Ind AS Practices Demystified

Description

Get a copy of ‘Ind AS Practices Demystified‘ by CA Santosh Maller, 5th Edition, 2023, and explore the comprehensive guide to Indian Accounting Standards (Ind AS). With 1,392 pages, this book covers adoption issues, application issues related to assets, liabilities, income, and expenses, financial instruments, business combinations, presentation issues, disclosure considerations, sector-specific Ind AS, MAT computation, GST differences, COVID-19 reporting aspects, and insurance contracts. Limited time offer: Flat 27% discount + Free shipping! ISBN: 97789356033979.

Contents at a Glance

Detailed Contents at a Glance 
A.  Preface .. iii
B. About the Author .. v
C. Contents at a Glance … ix
Part I Ind AS Summaries .. 3
1. Ind AS 1 Presentation of Financial Statements .. 5
2. Ind AS 2 Inventories … 8
3. Ind AS 7 Cash Flow Statements .. 10
4. Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors . 11
5. Ind AS 10 Events after the Reporting Period .. 12
6. Ind AS 12 Income Taxes … 13
7. Ind AS 16 Property, Plant and Equipment … 15
8. Ind AS 19 Employee Benefits… 18
9. Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance .. 20
10. Ind AS 21 Effects of Changes in Foreign Exchange Rates … 22
11. Ind AS 23 Borrowing Costs .. 23
12. Ind AS 24 Related Party Disclosures .. 24
13. Ind AS 27 Separate Financial Statements .. 26
14. Ind AS 28 Investments in Associates and Joint Ventures … 27
15. Ind AS 29 Financial Reporting in Hyperinflationary Economies … 28
16. Ind AS 32 Financial Instruments: Presentation … 30
17. Ind AS 33 Earnings per Share … 31
18. Ind AS 34 Interim Financial Reporting .. 32
19. Ind AS 36 Impairment of Assets .. 34
20. Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets . 35
21. Ind AS 38 Intangible Assets … 37
22. Ind AS 40 Investment property .. 38
23. Ind AS 41 Agriculture .. 39
24. Ind AS 101 First-time Adoption of Indian Accounting Standards … 40
25. Ind AS 102 Share-Based Payment .. 42
26. Ind AS 103 Business Combinations .. 43
27. Ind AS 104 Insurance Contracts .. 45
28. Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations … 46
29. Ind AS 106 Exploration for and Evaluation of Mineral Resources … 47
30. Ind AS 107 Financial Instruments: Disclosures … 47
31. Ind AS 108 : Operating Segments.. 48
32. Ind AS 109: Financial Instruments .. 49
33. Ind AS 110 Consolidated Financial Statements … 58
34. Ind AS 111 Joint Arrangements .. 60
35. Ind AS 112 Disclosure of Interest in Other Entities … 61
36. Ind AS 113 Fair Value Measurement.. 62
37. Ind AS 114 Regulatory Deferral Accounts… 63
38. Ind AS 115 Revenue from Contracts with Customers (Effective from financial year beginning from 1 April 2018) .. 63
39. Ind AS 116 Leases (Effective from financial years beginning from 1st April 2019) .. 67
Part II Practical Issues in Implementation of Ind AS ..71
Chapter 1 Adoption Issues… 71
1.0 Introduction .. 73
1.1 Ind AS Roadmap.. 73
1.1.1 Applicability for corporates – Non-NBFCs/banks/insurance companies … 73
1.1.2 Applicability for financial services … 74
1.2 Ind AS Applicability – Considerations for Net Worth . 75
1.2.1 Definition of net worth .. 75
1.2.2 Net worth of a project office .. 76
1.2.3 Net worth calculation at stand-alone or consolidated level? … 76
1.2.4 Net worth for which period? .. 76
1.2.5 Net worth < Rs 500 crore in March 2014, but > Rs 500 crore in FY 2015-16 … 77
1.2.6 Net worth falling below the threshold before the Ind AS commencement date .. 77
1.2.7 Companies with negative net worth .. 78
1.2.8 Delisting before the Ind AS commencement date .. 79
1.2.9 Net worth criteria treatment of ESOP reserve . 80
1.2.10 Ind AS applicability in an acquisition.. 80
1.3 Early Adoption/Voluntary Adoption of Ind AS .. 82
1.3.1 Early adoption option .. 82
1.3.2 Instances amongst companies: Early adoption . 82
1.3.3 Voluntary adoption by a group company, whether affects other group companies .. 82
1.4 Ind AS Applicability – Holding and Subsidiary Issues. 84
1.4.1 Meaning of ‘previous GAAP’ in case of foreign subsidiaries … 84
1.4.2 Holding – Subsidiary assessed under Indian GAAP or Ind AS? … 84
1.4.3 Applicability issues in case of subsidiaries … 85
1.4.4 Indian subsidiary of a foreign company .. 86
1.4.5 Acquisition of a subsidiary … 87
1.4.6 Does Ind AS application spread laterally, i.e., to fellow subsidiaries? .. 88
1.4.7 Applicability of Ind AS to holding company, if subsidiary company incorporated for divestment purpose complies with Ind AS … 89
1.5 Applicability of Ind AS: Issues Relating to Associates . 90
1.5.1 Indirect associate .. 90
1.5.2 Associate relation to be assessed under Indian GAAP or Ind AS… 91
1.5.3 Acquisition of associate .. 93
1.5.4 Applicability of Ind AS from associate to investor . 94
1.5.5 Applicability of Ind AS – Associate company in case of quarterly results … 94
1.6 Ind AS Applicability: NBFC Issues… 95
1.6.1 Ind AS applicability: NBFC parent with Phase II Ind AS subsidiary … 95
1.6.2 What happens if there is an NBFC and a Non-NBFC within the same group? .. 96
1.6.3 Whether CIC will be included in an NBFC?… 97
1.7 Transition Date … 98
1.7.1 Ind AS transition date earlier than 1st April, 2015 .. 98
1.7.2 Ind AS transition date earlier than 1st April, 2015 – Additional comparative .. 99
1.7.3 What shall be the transition date to Ind AS for companies having December or June year-ends? .. 99
1.8 Auditor Qualification of First Ind AS Financial Statements … 99
1.9 Change in Accounting Policies/Optional Exemptions after Interim Reporting but before Year End .. 100
1.9.1 Instances amongst companies: Disclosure about possible changes in interim accounting policies .. 100
1.10 Estimates … 101
1.10.1 No estimates under previous GAAP .. 102
1.10.2 Accounting for change in estimates upon first-time adoption of Ind AS … 102
1.11 Reconciliations, Presentation and Disclosures … 103
1.11.1 Whether any exemption? … 103
1.11.2 Reconciliations, presentation and disclosures – Comparatives … 103
1.11.3 Errors discovered upon transition to Ind AS . 103
1.11.3.1 Instances amongst companies: Previous GAAP errors … 104
1.11.4 Change in accounting policy in first Ind AS financial statements .. 104
1.12 Tax Implications under Ind AS .. 105
1.13 MAT Implication … 105
1.13.1 MAT implications for OCI items? Whether included for MAT on ongoing basis? … 105
1.13.2 MAT incidence on OCI items that are never to be recycled back to profit and loss … 107
1.13.3 MAT incidence on Ind AS transition adjustments … 107
1.14 Other Important Issues … 109
1.14.1 Can IFRS be applied instead of Ind AS? .. 109
1.14.2 Can a company discontinue reporting under Ind AS? . 110
1.14.3 Ind AS applicability – Stand-alone and consolidated financials … 110
1.14.4 Accounting treatment of the balance outstanding in the “revaluation reserve” … 110
1.14.5 Ind AS applicability: Charitable companies under section 8 of the Companies Act … 111
1.14.6 Implications on dividend distribution during comparative period … 111
1.15 First-Time Adoption of Ind AS 115 Revenue from Contracts with Customers … 112
1.16 First-Time Adoption of Ind AS 116 Leases .. 114
1.16.1 Use of fair value as deemed cost .. 114
1.16.2 Assessment of whether a contract contains lease . 115
1.16.3 Lease containing both land and building elements … 116
1.16.4 Measurement of lease liabilities and right-of-use assets by lessees … 116
1.16.5 Sale and leaseback transactions.. 118
Chapter 2 Ind AS Application Issues Related to Assets … 119
2.0 Introduction … 121
2.1 First-Time Adoption Options for PPE under Ind AS 101.. 122
2.1.1 First-time adoption options for measurement of PPE . 123
2.1.2 Can fair value deemed cost option be selectively applied? … 124
2.1.3 Instances amongst companies following various options . 124
2.1.4 Journal entries for various first-time adoption options for PPE … 126
2.1.5 How does one choose the option? … 127
2.1.6 Proposed amendment to Ind AS 101 .. 128
2.2 MAT Implications … 130
2.2.1 MAT implications for selective fair valuation option for items of PPE at transition date… 130
2.2.2 MAT implications for retrospective restatement .. 131
2.3 Impact on ‘Free Reserves’/‘Net Worth’ under the Companies Act?… 132
2.3.1 Is external valuation report required? If so, on which date? … 138
2.3.2 Is the new CARO reporting applicable for deemed cost fair valuation option under Ind AS 101? .. 138
2.4 Interaction between Ind AS 109 Requirement to Amortise Transaction Costs with Previous GAAP Deemed Cost Exemption … 139
2.5 Revaluation under Previous GAAP Treated as Deemed Cost – Meaning ‘Broadly Comparable’.. 139
2.6 Interaction between Asset-Related Grant as Deferred Income under Ind AS 20 and Previous GAAP Deemed Cost Exemption … 140
2.7 Does Previous GAAP Deemed Cost Exemption Apply to Capital Work in Progress Items? … 141
2.8 Can Revaluation Reserves under Previous GAAP be Treated as ‘Free Reserve’ upon Transition? .. 141
2.9 Fair Value Deemed Cost Option .. 142
2.9.1 Fair value deemed cost option for intangible assets .. 142
2.9.2 Use of fair value deemed cost option: Whether change in Accounting policy … 143
2.9.3 Use of fair value deemed cost option: Whether change in accounting policy if revaluation model adopted under Ind AS 16 … 143
2.9.4 Consequential deferred tax implications of fair value deemed cost exemption … 144
2.9.5 Impact of fair value deemed cost exemption on inventory valuation … 144
2.9.5.1 Instances amongst Companies: Change in Inventory due to Deemed Cost Option under Ind AS .. 144
2.9.6 Change in measurement model in the subsequent year after transition to Ind AS .. 145
2.9.7 When depreciation starts under Ind AS 16 … 146
2.9.8 Review of Useful life of Property, plant & equipment . 146
2.9.8.1 Instances observed amongst leading companies: Review of Useful life of Property, plant & Equipment .. 146
2.10 Can Fair Value Deemed Cost Exemption be Used for Assets under Finance Lease? .. 148
2.10.1 Instances observed amongst leading companies: Fair value exemption for finance leased assets .. 148
2.11 Spare Parts, Servicing and Stand-by Equipment .. 148
2.11.1 Capitalisation and depreciation of spare parts … 148
2.11.2 PPE held for use in production or supply of goods and services, for rental to others … 149
2.11.3 Instances amongst companies: Spare parts, servicing and standby equipment … 149
2.12 Interaction of Deemed Cost Exemption with Requirement to Capitalise Eligible Spares … 151
2.13 Journal Entries for Reclassification of Spares under Ind AS .. 152
2.14 Major Repairs and Overhaul Expense … 153
2.14.1 Instances amongst companies: Major repair/overhaul cost … 153
2.15 Enabling Assets .. 154
2.15.1 Instances amongst companies: Enabling assets .. 154
2.16 Depreciation – Change in Useful Lives .. 154
2.16.1 Instances amongst leading companies: Changes in useful lives … 154
2.17 Change in Depreciation Method.. 155
2.17.1 Instances amongst leading companies: Changes in depreciation method .. 155
2.17.2 Different depreciation method within different group companies … 155
2.18 Revaluation Model for Measurement of PPE .. 157
2.19 MAT Implications for Revaluation Model under Ind AS 16/Ind AS 38 … 158
2.19.1 Treatment of revaluation reserve upon disposed/sale of the asset .. 159
2.20 Journal Entries for PPE Revaluation Model .. 159
2.21 Inclusion of OCI Items for Calculation of Distributable Profits/Managerial Remuneration … 160
2.22 Would the Consequential Deferred Tax on Revaluation of PPE also be Recognised in Equity through OCI? .. 160
2.23 Different Depreciation Methods amongst Group Companies . 160
2.23.1 Instances amongst leading companies: Different depreciation methods amongst subsidiaries within a group … 162
2.24 Accounting for Various Expenditure Incurred during Project Construction period under Ind AS 16 … 163
2.25 Ind AS ED Proposal for Amendment to IAS 16 for Accounting for Proceeds before Intended Use on Proceeds from Selling Items Produced while Bringing an Asset into the Location and Condition Necessary for it to be Capable of Operating in the Manner Intended by Management … 166
2.26 Recognition of Intangible Assets … 167
2.27 Instances amongst Leading Companies: Recognition of Intangibles .. 168
2.28 Intangible Assets with Indefinite Useful Lives .. 168
2.28.1 Instances amongst leading companies: Intangibles with indefinite useful lives … 168
2.28.2 IFRS instances: Intangibles with indefinite useful lives .. 169
2.29 Revaluation Model for Intangible Assets … 170
2.29.1 Instances amongst companies: Revaluation for intangible … 170
2.30 Advertisement Cost Incurred for Brands … 170
2.30.1 Instances amongst companies: De-recognition of advertisement costs deferral … 171
2.31 Investment Properties … 171
2.31.1 Depreciation on investment properties .. 171
2.31.2 Instances amongst leading companies: Depreciation of investment properties .. 171
2.32 Non-Current Assets Held for Sale and Discontinued Operations . 172
2.32.1 Instances amongst companies: Discontinued operations .. 172
2.33 First-Time Adoption Exemption .. 172
2.34 Common Ind AS Errors Related to Assets … 173
Chapter 3 Ind AS Application Issues Related to Liabilities … 184
3.0 Introduction … 185
3.1 Decommissioning, Asset Retirement and Site Restoration Obligation . 185
3.2 Classification as Provision … 188
3.3 Discount Rate to be Used for Measuring a Provision. 190
3.4 Adjusting the Discount Rates for Risk while Measuring Provision … 191
3.5 First-time Adoption Exemption for Measurement of Decommissioning Obligation .. 192
3.6 Warranty Obligations … 194
3.6.1 Instances amongst companies: Warranty obligations . 194
3.6.2 IFRS instances: Warranty obligations .. 195
3.7 Other Long-Term Provisions … 196
3.7.1 Instances amongst companies: Long-term provisions . 196
3.7.2 IFRS instances: Long-term provisions .. 197
3.8 Examples of Different Types of Provisions .. 197
3.9 How to Determine the Amount of Provision? … 201
3.10 Subsequent Changes in Recognised Provision .. 202
3.11 ‘Probable’ Meaning as per Ind AS 37 … 202
3.11.1 Instances amongst companies: Restructuring provisions .. 205
3.12 Accounting for Levies … 205
3.13 Recognition of Deferred Tax Asset on Losses .. 207
3.13.1 Instances amongst Companies: Recognition of deferred tax assets … 207
3.14 Deferred Tax on Intra-Group Transactions with Journal Entries .. 208
3.14.1 Instances amongst companies: Deferred tax on unrealised profits … 209
3.14.2 Deferred tax on land expected to be sold on slump sale basis . 210
3.15 Dividend Distribution Tax … 211
3.15.1 Should dividend distribution tax (DDT) be charged to P&L or equity? … 211
3.15.2 Deferred tax on undistributed earnings of subsidiaries, associates and joint ventures .. 213
3.15.2.1 Instances amongst companies: Deferred tax on undistributed profits .. 213
3.15.2.2 IFRS instances: Deferred tax on undistributed profits . 215
3.15.3 Should tax credit on DDT payable by subsidiary be considered? .. 215
3.15.3.1 IFRS Instances amongst Companies: Tax Credit on DDT Payable by Subsidiary … 218
3.15.4 Capitalisation of DDT as borrowing costs of the qualifying asset .. 219
3.15.5 Treatment of DDT on preference shares treated as financial liability .. 220
3.15.6 Deferred tax on investments due to section 112A . 221
3.16 Deferred Tax under the Taxation Laws (Amendment) Act, 2019 .. 227
3.16.1 Instances amongst companies: Reversal of deferred tax due to Section 115BAA under Taxation Laws (Amendment) Ordinance, 2019 .. 231
3.16A Deferred Tax Impact of Non-depreciable Goodwill post FY 2020-21 .. 232
3.17 Dividend… 233
3.17.1 Proposed Dividend .. 233
3.17.2 Interim Dividend … 233
3.17.2.1 Instances amongst Companies: Recognition of Interim Dividend .. 234
3.17.2.2 IFRS instances amongst companies: recognition of interim dividend .. 234
3.17.3 Treatment of dividend on financial instruments declared after the end of the reporting period .. 234
3.18 CSR Obligation under S/135 of Companies Act, 2013 . 235
Chapter 4 Ind AS Application Issues Related to Income and Expense . 243
4.0 Introduction … 248
4.1 Deferral of Revenue under Ind AS .. 248
4.1.1 Timing of recognition of revenue on sale of goods … 248
4.1.2 Multiple-element sale contracts .. 249
4.1.2.1 Journal entries for bundled sale agreements . 250
4.1.3 Non-refundable upfront fee .. 251
4.1.3.1 Instances amongst companies: Deferment of revenue under Ind AS 115 .. 251
4.1.3.2 IFRS instances amongst companies: Deferment of revenue … 253
4.2 Principal versus Agent Assessment .. 255
4.2.1 Instances amongst companies: Principal versus agent assessment under Ind AS 115 … 260
4.2.2 Instances amongst companies: Principal versus agent assessment under Ind AS 18 .. 261
4.2.3 IFRS instances amongst companies: Principal versus agent assessment .. 262
4.3 Sales Incentives, Including Customer Loyalty Programs . 262
4.3.1 Journal entries: Customer loyalty schemes … 264
4.3.1.1 Instances amongst companies: Customer loyalty schemes … 265
4.3.2 Sales incentives – Profit and loss impact .. 266
4.3.2.1 Instances amongst companies: Deferral of sales incentives under Ind AS 115 … 266
4.3.2.2 Instances amongst companies: Deferral of sales incentives .. 267
4.3.2.3 IFRS instances amongst companies: Deferral of sales incentives … 270
4.3.3 Estimating the fair value of customer loyalty awards . 271
4.4 Incentives to Customers’ Customer.. 274
4.4.1 IFRS instances amongst companies: Sales incentive accounting under IFRS 15 … 274
4.5 Incentives outside a Direct Distribution Chain.. 276
4.5.1 IFRS instances amongst companies: Marketing and sales promotion cost … 276
4.5.2 IFRS/ US GAAP practices amongst leading companies: Customer inducment and promotion cost under IFRS 15/ ASC 606… 277
4.6 Should Revenue be Presented Gross or Net of GST? ..279
4.7 Recognition of Non-Refundable Upfront Fees .. 280
4.8 Instances of Deferment of Non-Refundable Upfront Fees under Ind AS 115 … 282
4.9 Sales Returns Resulting in Refund Obligations … 283
4.9.1 Journal entries for estimated sales returns… 286
4.9.2 Instances amongst companies: Estimated sales returns under Ind AS 115 … 288
4.10 Extended Payment Terms – Significant Time Value of Money in Transaction Price … 289
4.10.1 Instances amongst companies: Fair valuation of sale consideration under Ind AS 115 .. 291
4.10.2 Determining significant component.. 291
4.11 Should Retention Money be Discounted? … 295
4.11.1 Instances amongst companies: Discounting of retention money under Ind AS 18 .. 296
4.11A How is Significant Financing Component Determined under Ind AS 115?.. 297
4.12 Can Government Incentives be Classified as Revenue?.. 307
4.12.1 IFRS instances amongst companies: Presentation of Government grant as revenue … 308
4.13 Percentage of Completion (POC) versus Completed Contracts Method of Revenue Recognition … 308
4.13.1 Instances amongst companies: Change from POC method to completed contracts method.. 319
4.14 Adoption of Ind AS 115 for the First Time … 323
4.14.1 Leases.. 324
4.15 Embedded Leases under Ind AS 116 .. 324
4.15.1 Instances amongst leading companies: Embedded leases . 325
4.15.2 First-time adoption exemption .. 326
4.15.2.1 Instances amongst companies: Use of FTA exemption for embedded leases … 327
4.16 What Arrangements are out of Embedded Leases? .. 327
4.16.1 Identified assets .. 328
4.16.2 Substantive substitution rights .. 330
4.16.3 Right to control the use of the identified asset … 333
4.16.4 Right to obtain substantially all of the economic benefits from use of the identified asset … 333
4.16.5 Right to direct the use of the identified asset. 335
4.16.6 Protective rights .. 339
4.17 Land Leases .. 340
4.17.1 Instances amongst leading companies: Land leases .. 342
4.17.2 Transition to Ind AS 116 .. 344
4.18 Lease Incentives … 349
4.18.1 Instances amongst companies: Lease incentive accounting … 349
4.18.2 Discounting of refundable security deposits . 349
4.19 Understanding the ‘Lease Term’ under Ind AS 116 .. 350
4.20 Accounting for Lease Equalization Reserve Balance Appearing in the Pre-Ind AS 116 Balance Sheet … 354
4.21 Foreign Exchange Differences Arising from Lease Obligations .. 358
4.22 Employee Benefits .. 359
4.22.1 Re-measurement of defined benefit obligations .. 359
4.22.2 Instances amongst companies: Re-measurement of defined benefit plans .. 360
4.22.3 First-time adoption – Is re-measurement reserve required to be presented separately? … 360
4.22.4 Journal entries for re-measurement of defined benefit obligations … 360
4.22.5 Are Ind AS actuarial and valuation reports newly required? If so, on what dates? … 361
4.22.7 MAT implications and calculation of distributable profits/managerial remuneration … 362
4.22.8 Would the consequential tax on re-measurement also be recognised in equity through OCI? .. 363
4.23 Past Service Cost … 363
4.23.1 Instances amongst companies: Past service cost .. 363
4.24 Employee Loans… 363
4.25 Accounting for Employee Benefits on Constructive Obligation.. 364
4.25.1 Instances of leading companies: Constructive employee obligations … 364
4.25.2 Share-based payments .. 365
4.26 Fair Value versus Intrinsic Value for Employee Stock Option Plans .. 365
4.26.1 Instances amongst leading companies: Fair value ESOPs . 365
4.27 Graded Vesting Employee Stock Options … 366
4.27.1 Instances amongst companies: Graded vesting plans. 367
4.28 Group-Settled Share-Based Payments … 367
4.28.1 Instances amongst companies: Group-settled ESOPs . 368
4.28.2 Journal entries in the books of parent .. 369
4.28.3 Would the equity balance arising on contribution from parent is a free reserve? … 370
4.29 First-Time Adoption Exemption .. 371
4.29.1 Instances amongst companies: FTA exemption for ESOPs … 371
4.30 Consolidation of ESOP Trust … 372
4.30.1 Instances amongst companies: ESOP Trust consolidation . 372
4.30.2 Amendment to Ind AS 102 .. 372
4.30.2.1 Accounting for cash-settled share-based payment transactions that include a performance condition.. 373
4.30.2.2 Classification of share-based payment transactions with net settlement features … 373
4.30.2.3 Accounting for modifications of share-based payment transactions from cash-settled to equity settled .. 373
4.30.2.4 Effective date .. 373
4.31 Government Grants .. 373
4.31.1 Grants in the nature of promoters’ contribution .. 373
4.31.2 Interaction with PPE first-time adoption exemption, with scheme of journal entries … 374
4.31.3 Instances amongst companies: Adjustments due to government grant accounting … 374
4.31.4 Government grants in the nature of promoter’s contribution included for testing Ind AS applicability .. 375
4.31.5 Government grant related to assets.. 376
4.31.6 Revised ITFG view on previous GAAP deemed cost exemption under Ind AS 101 … 377
4.32 Interaction with Previous GAAP Carrying Amount Exemption, with Journal Entries .. 377
4.32.1 Instances amongst companies: Asset-related government grants .. 379
4.33 Sales Tax Deferral or Similar Schemes, with Journal Entries .. 380
4.33.1 Instances of companies: Sales tax deferral schemes … 381
4.33.2 Import/export duty/tax exemptions and duties upon fulfillment of certain conditions by SEZ/STP unit: Whether government grants? … 382
4.34 First-Time Adoption Transition Provision: Subsidised Government Loans … 383
4.35 Accounting for Sales Tax Exemption Schemes under Package Scheme of Incentives … 383
4.36 Foreign Currency Exchange Differences Arising on Long-Term Items … 384
4.36.1 Instances amongst leading companies: Foreign exchange differences … 386
4.37 Amortisation of FCMITDA Balance through OCI … 388
4.37.1 Meaning of ‘Monetary Items Recognised in the Financial Statements for the Period Ending Immediately before the Beginning of the First Ind AS Financial Reporting Period as per Previous GAAP’ in Ind AS 101.D13AA .. 388
4.38 FCMITDA Balance Adjustment for Transaction Cost on Foreign Currency Loan .. 388
4.39 Currency Swaps Taken on Foreign Currency Loan for which FCMITDA Option Availed… 389
4.40 Forward Contracts Taken on Foreign Currency Loan, Accounted for under AS 11.46/46A .. 390
4.40.1 ITFG’s view on forward contracts (in Bulletin 7) .. 390
4.41 Can Indian GAAP Policy be Revised to Avail the Options on Transition to Ind AS? … 391
4.42 Interaction of Ind AS 101.D13AA Option with Previous GAAP Deemed Cost Option … 392
4.42.1 Decapitalisation of past exchange differences while using the option under Ind AS 101.D7AA .. 392
4.43 Functional Currency … 393
4.43.1 Instances amongst leading companies: Foreign exchange accounting … 394
4.43.2 IFRS instances amongst companies: Functional currency assessment .. 394
4.44 At What Level is the Functional Currency Assessment Done? … 395
4.44.1 Presentation currency for financial statements … 395
4.45 Change in Functional Currency in the Past to be Assessed from which Date .. 396
4.46 First-Time Adoption Exemption to Continue with Indian GAAP Accounting .. 396
4.47 Items that would be Newly Considered to be Monetary Items under Ind AS … 397
4.47.1 Instances amongst leading companies: Change in monetary items … 397
4.48 Determination of Transaction Date to Determine the Exchange Rate. 397
4.48A Appendix B, Foreign Currency Transactions and Advance Consideration to Ind AS 21 The Effects of Changes in Foreign Exchange Rates … 398
4.49 Borrowing Cost .. 402
4.50 Are Funds not Fungible for the Purpose of Capitalising Borrowing Cost? … 402
4.50.1 Instances amongst leading companies: Incremental borrowing cost .. 403
4.51 Group Company Scenarios .. 403
4.52 Expenditure on Qualifying Assets… 404
4.53 Borrowing Cost on Land … 405
4.54 Borrowing Cost on General Borrowings .. 407
4.54 Borrowing Costs on Completed Qualifying Assets … 412
4.55 Borrowing Costs on Acquired Qualifying Assets.. 413
4.56 Prior Period Items … 415
4.56.1 Instances amongst leading companies: Prior period items … 415
Chapter 5 Financial Instruments .. 417
5.0 Introduction … 420
5.1 Measurement of Financial Liabilities at Amortised Cost – Effective Interest Method .. 420
5.1.1 Instances amongst companies: Effective interest method . 421
5.2 Can Redemption Premium Payable be Directly Charged to Share
Premium? … 422
5.2.1 Instances amongst companies: Redemption premium . 423
5.2.2 First-time transition: Redemption premium is charged to
securities premium in the past .. 423
5.3 Lease and Other Similar Deposits … 424
5.3.1 Scheme of journal entries for lease deposits .. 425
5.3.2 Interest-free loans/debentures/preference shares between parent
and subsidiary – With journal entries .. 426
5.3.3 Interest-free/subsidised loans/debentures/preference shares
between group companies (non-parent-subsidiary relation) with
journal entries … 429
5.3.4 Journal entries for cumulative preference shares issued by a
company … 430
5.3.5 Journal entries – Preference shares optionally convertible at
holder’s option … 431
5.3.6 Journal entries – Preference shares optionally convertible at
issuer’s option … 433
5.3.7 Journal entries – Compulsorily convertible preference shares . 434
5.3.7.1 Instances amongst companies: Preference shares
accounting .. 435
5.3.7.2 Initial fair valuation and amortisation of
redeemable preference shares/inter-corporate loans . 437
5.3.7.3 Instances amongst companies: Inter-company
loans … 437
5.3.7.4 How to determine the interest rate for discounting? . 439
5.3.7.5 First-time adoption exemption – Measurement
using effective interest method .. 440
5.3.8 Changes in terms and condition of inter group loans/preference
shares: Worked example with journal entries . 440
5.3.9 Early redemption of redeemable preference shares … 440
5.3.10 Conversion of preference shares into equity shares (by
subsequently introducing conversion terms) . 443
5.3.11 Accounting for employee loans at subsidised interest rates… 445
5.4 Investments in Equity Shares of Subsidiary, JV and Associate in
Separate Financial Statements .. 447
5.5 First-Time Adoption Exemption for Equity Investments in
Subsidiaries, Associates and JVs .. 448
5.5.1 Instances amongst companies: Investment in subsidiary/JV/
associate … 448
5.5.2 Accounting for investment in debenture of a subsidiary .. 450
5.6 First-Time Adoption – Exemption for Classification of Financial
Assets … 451
5.7 MAT Implications on Fair Valuation of Investments under Ind AS … 451
5.7.1 MAT implications of investments in subsidiaries, joint ventures
and associates at fair value as deemed cost upon first-time
adoption of Ind AS … 453
5.8 FVOCI Measurement for Debt Investments .. 453
5.8.1 Instances amongst companies: FVOCI debt investments .. 454
5.9 Re-classification to Debt/Compound Instruments (Issuers’
Perspective) .. 454
5.9.1 Instances amongst companies: Reclassification to compound
instruments .. 455
5.10 Accounting for Foreign Currency Convertible Bonds (FCCB) from
Issuers’ Perspective.. 457
5.10.1 Splitting equity and liability components .. 457
5.10.1.1 Instances amongst companies: FCCB accounting … 460
5.10.2 FCCB accounting from issuers’ perspective – Carve out from
IFRS .. 460
5.10.3 First-time adoption exemption under Ind AS 101 . 460
5.11 Classification of Advance Received towards Issue of Securities .. 461
5.11.1 Instances amongst companies: Reclassification of share
application money … 461
5.12 Classification from Debt to Equity .. 462
5.12.1 Instances amongst companies: Reclassification to equity .. 462
5.13 Perpetual Bonds Issued by a Company .. 462
5.14 Fair Valuation of Investments in Equity Shares and Mutual
Funds … 464
5.14.1 Instances amongst companies: Investments .. 464
5.15 What is Dividend under Ind AS 109? … 470
5.15.1 Instances amongst companies: Dividend accounting . 470
5.15.2 Accrual of dividend declared after the balance sheet date . 470
5.15.3 Undeclared dividend on preference shares … 471
5.16 Derivative Accounting … 472
5.16.1 Instances amongst companies: Derivative accounting . 472
5.17 Hedge Accounting .. 473
5.17.1 Instances amongst companies: Hedge accounting … 474
5.18 First-Time Adoption Exception .. 474
5.19 Forward Points of Forward Contracts and Time Value of Option
Derivatives .. 475
5.19.1 Instances amongst companies: Forward points .. 475
5.20 Financial Guarantees … 475
5.20.1 Are all the guarantees treated as financial guarantee contracts
under Ind AS 109? … 476
5.20.2 What are not financial guarantee contracts under Ind AS 109? … 476
5.20.3 How are financial guarantees accounted for under Ind AS? … 477
5.20.4 How does the subsidiary account for the guarantee? . 477
5.20.5 Financial guarantee accounting – Issuer perspective .. 477
5.20.6 Why should such ‘notional’ accounting income be booked,
particularly, if there is no impact at consolidated level? .. 478
5.20.7 What if a holding is not charging any guarantee commission
from the subsidiary?.. 479
5.20.8 Financial guarantee accounting from holder and issuer
perspective – Scheme of journal entries.. 479
5.20.9 How do you determine the fair value of financial guarantees? … 479
5.20.10 What are the factors to be considered for fair valuation? .. 480
5.20.10.1 Instances amongst companies: Financial guarantee . 480
5.20.11 Early repayment of guaranteed loan .. 482
5.20.12 Guarantee provided by a subsidiary for a loan of holding
company … 484
5.20.13 Financial guarantees accounted as insurance contracts under
Ind AS… 486
5.20.14.1 Instances of financial guarantees accounted as
contingent liabilities under Ind AS . 488
5.21 Classification of Investments in Units of Fixed Maturity Plans
(FMPs) .. 491
5.21.1 Instances amongst companies: Accounting for FMP units . 492
5.22 Derecognition of Financial Liabilities CDR .. 493
5.22.1 Instances amongst Companies: Debt Restructuring .. 493
5.22.2 Derecognition of financial liabilities by companies under IBC . 494
5.22.3 Instances of derecognition of financial liabilities by companies
under IBC … 497
5.23 Derecognition of Financial Assets … 497
5.24 First-Time Exemption from Derecognition of Financial Assets and
Liabilities … 498
5.24.1 Instances amongst companies: Derecognition of financial assets .. 498
5.25 Treasury Shares … 498
5.25.1 Instances amongst companies: Treasury shares .. 499
5.26 Impairment of Financial Assets Using Expected Credit Loss Model
under Ind AS 109 … 499
5.26.1 Instances amongst companies: ECL provision … 501
5.27 Embedded Derivatives … 503
5.27.1 Export/import denominated in USD/Euro – Closely related
embedded derivatives .. 504
5.28 Transaction Cost … 505
5.28.1 Instances amongst companies: Transactions cost adjustments . 506
5.29 Fair Valuation of Investments in Unquoted Equity Investments .. 506
5.29.1 Commonly used valuation techniques .. 507
5.30 Can One Ignore P Times Q for Quoted Investments? . 523
5.31 Fair Value of Financial Liability with Demand Feature .. 524
5.32 Potential Classification as NBFC … 524
5.33 Accounting Treatment of Buyback of Own Equity Shares … 525
5.33.1 Instances of expense incurred on buyback of own equity shares .. 526
5.34 Accounting Treatment of Repossessed Assets … 526
5.34.1 Instances of classification of repossessed asset by NBFCs. 528
Chapter 6 Business Combinations and Consolidation . 530
6.0 Introduction … 532
Business Combinations… 533
6.1 Business Combination Accounting under Ind AS 103 … 533
6.1.1 Instances amongst companies: Business combinations … 534
6.2 New Intangibles Recognised under Ind AS 103 .. 538
6.3 Examples of Items that Meet the Definition of an Intangible Asset … 538
6.4 Which Valuation Approaches to Use?… 540
6.5 IFRS Instances amongst Companies: PPA under IFRS 3.. 541
6.6 Group of Intangible Assets Acquired in a Business Combination . 552
6.7 What should be the Useful Lives of the Intangibles Acquired? .. 552
6.7.1 IFRS instances amongst companies: Useful lives of intangibles
acquired … 553
6.8 Common Control Business Combinations … 554
6.8.1 Instances amongst companies: Common control acquisitions . 554
First-Time Adoption Related Issues .. 555
6.9 Court Schemes .. 555
6.9.1 Appointed date accounting of court schemes . 555
6.9.2 Instances amongst companies: Court schemes … 556
6.10 NCLT Schemes for Common Control Acquisitions .. 557
6.10.1 Instances amongst companies: Court orders under common
control … 559
6.11 Reversal of Amortisation of Goodwill… 561
6.11.1 Instances amongst companies: Reversal goodwill amortisations .. 561
6.12 Ind AS 101 Exemption – Past Business Combination . 562
6.12.1 Instances amongst companies: Business combination exemption .. 562
6.13 Assessment of Asset Acquisition versus Business Combinations . 565
6.14 Eligibility for Business Combination Exemption.. 566
6.15 Application of Ind AS 101 Exemption for Step Acquisition in the Past … 566
6.16 Significant Accounting Steps for Business Combinations Exemption . 567
6.17 Significant Implications of Restating Past Business Combinations … 568
6.18 Ind AS 101 Exemption – Subsidiary under Ind AS Previously Assessed
as Associate .. 569
6.19 Change of Classification from Subsidiary to Associate… 570
6.20 FTA Exemption for Common Control Business Combinations? .. 571
6.21 Sale of Stake – Whether or not Leading to Loss of Control… 571
6.22 Interaction of Business Combination Exemption with Deemed Cost
Exemption for PPE.. 572
6.23 Foreign Currency Translation of Goodwill and Fair Value Adjustments .. 573
6.23.1 Instances amongst companies: Foreign currency translation of
goodwill/fair value adjustments .. 573
Contingent Consideration in a Business Combination.. 574
6.24 Measurement of Contingent Consideration in a Business Combination .. 574
6.24.1 Instances amongst companies: Deferred and contingent
consideration … 575
6.25 Fair Valuation of Contingent Consideration.. 575
6.26 Contingent Consideration versus Remuneration .. 575
6.27 IFRS Instances amongst Companies: Contingent Consideration/
Employee Remuneration … 576
Broader Concept of Consolidation under Ind AS .. 580
6.28 Broader Concept of Control .. 580
6.29 Assessment of Joint Control .. 582
6.29.1 Instances amongst companies: Change in group relations under
Ind AS… 582
6.29.2 Instances amongst companies: Indian and International
perspectives on de facto control .. 585
Other Accounting Issues in Business Combinations/ Consolidation under
Ind AS … 588
6.30 Acquisition-Related Costs … 588
6.30.1 Instances for companies: Acquisition-Related Costs.. 588
6.31 Obligation/Option to Acquire Non-Controlling Interest .. 588
6.31.1 Instances amongst companies: Accounting for NCI obligation … 589
6.32 Measurement Period Adjustments .. 589
6.32.1 Instances amongst companies: Measurement period
adjustments .. 590
6.32.2 IFRS instances amongst companies: Measurement period
adjustments .. 591
6.33 Accounting for Business Combinations – Control Achieved in Stages . 592
6.34 Transactions with NCI Shareholders without Losing Control . 592
6.34.1 Instances amongst companies: Transactions with NCI … 593
6.35 Non-Controlling (Minority) Interest .. 594
6.35.1 Instances amongst companies: Loss attribution to NCI … 594
6.36 Joint Operations versus Joint Venture … 595
6.36.1 Instances amongst companies: Equity method consolidation . 595
6.37 IFRS Instances amongst Companies: Joint Operation . 596
6.38 First-Time Adoption Transition Provisions for Accounting for Joint
Venture … 596
6.39 Proportionate Consolidation Used for Segment Reporting … 597
6.39.1 Instances amongst companies: Segment reporting based on
proportionate consolidation .. 597
6.40 Accounting for Joint Arrangements in Separate Financial Statements . 598
6.40.1 Instances amongst companies: Joint operations accounting … 598
6.41 Investment in LLP, Assessed as JV in Separate Financials … 599
6.42 Whether LLP or a Partnership Firm is Required to be Consolidated? . 599
6.43 Demerger Arrangements… 599
6.43.1 Journal entries – Demerger … 600
6.43.2 Fair valuation of distribution obligation .. 602
6.43.3 Tax implications of demergers under Ind AS . 602
6.43.4 How to account for common control demergers? . 602
6.43.5 Instances amongst companies: Demerger accounting . 602
6.43.6 IFRS experiences – Demerger accounting .. 603
6.44 Impairment of Goodwill … 603
6.44.1 IFRS instances amongst companies: Goodwill allocation .. 604
6.45 Can there be Significant Influence, even if the Holding is <20%? . 609
6.45.1 Instances amongst companies: Significant influences with <20%
holding .. 609
6.46 Can there be no Significant Influence, even if the Holding is >20%? .. 610
6.47 Business Combinations of Entities under Common Control .. 610
6.48 Incorporation of Effect of Business Combination in the Standalone
Financial Statements in Case of Scheme of Arrangement . 612
6.49 Partial Disposal of Investment in Subsidiary Accounted for at Cost
under Ind AS 27 … 614
Chapter 7 Presentation Issues .. 616
7.0 Introduction … 618
Balance Sheet-Related Issues .. 619
7.1 Can Restatement of Comparative Amounts be Considered to be
Impracticable? … 619
7.1.1 Is the third balance sheet to be presented in case of business
combinations under common control under Appendix C to Ind
AS 103? .. 619
7.2 Cash and Cash Equivalent Difference for the Purposes of Balance Sheet
and Cash Flow Statement … 620
Classification of Current and Non-Current Items of Financial Statements . 621
7.3 Basis of Classification of Current/Non-Current for Various Balance
Sheet Items .. 621
7.4 Current versus Non-Current Classification – Normal Operating Cycle … 623
7.5 Current versus Non-Current Classification – Real Estate Business … 624
7.6 Current versus Non-Current Classification – Different Business within
an Entity … 624
7.7 Current versus Non-Current Classification – Combination of Assets . 625
7.8 Current versus Non-Current Classification – Inter-Corporate Loan… 625
7.8.1 Current versus non-current classification – Redeemable
preference shares … 626
7.9 Current versus Non-Current Classification – Deposit Liability from
Customers .. 628
7.10 Current versus Non-Current Classification – Utility Deposits . 629
7.11 Current versus Non-Current Classification – Upfront Amount Received
from Customers … 630
7.12 Current versus Non-Current Classification – Sales Tax Deferral .. 630
7.13 Current versus Non-Current Classification – Warranty Provision … 631
7.14 Current versus Non-Current Classification – Refinancing of a Loan .. 631
7.15 Current versus Non-Current Classification – Refinancing of a Loan
after Balance Sheet Date … 632
7.16 Current/Non-Current Classification – Waiver for Breach of Loan
Covenants … 633
7.17 Current/Non-Current Classification – Condoning for Breach of Loan
Covenants … 634
7.18 Current/Non-Current Classification – Cross Default Clause.. 634
7.19 Current/Non-Current Classification – Breach of Covenants in Interim,
but not at Year-End.. 634
7.20 Current versus Non-Current Classification – Grace Period less than 12 Months.. 635
7.21 Current versus Non-Current Classification – Expectation of breach .. 635
7.22 Current/Non-Current Classification – Expectation of Breach after Balance Sheet Date .. 636
7.23 Can Deferred Tax be Segregated into Current and Non-current? . 636
7.24 Net Provision for Tax/Net Advance Tax Classified as Current/Non-Current … 636
7.25 LC Discounting/Buyer’s Credit Facilities – Whether Trade Payable or Borrowings? … 637
7.26 Presentation of Balance Sheets, P&Ls and Cash Flow Statements for First-Time Adopter .. 638
7.27 Is MAT Credit Included in Deferred Tax under Ind AS? .. 638
7.27.1 Instances amongst Companies: Presentation of MAT Credit .. 639
7.27.2 IFRS instances amongst companies: Presentation of MAT credit .. 639
7.28 Can Bank Overdrafts be Treated as Part of Cash and Cash Equivalent? .. 639
7.28.1 Instances amongst companies: Cash and cash equivalent reconciliation … 640
7.28.2 IFRS instances amongst companies: Cash and cash equivalent … 640
7.28.3 Issues Related to Profit and Loss .. 641
7.29 Share of Profit and Loss of Associates/Joint Ventures – Before or after Tax .. 641
7.30 Share of Profit and Loss of Associates/Joint Ventures – Whether Part of Operating Profits … 641
7.31 Share of OCI Items of Associates/Joint Ventures .. 641
7.32 Presentation of minority/non-controlling interest … 641
7.32.1 Instances amongst companies: presentation of non-control interest (NCI) … 641
7.33 Expenses Incurred by a Group Company on Behalf of Group Companies .. 642
7.34 Offsetting of Profit on Sale of an Asset against Loss on Sale of Other Asset … 642
7.35 Offsetting of Services Rendered to and Received from a Same Entity . 643
Issues Relating to Statements of Changes in Equity and Cash Flows .. 643
7.36 Statement of Changes in Equity .. 643
7.36.1 Instances amongst Companies: Statement of Changes in Equity .. 644
7.37 Cash Flows from Changes in Shareholding in Subsidiary without Losing Control .. 645
7.37.1 IFRS instances amongst companies: Cash flows from changes in NCI .. 645
7.7.2 Other Specific Issues .. 645
7.38 Discontinued Operations … 645
7.38.1 Instances amongst companies: Discontinued operations .. 645
7.39 Can an Entity Present Any Item as Extraordinary Item? .. 646
7.40 Are Unbilled Revenue Treated as Financial Assets? . 646
7.40.1 Instances amongst companies: unbilled revenues … 647
7.41 Equity Portion of Compound Instrument – Whether Securities Premium … 647
7.42 Change in Accounting Period .. 648
7.42.1 Instances amongst companies: Change in accounting period . 648
7.43 Presentation of Information Elsewhere in the Annual Report . 649
7.44 Unreserved and Explicit Statement of Compliance if Audit Report Qualified … 649
7.45 Presentation Issues under Ind AS 115 Revenue from Contracts with Customers .. 649
7.45.1 Presentation requirements for contract assets, receivables and contract liabilities … 650
7.45.2 Contract liability … 654
7.45.3 Presentation of contract assets and contract liabilities in case of multiple performance obligations and in case of combined
contracts … 656
7.45.4 Can an entity offset contract assets and liabilities against other balance sheet items (e.g., accounts receivable)? .. 656
7.45.5 Contract assets arising from contract modification … 657
7.45.6 Presentation in statement of profit and loss .. 657
7.45.7 Presentation of Return asset .. 657
7.45.8 Presentation of Significant financing component.. 657
7.45.9 Current versus non-current presentation .. 658
7.46 Presentation Requirements under Ind AS 116 … 658
Chapter 8 Disclosure Considerations .. 665
8.0 Introduction … 674
Balance Sheet … 674
8.1 Balance Sheet… 674
8.1.1 Ind AS Schedule III – Material items .. 674
8.2 Information Presented in the Balance Sheet .. 674
8.2.1 Additional line items in balance sheet … 676
8.2.2 Instances amongst companies: Additional line items . 676
Profit and Loss Account .. 677
8.3 Profit and Loss Account … 677
8.4 Additional Line Items in Profit and Loss … 678
8.4.1 Instances amongst companies: Exceptional items . 679
8.4.2 Instances amongst companies: Exceptional items . 680
8.5 Analysis of Expenses in Profit and Loss.. 680
8.6 Other Comprehensive Income for the Period .. 681
8.6.1 Instances amongst companies: OCI presentation .. 681
8.6.2 Presentation of reclassification adjustments of OCI … 682
8.7 Profit and Loss Presentation – Discontinued Operations and Distributions … 682
8.7.1 Instances amongst companies: Discontinued operations .. 682
8.7.2 Accounting Policies and General Disclosures .. 683
8.8 Accounting Policies .. 683
8.8.1 Statement of application of accounting policies .. 683
8.8.2 Prominent display of name .. 683
8.8.2.1 IFRS instances of Indian companies: Prominent display of name … 683
8.8.3 Ind AS Schedule III requirements – Rounding off … 684
8.8.4 Corporate information .. 684
8.8.4.1 IFRS instances amongst companies: Corporate information … 685
8.9 Statement of Compliance with Ind AS .. 685
8.9.1 Going concern … 685
8.9.2 Frequency of reporting – Financial year longer or shorter than 1 year .. 686
8.9.3 Instances amongst companies: Financial year longer or shorter than 1 year… 686
8.9.4 Comparative information … 686
8.9.5 Requirements of Ind AS Compliant Schedule III (Division II) . 688
8.9.6 Consistency of presentation .. 688
8.10 Date of Approval for Issue … 688
8.10.1 First-Time Adoption–Related Disclosures … 688
8.11 First-Time Adoption Reconciliations.. 688
8.11.1 Instances amongst companies: First-time adoption reconciliations … 689
8.11.2 IFRS instances amongst companies: First-time adoption reconciliations … 703
8.12 Use of Fair Value as Deemed Cost… 709
8.12.1 Instances amongst companies: Fair value as deemed cost . 709
8.13 Financial Review by Management .. 710
Disclosures in Notes to Accounts .. 711
8.14 Information about Equity … 711
8.15 Presentation of Assets Held for Sale/Distribution and Discontinued Operations .. 711
8.16 Change in the Revaluation Surplus Arising from a Change in the Decommissioning, Restoration and Similar Liability . 712
8.17 Changes in OCI Recognised due to Changes in the Associate’s/Joint Venture’s OCI Items … 712
8.17.1 Instances amongst companies: Associate/JV’s OCI items .. 712
8.18 Earnings per Share .. 712
8.18.1 Instances amongst companies: EPS .. 713
8.18.2 Earnings per share-related disclosures .. 713
8.18.2.1 Instances amongst companies: EPS reconciliation … 714
8.18.2.2 Items charged to securities premium account.. 715
8.18.3 Change in denominator due to reclassification of debt to equity .. 715
8.19 Sequencing and Cross Referencing of Notes to Accounts … 716
8.20 Basis of Preparation and Summary of Significant Accounting Policies … 716
8.20.1 Instances amongst companies: Significant accounting policies … 717
8.21 Disclosure of Management Judgments .. 753
8.21.1 Instances amongst companies: Management judgments .. 754
8.21.2 IFRS instances amongst companies: Management judgements … 756
8.22 Changes in Accounting Policies.. 763
8.22.1 Changes in accounting policy in first Ind AS Financial Statements … 764
8.23 Key Estimation Assumptions… 764
8.23.1 Estimation uncertainties for assets and liabilities measured at fair value … 765
8.23.2 Disclosure of budget or forecast information . 765
8.23.3 Impracticability for making the disclosures .. 765
8.23.4 Instances amongst companies: Estimation uncertainties .. 765
8.23.5 IFRS instances amongst companies: Estimation uncertainties . 767
8.24 Disclosures about Capital… 770
8.25 Consistency with Dividend Policy .. 771
8.25.1 Instances amongst companies: Dividend policies . 771
8.25.2 Instances amongst companies IFRS: Dividend policy . 773
8.52.3. Business Combinations… 774
8.26 Overall Disclosure Objective .. 774
8.27 Immaterial Acquisitions … 774
8.28 Specific Business Combinations Disclosures .. 774
8.28.1 IFRS instances amongst companies: Business combination disclosures… 780
8.29 Business Combinations under Common Control .. 786
8.29.1 Ind AS instances amongst companies: Common control business combinations… 787
8.30 Changes in Accounting Estimates … 787
8.31 Disclosure of Interests in Other Entities .. 788
8.32 Interests Scoped out of Ind AS 112 .. 789
8.33 Aggregation and Disaggregation … 789
8.34 Disclosure of Significant Judgments, Estimates and Assumptions Made .. 789
8.34.1 IFRS instances amongst companies: IFRS 12 disclosures.. 790
8.35 Disclosure about Subsidiaries .. 791
8.35.1 Wholly owned subsidiaries or subsidiaries with immaterial noncontrolling interest … 792
8.35.1.1 Instances under IFRS: Disclosures about subsidiaries … 794
8.35.2 Subsidiary’s financial statements of different date or period from that of consolidated financial statements… 797
8.35.3 Nature and extent of significant restrictions . 798
8.35.4 Disclosure of protective rights of NCI shareholders provided in law and regulations .. 798
8.35.4.1 IFRS instances amongst companies: Disclosure of protective rights … 798
8.35.5 Disclosures of changes in ownership interests in subsidiaries . 799
8.35.6 Joint Arrangements … 799
8.36 Significant Judgements for Joint Arrangements .. 799
8.37 Details of Joint Arrangements.. 800
8.38 Summarised Financial Information .. 801
8.39 Individually Immaterial Joint Ventures .. 801
8.40 Commitments for Joint Ventures … 802
8.41 Contingent Liabilities and Restrictions on Joint Ventures … 802
8.42 Investment on Associates … 803
8.42.1 Information on associates … 803
8.42.2 Summarised financial information on associates .. 804
8.42.3 Immaterial associates … 805
8.42.4 Commitments for associates .. 805
8.42.5 Other disclosures for associates .. 805
8.42.5.1 IFRS instances amongst companies: Disclosures about JVs and associates … 805
8.43 Investment in Joint Venture/Associate Held for Sale . 809
8.44 Structured Entities .. 810
8.44.1 What are structured entities? .. 810
8.44.2 Disclosures for consolidated structured entities .. 810
8.44.3 What is ‘support’? … 811
8.44.4 What is ‘intention’?… 811
8.44.5 Possible changes in consolidation reporting packages/spreadsheets .. 812
8.44.6 Instances amongst companies under IFRS: Disclosure of structured entities … 812
8.44.7 Disclosures for unconsolidated structured entities … 812
8.44.7.1 IFRS instances amongst companies: Unconsolidated structured entities . 815
8.45 Investment Entities Status … 819
8.45.1 Disclosure in parent’s and investor’s separate financial statements … 821
8.46 Dividends … 823
8.47 Non-Cash Dividend – Distributions of Non-Cash Assets to Owners .. 823
8.47.1 Employee Benefits… 824
8.48 Defined Benefit and Contribution Plans .. 824
8.48.1 Defined benefit plans that share risks between various entities under common control .. 824
8.48.2 Defined contribution plans .. 824
8.48.3 Defined benefit plans … 824
8.48.3.1 Instances amongst companies: Employee benefits .. 828
8.49 Disclosure Requirements in Other Ind AS … 842
8.50 Borrowing Cost .. 842
8.50.1 Instances amongst companies: Borrowing cost … 842
8.50.2 Instances amongst companies IFRS: Borrowing cost .. 843
8.50.3 Events after the Reporting Period .. 843
8.51 Disclosures about Events after the Reporting Period . 843
8.51.1 Fair Value Disclosures … 844
8.52 Fair Value Disclosures … 844
8.53 Disclosure Objectives … 844
8.54 Accounting Policies .. 846
8.55 Fair Value Measurement of Assets and Liabilities … 846
8.55.1 Class of assets and liabilities .. 846
8.55.2 Fair value disclosures … 846
8.55.3 Assets and liabilities not measured at fair value, but for which fair value is disclosed … 847
8.55.4 Recurring fair value measurements of assets and liabilities … 847
8.55.5 Non-recurring fair value measurements of assets and liabilities .. 849
8.55.6 Instances amongst companies IFRS – Fair value disclosures … 850
8.55.7 Foreign Currency … 854
8.56 Foreign Currency Disclosure … 854
8.56.1 IFRS instances amongst companies: Foreign currency disclosures… 855
8.56.2 Convenience translation .. 856
8.56.3 Government Grant … 856
8.57 Government Grants Disclosure .. 856
8.57.1 Impairment of Assets … 857
8.58 Impairment of Assets Disclosure … 857
8.58.1 Instances amongst companies: Impairment disclosures .. 861
8.58.2 IFRS instances amongst companies: Impairment disclosures . 862
8.58.3 Income Taxes … 867
8.59 Income Taxes… 867
8.59.1 Unused tax losses/tax credits .. 868
8.59.2 Tax related to discontinued operations.. 868
8.59.3 Tax consequences of proposed dividend .. 868
8.60 Deffered Tax and Liabilities .. 868
8.60.1 Unrecognised deferred tax liabilities .. 868
8.60.2 Deferred tax in a business combination .. 868
8.60.3 Utilisation of the deferred tax asset is dependent on future taxable profits … 869
8.60.4 Tax-related contingent liabilities and contingent assets .. 869
8.60.5 Instances amongst companies: Deferred tax disclosures .. 869
8.61 Intangible Assets … 870
8.61.1 Research and development .. 872
8.61.1.1 IFRS instances amongst companies: Intangible disclosures .. 872
8.62 Inventories .. 875
8.62.1 Instances amongst companies IFRS: Inventories .. 875
8.63 Investment Property … 876
8.63.1 Instances amongst companies: Investment property disclosures .. 878
8.64 Leases … 879
8.64.1 Finance leases … 879
8.64.2 Operating leases … 880
8.65 Lease Disclosures by Lessors … 880
8.65.1 Finance leases … 880
8.65.2 Operating leases … 881
8.66 Sale and Leaseback Transactions … 882
8.67 Evaluating the Substance of Transactions Involving the Legal Form of a Lease … 882
8.68 Determining Whether an Arrangement Contains a Lease … 882
8.69 Evaluating the Substance of Transactions Involving the Legal Form of a Lease … 882
8.70 Non-Current Assets Held for Sale and Discontinued Operations . 883
8.70.1 Instances amongst companies: Discontinued operations .. 885
8.70.2 IFRS instances amongst companies: Discontinued operations. 889
8.71 General Scope of Ind AS 108 Operating Segments .. 891
8.71.1 Exemption for segment disclosures prejudicial to the interests of the entity … 891
8.71.2 Financial report containing both consolidated and separate financial statements of parent … 891
8.71.3 Does Ind AS 108 apply to entities that are not required to prepare consolidated financial statements? … 891
8.71.4 Entity outside the scope of Ind AS 108 providing segment discloses voluntarily .. 891
8.71.5 Primary and secondary reporting segments under Ind AS 108 … 892
8.71.6 Meaning of operating segments .. 892
8.71.7 Can a part of an entity not be included under any operating segment in spite of earning revenue and incurring expenditure? .. 892
8.71.8 What is meant by discrete financial information? . 893
8.71.9 Are activities conducted through joint ventures or associates considered under the definition of operating segment? .. 894
8.71.10 How do you identify the CODM? … 894
8.71.11 Would CODM be the CEO/managing director of the company or the entire board of directors, including the non-executive
directors? … 894
8.71.12 IFRS instances amongst companies: CODM identification … 895
8.71.13 Can two entities in same business have different operating segments? … 896
8.71.14 What if the CODM only review revenue-related information to make decisions? .. 896
8.71.15 Combining of two segments – Aggregation criteria … 897
8.71.16 Aggregation criteria mandatory or voluntary . 898
8.71.17 What are the ‘economic characteristics’ that would need to be ‘similar’ for the purpose of aggregating operating segments? . 898
8.71.18 When can products/services, production processes, customers, distribution methods and regulatory environment said to be of
similar nature? … 898
8.71.19 Combining of two segments – Quantitative thresholds … 899
8.71.20 Is there an upper limit on the number of reportable segments that an entity should disclose? .. 900
8.71.21 Is an entity required to provide separate disclosures for each of its operating segments? .. 901
8.71.22 Quantitative thresholds based on profitability criteria when certain segments report profits and certain segments report
losses … 901
8.71.23 10% test when different operating segments report different
measures of segment profitability and segment assets . 902
8.71.24 Aggregation criteria in Ind AS 108.12 versus combining criteria
stated in Ind AS 108.14 .. 902
8.71.25 75% threshold … 902
8.71.26 Disclosure of segment no longer meeting the quantitative threshold … 903
8.71.27 Can an operating segment that has never met the quantitative threshold be disclosed separately? … 903
8.71.28 Combining information about segments not reportable .. 903
8.71.29 Can an entity aggregate new businesses with existing businesses? .. 904
8.71.30 Can a company aggregate an operating segment that does not meet quantitative threshold individually with a reportable operating segment? .. 904
8.71.31 Instances amongst companies: Segment disclosures .. 904
8.71.32 IFRS instances amongst companies: Segment disclosures . 908
Operating Segments – Disclosure Requirements .. 909
8.72 Operating Segment .. 909
8.72.1 General information .. 909
8.72.2 Information about profit or loss, assets and liabilities . 910
8.72.3 Measurement … 910
8.72.4 CODM provided with more than one measure of segment’s profit or loss .. 912
8.72.5 Connotations of terms such as ‘segment profit’, ‘segment loss’, ‘segment assets’ and ‘segment liabilities’.. 912
8.72.6 Segment reporting based on different basis .. 912
8.72.7 Reconciliations … 913
8.72.8 Information about products and services .. 913
8.72.9 Information about geographical areas … 914
8.72.10 Cost to develop geographical data excessive . 914
8.72.11 Meaning of the term ‘entity’s country of domicile’ … 915
8.72.12 Information about major customers .. 915
8.72.13 Disclosure of identity of the customers accounting for more than
10% of the entity’s revenue .. 915
8.72.14 Disclosure requirements for a company with only a single operating segment … 916
8.72.15 Segments reported by the subsidiary to be the same as those reported by the parent .. 916
8.73 Treatment of Discontinued Operation as Separate Segment .. 916
8.73.1 Instances amongst companies: Discontinued operation as separate segment … 916
Property, Plant and Equipment … 921
8.74 Property, Plant and Equipment .. 921
Provisions, Contingent Liabilities and Contingent Assets . 922
8.75 Provisions, Contingent Liabilities and Contingent Assets … 922
8.75.1 IFRS instances amongst companies: Disclosure of provisions and contingencies … 923
Related Parties Disclosures … 935
8.76 Related Parties .. 935
8.76.1 Broader definition of related parties .. 936
8.76.2 Interplay with listing requirements under LODR . 937
8.76.3 Related party transactions … 937
8.76.4 Disclosure of components of KMP compensation … 938
8.76.5 Substantiation of related party transactions being at arm’s length… 939
Revenue .. 940
8.77 Revenue … 940
8.78 Service Concession Arrangements (Appendix A to Ind AS 11) .. 940
8.78.1 IFRS instances amongst companies: Service concessions .. 941
Share-Based Payment … 947
8.79 Share-Based Payment (Ind AS 102) .. 947
8.79.1 IFRS instances amongst companies: Share-based payments … 950
Ind AS 115 Revenue from Contracts with Customers . 954
8.80 Disclosures under Ind AS 115 .. 954
8.81 Main Disclosure Changes from Ind AS 18 and Ind AS 11 … 956
8.82 Information about Contracts with Customers … 957
8.83 Disaggregation of Revenue .. 957
8.84 Disclosure of Contract Balances .. 960
8.84.1 Disclosure of contract balances: Real-life examples … 961
8.85 Performance Obligations … 963
8.85.1 Disclosure of performance obligations: Real-life practical
examples … 968
8.86 Disclosure of Significant Judgment .. 972
8.86.1 Disclosure of significant judgement: Real-life example … 974
8.87 Costs to Obtain or Fulfil a Contract .. 975
8.87.1 Disclosure of costs to obtain or fulfil a contract: Real-life
example .. 976
8.88 Practical Expedients.. 976
8.89 Transition Disclosure Requirements .. 977
8.90 Applicability of Schedule III Division III … 977
8.91 Compliance with Relevant Requirements of the Companies Act . 977
8.92 Liquidity-Based Balance Sheet Presentation .. 978
8.93 Statement of Profit and Loss .. 978
8.94 Statement of Profit and Loss .. 978
8.95 Consolidated Financial Statements .. 979
8.96 Disclosures under Ind AS 116 .. 980
Chapter 9 Sector-Specific Ind AS … 1182
9.0 Introduction … 1184
Service Concession Arrangement .. 1184
9.1 Service Concession Arrangements .. 1184
9.2 Financial Asset versus Intangible Asset Classification.. 1185
9.2.1 Instances amongst companies: Service concession arrangements 1186
9.2.2 IFRS instances amongst companies: Service concession
arrangements … 1187
9.2.3 Non-applicability of service concessions arrangements –
Instances amongst airport operators .. 1188
9.2.4 Instances amongst companies: Hybrid model… 1189
9.2.5 Instances amongst companies: Construction margin . 1191
9.3 Maintenance and Upgrade Obligations … 1191
9.4 Negative Grants/Premium Payable to Government Authorities . 1192
9.4.1 Instances amongst companies: Negative grant payable under
service concession arrangement … 1192
9.4.2 IFRS instances amongst companies: Negative grant payable
under service concession arrangement .. 1193
9.5 First-Time Adoption Exemption … 1193
9.5.1 Instances amongst companies: Service concessions exemption .. 1193
9.6 Revenue-Based Depreciation for Toll Roads … 1194
9.6.1 Revenue-based amortization of intangible assets – Toll roads
under construction .. 1194
9.7 Borrowing Cost … 1195
9.8 Worked Example of Accounting for Service Concessions Arrangements 1195
Agricultural Assets .. 1200
9.9 Biological Assets under Ind AS 41 Agriculture .. 1200
9.10 Common Examples of Agricultural Activity … 1200
9.11 Managing Animal-Related Recreational Activities . 1200
9.12 Instances amongst Companies: Impact on Biological Assets. 1200
9.13 Bearer Assets … 1202
9.14 Other Agricultural Assets not Accounted for as per Ind AS 41.. 1202
9.15 How to Determine the Fair Value of Biological Assets? . 1203
9.16 Circumstances where an Entity can Depart from Using Fair Value.. 1204
9.16.1 IFRS instances amongst companies: Biological assets. 1204
Regulatory Deferral Accounts … 1210
9.17 Regulatory Deferral Accounts: Ind AS 114 .. 1210
9.17.1 Instances amongst companies: Regulatory deferral account . 1211
Accounting in Real Estate Sector … 1211
9.18 Background … 1211
9.18.1 Existence of contract with customer .. 1212
9.19 Identify the Performance Obligations in the Contract .. 1215
9.20 Variable Consideration: Penal Interest on Delays … 1221
9.20.1 Measurement of variable consideration .. 1221
9.20.2 Significant financing component … 1222
9.21 Performance Obligations Satisfied over Time .. 1225
9.22 Measuring Progress … 1231
9.23 Contract Costs .. 1236
9.24 Extracts from Financial Results of Listed Real Estate Companies … 1237
Oil and Gas Activities … 1240
9.25 Ind AS 106 – Exploration for and Evaluation of Mineral Resources .. 1240
9.26 ICAI ED on Oil and Gas Producing Activities .. 1240
9.27 Classification of Activities and Related Costs.. 1241
9.27.1 Acquisition activities .. 1241
9.27.2 Acquisition costs… 1241
9.27.3 Activities relating to exploration for and evaluation of mineral
resources … 1241
9.27.4 Exploration and evaluation costs … 1242
9.27.5 Development activities.. 1242
9.27.6 Development costs .. 1243
9.27.7 Production activities… 1243
9.27.8 Production costs … 1243
9.27.9 Depreciation (Depletion)… 1245
9.27.10 Accounting for cost of support equipment and facilities. 1246
9.27.11 Accounting for abandonment costs.. 1246
9.27.12 Abandonment of properties … 1247
9.27.13 Capitalisation of borrowing costs … 1247
9.28 Impairment of Assets … 1247
9.28.1 Exploration and evaluation assets .. 1247
9.28.2 Development and production assets .. 1248
9.29 Accounting for Interests in Joint Ventures .. 1248
9.30 Disposal of Interest … 1249
9.31 Accounting for Side-Tracking Expenditure .. 1249
9.32 Accounting for Carried Interest … 1250
9.33 Changes in Accounting Policies… 1250
9.34 Determination of Functional Currency .. 1250
9.35 Presentation … 1251
9.36 Disclosure .. 1251
9.37 Effective Date and Transitional Provisions .. 1252
9.38 Instances amongst Companies: Oil and Gas Assets . 1252
Stripping Costs in the Production Phase of a Surface Mine .. 1253
9.39 Ind AS 16 Appendix B Stripping Costs in the Production Phase of a
Surface Mine … 1253
Chapter 10 MAT Computation for Ind AS Companies … 1254
10.0 Introduction … 1254
10.1 Clarification Regarding ICDS .. 1255
10.2 MAT on Ind AS Compliant Financial Statements – Whether OCI Items will be Included … 1255
10.2.1 MAT implications for ongoing OCI items that are permanently recognised in reserves .. 1255
10.3 MAT Implications for Non-Cash Distribution to Shareholders (such as Demerger) .. 1256
10.4 MAT Implications for First-Time Adoption Transition Adjustments . 1257
10.5 Proposal for Fair Valuation of PPE and Intangible Asset as Deemed Cost … 1259
10.6 Proposal for Investments in Subsidiaries, Joint Ventures and Associates at Fair Value as Deemed Cost .. 1259
10.7 Cumulative Translation Differences… 1260
10.8 Deferred Tax … 1260
10.9 Ind AS Adjustment in Comparative Financial Year . 1260
10.10 .. Equity Portion of Compound Instrument 12
Chapter 11 Key Differences between Accounting Standards and GST … 1262
11.0 Background … 1262
11.1 Valuation of Inventory … 1263
11.2 Revenue … 1263
11.3 Accounting for Fixed Assets/Property, Plant and Equipment… 1265
11.4 Leases … 1266
11.5 Foreign Exchange Differences.. 1266
11.6 Accounting for Government Grants … 1267
11.7 Related Party Disclosures… 1267
11.8 Provisions Contingent Liabilities and Assets .. 1268
Chapter 12 Key Ind AS Impact Areas for Non- Banking Financial Companies … 1269
12.0 Background … 1270
12.1 Financial Assets: Impairment under Expected Credit Loss Model … 1271
12.1.1 Instances amongst leading NBFCs: Impact due to expected credit loss .. 1272
12.1.2 Number of days past due (DPD) criteria in Ind AS 109 .. 1297
12.1.3 Instances amongst leading NBFCs: Rebuttal of 30 day DPD Stage 1 .. 1298
12.1.4 Provision created higher than that under ECL impairment figure … 1298
12.1.5 Instances amongst leading NBFCs: Provision created higher than that under ECL impairment figure .. 1298
12.2 Effective Interest Rate Method for Interest Income and Expense Recognition … 1299
12.2.1 Instances amongst leading NBFCs: Impact of effective interest rate method for interest income and expense recognition … 1300
12.3 Derecognition of Financial Asset … 1300
12.3.1 Instances amongst leading NBFCs: Impact due to nonderecognition of financial assets … 1301
12.4 Reversal of Deferred Tax Liability on Special Reserve Created under Section 36(1)(viii) .. 1301
12.4.1 Instances amongst leading NBFCs: Impact due to reversal of deferred tax liability on special reserve created under Section 36(1)(viii) … 1302
12.5 Classification of Financial Assets … 1302
12.6 Fair Valuation of Employee Stock Options .. 1303
12.6.1 Instances amongst leading NBFCs: Fair valuation of employee stock options … 1303
12.7 Consolidation of Structured Entities … 1303
12.7.1 Instances amongst leading NBFCs: Consolidation .. 1303
12.8 RBI Guidelines Dated 13th March, 2020 for Ind AS Compliant NBFCs and ARCs .. 1304
12.8.1 Governance Framework… 1304
12.8.2 Prudential Floor for ECL … 1305
12.8.3 Computation of regulatory capital and regulatory ratios. 1307
Chapter 13 COVID-19 Pandemic: Financial Reporting Aspects … 1310
13.0 Background … 1310
13.1 COVID-19 – Financial Reporting and Auditing .. 1311
13.1.1 Impairment testing .. 1311
13.1.2 Revenue recognition… 1313
13.1.3 Disclosure as material/exceptional event … 1313
13.1.4 Expected credit loss assessment under Ind AS 109 .. 1314
13.1.5 Capitalisation of borrowing cost … 1316
13.1.6 Penalties related to termination of contracts . 1317
13.1.7 Debt restructurings and breach of loan covenants … 1317
13.1.8 Inventory Counting/Stock Take Process .. 1317
13.1.9 Reimbursements … 1318
13.1.10 Going concern … 1318
13.1.11 Reporting Key Audit Matters in Auditor’s Report .. 1319
13.1.12 Fair valuation challenges … 1320
13.1.13 Purchase price adjustments for business combinations. .. 1320
13.1.14 Disclosures .. 1321
Chapter 14 Insurance Contracts .. 1322

Additional information