June 2017
Income Computation & Disclosure Standards (‘ICDS’) – Second half : Chamber of Tax Consultants – June, 2017 – Noopur
Agashe and Amit Agarwal
Contents
Case Study on securities4
ICDS – VII: Government Grants1
Case Study on government grants2
ICDS – VIII: Securities3
2
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – II: Valuation of Inventories5
Case Study on Inventories6
1ICDS – VII:
Government Grants
ICDS – VII: Government grants
• Government,
• Government agencies and
• Similar bodies whether local, national or international.
Government
Assistance by government in cash or kind to an enterprise for past or future compliance.
Government Grants
Exclusions from the scope of ICDS:
• Assistance other than in the form of Government grants.
• Government participation in the ownership of the enterprise.
4
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Accounting of government grants under ICDS
Recognition criteria
Assurance of compliance of terms and conditions
Reasonable assurance that grant shall be received
No postponement beyond actual date of receipt
Broadly, Government grant can be of following categories:
Grant relatable to fixed asset
Grant relatable to other than fixed asset
Reasonable assurance means that the entity will comply with the conditions attached to the grant and that the grant will be received
5
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VII: Government grants - Impact
To clear the anomaly, definition of income under section 2(24) of the Act was been amended with effect from April 1, 2015 to provide that:
• Assistance in form of subsidy or grant or cash incentive or drawback or reimbursement by Government in cash or kind shall be income of the assesse
ICDS requires recognition of any subsidy as income
which is conflicting with the Act.
“assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency in cash or kind to the assessee 17[other than the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset in accordance with the provisions of Explanation 10 to clause (1) of section 43]”
Extract of Section 2(24)(xviii)
6
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VII: Government grants - Impact
Explanation 10 of Section 43(1) of the Act
Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee:
Provided that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received, shall not be included in the actual cost of the asset to the assessee.
7
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Treatment of government grants under ICDS
Grant relatable to fixed asset.
Attributable to specific asset
• Reduce cost or block WDV
Not attributable to specific asset but to the block of assets
• Reduce cost or WDV in proportion.
Grant at Concessional rate
• Account on basis of acquisition cost
Refund to Government on non-fulfillment of obligations
• To be added to the cost of the asset
• Depreciation allowance to be claimed prospectively.
Disclosure
• The nature and amount reduced from cost in the Previous Year (‘PY’)
• Nature and amount not reduced from costs in the PY with reasons.
8
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Treatment of government grants – Contd.
Grant other than fixed assets
Non- depreciable assets
Income in the period over which cost of
meeting such obligation is charged
to incomeIncome in the period of their costs.
All other grants other than impacting cost of asset
Income in the period of receivable.
Grant received as compensation for expenses or losses or as financial support
RefundsAdjusted against any
unamortised deferred creditBalance to be debited to
Profit & loss Account
9
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Disclosure requirement under ICDS
DisclosureNature and amount recognized
as Income for the PY
Nature and amount not recognized as income for the
PY with reasons
Concluding Thoughts
With effect from April 1, 2015 - ICDS guidelines are in line with the provisions of the Income-tax Act, 1961
10
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Topic ICDS – 7 AS –12 Ind-AS
Recognition Recognition of grants not to be postponed beyond the date of actual receipt or fulfilment of conditions which ever is earlier
AS-12 provide for postponement of government grant beyond the date of actual receipt where condition attached to the grant are not fulfilled.
Similar to AS
Recognition -Depreciable asset
Grant relating to a depreciable asset to be deducted from the cost/WDV of the asset and cannot be treated as deferred income.
Grants for fixed assets are presented either by deducting from gross value of the asset or as deferred income.
Grants related to assets including non-monetary grants at fair value, should be presented in balance sheet as deferred income.
Recognition -Non-depreciable asset
Grant relating to a non-depreciable asset to be recognised as income over the same period of the cost being charged.
Grant relating to a non-depreciable asset to be credited to capital reserve.
Recognition –Promoter contribution
To be recognised as income over the same period of the cost being charged.
Capital grants in nature of promoter’s contribution are treated as capital reserve.
Government grants are not directlycredited to shareholders’ interests.
Compensation for losses
Compensation for losses –disclosed
Not required to be disclosed Similar to AS
ICDS - VII: Government Grants – ICDS vs AS – Quick snapshot
11
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Points to ponder
• ICDS provisions in line with the provisions of the Act
• Subsidy, grant, etc., (other than reduced from actual cost) to be treated as income
• Relevance of “Purpose” test ignored (i.e. capital v revenue in nature)
Thoughts on the amendment
• Carbon credits from other agencies
• Prepayment of sales tax under deferral scheme
• Promoter contribution by Government
• Whether recognition of government grant can be postponed beyond the date of actual receipt?
How the below should be treated for tax?
12
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS - VII: Government Grants – Judicial precedents overruled
Subsidy granted for setting up new unit/expansion of existing business is a capital receipt. (Sahney steel & press works Ltd. (228 ITR 253 (SC)), PonniSugars & Chemicals Ltd. (306 ITR 392) (SC))
Subsidy to setup a new unit in a backward area – Capital receipt. (Reliance Industries Ltd. (339 ITR 632) (Bom))
Subsidy for construction of multiplex theatre complexes – Capital receipt(Chaphalkar Brothers (351 ITR 309) (Bom))
Incentive by way of additional quota for free sale of sugar for setting up a new sugar factory/expansion –Capital receipt (Kisan Sahkari Chini Mills Ltd. (2 taxmann.com 274) (Allahabad))
Grant given for research in the field of telecommunications, which in turn would benefit the Nation and public at large, has been held as capital receipt. (India Telephone (215 Taxman 82) (Karnataka))
13
June 2017Income Computation & Disclosure Standards (‘ICDS’)
2ICDS: VII –
Government grants – Case
study
Case Study 1 – On timing of recognition of grant…
Export of goods
Export customers
Import supplier
Local suppliers
Importer
ICo Sells duty credit
Purchase of inputs
Timing of recognition of Export incentives
Facts
• I Co manufactures goods from locally sourced materials and exports them
• I Co is entitled to duty credit on exports which it can either itself use to import goods without payment of duty or sell the credit to other importers
• I Co recognized duty credit in Year 1 of Rs.1 Cr. on export made during Year 1
• The duty credit was actually used in Year 2 partly by importing goods and partly by sale to other importers
15
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case Study 1 – On timing of recognition of grant
Book Treatment as per
ICAI AS
• AS-12 permits I Co to recognise duty credit of Rs.1 Cr in Year 1 since there is reasonable assurance of compliance of attached conditions and reasonable certainty of ultimate collection
1 (358 ITR 295) (SC)
Tax Treatment post ICDS
• ICDS requires recognition in Year 1 inlinewith AS-12
• ICDS further provides recognition cannot be postponed beyond date of actual receipt
Tax Treatment pre ICDS
• SC ruling in Excel Industries1 permits I Co to recognise duty credit of Rs.1 Cr in year 2 when there is actual import or sale of duty credit
• But, tax recognition in Year 2 may create MAT mismatch in Year 1
16
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 2 – Stamp duty concession for land…
I CoStamp duty
exemption forland
Buys land in backward area for
setting upunit
Land
State Govt
Facts
• I Co buys land at cost of Rs.20 Cr. in Year 1 in backward area pursuant to package scheme of incentives offered by State Government
• I Co has obligation to set up industrial unit & provide certain level of employment
• I Co is exempted from paying stamp duty of Rs. 1 Cr
17
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 2 – Stamp duty concession for land
Book Treatment asper ICAI AS-12
• As per Expert advisory committee of ICAI, exemption from statutory levies not covered within scope of AS- 12 (Position may change under Ind-AS)
• I Co. can recognize land cost at Rs. 20 Cr
Tax Treatment post ICDS
• ICDS requires subsidy related to assets and/or subsidies other than assets to be recognized as income (over a period matching with incurrence of related costs). Accordingly, the stamp duty concession of INR 1 Crore would be taxedas per ICDS – 7.
Tax Treatment pre ICDS
• Arguably, subsidy in given facts, is non-chargeable capital receipt if primary object of subsidy can be substantiated to be for promoting industrialization and employment in backward area
• Land cost is arguably Rs. 20 Cr
18
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 3 – Grant related to depreciable fixed asset
• Co. A has received grant of Rs. 10 crore from Rajasthan Government to procure a plant worth Rs. 25 Crores to be used in manufacturing unit based in Alwar .
• How this plant should be recognized as per ICDS.
Balance sheet
Asset 25 Crore
Grant -10 Crore
Net Amount to be shown as per ICDS 15 Crore
No difference in Pre and Post ICDS implication – subsidy will be reduced from the cost of asset
19
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 4 – Grant related to non depreciable fixed asset(with condition)
Balance sheet
Asset
Land 25 Crore
Liabilities 10 Crore
Grant (deferred revenue)
Grant of 10 crore will be recognized as income in P&L
over the period of 5 years.
• Co. A has received grant of Rs. 10 crore from Rajasthan Government to procure land worth Rs. 25 Crores on which A will construct the plant.
• As condition, Company needs to keep 1000 local work force for next 5 years, else government will ask for refund of the grant on pro-rata basis.
• How this plan should be recognized as per ICDS.
Pre ICDS – grant would be regarded as capital receipt under capital reserve
20
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 5 – Grants related to non depreciable assets(without obligation)…
I Co. GOI
Land
Subsidy for meeting cost of land
Buys land in backward area for setting up of unit
• I Co buys land at cost of Rs. 10 cr. in year 1 in backward area pursuant to package scheme of incentives offered by Government
• I Co has obligation to set up Industrial unit
• I Co receives subsidy of Rs. 2 Cr. FromGovernment for meeting cost of land in year 3 after setting up of unit
Facts
21
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 5 – Grants related to non depreciable assets(without condition)
Book treatment as perICAI AS
• I Co. can recognize subsidyof Rs. 2 cr:
• In capital reserve in balance sheet
Tax treatment pre ICDS
• Pre amendment to income definition. arguably subsidy in given facts is non chargeable capital receipt
• Finance Act 2015 amended definition of income to includes government subsidy which is not adjustable in the “cost of asset”
Tax treatment post ICDS
• Income includes government subsidy which is not adjustable in the “cost of asset”
• ICDS recognition of grant as income over a period matching with incurrence of related cost i.e. purchase of land in year 1.
• Hence, subsidy income to be offered to income in year 1.
PRE Amendment
POST Amendment
22
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 6 – Non Monetary grants
Balance sheet
Asset 50 lac
Grant -20 Lac
Net Amount to be shown as per ICDS 30 Lac
Accounted for on the basis of their acquisition cost
• Company A has received the land worth Rs. 50 lakhs from the Government by just payingRs. 30 Lakhs only. This will be used for the construction of new plant which will ultimately generate jobs in the society.
• How this grant will be recognized as per ICDS
No difference in Pre and Post ICDS implication
23
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Case study 7 - Refund – Depreciable asset
Pre ICDS
Since there was no certainty that the conditions would be fulfilled, grant should not be recognized in year 1 as it can be argued that there was no reasonable assurance that the A will comply with the conditions attached.
Pre ICDS
2015
Grant will be recognized as it can not be postponed beyond receipt.
• On April 01, 2015 Co. A has received conditional grant of Rs. 10 crore from Rajasthan Government to procure a plant worth Rs. 25 Crores to be used in manufacturing unit based in Alwar. Life of the plant is 10 years.
• There was no certainty of the conditions being fulfilled and in the 2nd year Co. A failed to satisfy the condition. 9 crore out 10 crore has been refunded to the Government
• How this plan should be recognized as per ICDS.
2016
WDV 13.5 Crore
Grant Refund 9 Crore
Asset after refund 22.5 Crore
24
June 2017Income Computation & Disclosure Standards (‘ICDS’)
3ICDS: VIII –
Securities
ICDS – VIII: Securities
Covers only those securities held as stock-in-trade.
• Stock brokers• Traders• NBFC’s
Businesses to whom ICDS – 8 is applicable – Indicative list
• Recognition of interest and dividend on securities.• Securities in the business of insurance.• Securities of Mutual fund, Venture capital funds, Banks and Public financial institutions.
Specifically excludes
• Amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.
Fair Value means
• Securities as defined in section 2(h) of the Securities Contract (Regulation) Act, 1956, and excludes derivatives.
Securities means
26
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities – Initial recognition
• Purchase price/ actual cost.
• Directly attributable cost.
• Adjust pre-acquisition interest and dividend.
Recognition at cost of acquisition
Recognition and initial measurement
• Fair value of security so acquiredCost in case of
“exchange”
• Fair value of securities acquiredExchanged for
securities or for another asset
27
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities – Subsequent measurement
Listed –Actual cost
vs. NRV whichever
is lower
Unlisted/listed but
not quoted – Actual
cost
Measurement for the following:
Shares
Debt Securities
Convertible Securities
Any other securities
At the end of previous year
If cost cannot be specifically attributed to the listed securities –could be measured on FIFO basis
28
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities – ICDS vs AS
Criteria ICDS – 8 AS –13 Ind-AS
Securities –Scope
Only securities held as stock in trade fall within the scope of ICDS 8 and long term investments do not fall under this standard.
AS 13 deals with accounting for investments. Stock-in-trade is outside the scope.
Requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items by all entities.
Securities –Measurement
If Cost cannot be determined under specific identification method, it should be determined either on basis of FIFO / weighted average method.
In respect of shares, debentures and other securities held as stock-in-trade, the cost of stocks disposed of is determined by applying an appropriate cost formula.
All financial assets are classified as measured at amortised cost or measured at fair value.
Securities –Valuation
Treated as one group each and the total gain / loss of the category is considered: SharesDebtConvertible Any other
Valuation done scrip wise – cost or NRV whichever is less
Assets measured at fair values, gains and losses are recognised entirely in profit and loss (FVTPL), or recognised in other comprehensive income (FVTOCI)
29
June 2017Income Computation & Disclosure Standards (‘ICDS’)
4ICDS: VIII –Securities –Case study
Case Study on ICDS – VIII: Securities
Shares Cost NRV
Valuation as per AS 13 Valuation as per ICDS
Lower of cost or NRV -
Individual scrip wise
Lower of cost or NRV -
Category wise
ABC Ltd. 50 40 40
XYZ Ltd. 70 60 60
PQR Ltd. 30 10 10
EFG Ltd. 60 90 60
LMN Ltd. 100 500 100
Total 310 700 270 310
Impact: Category wise valuation results into accelerated taxation since appreciation in the value of
certain securities will be set off against diminution in the value of other securities.
31
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities - Development
AS- 13 ICDS VIII
Pre-acquisition Interest
• AS 13 and ICDS on securities both require that receipt of interest to be deducted from the actual costto the extent attributable to pre-acquisition period.
• Apex court in the case Vijaya Bank (187 ITR 541), the assessee purchased securities. It was contended that the price paid for the securities was determined with reference to their actual value as well as the interest which had accrued on them till the date of purchase.
• It was held that the amounts claimed by the assessee as deduction were not shown to havebeen expended for the purpose of realising the interest and, were, therefore, not allowable as deductible expenditure.
• However, as per the Bombay High Court decision in the case of American Express International Banking Corpn. v. CIT [2002] 125 Taxman 488 (Bom.), it was held that if income from securities is taxed under PGBP, department ought to have taxed interest received from broken period and allow deduction of interest paid for broken period.
32
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities - Convertible debentures
Convertible securities has been recognised as a separate category under ICDS
So long as convertible debentures are not converted into shares, valuation will be under separate category of convertible securities
When convertible debentures are converted into shares, the valuation of shares will move into separate category i.e. of shares
Issue will arise on how conversion should be treated for tax purposes and how cost should be computed for shares acquired on conversion of debentures
33
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS – VIII: Securities - Convertible debentures - Cont.
In case of capital gains, in view of specific provisions u/s 47(x) and 49(2A), the conversion is exempt from capital gains and cost of debentures is substituted as cost of shares
In case of business income, two views are possible:
• View - 1: The conversion may be regarded as ‘exchange’ and the fair value of shares acquired may be regarded as cost.
• View - 2: Conversion is not equivalent to ‘exchange’ since there is an extinguishment of debentures. Since ICDS is silent, it may be treated as tax neutral event and actual cost of debentures may be substituted as actual cost of shares.
34
June 2017Income Computation & Disclosure Standards (‘ICDS’)
5ICDS: II –
Valuation of Inventories
ICDS II - Valuation of Inventories
Scope
• Deals with the valuation of inventories
• Not applicable to valuation of inventories in the following cases:
- Work-in-Progress arising under construction contracts or dealt with by other ICDS
- Shares, debentures and other financial instruments held as stock-in-trade which are covered in ICDS 8
- Inventories of livestock, agriculture and forest products, mineral oils and gases
- Machinery spares used in connection with fixed assets and having irregular use
Ind-AS 2 – Specific exclusion is provided to commodity brokers/traders who are measuring their inventory at fair value less cost to sell.
36
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Held for sale* in the ordinary course of business
In the process of production for such sale
In the form of materials or supplies to be consumed in the production process or in the rendering of services
Scope
• Inventories are assets:
37
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Cost of purchase
Cost of service
Cost of conversion
Other cost incurred
Cost of inventory
• Borrowing costs attributable to inventories that require >=12 months to bring them to saleable condition as provided under ICDS 9 will have to be inventorized.
• Exclusions from cost
- Abnormal amount of material/labor cost
- storage costs, unless necessary in production process prior to a further production stage
- indirect administration overheads, and
- selling costs and distribution costs
Cost of Inventories
• Cost – ICDS specifies following as components of Cost of inventories
38
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars Amount
Purchase price xx
Duties and Taxes
(no exclusion of CENVAT)
xx
Freight inward and other expenses directly attributable
to acquisition
xx
Less: Trade discounts, rebates and similar items xx
Cost of purchase xx
Cost of purchase
Other costCost of conversion
Cost of services (in the case of a service provider shall)
Particulars Amount
Labour cost xx
Supervisory personnel cost xx
Attributable overheads xx
Other cost of personnel directly engaged in providing
the service
xx
Cost of services xx
Particulars Amount
Cost directly related to units of production xx
Systematic allocation of: xx
Fixed production overheads xx
Variable production overheads xx
Cost of conversion xx
Particulars Amount
Costs incurred in bringing the inventory to their present
location and condition
xx
Other cost xx
39
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As prescribed in ICDS
Measurement Cost or Net Realizable Value (‘NRV), whichever is less
Cost of inventories Cost of purchase + Costs of services + Costs of conversion + Other costs incurred to bring inventories to their present location and condition
Borrowing costs attributable to inventories that require >=12 months to bring them to saleable condition will have to be inventorised
Cost of purchase Purchase price + duties & taxes + freight inward + attributable expenditure – rebates,trade discounts.
ICDS prescribes that duties and taxes (even those subsequently recoverable) included in cost of purchase, which is in line with section 145 A for Accounting for Duties and Taxes
Cost of conversion Cost Directly related to units of production + Systematic allocation of Variable production overheads and Fixed production overheads
Amount of Fixed production overheads allocated to each unit cannot decrease on account of fall in production. In such case, excess fixed production overheads to be charged off as expense in that period.
40
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As prescribed in ICDS
Cost of services Labour and other personnel directly engaged in providing service including supervisory and attributable overheads
Cost exclusions Abnormal wastages + Storage costs, unless necessary for further production + Administrative overheads + Selling costs and distribution cost
Cost Formulae Specific Identification Method (applicable for non interchangeable items goods produced & segregated for specific project )
First in First Out Method (‘FIFO’) /Weighted Average Cost (‘WAC’) Method/ Standard Costing/Retail method
Disclosure requirements
• The accounting policy adopted in measuring inventories including cost formulae used;
• Total carrying amount of inventories and its appropriate classification; and
• Where Standard Costing has been used as a measurement of cost, details of such inventories and a confirmationof the fact that standard cost approximates the actual cost.
41
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Value of Opening Inventory
• New Business - Cost of inventory available on the day of commencement of business
• Continuing Business - Value of ‘closing inventory’ at the end of the immediatelypreceding previous year
Change of Method of Valuation of Inventory
• Method of valuation once adopted shall not be changed without reasonable cause
• In case of dissolution of a partnership firm or AOP or BOI, notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at NRV
Transitional Provisions
• Interest and other borrowing costs, which do not qualify to be a part of inventory valuationas per the standard but is a part of the opening value of inventory, shall be taken into account for determining cost of closing inventory of period beginning on or after April 1, 2016 if it continues to remain part of inventory
42
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As per ICDS 2 As per AS-2 As per Ind AS 2
Cost of services Included in cost of inventories No specific mentionin AS-2
No Specific mention inInd AS 2
Exclusive vs inclusive method of accounting
Value of inventories to include all taxes and duties, whether recoverable in future or not
Value of inventories to exclude duties and taxes recoverable in the future
-
Observations:
• Duties/taxes recoverable by from the tax authorities to be included in valuation of inventory
• In line with section 145A (refer Explanation to section 145A)
Other costs includible in the value of inventories
ICDS 2 does not specifically exclude distribution cost in the value of inventories
AS-2 excludesdistribution costs in the value of inventories
Ind AS similar in this respect to ICDS 2
Observations:
• Distribution costs, if any, be included in cost of inventory
43
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As per ICDS 2 As per AS-2 As per Ind AS 2
Value of Inventory at the beginning of the previous year
New business - Cost at the day of commencement of business
Continuing business – value of closing inventory at the end of preceding previous year
There is no such specific provision
-
Valuation of Inventory –Interest and other borrowing costs
Interest and other borrowing charges shall be inventorised as per ICDS – 9
Usually, not covered in AS-2 Usually, not covered inInd AS-2
Observations:
• Such costs shall be included in the cost of inventory
44
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As per ICDS 2 As per AS-2 As per Ind AS 2
Valuation of inventories in certain case of dissolution
Notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value#
No such provision Notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value#
Observations:
As per SC in Sakthi Trading Co and other judicial precedents:
• dissolution + discontinuation = market value
• dissolution + continuation = lower of cost or market value
• Whether the above law still prevails? No?
45
June 2017Income Computation & Disclosure Standards (‘ICDS’)
ICDS II - Valuation of Inventories
Particulars As per ICDS 2 As per AS-2 As per Ind AS 2
Scope – Exclusion of Shares, Debentures and other Financial Instruments held as Stock-in-trade
Excluded only if covered under ICDS – 8
Unconditional exclusion -
46
June 2017Income Computation & Disclosure Standards (‘ICDS’)
6ICDS: II –
Valuation of Inventories –
Case study
Case study I– Valuation of Opening Inventory
ABC Ltd. Closing Stock
Opening stock valued as per FIFO method
Valuation-Weighted
Average Method
• ABC Ltd. changed its valuation method to weighted average method
• ABC Ltd. valued its stock at FIFO method since so many years
• AO asked the tax payer to follow the weighted average method for opening stock as well
• AO is not correct in asking the tax payer tochange the method of valuation for opening stock as per ICDS 2
Treatment under ICDS
48
June 2017Income Computation & Disclosure Standards (‘ICDS’)
Noopur AgasheDirector– Corporate and International TaxationOffice : + 91 (124) 3306689Mobile: : +91 9810064294Email : [email protected]
Noopur Agashe is a Director in PwC’s Tax and Regulatory Services team and has over 13 years of extensive professionalexperience in advising large Indian and multi national clients in income tax matters, assisting in tax compliances andproviding litigation support services.
Noopur has worked with companies in the technology, mining, retail and automotive industries.
Her core expertise includes providing direct tax compliance and litigation support and advising on domestic and internationaltax matters
Noopur holds a graduate degree in Commerce and is a member of the Institute of Chartered Accountants of India.
Noopur Agashe: A Brief Profile
Amit AgarwalAssociate Director – Corporate & International Tax, PwC India
Office : + 91 (124) 3306681Mobile: : +91 9999772202Email : [email protected]
Amit Agarwal is an Associate Director in PwC’s Corporate & International Tax Services team and has around 7 yearsextensive professional experience in advising large Indian and foreign clients in income tax matters , assisting in taxcompliances and providing litigation support services.
Amit’s domain of expertise are:
• Direct Tax Compliance and Advisory
• International Tax and advising on cross border transactions (both inbound and outbound)
• Direct Tax litigation support
• Tax Due Diligence
• India entry and exit strategy
Amit is a commerce graduate from University of Delhi and is a member of the Institute of Chartered Accountants of India.
Amit Agarwal: A Brief Profile
Thank you
All views expressed in the presentation are personal in nature