 is â&#x20AC;&#x153; if appropriateâ&#x20AC;?. Hence, in the opinion of the author, Capital Reserves can be adjusted only if there are specific requirements in any Ind-AS. The financial effect of the transition to Ind-AS should be reflected in retained earnings. 18. Do the comparatives too have to be as per IND-AS?

One of the significant differences between Ind-AS 41 and IFRS-1 on First-time Adoption of IFRS is that while the latter has made it mandatory to provide comparative figures as per IFRS, the former has given it as an option. Ind AS 41 states that to comply with AS 1 (Revised 20XX), an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements shall include at least three Balance Sheets(including two statements of changes in equity annexed thereto)two statements of profit and loss, two statements of cash flows and related notes, including comparative information. However, in accordance with this Ind-AS, a first time adopter has the following options:

a. the entity need not provide comparative financial statements for the corresponding previous period. For example, under this Ind-AS, the first time adopter for whom the first reporting period is financial statements for the year ending March 31, 2012 would only provide two Balance Sheets(including two statements of changes in equity annexed thereto) i.e. April 1, 2011 and March 31, 2012 and one statement of profit and loss, one statement of cash flows and related notes for the financial year ending March 31, 2012. or b. Voluntarily provide one year comparative information for the corresponding previous period. For example, under this Ind-AS, the first time adopter for whom the first reporting period is financial statements for the year ending March 31, 2012 would provide three Balance Sheets(including two statements of changes in equity annexed thereto) i.e. April 1, 2010 (the transition date), April 1, 2011 and March 31, 2012 and two statements of profit and loss , two statements of cash flows and and related notes i.e. for the financial year ending March 31, 2012 and for the corresponding comparative period..

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 19. Do historical summaries of financial information presented in the Annual Report have to be as per Ind-AS? No. However, a note stating that these summaries are not as per Ind-AS would clarify the position.

20. X Ltd had a Provision for Audit Fees of Rs 7.50 lakhs as on 31st March 2010 ( transition to IFRS). On 28th June, the auditor resigned and a new auditor was appointed at a fee of Rs 8.00 lakhs. The accounts of the company are not yet signed. Would the provision of Rs 7.50 lakhs have to be restated to Rs 8.00 lakhs? Ind-AS 41 provided mandatory exception for estimates. It states that an entity may receive information after the date of transition to Ind-ASs about estimates that it had made under previous GAAP. An entity shall treat the receipt of that information in the same way as non-adjusting events after the reporting period in accordance with AS 4 (Revised 20XX) Events after the Reporting Period. In the current example, the provision for audit fees of the old auditor for Rs 7.50 lakhs and the provision of audit fees for the new auditor would be reversed and reinstated in the financial statements for the quarter ended 30th June.

21 .What are the Disclosure Requirements as per Ind-AS 41? Ind AS-41 specifies the following Disclosures:

1.reconciliations of its equity reported in accordance with previous GAAP to its equity in accordance with Ind-ASs on the date of transition to Ind-Ass

2. reconciliation to its total comprehensive income (i.e., sum of the profit or loss for the period and other comprehensive income). in accordance with Ind-AS and the equity as at the end of first Ind-AS financial statements assuming the previous GAAP would have continued to be applied for those periods 3. Any Impairment Losses reversed or recognized

4. In case Comparative Financial Information is provided, (a) balance sheet as at the end of the latest period presented in the entityâ&#x20AC;&#x2122;s most recent annual financial statements in accordance with previous GAAP and (b) provide the reconciliation of

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total comprehensive income(i.e. sum of the profit or loss for the period and other comprehensive income) for the corresponding previous year.

5. Use of Fair Values and Deemed Costs.

22. Is there a format for the Disclosure requirements? Ind AS-41 does not specify any particular format for the Disclosure Requirements. Some of the formats used in this book could be utilized for this purpose. One of the requirements of Ind –AS 41 is that the reconciliations of equity and profits have to be explained. This is normally done by way of cross-referencing the components of the reconciliations with footnotes. 23. What are the Disclosure requirements for Fair Values and Deemed Costs?

• Ind AS-41 states that in case an entity designates a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or a financial asset as available for sale the entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements • The Standard states that if an entity uses fair value in its opening Ind-AS Balance Sheet as deemed cost for an item of property, plant and equipment, an investment property or an intangible asset (see paragraphs D5 and D7), the entity’s first Ind-AS financial statements shall disclose, for each line item in the opening Ind-AS Balance Sheet: (a) the aggregate of those fair values; and

(b) the aggregate adjustment to the carrying amounts reported under previous GAAP

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide (a) the aggregate deemed cost of those investments for which deemed cost is

their previous GAAP carrying amount;

(b) the aggregate deemed cost of those investments for which deemed cost is

fair value; and

â&#x20AC;˘ If an entity uses the exemption for oil and gas assets, it shall disclose that fact and the basis on which carrying amounts determined under previous GAAP were allocated.

24. In case an entity applies Ind-AS 41 and finds out an error in applying this Standard in the subsequent year, what is the remedy available? Though Ind-AS 41 is silent on this point, it appears that the entity would have to rectify the mistake in the year in which it was noticed with an appropriate disclosure and the effect adjusted in Retained Earnings. 25. Does an entity have an option not to follows Ind-AS 41?

Ind AS-41 does not visualize a situation such as this and has no provisions for the same. All entities covered by the roadmap issued by the MCA would have to follow Ind-AS 41. 26. Should the Ind-AS Opening Balance Sheet be in Schedule VI format?

IFRS and Ind-AS do not specify any format for the Balance-Sheet provided they disclose some minimum information. The format for the Balance-Sheet is provided in the Companies Act, 1956. In case there are amendments to the formats specified in Schedule VI of the Companies to comply with Ind-AS, entities can use those formats for their Ind-AS Opening Balance-Sheets for ease of use of data. Otherwise, the Ind-AS Opening Balance Sheet need not be in a specific format.

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27. An entity has acquired companies on 31st March 2009, 18th September 2008 and 15th July 2007. It wants to restate only the acquisition on 18th September as per Ind AS-14 on Business Combinations. Is it permitted? The exceptions mentioned in Ind-AS 41 state that once an entity opts for restating a Business Combination from a past date, all business combinations after that date should also be accounted similarly. Hence, in the instant case, the entity would have to account for the acquisition on 31ST March 2009 also as per Ind-AS 41. It need not follow the same principle for the acquisition on 15th July 2007.

28. Does a first-time adopter have to recognise all Assets and Liabilities acquired in a Business Combination in the Ind-AS Opening Balance Sheet?

Generally, yes except for some financial assets and financial liabilities derecognised in accordance with previous GAAP and assets, including goodwill, and liabilities that were not recognised in the acquirerâ&#x20AC;&#x2122;s consolidated Balance Sheet in accordance with previous GAAP and also would not qualify for recognition in accordance with Ind-ASs in the separate Balance Sheet of the acquiree

29. For past Business Combinations, can an first-time adopter continue to retain Intangible Assets acquired in a Business Combination in its BalanceSheet though they do not qualify as Intangible Assets as per Ind-As? No. Ind-AS requires this to be adjusted to Goodwill.

30. For past Business Combinations, can an first-time adopter continue to retain Other Assets acquired in a Business Combination in its Balance-Sheet though they do not qualify as Other Assets as per Ind-As No. Ind-AS requires this to be adjusted to Retained Earnings.

31. Would Fair Value remeasurements not apply to Assets acquired in a past Business Combination? Ind-ASs require subsequent measurement of some assets and liabilities on a basis that is not based on original cost, such as fair value. The first-time adopter shall measure these assets and liabilities on that basis in its opening Ind-AS Balance Sheet, even if they were acquired or assumed in a past business combination.

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IND-AS 41 – First Time Adoption: A Guide 32. If an Asset or a Liability acquired in a past Business Combination has not been recognized as per previous GAAP, does it have a deemed cost of zero in the Ind-AS Opening Balance Sheet? No. The acquirer shall recognise and measure it in its consolidated Balance Sheet on the basis that Ind-ASs would require in the Balance Sheet of the acquiree.

33. Can Goodwill resulting from a past Business Combination remain on the Ind-AS Opening Balance-Sheet without being tested for Impairment? No. Ind-AS 14 states that Goodwill would have to be tested for Impairment. The other factor that could alter the value of Goodwill would be any transfers from Intangible Assets ( FAQ 29) 34. Can a subsidiary that has not been consolidated as per previous GAAP remain unconsolidated as per Ind-AS?

No. Ind-AS 41 clarifies that a first-time adopter shall adjust the carrying amounts of the subsidiary’s assets and liabilities to the amounts that Ind-ASs would require in the subsidiary’s Balance Sheet. 35. Are there any exceptions for investments in associates and joint ventures?

Ind AS-41 states that the exceptions for Business Combinations would apply to investments in associates and joint ventures also.

36. Is it mandatory to apply the provisions of AS -33 - Share-Based Payments to shares that vested prior to the date of transition to IFRS? This is not mandatory but optional.

37. Are there any exceptions for Insurance Companies? Yes. Ind-AS relaxes the disclosure norms for actual claims against previous estimates from a period of 10 years as required by AS-39 on Insurance Contracts to a period of 5 years. Furthermore, if it is impracticable, when an entity first applies AS 39 (Revised 20XX), to prepare information about claims development

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that occurred before the beginning of the earliest period for which an entity presents information that complies with this IFRS, the entity shall disclose that fact.

38. Do all Assets in the Ind-AS Opening Balance-Sheet have to be measured at carrying Values? No. Ind-AS 41 provides an option for entities to measure the following at Deemed Cost or Fair Value 1. An item of Property, Plant and Equipment 2. Investment Property 3. Intangible Assets.

39. Is it mandatory for an entity to consider whether an arrangement contains a lease on the date of transition to Ind-AS? It is not mandatory but optional. If a first-time adopter made the same determination of whether an arrangement contained a lease in accordance with previous GAAP as that required by Appendix C of AS 19 (Revised 20XX) Determining whether an Arrangement contains a Lease but at a date other than the date of transition to Ind-AS, the first-time adopter need not reassess that determination when it adopts Ind-As.

40. How would a first-time adopter account for foreign exchange differences? A first-time adopter need not follow AS 12 completely since as per Ind-AS 41:

(a) the cumulative translation differences for all foreign operations are deemed to be zero at the date of transition to Ind-ASs; and

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide 41. How would an entity present Miscallaneous Expenditure or a Debit Balance in the Profit and Loss Account? IFRS do not have a specific format for financial statements. It is rare to find a head of account called Miscallaneous Expenditure as per IFRS. These amounts are normally reflected as a negative figure in retained earnings. 42. What are the minimum financial statements that are needed as per IndAS?

Ind AS- 41 states that to comply with AS 1 (Revised 20XX), an entityâ&#x20AC;&#x2122;s first Ind-AS financial statements shall include at least three Balance Sheets(including two statements of changes in equity annexed thereto)two statements of profit and loss, , two statements of cash flows and related notes, including comparative information 43. Is the provision of comparative figures mandatory as per Ind-AS? This is optional as per Ind- AS41.

44. Does the Ind-AS Opening Balance Sheet have to be certified by the statutory auditor? Audit certification in India is covered by the Companies Act, 1956. As yet, there are no provisions in the Companies Act, 1956 for Ind-AS Opening Balance Sheet. However,

since the Ind-AS Opening Balance Sheet is the trigger to prepare year-end financial

statements, it is suggested that the Ind-AS Opening Balance Sheet be vetted by the auditor.

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45. How are investments in associates, subsidiaries and jointly controlled entities accounted for in separate financial statements? Cost as stated in AS-21 has been interpreted by Ind-AS 41 to mean cost as informed by

AS 21 or deemed cost which can be Fair Value or previous GAAP carrying amount.

46. What would be the tax impact of preparing an Ind-AS Opening Balance Sheet?

The values in an Ind-AS Opening Balance Sheet can differ significantly from the

original Balance Sheet. However, tax returns for the period when the Ind-AS Opening

Balance Sheet is prepared would be based on the previous GAAP financial statements.

Hence, there would be no impact of taxes in the Ind-AS Opening Balance Sheet.

47. Does the Ind-AS Opening Balance-Sheet have to be signed by the management?

The Ind-AS Opening Balance-Sheet is not a statutory requirement but a trigger to

prepare the first financial statements as per Ind-AS. Hence, they need not be signed by

the management but it would be good practice to get them signed to lend some authenticity.

48. Do comparatives as per previous GAAP have to be provided in an Ind-AS

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IND-AS 41 â&#x20AC;&#x201C; First Time Adoption: A Guide Opening Balance Sheet? No such requirement is mentioned in Ind-AS 41.

49. Are there any short-term exemptions from Ind-AS 41? Though Ind-AS 41 has a provision to provide for short-term exemptions, nothing has been specifically stated in the present version. 50. From when is Ind-AS 41 applicable?

An entity that is required to apply this Ind-AS shall apply it if its first Ind-AS financial

statements are for a period beginning on or after 1 April 2011.

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