UNIT 1

IMPORTANT QUESTIONS OF IFRS

1. Meaning of IFRS and it’s objectives.

The International Financial Reporting Standards, usually called the IFRS Standards, are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

Its objectives or needs of IFRS are:

1. To develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards.

2. To ensure high quality, transparent and comparable information in financial statements and other financial reporting to help investors and others.

3. To promote the use and rigorous application of those standards.

4. To promote and facilitate adoption of International Financial Reporting Standards (IFRSs), issued by the IASB.

5. To make a common platform for better understanding of accounting internationally.

6. Synchronization of accounting standards across the globe.

7. To facilitate greater cross border capital raising and trade.

8. To create comparable reliable & transparent financial statements.

9. To having company wide one accounting language which has subsidiaries in different countries.

2. List of IFRS and IND AS and IAS

The following IFRS statements are currently issued:IFRS 1 First time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments IFRS 9 Financial Instruments IFRS 10 Consolidated Financial StatementsIFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other EntitiesIFRS 13 Fair Value MeasurementIFRS 14 Regulatory Deferral AccountsIFRS 15 Revenue from contracts with customers

IAS STANDARDS (learn any 20)

IAS 1 Presentation of Financial Statements. IAS 2 Inventories IAS 3 Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977. Superseded in 1989 by IAS 27 and IAS 28 IAS 4 Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of which were issued or revised in 1998 IAS 5 Information to Be Disclosed in Financial Statements Originally issued October 1976, effective 1 January 1997. Superseded by IAS 1 in 1997 IAS 6 Accounting Responses to Changing Prices Superseded by IAS 15, which was withdrawn December 2003 IAS 7 Cash Flow Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 9 Accounting for Research and Development Activities – Superseded by IAS 38 effective 1.7.99.IAS 10 Events After the Balance Sheet Date IAS 11 Construction Contracts(withdrawn)IAS 12 Income Taxes IAS 13 Presentation of Current Assets and Current Liabilities – Superseded by IAS 1. IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008) IAS 15 Information Reflecting the Effects of Changing Prices – Withdrawn December 2003 IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance

IAS 21 The Effects of Changes in Foreign Exchange RatesIAS 23 Borrowing CostsIAS 24 Related Party Disclosures IAS 27 Separate Financial Statements IAS 28 Investments in Associates and Joint VenturesIAS 29 Financial Reporting in Hyper inflationary EconomiesIAS 32 Financial Instruments: Presentation IAS 33 Earnings Per Share IAS 34 Interim Financial Reporting IAS 36 Impairment of Assets IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 38 Intangible AssetsIAS 40 Investment Property IAS 41 Agriculture

3. Opportunities and challenges faced by India in the implementation of IND AS OR

Advantages and disadvantages faced by India in the implementation of IND ASBenefits and drawbacks faced by India in the implementation of IND AS

Challenges of convergence with IFRS.

1. Difference in GAAP and IFRS: (wide Gap)Adoption of IFRS means that the entire set of financial statements will be required

to undergo a drastic change. The differences are wide and very deep routed. It would be a challenge to bring about awareness of IFRS and its impact among the users of financial statements.2. Training and Education:

Lack of training facilities and academic courses on IFRS will also pose challenge in India. There is a need to impart education and training on IFRS and its application.3. Legal Consideration:

Currently, the reporting requirements are governed by various regulators in India and their provisions override other laws. IFRS does not recognize such overriding laws.4.Taxation EFFECT :

IFRS convergence would affect most of the items in the financial statements and consequently the tax liabilities would also undergo a change.5. Fair value Measurement:

IFRS uses fair value as a measurement base for valuing most of the items of financial statements which can bring a lot of unrealized gains and losses.

6.Reporting systems:The disclosure and reporting requirements under IFRS are completely different

from the Indian reporting requirements. 7.Management compensation plan

The terms and conditions relating to management compensation plans would also have to be changed. This is because the financial results under IFRS are likely to be very different from those under the Indian GAAP.

Advantages of IFRS or needs for convergence of IFRS

1. To remove the cross border takeovers & acquisitions by investors.2. Enhances corporate governance3. True & fair view of their company’s transaction4. IFRS balance sheet is closer to economic value.5. Reduces the risk for new or small investors while trading professional investors

cannot take advantage as it is simple to understand financial statements. 6. It helps new or small investors, as reporting standards are simple and make easy to

understand, it put new or small investors in a same position with professional investors.

7. Informative: IFRS tends to be more understandable for investors as they can understand the financial statements without the necessity of other resources.

8. The market as expanded globally, the convergence benefits the economy by increasing growth of its international business and increase in capital formation.

9. Convergence with IFRS contributes to investors understanding & confidence in high quality financial statements.

10. Industries are able to raise capital from foreign markets at lower cost & creates confidence in the minds of foreign investors.

4. Features of IFRS1. Accrual basis of accounting: An entity shall recognise items as assets, liabilities,

equity, income and expenses when they satisfy the definition and recognition criteria for those elements in the Framework of IFRS.

2. Materiality and aggregation: Every material class of similar items has to be presented separately.

3. Free from Bias: the financial statement is prepared under IFRS system is complete and free from Bias.

4. Understand ability: presentation and classification information is clear and concise to make it understandable to users.

5. Comparability: The comparison financial statements from one period to the next or for two companies in the same industry so that you can make informed decisions about the companies.

Short Important note:The applicability of IFRS and its beneficiaries Applicable for all listed companies, all financial institutions, all banking institutions, all insurance companies, all scheduled commercial banks, all nonbanking financial institutions.Beneficiaries are: investors, Industry, Accounting Professionals, Corporate world, Economy.

Important Abbreviations:

IFRS: International Financial Reporting Standards.

ASSOCHAM: The Associated Chambers of Commerce of Industry of India

CII: Confederation of Indian Industry

FICCI: Federation of Indian Chambers of Commerce and Industry.

IASB: International Accounting Standard Board

IASC: International Accounting Standard Committee.

IRDA: Insurance Regulatory and Development Authority

ICAI: Institute of Chartered Accountants of India

GAAP: Generally Accepted Accounting Standards

Chapter 2

All 12 standards are for theory and only 6 for practical

Ind AS 16 (T & P) Property, plant & Equipment

Ind AS 40 (T) Investment Properties

Ind AS 20 (T & P) Government Grants

Ind AS 23 (T & P) Borrowing Cost

Ind AS 38 (T & P) Intangible assets

Ind AS 36 (T & P) Impairment of Assets

Ind AS 17 (T & P) Leases

Ind AS 2 (T) Inventories

Ind AS 115 (T)Revenue from contract with customer

Ind AS 37 (T) Provisions, Contingent Liabilities, Contingent Assets

Ind AS 10 (T) Events occurring after the reporting period

Ind AS 8 (T) Accounting Policies, Estimates & Errors

PPE (PROPERTY PLANT AND EQUIPMENT) IND AS 16

Effective date: Objective: is to prescribe the accounting treatment for PPE & its principles Timing of recognition of assets Determination of their carrying assets Depreciation charge in relation to them. Scope: Does not cover the following assets

– Biological assets related to agricultural activity (covered in IAS 41)

– Mineral rights & reserves

Recognition in SOFP

• Two fundamental recognition criteria:

– Must entail future economic benefits for the entity

– Cost could be measured reliably

Measurement – initial recognition

• Initial measurement should be at cost & include:

– Purchase price less discounts

– Import duties & non-refundable taxes

– Directly attributable costs e.g. site preparation, initial delivery & transportation, installation, testing, professional fees to architects, engineers

– Initial estimate of unavoidable cost of dismantling & removing the asset & restoring the site of installation (using technique of present value)

Measurement – subsequent periods

– Cost model (cost less accumulated depreciation & impairment)

– Revaluation model (an asset is revalued at reliably measured fair value) – may be market based value

Depreciation

Depreciation is systematic allocation of depreciable amount of an asset over its estimated useful life & is charged to P & L

Methods:

Straight line method

Reducing balance method

Machine hour method

Sum of digits method

De-recognition of PPE

• PPE should be derecognised when it is

– no longer expected to generate future economic benefit or

– when it is disposed of

Disclosures

• valuation based for determining the amount of depreciable assets.

• Depreciation methods used

• Useful lives or depreciation rates • Total depreciation allocated for the period

• Gross carrying amount of depreciable assets and the related accumulated depreciation

• Reconciliation of carrying amounts in the beginning and end of the period

Disclosures for revalued assets

• Basis for revaluation

• Effective date of revaluation

• Whether independent valuer was involved

• Indices used to determine replacement cost

• Revaluation surplus

• Carrying amount of each class of PPE

Investment property Ind AS 40

Effective date:

Objective:

The objective of this standard is to prescribe the accounting treatment of investment property and related disclosures required.

Scope:

It applies for

– Land held for long-term capital appreciation

– Building (owned or held under finance lease) & leased out under operating lease

– Building held by parent & leased out to subsidiary in the parent company FS (but not in consolidated FS)

– Property being constructed for future use as an investment property

• Assets that does not apply:

– Property intended for sale in ordinary course of business (inventory under IAS 2)

– Property being constructed or developed on behalf of third party (construction contracts IAS 11)

– Owner-occupied property (PPE IAS 16)

Recognition investment property

• Two recognition criteria must be met

– Probable future economic benefits

– Cost of the property measured reliably

Measurement & recognition of investment property

Initial measurement

– At cost including transaction costs

– If property is held under a lease, it should be accounted as if it were a finance lease & measured at lower of the FV of the property or PV of minimum lease rentals.

An equivalent amount is recognised as a liability in balance sheet.

Subsequent measurement

– Choice between cost model or fair value model

– If FV model is chosen, all investment property should be measured at FV and gain or loss should be recognised in SOPL

Disclosures

• Choice of fair value model or cost model

• Whether property held as operating lease is included in investment property

• Criteria for classification as investment property

• Assumptions in determining FV

• Rental income & expenses

• Any restrictions or obligations

Government Grants (Ind AS 20)

Effective date

Objective: To prescribe the accounting for & disclosure of govt grants & other firms of govt assistance.

Scope : The standard applies to all govt grants and other forms of govt assistance.

The standard does not apply to following situations:

– Accounting for Govt. grants in FS reflecting changes in prices

– Government assistance given in the form of tax breaks

– Government acting as a part-owner of entity

Recognition criteria

Two criteria:

When there is reasonable assurance Grant could be transfer of resources or reduction in liability towards Govt. Measurement : Monetary grants: to be recognised as income over the period necessary to match

them with the related costs, for which they are intended to compensate, on a systematic basis.

Non- monetary grant: such as land or other resources, are usually accounted for @ fair value, although recording both the asset and the grant @ a nominal amount is also permitted.

Presentation :

Grants related to assets

– Set up grant as a deferred income i.e. recognised as income over useful life of the asset or

– Deduct the grant amount from carrying value of the asset

• Grants related to income

– Separate credit in the SOPL or

– Deduct from related expense

Repayment of grant

If grant has to be repaid, it should be accounted for as change in accounting estimate i.e. prospectively

• Repayment of grant related to income

• Repayment of grant related to asset

Disclosure

• Accounting policy adopted

• Nature & extent of grants recognised

• Unfulfilled conditions & other contingencies

IND AS – 23

BORROWING COST

Objective:

This standard prescribe the

Accounting treatment of borrowing cost in the financial statements. Immediately expenses borrowing costs Capitalise borrowing costs under allowed alternative treatment.

Scope:

Borrowing costs includes interest and other costs incurred by an entity in connection with the borrowing of funds.

Examples :

– interest on OD Amortisation of discounts or premiums Finance charges in respect of finance leases Exchange differences from FC borrowing

Recognition of borrowing costsThere are 2 accounting treatment options.

an entity shall capitalise borrowing cost that are directly attributable to the acquisition, construction or production of qualifying asset as part of the cost.

An entity shall recognise other borrowing cost as an expenses in the period in which it incurs.

Measurement :1. For calculating the amount of borrowing cost = capitalization rate – weighted

average of the borrowing costs/borrowing of the entity.Amount of borrowing cost that an entity capitalises during a period should not be greater than the amount of borrowing costs it incurred during the period.

2. Borrowing cost capitalisation should be stopped when substantially all activities necessary to prepare the qualifying asset for its use or sale are complete. Can also be completed in parts.

3. Suspended : if active development is interrupted for any extended period.

Disclosure:

1. Amount of borrowing costs capitalised.2. Capitalization rate (determined).

Briefly explain the scope and disclosure requirements of intangible assets as per Ind AS-38

Objective : The objective of this Standard is to prescribe the accounting treatment for

intangible assets that are not dealt with specifically in another Standard. The Standard requires an entity to recognise an intangible asset if, and only if,

specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible

assets and requires specified disclosures about intangible assets.Scope: This Standard shall be applied in accounting for intangible assets, except(a) Intangible assets that are within the scope of another Standard; (b)Financial assets, as defined in Ind AS 32 Financial Instruments: Presentation; (c) The recognition and measurement of exploration and evaluation assets(d) expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources.

Recognition :An intangible asset shall be recognised if, and only if: (a) It is probable that the expected future economic benefits that are attributable to

the asset will flow to the entity; (b) The cost of the asset can be measured reliably.

Measurement and presentation:1. Initial measurement : recognised at cost 2. Subsequent measurement:

a. Cost model: an intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses.

b. Revaluation model: an intangible asset shall be carried at its revalued amount less any accumulated amortisation and any accumulated impairment losses.

Effects of Revaluation model: Increase in carrying amount : The extent of previously recognised loss

should be recognised in P&L account and remaining recognised value should be recognised comprehensive income.

Decrease in carrying amount: The extent of previously recognised profit should be recognised comprehensive income and remaining decreased value should be recognised in P&L account.

Account based on useful life : Finite useful life:

Asset to be amortised And test impairment when there is indication.

Indefinite useful life: No amortisation Impairment test annually or when indication of impairment. Indefinite doesn’t mean infinite

Retirement & disposal: An intangible asset shall be derecognised: (a) On disposal; or (b) When no future economic benefits are expected from its use or disposal. The consideration receivable is at fair value. Any gain or loss on de-recognition should be recognised in P&L Account. Amortisation should not be stopped unless when the asset is no longer used.

Disclosures : The useful lives or the amortisation rates used; Amortisation methods Gross carrying amount Accumulated amortisation & Impairment losses.

IND AS 36 IMPAIRMENT OF ASSETS Effective Date: Objective: To ensure that assets are carried at no more than their recoverable

amount, and to define how recoverable amount is determined. Scope: IAS 36 applies to all assets except: [IAS 36.2]

Inventories (see IAS 2) Assets arising from construction contracts (see IAS 11) Deferred tax assets (see IAS 12) Assets arising from employee benefits (see IAS 19) Financial assets (see IAS 39) Investment property carried at fair value (see IAS 40) Agricultural assets

carried at fair value (see IAS 41) Insurance contract assets (see IFRS 4) Non-current assets held for sale (see IFRS 5)

Therefore, IAS 36 applies to (among other assets): Land, buildings, machinery and equipment, Investment property carried at cost, Intangible assets Goodwill Investments in subsidiaries, associates, and joint ventures carried at

cost Assets carried at revalued amounts under IAS 16 and IAS 38

Recognition : Recognition of an impairment loss

An impairment loss is recognised whenever recoverable amount is below carrying amount.

The impairment loss is recognised as an expense Adjust depreciation for future periods.

Recognition of impairment loss for a Cash-generating units. Recoverable amount should be determined for the individual asset, if

possible. If it is not possible than the fair value less costs of disposal and value in

use for the individual asset. Indications of impairment

External sources:Market value declinesNegative changes in technology, markets, economy, or laws Increases in market interest rates Net assets of the company higher than market capitalisation

Internal sources:Obsolescence or physical damage Asset is idle, part of a restructuring or held for disposal Worse economic performance than expected For investments in subsidiaries, joint ventures or associates

Reversal of impairment loss:o External sources:

Market value increasesNegative changes in technology, markets, economy, or laws Decreases in market interest rates Net assets of the company higher than market capitalisation

o Internal sources:Obsolescence or physical damage Asset is idle, part of a restructuring or held for disposal Worse economic performance than expected

For investments in subsidiaries, joint ventures or associates Disclosures:

For each class of assets Amount of impairment loss/loss reversals in P&L Account Line item where loss/reversal in P&L Amount of impairment loss/loss reversals on revalued assets in OCI

Individually material loss/reversal Explanations of events & circumstances Nature of asses/CGU How recoverable amt is determined Amount of loss/reversal

For goodwill & intangible with indefinite lives. Considerable more information provided. Enable users to access reliability of impairment testing For individually insignificant, disclose amounts For individually significant intangible assets/CGU

IND AS 16 LEASES Effective date: Objective: The objective of this Standard is to prescribe, for lessees and lessors,

the appropriate accounting policies and disclosure in relation to financial leases and operating leases.

Scope: This Standard shall be applied in accounting for all leases other than:(a) Leases to explore for or use minerals, oil, natural gas and similar non

regenerative resources; and(b) Licensing agreements for such items as motion picture films, video

recordings, plays, manuscripts, patents and copyrights. Recognition:

A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.

A operating lease is a lease that does not transfers substantially all the risks and rewards incidental to ownership of an asset.

Measurement and presentation: Accounting for operating leases

Books of lessee – Lease payments are charged as expense in the SOPL Total payment over lease tenure is spread equally over the

lease period Books of lessor

Lease payments are shown as receipts in the SOPL

Any incentive or cash back involved will be treated as discount given or received and spread over the lease period.

Accounting for finance leases Books of lessee –

Asset is capitalised & depreciated Amount to be capitalised is lower of the ‘Fair value’ or the

‘PV of minimum lease payments’ Depreciation to be provided over the lower of ‘lease term’

or ‘useful life of asset’ Rental is split between ‘interest’ & ‘capital cost’

Using actuarial method or Sum-of-digits method

Interest element is charged to the profit

Disclosures:Disclosure – finance leases

Net carrying value of the asset is disclosed A reconciliation is required between – Total minimum lease payments and

their PV Disclosure of total minimum lease payments & their PV for each of

following period: Not later than one year Later than one year & not later than 5 years Later than 5 years

Disclosure – operating leases Total of future minimum lease payments under non-cancellable operating

leases for Not later than 1 year Later than 1 year & not later than 5 years Later than 5 years

IND AS 2 INVENTORIESEffective date:Objective: a) Deals with the determination of cost , b) Subsequent recognition as an expense , including any write-down to NRV ,c) Guidance on the cost formulas that are used to assign costs to inventories.

Scope: This Standard applies to all inventories, except:

Financial instruments (Ind AS 32, Financial Instruments: Presentation and Ind AS 109, Financial Instruments and ); and Biological assets (i.e. living animals or plants) related to agricultural activity and agricultural produce at the point of harvest (See Ind AS 41, Agriculture).

Recognition and measurement:Recognition:

Recognition as expense When inventories are sold Carrying amount is recognised as expense Amount of any written-down of inventories to NRV & all losses of

inventories are recognised as an expense Amount of any reversal of previous write down is recognised as a

reduction in the amount of inventories recognised as expense Measurement :

Inventories should be measured at lower of the cost and the NRV Cost of inventories

– Purchase costs (purchase price, duties, transport, handling, trade discounts, rebates etc.) that are directly attributable

– Conversion costs (direct material, direct labour & production overheads)

– Other costs incurred to bring inventories to their present location & condition.

Measurement of cost of inventoryTwo techniques which produce results approximate to cost

– Standard cost (set up for normal production values)– Retail method (a gross margin is deducted from selling price to arrive at cost)Standard costs take into account normal levels of materials and supplies, labour, efficiency and capacity utilization. They are regularly reviewed and, if necessary, revised in the light of current conditions. The retail method is often used in the retail industry for measuring inventories of large numbers of rapidly changing items with similar margins for which it is impracticable to use other costing methods. Sale Value

Disclosure: The accounting policies adopted in measuring inventories, including the

cost formula used. The total carrying amount of inventories and the carrying amount in

classifications appropriate to the entity.

The carrying amount of inventories carried at fair value less costs to sell. The amount of inventories recognized as an expense during the period. The amount of any write-down of inventories recognized as an expense The amount of any reversal of any write-down that is recognized as a

reduction in the amount of inventories The circumstances or events that led to the reversal of a write-down of

inventories The carrying amount of inventories pledged as security for liabilities.

Revenue from contract with customers IND AS 115

Effective date: Objective: The objective of this Standard is to establish the principles that an

entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Scope: Applies to all contracts with customers except for

– Leases (IAS 17) – Insurance contracts (IFRS 4) – Financial instruments (IFRS

Recognition & measurement

A five step model is to be used: 1. Identify the contract with the customer2. Identify the separate performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligations 5. Recognise revenue when (or as) a performance obligation is satisfied

1. Identifying contract with customer

Parties have approved the contract and carry out their performance obligations

Each party’s rights regarding goods or services to be transferred can be identified

Payment terms for goods or services can be identified Contract has a commercial substance Probable consideration to which it will be entitled

2. Identify separate performance obligations

Difference between goods or services

Performance obligation separately to be done only if the promised goods or services are distinct

A good or service is distinct if it is sold separately or if it could be sold separately because it has a distinct function & a distinct profit margin

It must be distinct to the customer 3. Determine transaction price

It’s the amount of consideration the entity expects to be entitled to Excludes amounts collected on behalf of third parties e.g. sales taxes

or VAT It is affected by nature, timing & amount of consideration Includes consideration of

– significant financing component (e.g. interest charged on instalment sales i.e. time value), – variable component (e.g. penalties, bonuses), – Non-cash consideration (fair value) – amounts payable to the customer (e.g. discounts, rebates)

4. Allocate the price to performance obligations Total transaction price should be allocated to all separate performance

obligation in proportion to the stand-alone selling price The best evidence of a stand-alone price is the observable price of a

good or service when the entity sells that separately in similar circumstances & to similar customers

If such price is not directly observable, the entity should estimate it Allocation is made at the beginning of the contract & is not adjusted for

any subsequent changes. In relation to a bundled sale, any discount should be allocated across

each component in the transaction Discount should be specifically allocated to a component, only if the

component is regularly sold separately at a discount5. Recognise revenue

Revenue is recognised when (or as) a performance obligation is satisfied by transferring a promised good or service (an asset) to the customer

As asset is transferred when (or as) the customer gains control of the asset

The entity must determine whether the performance obligation is – satisfied over time or– at a point in time

Disclosures : Both qualitative and quantitative information including Disaggregated information Contract balances & a description of significant changes Amount of revenue related to remaining performance obligations & an

explanation of when revenue is expected to be recognised Significant judgements & changes in judgements.

Briefly explain the scope, recognition criteria and disclosures requirements of Provisions contingent liabilities & contingent assets Ind AS 37

Effective date: Objective: The objective of this Standard is to ensure that appropriate recognition

criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount.

Scope: This Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except:

(a) those resulting from executory contracts, except where the contract is onerous; and

(b) those covered by another Standard. This Standard Standard does not apply to financial financial instruments instruments (including (including guarantees) that are within the scope of Ind AS 109 Financial Instruments.

Recognition : A provision should be recognised as a liability in the FS when – Entity has a present obligation (legal or constructive) as a result of past event – It is probable (means more likely than not) that outflow of resources embodying economic benefits is required to settle it – A reliable estimate can be made of the amount of the obligation

Measurement of provision: Provisions should be measured at the best estimate of expenditure Judgement of management & experience of similar transactions can be

used for estimation Technique of expected values can be used Full provision is made for the most likely outcome Provisions to be reviewed at the end of every reporting period

Presentation: Accounting entry is

– Dr expenses (to be in the SOPL)

– Cr provision for expenses (to be in SOFP) When actual payment is made

– Dr provision for expenses – Cr bank

Any difference between the provision & actual expense to be taken to SOPL

Disclosures:Disclosure of provision: Change in the carrying value of the provision from the beginning to the end

of the reporting period. Background to the making of the provision & uncertainties affecting the

outcome

Disclosure of contingent liability

Not to be recognised in the FS but following should be disclosed: – A brief description of the nature of contingent liability – Estimate of its financial effect – Indication of uncertainties that exist – Possibility of reimbursement

Disclosure of contingent assets:

Must not be recognised Only to be disclosed in the notes if they are probable

Events occurring after the reporting period Ind AS 10

Effective date : Objective: to prescribe:

(a) When an entity should adjust its financial statements for events after the reporting period; and (b) The disclosures that an entity should give about the date when the financial statements were approved for issue and about events after the reporting period.

Scope: This Standard shall be applied in the accounting for, and disclosure of,

events after the reporting period. The Standard also requires that an entity should not prepare its financial

statements on a going concern basis Recognition and measurement:

Adjusting events-An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

Non Adjusting events -An entity shall not adjust the amounts recognised in its financial statements to reflect non-adjusting events after the reporting period.

Dividends - If an entity declares dividends to holders of equity instruments after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period.

Going concern : An entity shall not prepare its financial statements on a going concern basis if management because the entity will remain in business for the foreseeable future.

Disclosures : Disclosure the date that when the entity made an issue Disclose the non adjusting event after the reporting period

Nature of the event An estimate of its financial effect Disclose the nature

Contingent liability If the entity’s owners or others have the power to amend the financial

statements after issue, the entity shall disclose the fact.

Ind AS 8 Accounting policies, estimates and errors.Effective date:Objective: To prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors.Scope: This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors.Accounting policies

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

The accounting policies applied to the transaction shall be determined by applying the respective Ind AS else management shall use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable.Changes in accounting policy

An entity shall change an accounting policy only if the change: (a) Is required by an Ind AS (mandatory change)(b) Results in the financial statements providing reliable and more

relevant information about the effects of transactions on the entity’s financial statement.( voluntary change)

Accounting treatment of Changes in accounting policy: If transitional provisions are mentioned in the respective Ind AS, then apply those provisions, else apply the change retrospectively unless impracticable. Retrospective means adjust the opening balance of

each affected component of equity for the earliest prior period presented and the comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied

Disclosures : Measurement basis used Other relevant acing policies used Judgements made in applying accounting policies.

Changes in Accounting EstimatesAccounting estimates are the estimations used by management to recognize

amounts in the financial statements where precise values cannot be determined.A change in accounting estimate is an adjustment

of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset (depreciation), that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.

Changes in accounting estimates result from new information or new developments and accordingly are not corrections of errors.

Accounting treatment of Changes in accounting estimate:

The effects of change in accounting estimate is applied prospectively i.e. from the date of the change in estimate by including it in profit or loss in:a)The period of the change, if the change affects that period only; orb)The period of the change and future periods, if the change affects both.If change in accounting estimate relates to items of asset, liability or equity, it shall be recognised by adjusting the carrying amount of the related item of asset, liability or equity in the period of the change.Eg:- Change in amount of bad debts  or change in the useful life of depreciable

assets.Disclosures:

An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods.

If the amount of future periods is not disclosed because of estimating it is impracticable, an entity shall disclose that fact.

Prior Period ErrorsPrior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:a) was available when financial statement for those periods were approved for

issue, andb) could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statement.

Accounting treatment of Prior period errors:The entity must correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by restating:a) the comparative amounts for the prior period presented in which the error

occurred; orb) the opening balance of assets, liabilities and equity for the earliest period presented, if the error occurred before the earliest prior period presented

Disclosures: The nature of prior period errors The extent of amount correction done in prior period errors The amount of correction @ the beginning of the earliest prior period presented Description for how & when the error has been corrected.

Chapter 3

Presentation of Financial statements

1. Consider the following items appearing in the balance sheet group and subgroup as per schedule III Part I of the co’s act 2013..

Particulars Group Sub GroupCapital redemption reserve General reserve Debenture redemption reserveRevaluation reserve Share option outstanding accountSecurities premiumProfit or loss (surplus)Sinking fundGovt bondsDebentures Long term loansMortgage loanPublic depositProv for employee benefitWelfare fund Provident fundGratuity fundProv for warrantiesProv for PFBank over draftCash creditOutstanding expensesUnpaid dividend Interest accrued Income received in advance Proposed dividend Land and building Plant and equipmentFurnitureVehiclesOffice equipmentLive stockRailway sidingsGoodwill

Shareholders fundShareholders fundShareholders fundShareholders fundShareholders fundShareholders fundShareholders fundShareholders fundNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiesNon current liabilitiescurrent liabilitiescurrent liabilitiescurrent liabilitiescurrent liabilitiescurrent liabilitiescurrent liabilitiescurrent liabilitiesNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assets

Reserves and surplusReserves and surplusReserves and surplusReserves and surplusReserves and surplusReserves and surplusReserves and surplusReserves and surplusLong term borrowingsLong term borrowingsLong term borrowingsLong term borrowingsLong term borrowingsLong term provisionLong term provisionLong term provisionLong term provisionLong term provisionLong term provisionShort term borrowings Short term borrowingsTrade payablesOther current liabilitiesOther current liabilitiesOther current liabilitiesShort term provision Fixed assets(tangible assets) Fixed assets(tangible assets)Fixed assets(tangible assets)Fixed assets(tangible assets)Fixed assets(tangible assets)

BrandTrademarks Computer softwareMining rightsMasthead and publishing titlesCopy rightsPatentsIntellectual property Recipes, formulae, models, designsPrototypes, licenses & franchiseInvestments Trade investmentsSecurity deposits Preliminary expensesDiscount on issue of shares/debenturesUnderwriting commissionDeferred revenue Expenses/discount on issue of shares/debentures/share expenses Investment in mutual fundInvest in Government securitiesRaw materials Work in progressFinished goods Stock in tradeStores and spares Loose toolsDebtors Bills receivableBalance with banks Cheques, drafts on hand Cash in hand Deposit with banksShort term loansAdvances given to employeesAccrued incomesInterest accrued on

Non current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assetsNon current assets

Non current assetsNon current assetsNon current assets

current assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assetscurrent assets

Fixed assets(tangible assets)Fixed assets(tangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Fixed assets(Intangible assets)Non current investmentsNon current investmentsLong term loans and advancesOther non current assetsOther non current assets

Other non current assetsOther non current assetsOther non current assets

InvestmentsInvestmentsInventoriesInventoriesInventoriesInventories

investmentsAdvance taxPrepaid expenses

InventoriesInventoriesTrade receivablesTrade receivablesCash and cash equivalentsCash and cash equivalentsCash and cash equivalentsCash and cash equivalentsShort term loans and advancesShort term loans and advancesOther current assetsOther current assetsOther current assetsOther current assets

UNIT 4 ALL PRACTICALS

UNIT 5 DISCLOSURE STANDARDS

Chapter 5 Disclosure Standards Related party disclosures IND AS 24

Objective: To ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

Scope: This Standard shall be applied in: (a) Identifying related party relationships and transactions; (b) Identifying outstanding balances, including commitments, between an entity

and its related parties; (c) Identifying the circumstances in which disclosure of the items (d) Determining the disclosures to be made about those items

Definitions: A related party is a person or entity that is related to the entity that is preparing its

financial statements (in this Standard referred to as the ‘reporting entity’).

(a) A person or a close member of that person’s family is related to a reporting entity if that person:

(i) Has control or joint control over the reporting entity; (ii) Has significant influence over the reporting entity; or (iii) Is a member of the key management personnel of the reporting entity or of a

parent of the reporting entity.(b) A person or a close member of that person’s family not related to reporting entity:

(i) Two entities have a same director or KMP (ii) Two ventures who share joint control over a joint venture. b) An entity is related to a reporting entity if any of the following conditions

applies: (i) The entity and the reporting entity are members of the same group (ii) One entity is an associate or joint venture of the other entity. (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate

of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees. (vi) The entity is controlled or jointly controlled by a person identified. (vii) A person identified has significant influence over the entity or is a member

of the key management personnel of the entity A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.

Disclosures: Relationships between a parent and its subsidiaries shall be disclosed irrespective

of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate

controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.

Management Compensation: Disclose key management personnel compensation in total for each:

Short-term employee benefits; Post-employment benefits;

Other long-term benefits; Termination benefits

If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose:

the nature of the related party relationship the amount of the transactions the amount of outstanding balances, including commitments provisions for doubtful debts related to the amount of outstanding balances the expense recognised during the period in respect of bad or doubtful debts due

from related parties.What is Interim financial reporting Ind AS 34? Explain its disclosures.Objective: to prescribe

The minimum content of an interim financial report To prescribe the principles for recognition and measurement in condensed

financial statements for an interim period.Scope:

This Standard does not mandate which entities should be required to publish interim financial reports.

This Standard applies if an entity is required or elects to publish an interim financial report in accordance with Indian Accounting Standards.

Definition :Interim period is a financial reporting period shorter than a full financial year. Interim financial report means a financial report containing either a complete set of financial statements, Presentation of Financial Statements, or a set of condensed financial statements (as described in this Standard) for an interim period.Content of an interim financial report.

IAS 1 defines a complete set of financial statements as including the following components:

A balance sheet as at the end of the period A statement of profit and loss for the period A statement of changes in equity for the period A statement of cash flows for the period Notes, comprising a summary of significant accounting policies and other

explanatory information A balance sheet as at the beginning of the preceding period

Minimum components of an interim financial report An interim financial report shall include, at a minimum, the following

components:

A condensed balance sheet A condensed statement of profit and loss A condensed statement of changes in equity A condensed statement of cash flows Selected explanatory notes.

Recognition If an entity publishes a complete set of financial statements in its interim

financial report then the form and content of those statements shall confirm to the requirements.

If an entity publishes a set of condensed financial statements in its interim financial report, those condensed statements shall include, at a minimum, each of the headings and subtotals that were included in annual financial statements and the selected explanatory notes

Measurement: while measurements in both annual and interim financial reports are often based

on reasonable estimates. Revenues that are received seasonally, cyclically or occasionally within a financial

year should not be anticipated or deferred as of the interim date. Costs that are incurred unevenly during a financial year should be anticipated or

deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year.

Disclosure: The following is a list of events and transactions for which disclosures would be

required if they are significant: Write-down of inventories  Recognition or reversal of an impairment loss  Reversal of provision for the costs of restructuring  Acquisitions and disposals of property, plant and equipment  Commitments for the purchase of property, plant and equipment  Litigation settlements  Corrections of prior period errors  Changes in business or economic circumstances affecting the fair value of

financial assets and liabilities  Unremedied loan defaults and breaches of loan agreements 

Transfers between levels of the 'fair value hierarchy' or changes in the classification of financial assets 

Changes in contingent liabilities and contingent assets

EARNINGS PER SHARE IAS 33Objective : To prescribe principles for the determination and presentation of EPS, so as to improve performance comparisons between different entities with the same reporting period and different reporting period of the same entity.Scope:

Ind AS 33 applies to entities whose securities are publicly traded or that are in the process of issuing securities to the public.

Other entities that choose to present EPS information must also comply with IAS 33.

If both parent and consolidated statements are presented in a single report, EPS is required only for the consolidated statements.

Measurement:Basic EPS:

𝐵𝑎𝑠𝑖𝑐 𝐸𝑃𝑆 = 𝑁𝑃 𝑜𝑟 𝑁𝐿 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑎𝑏𝑙𝑒 𝑡𝑜 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝑠ℎ𝑎𝑟𝑒𝑠 The earnings numerators (profit or loss from continuing operations and net profit

or loss) used for the calculation should be after deducting all expenses including taxes, minority interests, and preference dividends.

The denominator (number of shares) is calculated by adjusting the shares in issue at the beginning of the period by the number of shares bought back or issued during the period, multiplied by a time-weighting factor.

Contingently issuable shares are included in the basic EPS denominator when the contingency has been met.

Diluted EPS: Diluted EPS is calculated by adjusting the earnings and number of shares for the

effects of dilutive options and other dilutive potential ordinary shares. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.

Presentation : If an entity presents the components of profit or loss in a separate income

statement, it presents EPS only in that separate statement. Basic and diluted EPS must be presented with equal prominence for all periods

presented.

Basic and diluted EPS must be presented even if the amounts are negative (that is, a loss per share).

Disclosures : The amounts used as the numerators in calculating basic and diluted EPS The weighted average number of ordinary shares used as the denominator in

calculating basic and diluted EPS Instruments (including contingently issuable shares) that could potentially dilute

basic EPS in the future, A description of those ordinary share transactions or potential ordinary share

transactions that occur after the balance sheet date.IAS 108 OPERATING SEGMENT

Objective: An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business .

Scope:

This Accounting Standard shall apply to companies to which Accounting Standards notified under the Companies act.

Segment information is required only in the consolidated financial statements. Whose debt or equity instruments are traded in public market.

REPORTING SEGMENT IAS 108 requires an entity to report financial and descriptive information about its

reportable segments.

Reporting segments are operating segments that meet specified criteria: Aggregation criteria Quantitative thresholds

Aggregation criteria : Two or more operating segments may be aggregated into a single operating

segment with the core principle of this IAS. The segments have similar economic characteristics

The nature of the products and services The nature of the production processes The type or class of customer for their products and services Distribution methods

Quantitative thresholds: Segment revenue >=10%combined revenue, internal and external, of

all operating segments. Segment absolute P&L>=10% Combined reported profit of all

operating segments that did not report a loss and The combined reported loss of all operating segments that reported a

loss. Segments assets >=10% combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may

be considered reportable, and separately disclosed. If the total external revenue reported by operating segments constitutes less

than 75 per cent of the entity’s revenue, additional operating segments shall be identified as reportable segments.

Measurement: The amount of each segment item reported shall be the measure reported to the

chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance.

Only those assets and liabilities that are included in the measures of the segment’s assets and segment’s liabilities that are used by the chief operating decision maker shall be reported for that segment.

If the chief operating decision maker uses only one measure of an operating segment’s profit or loss.

An entity shall provide an explanation of the measurements of segment profit or loss, segment assets and segment liabilities for each reportable segment.

Reconciliations: An entity shall provide reconciliations of all of the following:

The total of the reportable segments’ revenues to the entity’s revenue. The total of the reportable segments’ measures of profit or loss to the entity’s

profit or loss before tax expense (tax income) and discontinued operations. The total of the reportable segments’ assets to the entity’s assets The total of the reportable segments’ liabilities to the entity’s liabilities if segment

liabilities

DisclosuresInformation about products and services Information about geographical areas

Revenues from external customers attributed to the entity’s country of domicile attributed to all foreign countries in total from which the entity derives

revenues If revenues from external customers attributed to an individual foreign

country are material, those revenues shall be disclosed separately.Non-current assets

Other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts.Information about major customers

If revenues from transactions with a single external customer amount to 10 per cent or more of an entity’s revenues, the entity shall disclose that fact.Disclosure: An entity shall disclose the following general information

Factors used to identify the entity’s reportable segments, including the basis of organisation

Types of products and services from which each reportable segment derives its revenues.

Information about profit or loss, assets and liabilities revenues from external customers revenues from transactions with other operating segments of the same entity interest revenue interest expense depreciation and amortisation income tax expense or income Material non-cash items other than depreciation and amortisation.