INTERIM
22
CHAPTER
FINANCIAL REPORTING (IND AS-34)
22.1 What is Interim Financial Reporting (IFR)?
I nt eri m fi na nci al r e porti ng i s t he r e porti ng f or peri o ds of s hort er t ha n a f ull fi na nci al ye ar, ge ner all y f or a peri o d of t hr ee mo nt hs or q uart erl y r es ul t s. The c o mpa ni es ar e r e q ui r e d t o p ubli s h t he fi na nci al r es ul t s o n a q uart erl y basi s.
As per t hi s St a ndar d, I nt eri m Fi na nci al Re port me a ns a fi na nci al r e port c o nt ai ni ng ei t her a c o mpl et e s et of fi na nci al st at e me nt or s et of c o nde ns e d fi na nci al st at e me nt f or a n i nt eri m peri o d. I nt eri m peri o d i s a peri o d of r e porti ng s hort er t ha n a f ull fi na nci al ye ar
22.2 Need and Objective
Ti mel y a nd r eli a bl e i nt eri mfi na nci al r e porti ng i mpr oves t he a bili t y of us ers t o underst a nd a n e nti t y ’ s c a paci t y t o ge ner at e e ar ni ngs a nd c as h fl o ws a nd i t s fi na nci al c o ndi ti o n a nd li q ui di t y.
I n ge ner al t he basi c o bj ecti ve of I nt eri m Fi na nci al Re porti ng ( I F R) i s t o pr ovi de f r e q ue nt a nd ti mel y ass ess me nt of e nti t y ’ s perf or ma nce. Ho we ver i nt eri m r e porti ng has i nher e nt li m i t ati o n, whi c h i s not t he c as e of a nn ual acc o unt s as t he r e porti ng peri o d i s s hort e ne d, t he eff ect of err ors i n esti mati ons a nd all ocati on ar e mag ni fi e d. The pr oper all ocati on of oper ati on e x pe ns es i s a si g ni fi c a nt c o ncer n. The mai n pr o bl e ms ar e:
u
u
Pr oper all oc ati o n of oper ati ng e x pe ns es.
So me oper ati ng e x pe ns es may be i nc urr e d i n o ne i nt eri m peri o d a nd yet be ne fit t he f ull ye ar oper ati o n. For e xa mpl e, a dverti si ng e x pe ns es, r e pai r a nd mai nt e na nce e x pe ns es.
u Se as o nal fl uct uati o n - f or s o me e nti ti es r e ve n ue may be s e as o nal or c ycli c al a nd t her ef or e c o nce nt r at e d i n cert ai n i nt eri m peri o d.
TAXMANN®
491
Ye ar- e nd e ve nt s. For e xa mpl e- Bo n us, I nce nti ve bas e d o n a nn ual s al es t ar get. u
u
Det er m i nati o n of a ppr opri at e a mo unt of pr ovi si o n - pe nsi o n, gr at ui t y, li ti gati o n, c o nti nge nci es et c.
I nc o me- t ax e x pe ns es - o ne i nt eri m peri o d may have pr o fit a nd ne xt i nt eri m peri o d may have l oss es.
The o bj ecti ve of t hi s st a ndar d i s t o pr es cri be t he m i ni mu m c o nt e nt of I nt eri mFi na nci al Re port (I F R) a ndt o pr es cri be t he pri nci pl es f or r ec og ni ti on a nd me as ur e me nt i n a c o mpl et e or c o nde ns e d fi na nci al st at e me nt f or a n i nt eri m peri o d.
22.3 Scope
Thi s St a ndar d does not ma ndat e whi c h e nti ti es s ho ul d be r e q ui r e d t o p ubli s hi nt eri mfi na nci al r e port s, ho wf r e q ue ntl y, or ho ws oo n aft er t he e nd of a n i nt eri m peri o d. Ho we ver, g over n me nt s, s ec uri ti es r e g ul at ors, st oc k e xc ha nges, a nd acc o unt a nc y bo di es oft e n r e q ui r e e nti ti es whos e de bt or e q ui t y s ec uri ti es ar e p ubli cl y t r a de d t o p ubli s h i nt eri m fi na nci al r e port s. Thi s St a ndar d a ppli es i f a n e nti t y i s r e q ui r e d or el ect s t o p ubli s h a n i nt eri m fi na nci al r e port i n acc or da nce w i t h I ndi a n Acc o unti ng St a ndar ds.
22.4 What are financial statements?
I nd AS- 1 defi nes a c o mpl et e s et of fi na nci al st at e me nt s:
u
u
u
a bal a nce s heet as at t he e nd of t he peri o d;
a st at e me nt of pr o fit a nd l oss f or t he peri o d;
a st at e me nt f or c ha nge i n e q ui t y f or t he peri o d;
u a st at e me nt of c as h flo ws f or t he peri o d;
u not es, c o mpri si ng a s u mmar y of si g ni fic a nt acc o unti ng poli ci es a nd ot her e x pl a nat or y i nf or mati o n; a nd
u
a bal a nce s heet as at t he be gi nni ng of t he e arli est c o mpar ati ve peri o d whe n a n e nti t y a ppli es a n acc o unti ng poli c y r et r os pecti vel y or ma kes a r et r os pecti ve r est at e me nt of i t e ms i n i t s fina nci al st at e me nt s, or whe n i t r ecl assi fies i t e ms i n i t s fina nci al st at e me nt s.
22.5 Principles of recognition and measurements
As t he o bj ecti ve of t hi s St a ndar di s t o pr es cri be t he pri nci pl e f or r ec og ni ti o n a nd me as ur e me nt of i nc o me, e x pe ns es, ass et s a nd li a bili ti es i n a c o mpl et e or c o nde ns e d fi na nci al st at e me nt s i.e. Bal a nce Sheet, St at e me nt of pr ofi t a nd l oss, St at e me nt of Cas h fl o w a nd Acc o unti ng Not es a nd Poli ci es, t her e
TAXMANN® u
Para 22.5 I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 492
may be t wo di sti ncti ve pri nci pl es /vi e ws of r ec og ni ti o n a nd me as ur e me nt of i nc o me a nd e x pe ns es i n i nt eri mfi na nci al r e porti ng:
I nt e gr al Vi e w u Di s cr et e Vi e w
22.5-1 Integral view
Thi s a ppr oac h t r e at s t he i nt eri m peri o d as a c o mpo ne nt / part of t he f ull ye ar. Under t hi s a ppr oac h, i t e ms ar e all oc at e d t o i nt eri m peri o ds bas e d o n esti mat es of t he t ot al a mo unt f or t he f ull ye ar. Cost s a nd e x pe ns es ar e accr ue d or def err e d bet wee n i nt eri m peri o ds t o ‘ s moot h’ t he r es ul t s acr oss t he ye ar. I n pr acti ce a f ull ‘ i nt e gr al’ a ppr oac h wo ul d i nv ol ve cr e ati ng a s e par at e s eri es of acc o unti ng st a ndar ds f or i nt eri m fi na nci al r e porti ng t o f or mali z e t he cri t eri a t o be us e d f or esti mati ng t he f ull ye ar o ut- t ur n, de ali ng w i t h uncert ai nt y a nd ot her i ss ues.
22.5-2
Discrete view
An a ppr oac h t o vi e w t he i nt eri m peri o d i n ess e nti all y t he s a me ma nner as a f ull ye ar, fi g ur es ar e c al c ul at e d a nd accr ual s a nd esti mat es ma de i n e xactl y t he s a me ma nner as wo ul d be t he c as e at t he ye ar e nd.
I nd AS- 34 r es ol ves t he de bat e by pr es cri bi ng t he di s cr et e vi e wi n ge ner al. As per t he St a ndar d, i nc o me a nd e x pe ns es s ho ul d be r ec og ni z e d/ me as ur e d o n ye ar t o dat e basi s f or i nt eri mr e porti ng. Ye ar t o dat e basi s me a ns fi na nci al r e porti ng f or t he peri o d, whi c h be gi ns o n t he fi rst day of t he fi s c al a nd ye ar e nds o n gi ve n i nt eri m dat e.
I nd AS- 34 r e q ui r es t hat a n e nti t y a ppl y t he s a me acc o unti ng poli ci es i n i t s i nt eri mfi na nci al st at e me nt s as i ni t s a nn ual st at e me nt s may s ee mt o s uggest t hat i nt eri mperi o d me as ur e me nt s ar e ma de as i f e ac hi nt eri mperi o d st a nds al o ne as a n i nde pe nde nt r e porti ng peri o d. Ho we ver, by pr ovi di ng t hat t he f r e q ue nc y of a n e nti t y ’ s r e porti ng s hall not aff ect t he me as ur e me nt of i t s a nnual r es ul t s, Year-t o- dat e meas ur e me nt s mayi nvol ve c ha nges i n esti mat es of a mo unt s r e port e d i n pri or i nt eri m peri o ds of t he c urr e nt fi na nci al ye ar. But t he pri nci pl es f or r ec og ni zi ng ass et s, li a bili ti es, i nc o me, a nd e x pe ns es f or i nt eri m peri o ds ar e t he s a me as i n a nn ual fi na nci al st at e me nt s.
For example, X Lt d pr e par es t he fi na nci al r e port f or t he fi rst q uart er of fi na nci al ye ar 2015- 2016 i.e. 1st April, 2015 t o 30t h J une, 2015 f or i nt eri m fi na nci al r e porti ng p ur pos e. Ye ar t o dat e basi s me a ns 1st April, 2015 t o 30t h J une, 2015. I f i t pr e par e I F R f or s ec o nd q uart er i.e., 1st J ul y, 2015 t o 30t h Se pt e mber, 2015. Ye ar t o dat e basi s me a ns 1st April, 2015 t o 30t h Se pt e mber 2015 a nd s o o n.
TAXMANN®
u
493 P RI NCI PLES OF REC OGNI TI ON & MEAS URE ME NTS Para 22.5
Exception to discrete view-
Ho we ver, t her e i s a de vi ati o n i n r ec og ni zi ng t he I nc o me-t ax expe ns es, whi c hi s not bas e d on di s cr et e vi e was expl ai ne d a bove.
As per t he st a ndar d t he i nc o me- t ax e x pe ns es i s r ec og ni z e d i n e ac h i nt eri m peri o d o n t he best esti mat e of t he
Income-tax Rate e x pect e d f or t he f ull fi na nci al ye ar.
Weighted Average Annual Effective
Thi s i s c onsi st e nt w i t ht he basi c c once pt t hat t he s a me acc o unti ng r ec og ni ti on a nd me as ur e me nt pri nci pl es s hall be a ppli e d i n a n i nt eri mfi na nci al r e port as ar e a ppli e d i n a nn ual fi na nci al st at e me nt s. I nc o me t axes ar e ass ess e d o n a n a nn ual basi s.
22.6 What is estimated annual effecting tax rate?
An e x pect e d a nn ual t ax r at e whi c h r efl ect s esti mat es of a nn ual e ar ni ngs t ax r at e, t ax cr e di t s et c. I nt eri mperi o di nc o me- t ax e x pe ns e i s accr ue d usi ng t he t ax r at e t hat wo ul d be a ppli c a bl e t o e x pect e d t ot al a nn ual e ar ni ngs, t hat i s, t he esti mat e d aver age a nn ual eff ecti ve i nc o me- t ax r at e a ppli e d t o t he pr e- t ax i nc o me of t he i nt eri m peri o d.
22.6-1 Measuring interim income tax expense
I nt eri m peri o d i nc o me t ax e x pe ns e i s accr ue d usi ng t he t ax r at e t hat wo ul d be a ppli c a bl e t o e x pect e d t ot al a nn ual e ar ni ngs, t hat i s, t he esti mat e d aver age a nn ual eff ecti ve i nc o me t ax r at e a ppli e d t o t he pr e- t ax i nc o me of t he i nt eri m peri o d.
Example1: An e nti t y r e porti ng q uart erl y ex pect s t o ear n ` 10, 000 pr e- t ax eac h q uart er a nd oper at es i n a j uri s di cti o n w i t h a t ax r at e of 20 % o n t he fi rst ` 20, 000 of a nnual ear ni ngs a nd 30 % o n all a ddi ti o nal ear ni ngs. Act ual ear ni ngs mat c h ex pect ati o ns. The f oll o w i ng t a bl e s ho ws t he a mo unt of i nc o me-t ax expe ns e t hat i s r e port e di n eac h q uart er:
a nd 30 % o n ` 20, 000 = `
000; Tot al t ax ` 10, 000; Annual eff ecti ve t ax r at e = 10, 000/40, 000 ×100 = 25 % Ther ef or e, t ax f or eac h q uart er = ` 10, 000 ×25 % = ` 2, 500 per q uart er
Example 2: An e nti t y r e port s q uart erl y, ear ns ` 15, 000 pr e- t ax pr ofi t i n t he 1st q uart er but ex pect s t o i nc ur l oss es of ` 5, 000 i n eac h of t he 3 r e mai ni ng q uart ers ( t hus havi ng z er o i nc o me f or t he year), a nd oper at es i n a j uri s di cti o n i n whi c h i t s esti mat e d aver age a nnual i nc o me- t ax r at e i s ex pect e d t o be 20 % The f oll o w i ng t a bl e s ho ws t he a mo unt of i nc o me- t ax ex pe ns e t hat i s r e port e d i n eac h q uart er:
TAXMANN®
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Tax Expe ns e ( ` ) 2, 500 2, 500 2, 500 2, 500 10, 000 Tot al i nc o me f or t he f ull year = 10000 × 4 = ` 40, 000 Tot al t ax paya bl e f or t he f ull year: 20 % o n ` 20, 000 = ` 4, 000
6,
I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 494
Para 22.6
Eff ecti ve t ax r at e i n t hi s cas e will be 20 % o nl y a nd will be a ppli e d t o eac h q uart er.
22.6-2 Difference in financial reporting year and tax year
I f t he fi na nci al r e porti ng ye ar a nd t he i nc o me- t ax ye ar di ff er, i nc o me- t ax e x pe ns e f or t he i nt eri mperi o ds of t hat fi na nci al r e porti ng ye ar i s me as ur e d usi ng s e par at e wei g ht e d aver age esti mat e d eff ecti ve t ax r at es f or e ac h of t he i nc o me- t ax ye ars a ppli e d t o t he porti o n of pr e- t ax i nc o me e ar ne d i n e ac h of t hos e i nc o me- t ax ye ars
Example 3: An e nti t y ’ s fi na nci al r e porti ng year e nds 30t h J une a nd i t r e port s q uart erl y. It s t axa bl e year e nds 31st Dece mber. For t he fi na nci al year t hat begi ns 1 J ul y, Year 1 a nd e nds 30t h J une, Year 2, t he e nti t y ear ns ` 10, 000 pr e- t ax eac h q uart er. The esti mat e d aver age a nnual i nc o me- t ax r at e i s 30 % i n Year 1 a nd 40 % i n Year 2
22.6-3 Tax credits
So me t ax j uri s di cti o ns gi ve t ax payers cr e di t s agai nst t he t ax paya bl e bas e d o n a mo unt s of c a pi t al e x pe ndi t ur es, e x port s, r es e ar c h a nd de vel op me nt e x pe ndi t ur es, or ot her bas es. Anti ci pat e d t ax be nefi t s of t hi s t y pe f or t he f ull ye ar ar e ge ner all y r efl ect e d i n c o mp uti ng t he esti mat e d a nn ual eff ecti ve i nc o me- t ax r at e, bec a us e t hos e cr e di t s ar e gr a nt e d a nd c al c ul at e d o n a n a nn ual basi s under most t ax l a ws a nd r e g ul ati o ns.
Ont he ot her ha nd, t ax be nefi t s t hat r el at e t o a o ne- ti me e ve nt ar e r ec og ni z e d i n c o mp uti ng i nc o me t ax e x pe ns e i n t hat i nt eri m peri o d, i n t he s a me way t hat s peci al t ax r at es a ppli c a bl e t o parti c ul ar c at e g ori es of i nc o me ar e not bl e nde di nt o a si ngl e eff ecti ve a nnual t ax r at e. Mor e over, i n s o mej uri s di cti ons t ax be nefi t s or cr e di t s, i ncl udi ng t hos e r el at e d t o c a pi t al e x pe ndi t ur es a nd l e vel s of e x port s, whil e r e port e d o n t he i nc o me- t ax r et ur n, ar e mor e si mil ar t o a g over n me nt gr a nt a nd ar e r ec og ni z e d i n t he i nt eri m peri o d i n whi c h t he y ari s e.
22.6-4 Tax loss and tax credit carry backs and carry forwards
The be nefi t s of a t ax l oss c arr y bac k ar e r efl ect e d i n t he i nt eri m peri o d i n whi c h t he r el at e d t ax l oss occ urs. I nd AS- 12 pr ovi des t hat ‘ t he be nefi t r el ati ng t o a t ax l oss t hat c a n be c arri e d bac k t o r ec over c urr e nt t ax of a
TAXMANN® 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Tax Expe ns es ( ` )
000 ( 1, 000) ( 1, 000) ( 1, 000) 0
3,
Quarter ending 30th Sep. Quarter ending 31 Dec. Quarter ending 31 Mar. Quarter ending 30 June Year ending 30 June Tax Ex pe ns es ( ` ) 3, 000 3, 000 4, 000 4, 000 14, 000
495 WHAT I S ESTI MATE D A NNUAL EFF ECTI NG TA X RATE Para 22.6
pr e vi o us peri o d s hall be r ec og ni z e d as a n ass et’. A c orr es po ndi ng r e d ucti o n of t ax e x pe ns e or i ncr e as e of t ax i nc o me i s al s o r ec og ni z e d.
I nd AS- 12 pr ovi des t hat ‘ a def err e d t ax ass et s hall be r ec og ni z e d f or t he c arr y f or war d of un us e d t ax l oss es a nd un us e d t ax cr e di t s t o t he e xt e nt t hat i t i s pr o ba bl e t hat f ut ur e t axa bl e pr ofi t will be avail a bl e agai nst whi c h t he un us e d t ax l oss es a nd un us e d t ax cr e di t s c a n be utili z e d’. I nd AS- 12 pr ovi des cri t eri a f or ass essi ng t he pr o ba bili t y of t axa bl e pr ofi t agai nst whi c h t he un us e d t ax l oss es a nd cr e di t s c a n be utili z e d. Thos e cri t eri a ar e a ppli e d at t he e nd of e ac h i nt eri m peri o d a nd, i f t he y ar e met, t he eff ect of t he t ax l oss c arr y f or war d i s r efl ect e d i n t he c o mp ut ati o n of t he esti mat e d aver age a nn ual eff ecti ve i nc o me t ax r at e.
Example 4: a n e nti t y t hat r e port s q uart erl y has a n oper ati ng l oss carr y f or war d of ` 10, 000 f or i nc o me- t ax p ur pos es at t he st art of t he c urr e nt fi na nci al year f or whi c h a def err e d t ax ass et has not bee n r ec og ni z e d. The e nti t y ear ns ` 10, 000 i n t he 1st q uart er of t he c urr e nt year a nd ex pect s t o ear n ` 10, 000 i n eac h of t he 3 r e mai ni ng q uart ers. Excl udi ng t he carr y f or war d, t he esti mat e d aver age a nnual i nc o me t ax r at e i s ex pect e d t o be 40 % Tax ex pe ns e i s as f oll o ws:
er = ` 1000 @30 % = ` 3, 000
22.7 Accounting Policies
An e nti t y s ho ul d a ppl y t he s a me acc o unti ng poli ci es i n t he i nt eri mfi na nci al st at e me nt s as ar e a ppli e d i n t he a nn ual fi na nci al st at e me nt s.
22.8 Minimum Components of Interim Financial Report
An i nt eri m fi na nci al r e port s hall i ncl ude, at a m i ni mu m , t he f oll o w i ng
c o mpo ne nt s:
u
a c o nde ns e d bal a nce s heet;
u a c o nde ns e d st at e me nt of pr o fit a nd l oss;
u
a c o nde ns e d st at e me nt of c ha nge i n e q ui t y
a c o nde ns e d st at e me nt of c as h flo ws; a nd u s el ect e d e x pl a nat or y not es.
u
TAXMANN®
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Tax Expe ns es ( ` ) 3, 000 3, 000 3, 000 3, 000 12, 000 Tot al t axa bl e i nc o me
ull year: ` ( 10, 000 ×4) - 10, 000 ( carr y f
l oss) = ` 30, 000. Tax o n
000
% =
12, 000 Esti
= 12000/40000
Tax ex pe ns e eac
f or f
or war ds
` 30,
@40
`
mat e d a nnual eff ecti ng t ax r at e
× 100 = 30 %
h q uart
Para 22.8 I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 496
22.9 Form and contents of interim financial statements
An i nt eri m fi na nci al r e port c a n c o nt ai n ei t her a c o mpl et e s et of fi na nci al st at e me nt s or a s et of c o nde ns e d fi na nci al st at e me nt s.
22.9-1 Complete financial statements
If a n e nti t y opt s t o pr e par e a nd pr es e nt s a c o mpl et e s et of fi na nci al st at e me nt s i n t he i nt eri mfi na nci al r e porti ng. It s ho ul d be pr e par e d i n t he s a me f or mat a nd as per t he c o nt e nt s a nd r e q ui r e me nt s of a nn ual fi na nci al st at e me nt s.
22.9-2 Condensed financial statements
A c o nde ns e d i nt eri m fi na nci al r e porti ng s ho ul d c o nt ai n t he f oll o w i ng m i ni mu mi nf or mati o n:
u
u
u
u
He a di ngs a nd s ub- t ot al s t hat was i ncl ude d. I n t he most r ece nt a nn ual fina nci al st at e me nt s
Sel ect e d Ex pl a nat or y Not es
Addi ti o nal i t e ms or not es i f t her e o m i ssi o n ma kes t he i nt eri m fina nci al r e porti ng m i sl e a di ng
Basi c a nd dil ut e d e ar ni ng per s har e f or t he i nt eri m peri o d as per I nd AS- 33 ( not t o be a nn uali z e d) ( o n t he f ace St at e me nt of pr o fit a nd l oss)
22.9-3 Selection of explanatory notes
Cri t eri a a dopt e d f or s el ecti o n of e x pl a nat or y not es t o be i ncl ude di ni nt eri m fi na nci al r e port i s up dati ng t he fi na nci al i nf or mati o n, i t i s ass u me d t hat t he us ers of i nt eri mfi na nci al r e port ar e havi ng access t o t he most r ece nt a nn ual fi na nci al st at e me nt s t her ef or e not es t o i nt eri m fi na nci al r e port s ho ul d pr ovi de i nf or mati o n o n fi na nci al ye ar t o dat e basi s. Ho we ver i t i s necess ar y t o di s cl os e a ny e ve nt s or t r a ns acti o ns, whi c h ar e mat eri al f or underst a ndi ng t he i nt eri mfi na nci al r e porti ng.
22.9-4 The reporting entity
I f t he r e porti ng e nti t y ’ s most r ece nt a nn ual fi na nci al st at e me nt s wer e pr e par e d on a c ons oli dat e d basi s, t he nt hei nt eri mr e port s ho ul d be pr e par e d o n t he s a me basi s. To p ubli s h a n i nt eri m r e port t hat de al t o nl y w i t h t he r e porti ng e nti t y a nd not w i t h i t s s ubsi di ari es wo ul d not be c o nsi st e nt or c o mpar a bl e w i t h t he most r ece nt a nn ual fi na nci al st at e me nt s. I f t he most r ece nt c ons oli dat e dfi na nci al st at e me nt s i ncl ude dt he par e nt e nti t y ’ s fi na nci al st at e me nt s t he nt hei nt eri mfi na nci al r e port may, but i s not r e q ui r e d , t o do s o.
TAXMANN®
497 F OR M & C ONTE NTS OF I NTE RI M FI NA NCI AL STATE ME NTS Para 22.9
22.10 Minimum disclosure of notes
Foll o w i ng m i ni mu mdi s cl os ur e of not es a nd e x pl a nat or y st at e me nt s s ho ul d be ma de:
u
A st at e me nt t hat t he s a me acc o unti ng poli ci es ar e f oll o we d i n t he I nt eri m fina nci al st at e me nt s as t hes e f oll o we d i n t he most r ece nt a nn ual fina nci al st at e me nt s or, i f t hes e poli ci es have bee n c ha nge d, a des cri pti o n of t he nat ur e a nd eff ect of t he c ha nge
u Des cri pti o n a bo ut t he s e as o nal or c ycli c al eff ect o n i nt eri m fina nci al ye ar.
u
Un us ual f act ors t hat aff ect e d ass et s, li a bili ti es, e q ui t y, net i nc o me, a nd c as h flo w .
u Eff ect of c ha nge i n esti mat es.
u Cha nge i n de bt a nd e q ui t y t hr o ug h i ss ua nce, r e p ur c has e a nd r e payme nt s.
u Det ail s of di vi de nd pay me nt.
u Seg me nt r eve nue, s eg me nt r es ul t f or busi ness s eg me nt or ge ogr aphi cal s e g me nt, whi c he ver i s t he pri mar y basi s of t he r e porti ng e nti t y.
u Eff ect of c ha nges i n c o mposi ti o n of t he e nti t y d uri ng i nt eri m peri o d, c ha nge i n c o mposi ti o n i ncl udes b usi ness c o mbi nati o n, ac q ui si ti o n, r est r uct uri ng, di s pos al of s ubsi di ari es et c.
22.11 Significant events and transactions
An e nti t y s hall i ncl ude i ni t s i nt eri mfi na nci al r e port a n e x pl a nati o n of e ve nt s a nd t r a ns acti o ns t hat ar e si g ni fi c a nt t o a n underst a ndi ng of t he c ha nges i n fi na nci al posi ti o n a nd perf or ma nce of t he e nti t y si nce t he e nd of t he l ast a nn ual r e porti ng peri o d I nf or mati o n di s cl os e d i n r el ati o n t o t hos e e ve nt s a nd t r a ns acti o ns s hall up dat e t he r el e va nt i nf or mati o n pr es e nt e d i n t he most r ece nt a nn ual fi na nci al r e port.
The f oll o w i ng i s a li st of e ve nt s a nd t r a ns acti o ns f or whi c h di s cl os ur es wo ul d be r e q ui r e d i f t he y ar e si g ni fi c a nt: t he li st i s not e x ha usti ve.
u
u
t he wri t e- do wn of i nve nt ori es t o net r e ali z a bl e val ue a nd t he r e vers al of s uc h a wri t e- do wn
r ec og ni ti o n of a l oss f r o mt he i mpai r me nt of fina nci al ass et s, c o nt r act ass et s, pr opert y, pl a nt a nd e q ui p me nt, i nt a ngi bl e ass et s, or ot her ass et s, a nd t he r e vers al of s uc h a n i mpai r me nt l oss;
t he r e vers al of a ny pr ovi si o ns f or t he c ost s of r est r uct uri ng;
u
u ac q ui si ti o ns a nd di s pos al s of i t e ms of pr opert y, pl a nt a nd e q ui p me nt;
TAXMANN®
Para 22.11 I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 498
u
u
u
u
u
u
u
u
u
u
c o mm i t me nt s f or t he p ur c has e of pr opert y, pl a nt a nd e q ui p me nt;
li ti gati o n s ettl e me nt s;
c orr ecti o ns of pri or peri o d err ors;
c ha nges i n t he b usi ness or ec o no m i c ci r c u mst a nces t hat aff ect t he f ai r val ue of t he e nti t y ’ s fina nci al ass et s
a nd fina nci al li a bili ti es, whet her t hos e ass et s or li a bili ti es ar e r ec og ni z e d at f ai r val ue or a morti z e d c ost;
a ny l oa n def a ul t or br e ac h of a l oa n agr ee me nt t hat has not bee n r e me di e d o n or bef or e t he e nd of t he r e porti ng peri o d; a nd
r el at e d part y t r a ns acti o ns;
t r a nsf ers bet wee n l e vel s of t he f ai r val ue hi er ar c hy us e d i n me as uri ng t he f ai r val ue of fina nci al i nst r u me nt s;
c ha nges i n t he cl assi fic ati o n of fina nci al ass et s as a r es ul t of a c ha nge i n t he p ur pos e or us e of t hos e ass et s; a nd
c ha nges i n c o nti nge nt li a bili ti es or c o nti nge nt ass et s.
22.12 Materiality
Mat eri ali t y i s o ne of t he most f unda me nt al c o nce pt s underl yi ng fi na nci al r e port; t her ef or e St a ndar d pr ovi des t hat i n deci di ng ho w t o r ec og ni z e meas ur e, cl assi f y or di s cl os e a ni t e mf or i nt eri mfi na nci al r e porti ng p ur pos es, mat eri ali t y s ho ul d be ass ess e di n r el ati ont o t hei nt eri mperi od fi na nci al dat a. I nd AS 1 defi nes mat eri al i nf or mati o n a nd r e q ui r es s e par at e di s cl os ur es of mat eri al i t e ms.
The overri di ng obj ecti vei s t o e ns ur e t hat a ni nt eri mfi na nci al r e port i ncl udes all i nf or mati ont hat i s r el eva nt t o underst a ndi ng a n e nti t y ’ s fi na nci al posi ti on a nd perf or ma nce d uri ng t he i nt eri m peri o d.
22.13 Examples of applying the recognition and measurement principles
u Seasonal/Occasional RevenueAs e x pl ai ne d e arli er t he di s cr et e vi e w i s t a ke n f or me as ur e me nt a nd r ec og ni zi ng t he r e ve n ues t her ef or e s uc h r e ve n ue ar e r ec og ni z e d whe n t he y occ ur. Re ve n ues t hat ar e r ecei ve d s e as o nall y, c ycli c all y, or occ asi o nall y w i t hi n a fina nci al ye ar s hall not be a nti ci pat e d or def err e d as of a n i nt eri m dat e i f a nti ci pati o n or def err al wo ul d not be a ppr opri at e at t he e nd of t he e nti t y ’ s fina nci al ye ar . Exa mpl es i ncl ude di vi de nds, r oyal ti es a nd Gover n me nt gr a nt s.
TAXMANN®
499 REC OGNI TI ON A ND MEAS URE ME NT P RI NCI PLES Para 22.13
Addi ti o nall y, s o me e nti ti es c o nsi st e ntl y e ar n mor e r e ve n ues i n cert ai n i nt eri m peri o ds of a fina nci al ye ar t ha n i n ot her i nt eri m peri o ds, e.g. s e as o nal r e ve n ues of r et ail ers. Suc h r e ve n ues ar e r ec og ni z e d whe n t he y occ ur.
u Cost incurred unevenly during the financial yearCost s t hat ar e i nc urr e d une ve nl y d uri ng a n e nti t y ’ s fina nci al ye ar s ho ul d be a nti c - i pat e d or def err e d f or i nt eri m r e porti ng p ur pos es i f, a nd o nl y i f, i t i s al s o a ppr opri at e t o a nti ci pat e or def er t hat t y pe of c ost at t he e nd of t he fina nci al ye ar.
u Changes in Estimate - A mo unt s of i nc o me a nd e x pe ndi t ur e r e port e d i n t he c urr e nt i nt eri m peri o d will r e flect a ny c ha nge i n esti mat es of a mo unt s r e port e d i n pri or i nt eri m peri o d of t he fina nci al ye ar. The a mo unt r e port e di n pri or i nt eri mperi o di s not r et r os pecti vel y a dj ust e d; ho we ver a ny si g ni fic a nt c ha nge i n esti mat es may be di s cl os e d.
u Foreign currency translation gains and lossesAn e nti t y me as ur es f or ei g n c urr e nc y t r a nsl ati o n gai ns a nd l oss es f or i nt eri m fina nci al r e - porti ng by t he s a me pri nci pl es as at fina nci al ye ar e nd i n acc or da nce w i t h t he pri nci pl es as sti p ul at e d i n I nd AS- 21 “ The eff ect s of Cha nges i n For ei g n Exc ha nge Rat es. ”
u Major planned periodic maintenance or overhaulThe c ost of ma - j or peri o di c mai nt e na nce or over ha ul or ot her s e as o nal e x pe ndi t ur e t hat i s e x pect e d t o occ ur l at e i n t he ye ar i s not a nti ci pat e d f or i nt eri m r e porti ng p ur pos es unl ess a n e ve nt has c a us e d t he e nti t y t o have a pr es e nt o bli gati o n. The mer e i nt e nti o n or necessi t y t o i nc ur e x pe ndi - t ur e r el at e d t o t he f ut ur e i s not s uf fici e nt t o gi ve ri s e t o a n o bli gati o n.
u Intangible assetsAn e nti t y a ppli es t he de fini ti o n a nd r ec og ni ti o n cri t eri a f or a n i nt a ngi bl e ass et i n t he s a me way i n a n i nt eri m peri o d as i n a n a nn ual peri o d An e nti t y s ho ul d not ‘ def er ’ c ost s as ass et s i n a n i nt eri m bal a nce s heet i n t he hope t hat t he r ec og ni ti o n cri t eri a will be met l at er i n t he fina nci al ye ar.
u Contractual or anticipated purchase price changes - An e nti t y a n - ti ci pat es v ol u me r e bat es or di s c o unt s a nd ot her c o nt r act ual c ha nges i n t he pri ces of g oo ds a nd s er vi ces i n i nt eri m peri o ds i f i t i s pr o ba bl e t hat t he y will t a ke eff ect. Ho we ver, i t does not a nti ci pat e di s cr eti o nar y r e bat es a nd di s c o unt s bec a us e t he r es ul ti ng li a bili t y wo ul d not s ati sf y t he c o ndi ti o ns of r ec og ni ti o n.
u InventoriesAn e nti t y meas ur es i nve nt ori es f or i nt eri m fina nci al r e - porti ng by t he s a me pri nci pl es as at t he fina nci al year- e nd . Ho wever, t o s ave expe ns e a ndti me, e nti t y oft e n us e esti mat es t o meas ur ei nve nt ori es at i nt eri m dat es t o a gr eat er ext e nt t ha n at a nnual r e porti ng dat es.
TAXMANN®
Para 22.13 I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 500
u Net realizable value of inventories
- An e nti t y det er m i nes t he net r e ali z a bl e val ue of i nve nt ori es by r ef er e nce t o s elli ng pri ces a nd r el at e d c ost s t o c o mpl et e a nd s ell t he i nve nt ori es. It r e vers es a wri t e- do wn t o net r e ali z a bl e val ue i n a s ubs e q ue nt i nt eri m peri o d o nl y i t as i t wo ul d be a ppr opri at e t o do s o at t he e nd of t he fina nci al ye ar.
u Impairment of assets
- An e nti t y a ppli es t he s a me i mpai r me nt t est s, r ec og ni ti o n, a nd r e vers al cri t eri a at a n i nt eri m dat e as i t wo ul d at t he e nd of i t s fina nci al ye ar. That does not me a n a n e nti t y must necess aril y ma ke a det ail e d i mpai r me nt c al c ul ati o n at t he e nd of e ac h i nt eri m peri o d. Rat her, a n e nti t y will r e vi e w f or i ndi c ati o ns of si g ni fic a nt i m - pai r me nt si nce t he e nd of t he most r ece nt fina nci al ye ar t o det er m i ne whet her s uc h a c al c ul ati o n i s nee de d.
u Depreciation and amortizationDe pr eci ati o n a nd a morti z ati o n f or a n i nt eri m peri o d i s bas e d o nl y o n ass et s o wne d d uri ng t hat i nt eri m peri o d It does not t a ke i nt o acc o unt ass et ac q ui si ti o ns or di s pos al s pl a nne d f or l at er i n t he fina nci al ye ar.
u Pension, Gratuity and other defined benefit schemes - An e nti t y s ho ul d esti mat e pr ovi si o ns i n r es pect of gr at ui t y a nd ot her de fine d be ne fit s c he mes f or a n i nt eri m peri o d o n a ye ar- t o- dat e basi s by usi ng t he act uari all y det er m i ne d r at es at t he e nd of t he pri or fina nci al ye ar. Thi s s ho ul d be a dj ust e d f or si g ni fic a nt mar ket fl uct uati o ns si nce t hat ti me a nd si g ni fic a nt c urt ail me nt, s ettl e me nt s, or ot her si g ni fic a nt o neti me e ve nt s.
u Year-end bonuses - An e nti t y a nti ci pat es a bo n us f or i nt eri mr e porti ng p ur pos es o nl y i f, ( a ) t he bo n us i n a l e gal o bli gati o n or past pr acti ce wo ul d ma ke t he bo n us a c o nst r ucti ve o bli gati o n f or whi c h t he e nti t y has no r e ali sti c al t er nati ve b ut t o ma ke t he pay me nt s; a nd (b ) a r eli a bl e esti mat e of t he o bli gati o n c a n be ma de.
u ProvisionsAn e nti t y a ppli es t he s a me cri t eri a of r ec og ni zi ng a nd me as uri ng a pr ovi si o n at a n i nt eri m dat e as i t wo ul d at t he e nd of t he fina nci al ye ar. The f act s s ubsi sti ng at t he bal a nce s heet dat e det er m i ne whet her t her e e xi st s a pr es e nt o bli gati o n t hat meet s t he de fini ti o n a nd r ec og ni ti o n cri t eri a of a li a bili t y. The a mo unt of t he o bli gati o n i s a dj ust e d up war d or do wn war d, w i t h a c orr es po ndi ng l oss or gai n r ec og ni z e d i n pr o fit or l oss, i f t he e nti t y ’ s best esti mat e of t he a mo unt of t he o bli gati o n c ha nges.
u Short-term employee benefits: Vacations, holidays - The e mpl oyee be ne fit s paya bl e w i t hi n 12 mont hs f r o mt he e nd of t hei nt eri mr e porti ng peri o d ar e c o nsi der e d t o be s hort- t er m . The pri nci pl es f or r ec og ni zi ng ass et s, li a bili ti es, i nc o me a nd e x pe ns es f or i nt eri mperi o ds ar e t he s a me
TAXMANN®
501 REC OGNI TI ON A ND MEAS URE ME NT P RI NCI PLES Para 22.13
as i n a nn ual fina nci al st at e me nt s. Ho we ver, t he f r e q ue nc y of r e porti ng s ho ul d not aff ect t he me as ur e me nt of a nn ual r es ul t.
u Contingent lease paymentsCo nti nge nt l e as e pay me nt s c a n be a n e xa mpl e of a l e gal or c o nst r ucti ve o bli gati o n t hat i s r ec og ni z e d as a li a bili t y. I f al e as e pr ovi des f or c o nti nge nt pay me nt s bas e d o n t he l ess ee ac hi e vi ng a cert ai n l e vel of a nn ual s al es, a n o bli gati o n c a n ari s e i n t he i nt eri m peri o ds of t he fina nci al ye ar bef or e t he r e q ui r e d a nn ual l e vel of s al es has bee n ac hi e ve d, i f t hat r e q ui r e d l e vel of s al es i s e x pect e d t o be ac hi e ve d a nd t he e nti t y, t her ef or e, has no r e ali sti c al t er nati ve b ut t o ma ke t he f ut ur e l e as e pay me nt.
Following is the illustrative example to understand the periods for which interim financial statements are required to be presented.
Scenario (a) Entity publishes interim financial reports half-yearly
The e nti t y ’ s fi na nci al ye ar e nds 31 Mar c h ( Fi na nci al ye ar). The e nti t y will pr es e nt t he f oll o w i ng fi na nci al st at e me nt s ( c o nde ns e d or c o mpl et e) i n i t s hal f- ye arl y i nt eri mfi na nci al r e port as of 30 Se pt e mber 20 X2:
Scenario (b) Entity publishes interim financial reports quarterly
The e nti t y ’ s fi na nci al ye ar e nds 31 Mar c h ( Fi na nci al ye ar). The e nti t y will pr es e nt t he f oll o w i ng fi na nci al st at e me nt s ( c o nde ns e d or c o mpl et e) i n i t s q uart erl y i nt eri mfi na nci al r e port as of 30 Se pt e mber 20 X2:
Name of the component
Bal a nce s heet as at
Mar c h 20 X2 St at e me nt of pr o fit a nd l oss :
TAXMANN®
Name of the component Current period Comparative period Bal a nce s heet as at 30 Se pt e mber 20 X2 31 Mar c h 20 X2 St at e me nt of pr o fit a nd l oss : 6 mo nt hs e ndi ng 30 Se pt e mber 20 X2 30 Se pt e mber 20 X1 St at e me nt of c as h flo ws : 6 mo nt hs e ndi ng 30 Se pt e mber 20 X2 30 Se pt e mber 20 X1 St at e me nt of c ha nges
n e q ui t y : 6 mo nt hs e ndi ng 30 Se pt e mber 20 X2 30 Se pt e mber 20
i
X1
Current periods Comparative periods
30
31
6
30
30
3
30
30
6
30
e mber
30
6
30
e mber 20
30
mber
Para 22.13 I NTE RI M FI NA NCI AL REP ORTI NG (I ND AS- 34) 502
Se pt e mber 20 X2
mo nt hs e ndi ng; a nd
Se pt e mber 20 X2; a nd
Se pt e mber 20 X1; a nd
mo nt hs e ndi ng
Se pt e mber 20 X2
Se pt e mber 20 X1 St at e me nt of cas h flo ws :
mo nt hs e ndi ng
Se pt
20 X2
Se pt e mber 20 X1 St at e me nt of c ha nges i n e q ui t y:
mo nt hs e ndi ng
Se pt
X2
Se pt e
20 X1
22.14 Restatement of previously reported interim periods
I f t her e i s c ha nge i n acc o unti ng poli c y
w i t hi n t he c urr e nt fi na nci al ye ar t he eff ect of c ha nge i n acc o unti ng poli c y i s a ppli e d r et r os pecti vel y by:
Change in accounting policy -
u r est ati ng t he fina nci al st at e me nt s of pri or i nt eri m peri o ds of t he c ur - r e nt fina nci al ye ar a nd t he c o mpar a bl e i nt eri m peri o ds of a ny pri or fina nci al ye ars t hat will be r est at e d i n t he a nn ual fina nci al st at e me nt s i n acc or da nce w i t h I nd AS- 8; or
u
whe n i t i s i mpr acti c a bl e t o det er m i ne t he c u mul ati ve eff ect at t he be gi nni ng of t he fina nci al ye ar of a ppl yi ng a ne w acc o unti ng poli c y t o all pri or peri o ds, a dj usti ng t he fina nci al st at e me nt s of pri or i nt eri m peri o ds of t he c urr e nt fina nci al ye ar, a nd c o mpar a bl e i nt eri m peri o ds of pri or fina nci al ye ars t o a ppl y t he ne w acc o unti ng poli c y pr os pec - ti vel y f r o mt he e arli est dat e pr acti c a bl e.
22.15 Interim Financial Reporting and Impairment
An e nti t y i s r e q ui r e d t o ass ess g oo d will f or i mpai r me nt at t he e nd of e ac h r e porti ng peri od, t o ass ess i nvest me nt s i n e q ui t yi nst r u me nt s a ndi n fi na nci al ass et s c arri e d at c ost f or i mpai r me nt at t he e nd of e ac h r e porti ng peri o d a nd, i f r e q ui r e d, t o r ec og ni z e a n i mpai r me nt l oss at t hat dat e i n acc or da nce w i t h I nd AS- 36 a nd I nd AS- 109. Ho we ver, at t he e nd of a s ubs e q ue nt r e porti ng peri o d, c o ndi ti o ns may have s o c ha nge d t hat t he i mpai r me nt l oss wo ul d have bee n r e d uce d or av oi de d ha d t he i mpai r me nt ass ess me nt bee n ma de o nl y at t hat dat e. Appe ndi x t o I nd AS- 34 pr ovi des g ui da nce o n whet her s uc h i mpai r me nt l oss es s ho ul d e ver be r e vers e d
An e nti t y s hall not r e vers e a n i mpai r me nt l oss r ec og ni z e d i n a pr e vi o us i nt eri m peri o d i n r es pect of g oo d will or a n i nvest me nt i n ei t her a n e q ui t y i nst r u me nt or a fi na nci al ass et c arri e d at c ost.
An e nti t y s hall not e xt e nd t hi s acc o unti ng pri nci pl e by a nal ogy t o ot her ar e as of pot e nti al c o nfli ct bet wee n I nd AS- 34 a nd ot her I ndi a n Acc o unti ng St a ndar ds.
A K Lt d w i t h a 31st Dece mber year e nd pr e par e di nt eri mfi na nci al st at e me nt s f or t he 1st hal f of t he year. At 31st Dece mber 2018, i t has g oo d will w i t h a carr yi ng a mo unt of ` 1, 000. At 30t h J une 2019, t he cas h ge ner ati ng uni t s ( C GU) t o whi c h t he g oo d will ha d bee n all ocat e d at t he dat e of t he ac q ui si ti o n beca me l oss- ma ki ng a nd A K Lt d r evi e we d t he ass et s of t he C GU f or i mpai r me nt Thi s r es ul t e d i n t he g oo d will bei ng wri tt e n do wn t o ` 200, w i t h t he i mpai r me nt of ` 800 r ec og ni z e d i n t he i nc o me st at e me nt. Duri ng t he 2 nd hal f of t he year, t he C GUs beca me pr ofi t a bl e o nce agai n a nd, ha d no i mpai r me nt bee n r ec og ni z e d, wo ul d have s upport e d a g oo d will carr yi ng a mo unt of ` 1, 000 Des pi t e t hi s, A K Lt d i s not per m i tt e d t o r evers e t he i mpai r me nt a nd t he g oo d will will have a carr yi ng a mo unt of ` 200 i n i t s a nnual fi na nci al st at e me nt s f or t he year e nde d 31st Dece mber 2019.
Example 5:
TAXMANN®
503 I NTE RI M FI NA NCI AL REP ORTI NG A ND I MPAI R ME NT Para 22.15
AUTHOR : D.S. RAWAT, POOJA PATEL
