THOUGHTS ON INDIAN ACCOUNTING STANDARDS:

OPPORTUNITIES AND OVERVIEW

By CA. (Dr.) Adukia Rajkumar Satyanarayan

Introduction

Rapid globalization and integration of trade, commerce and economies worldwide, has obviated
the need to follow homogeneity in the reporting standards in the financial sector so as to facilitate
comparison, universality and comprehensiveness. This led to emergence of International
Financial Reporting Standards (IFRS), which is currently permitted or required in over 140
Nations of the world. Realizing the benefits of IFRS, it was all the more significant for a
developing country like India to adopt it as earliest so as to ensure positive sentiments and faith
and credibility in the Indian Market of the investors globally. India made a commitment towards
the convergence of Indian accounting standards with IFRS at the G20 summit in 2009. In line with
this, the Ministry of Corporate Affairs (MCA), Government of India previously issued a roadmap
for implementation of Indian Accounting Standards (Ind ASs) converged with IFRS beginning
April 2011. However, this plan was suspended due to unresolved tax and other issues.
On February 15, 2015, MCA in consultation with the National Advisory Committee on Accounting
Standards (NACAS), notified the Companies (Indian Accounting Standards) Rules, 2015 1, laying
down the roadmap for the implementation of internationally recognised standards in India. Ind AS,
as these standards are popularly referred to, are being made applicable to large and listed corporate
in phase out manner as later in the article.

Let us first discuss the professional doors that knowledge of Ind AS can open for fellow members
of ICAI:

1
Vide its G.S.R 111 (E) dated 16 February 2015

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Opportunities in Ind AS for Chartered Accountants

 Preparation of Ind AS based financial statements

 Audit of Ind AS based financial statements
 Assistance in convergence to Ind AS
 Internal Audit of Ind AS based financial statements
 Assistance development of accounting software based on Ind AS
 Training staff of client in Ind AS while transiting
 Training government and bank employees on Ind AS
 Preparing books, training materials, PPTs on Ind AS
 Assist in devising internal control systems in an enterprise to ensure correct IND AS
financial reporting
 Assist in developing MIS around Ind AS based financial reporting
 Interpreting and analyzing Ind AS based statements for clients and assist in correct decision
making.

Besides, as Ind AS are very similar to IFRS, which is now a global accounting language, the
knowledge of Ind AS opens wide range of opportunities for professionals world-wide.

Training in Ind AS

Certificate Course on Indian Accounting Standards (Ind AS) by ICAI: Apart from the
comprehensive theoretical aspects, this course, the first of its kind in India, will sharpen the
expertise and excellence of members through multiple case studies across the industry and service
sector. Details regarding the same can be acquired from: icai.org/post/certificate-course-on-
indian-accounting-standards-ind-as

Besides the course by ICAI, various private institutions like Udemy and Big Accounting firms in
India like Earnst & Young, KPMG, etc. conducts certificate courses and workshops on the subject.

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Accounting Standards in India

Accounting standards (AS) are a set of principles, standards, and procedures that serve as the
foundation for financial accounting policies and practices. In India the accounting standards are
prepared by the Institute of Chartered Accountants of India (ICAI) and notified by the Ministry of
Corporate Affairs, Government of India. As one size does not fit all, different sets of accounting
standards have been prepared by ICAI, for large corporate entities, which we popularly refer to as
Ind AS. Even if we leave aside non - commercial & governmental organizations, there are three
sets of Accounting Standards applicable to non –governmental profit seeking commercial
enterprises. These are:

 Accounting Standards as prescribed by the Institute of Chartered Accountants of India

(ICAI) applicable to non-corporates and binding upon its members while certifying Audit
report of non-corporate entities with some exemptions for MSME non corporate entities.
ICAI recently issued an announcement, on Revised Criteria for classification of non-
corporate entities for applicability of Accounting Standards, as per which all accounting
standards are applicable to large non-corporate entities 2.
 Accounting Standards as pronounced by the Ministry of Corporate Affairs (MCA) under
Companies (Accounting Standards) Rules, 2021 (These Rules supersede Companies
(Accounting Standards) Rules, 2006); and
 Accounting Standards as pronounced by MCA under Companies (Indian Accounting
Standards) Rules, 2015 [As amended on March 28, 2018]. The MCA on 31st March 2023
notified the Companies (Indian Accounting Standards) Amendment Rules, 2023, whereby
certain important changes have been made to Ind AS which were made applicable from
annual reporting periods beginning on or after 1 April 2023.

Accounting Standards prescribed by MCA are applicable only to Corporate Entities (Both private
limited as well as public limited) whereas those pronounced by ICAI are applicable to all other
form of business entities like individuals, partnerships, etc. Besides, there are certain exemptions

2
https://resource.cdn.icai.org/82761asb66837.pdf

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for MSME non- corporate entities within some of the standards depending upon the classification
of entity as medium, small or micro entity.

Objective of implementing Ind AS

The Ind AS were introduced in India with following main objectives:
 International Convergence: One of main aim to introduce Ind AS was to converge Indian
accounting standards with IFRS, in order to facilitate international trade, investment, and
cross-border transactions
 Uniformity and Consistency: Ind AS aims to establish a consistent framework for
accounting practices across various industries and sectors in India. This uniformity ensures
that financial statements are prepared using a standard set of principles and methods,
making them more comparable and understandable.
 Reliability and Credibility: As IFRS are globally accepted accounting language, adoption
of Ind AS ensures that financial information is reliable and credible. IND AS provides a
framework for preparing financial statements that reflect the economic substance of
transactions and events, thereby enhancing the global credibility of financial reports
prepared in India.
 Transparency and Accountability: Ind AS has more detailed disclosure requirements as
compared to erst while Accounting Standards, which enhances the transparency in financial
reporting by requiring companies to disclose relevant information about their financial
performance, position, and cash flows. This transparency enhances accountability and
builds trust with the stakeholders who are in better position to make informed decisions.
 Investor Protection: It aims to protect investors by providing them with reliable and
comparable financial information, which helps them make informed decisions about their
investments and Thud Ind AS is a boon for large corporate entities where huge amount of
public money is at stake.
 Facilitation of Cross-Border Transactions: IFRS being almost globally
accepted accounting standards, convergence with IFRS based financial reporting facilitates
cross-border transactions and investments by reducing the complexities of reconciling
financial statements prepared under different accounting standards.

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Applicability of Ind AS

 For Companies other than Banks, NBFCs, Insurance Companies

Companies were permitted to voluntarily and irrevocably adopt Ind AS for accounting periods
beginning on or after 1 April 2015 with comparatives for period ending 31st March, 2015 or
thereafter. Infosys Limited3, Crompton Greaves Limited4 and Jindal Saw Limited were among
few corporate that voluntarily adopted Ind AS in their annual reports of 2015-16.

Ind AS was made mandatorily applicable to the Indian entities other than Banks, Insurance and
NBFCs in two Phases. In Phase I, Ind AS would apply to companies with net worth of Rs. 500
crore and their holding, subsidiary, joint venture or associate companies, for periods beginning on
or after 1 April 2016, with comparatives for the period ending 31st March, 2016 or thereafter.

Under Phase II, Ind AS was made mandatorily applicable to all remaining listed entities and
unlisted entities with net worth of more than 250 crores and holding, subsidiary, joint venture or
associate companies of above companies.

 For Banks, Insurance Companies and NBFCs

MCA announced requirements for Scheduled commercial banks (excluding RRBs), All-India
Term-lending Refinancing Institutions (i.e. Exim Bank, NABARD, NHB and SIDBI), NBFC and
Insurance Companies to prepare Ind AS based standalone and consolidated financial statements 5.
Accordingly, all commercial banks, term lending institutions, refinancing institutions and their
holding, subsidiary, joint venture or associate companies and NBFCs having net worth of Rs. 500
crores or more, were required to adopt Ind AS from April 1, 2018. NBFCs with net worth of over
250 crores adopted the Ind AS from April 1, 2019. RBI vide press release dated April 05, 2018
had deferred the implementation of Ind AS for the Scheduled Commercial Banks (excluding
Regional Rural Banks) for a period of one year i.e. effective from 1st April 2019., Thereafter, again
in March 2029, RBI vide notification dated March 22, 2019 had again deferred the implementation

3
Source: https://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/infosys-AR-16.pdf
4
Source: http://www.cgglobal.com/pdfs/annual-report/ar15-16/AR1516.pdf

5
MCA press release No. 11/10/2009 CL-V dated January 18, 2016
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of Ind AS for the Scheduled Commercial Banks (excluding Regional Rural Banks) till further
notice.

Insurance Regulatory Development Authority of India had deferred the implementation of Ind AS
for insurance companies till 2020 as Ind AS 104 Insurance Contracts was expected to be replaced
by a new standard once IASB6 issued IFRS 17 Insurance Contracts. Thereafter, again in January
2020, IRDAI has deferred Implementation of Ind AS in the Insurance Sector till further notice.

Scope of Companies (Indian Accounting Standards) Rules, 2015

(i) These Rules states the applicability of Ind ASs.

(ii) Ind ASs set out recognition, measurement, presentation and disclosure requirements of
transaction and events in general purpose financial statements.

(iii) Ind ASs apply to the general-purpose financial statements and other financial reporting
by profit-oriented corporate entities -- those engaged in commercial, industrial,
financial, and similar activities.
(iv) Entities other than profit-oriented business entities may also find Ind ASs appropriate.
(v) General purpose financial statements are intended to meet the common needs of
shareholders, creditors, employees, and the public at large for information about an
entity's financial position, performance, and cash flows.
(vi) Other financial reporting includes information provided outside financial statements
that assists in the interpretation of a complete set of financial statements or improves
users' ability to make efficient economic decisions.
(vii) Ind ASs applies to both separate and consolidated financial statements.
(viii) A complete set of financial statements includes a balance sheet including a statement
of changes in equity, a statement of profit and loss including a statement of other
comprehensive income, a statement of cash flows, notes consisting of a summary of
accounting policies and other explanatory notes and a comparative information of the
preceding period.

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International Accounting Standard Board, the International Accounting Body that issues IFRS

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 (ix) Ind AS will present fundamental principles in bold face type and other guidance in non-
bold type (the 'black-letter'/'grey-letter' distinction). Paragraphs of both types have
equal authority.

Understanding Ind AS

ICAI has issued a Conceptual Framework for the Preparation and Presentation of Financial
Statements in accordance with Indian Accounting Standards7, which sets out the concepts that
underlie the preparation and presentation of financial statements in accordance with the Indian
Accounting Standards. Before understanding a particular standard, it would be pertinent to note
concepts set out in this conceptual framework. It should however be noted that the Conceptual
Framework is not an Indian Accounting Standard and hence does not define standards for any
particular measurement or disclosure issue. Nothing in the Framework overrides any specific
Indian Accounting Standard.

Elements of Financial Statements and their Recognition

Recognition is the process of capturing for inclusion in the balance sheet or the statement of profit
and loss an item that meets the definition of one of the elements of financial statements—an asset,
a liability, equity, income or expenses. The amount at which an asset, a liability or equity is
recognised in the balance sheet is referred to as its ‘carrying amount’.

a. Assets:
 Definition: An asset is a present economic resource controlled by the entity as a result of past
event. An economic resource is a right that has the potential to produce economic benefits.
 Recognition: When it is probable that future economic benefits will flow to and the asset has
cost or value that can be reliably measured.
b. Liabilities:
 Definition: A present obligation of the entity to transfer an economic resource as a result of
past events.

7
ICAI has applied it for standard preparers from April 1, 2020 and MCA notifies some changes based on it effective
from 1st April, 2021.

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 Recognition: When it is probable that an outflow of resources embodying economic benefits
will result from the settlement of a present obligation and the amount at which the settlement
will take place can be reliably measured.
c. Equity
 Definition: it is the residual interest in the asset of the entity after deducting all its liability.
d. Income
Definition:
An Income is increases in assets, or decreases in liabilities, that result in increases in equity, other
than those relating to contributions from holders of equity claims. It encompasses both revenue
and gains.

 Recognition: When an increase in the future economic benefits related to an increase in an

asset or decrease in a liability has arisen that can be reliably measured.
e. Expenses
 Definition: It is Decreases in assets, or increases in liabilities, that result in decreases in equity,
other than those relating to distributions to holders of equity claims. It encompasses both losses
and expenses that arise in the course of ordinary activity of the entity.
 Recognition: When a decrease in the future economic benefits related to a decrease in an asset
or increase in a liability has arisen, that can be reliably measured.
Out of the elements defined above Assets, Liabilities & Equity relates to reporting entity’s financial
position at the end of reporting period and are presented in the Balance Sheet of the entity, whereas
Income & Expenses relates to the reporting entity’s financial performance during the reporting
period and are presented in profit & loss statement.
It should be noted that the elements are recognized in financial statements only when they meet
the definitions above, however not all items that meet the definition of one of those elements are
recognized.

The Underlying Assumptions in Preparation of Financial Statements

 Going Concern
 Accrual Basis of Accounting
Qualitative characteristics of Financial Statements

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  Understandability
 Relevance
 Materiality
 Reliability
 Faithful representation
 Substance over form
 Neutrality (Free from Biases)
 Prudence
 Completeness
 Comparability
Constraints on relevant and reliable information
 Timeliness
 Balance between benefit and cost
 Balance between qualitative characteristics

Feature of Financial Statements based on Ind AS

 Fair presentation and complete compliance with Ind AS with an explicit and unreserved
statement of compliance given in the notes.

 Information should be relevant, reliable, comparable and understandable.

 Presentation and disclosures should not be misleading.

 The titles and captions used should be consistent with the definitions used in the standards.

 The financial statements may be supplemented by additional disclosures beyond Ind AS if

required but those statements would be considered out of scope of Ind AS.

 Complete set of financial statements should be presented at least annually though shorter
or longer period may be permitted with some disclosures.

 Comparative figure for corresponding previous period must be given.

 The Ind AS should be applied consistently. Entities which voluntarily comply with the
standards even though not falling within threshold will have to compulsorily comply with
Ind AS in all subsequent financial years.

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Components of Financial Statements

The Standard requires an entity to present a complete set of financial statements at least annually,
with comparative amounts for the preceding year (including comparative amounts in the notes).
A complete set of financial statements comprises of:

(a) a balance sheet as at the end of the period;

(b) a statement of profit and loss for the period;

(c) a statement of changes in equity for the period;

(d) a statement of cash flows for the period;

(e) notes, comprising material accounting policy information and other explanatory
information; [prior to amendment in 2023 word significant was used here]

(f) comparative information in respect of the preceding period; and

(g) a balance sheet as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial statements.

An entity must present with equal prominence all of the financial statements in a complete set
of financial statements. The Standard requires an entity to present, in a statement of changes
in equity, all owner changes in equity. All non-owner changes in equity (i.e., comprehensive
income) are required to be presented in single statement of profit and loss, with profit or loss
and other comprehensive income presented one after the other in two different sections. Also,
entity whose financial statements comply with Ind AS must make an explicit and unreserved
statement of such compliance in the notes.

Resources for Understanding Ind AS

There is no denying the fact that books are our best friends and can be most helpful in
understanding the complex yet interesting principles of Ind AS. Bare acts are always best source
of information in a crystallised form. Besides now there are lots of books in market both in
condensed form and detail form which one can select as per the time available and requirement.
Moreover, there are web sites like www.ifrs.org, www.iasbplus.com, icai.org, etc which provide

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very useful information on existing and prospective literature on Ind AS and IFRS. The study of
Ind AS / IFRS compliant published Financial Statement can throw immense light on practical
application of Ind AS. Moreover, there are online and classroom courses on Ind AS which can be
done for through understanding of the subject. Institute of Chartered Accountants of India with its
regional councils and various other professional bodies like ASSOCHAM and Chambers of
commerce are regularly holding meeting and seminar on various topics on Ind AS. One can gain
insight of the subject by attending them. For a person well conversed with Indian GAAP, the study
of major and minor discrepancy between the standards can be of immense help in grasping the
new reporting requirements.

Chronology of Study

A whole standard Ind AS 101 First-time Adoption of Indian Accounting Standards has been
dedicated for the understanding the process of first-time adoption of Ind AS. A novice may find
very difficult to understand Ind AS 101. Therefore, one should attempt understanding this standard
only after a thorough understanding of all other Ind ASs. As far as understanding other standards
are concerned, the numbering of standards is not based on any particular logic. They have been so
numbered to maintain their sync with the IFRS which is numbered based on chronology of its
issue. So, study of Ind AS one after the other may not help in grasping the statements
comprehensively. Instead, a reader may find it useful to study Ind ASs which are grouped in the
following manner:

Ind AS 113: Fair Value Measurement

Ind ASs dealing with the Presentation of Financial Statements

 Ind AS 1: Presentation of Financial Statements
 Ind AS 7: Statement of Cash Flows
 Ind AS 8: Accounting Policies, Changes in Accounting Estimates and Errors
 Ind AS 10: Events after the Reporting Period
 Ind AS 21: The Effects of the Changes in Foreign Exchange Rates
 Ind AS 29: Financial Reporting in Hyperinflationary Economies
 Ind AS 33: Earnings per Share
 Ind AS 34: Interim Financial Reporting

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Ind ASs dealing with Financial Reporting by Group Entities
 Ind AS 103: Business Combinations
 Ind AS 110: Consolidated Financial Statements
 Ind AS 111: Joint Arrangements
 Ind AS 27: Separate Financial Statements
 Ind AS 28: Investments in Associates and Joint Ventures
 Ind AS 112: Disclosure of Interests in Other Entities
Recognition, Measurement, Presentation & Disclosure of Assets
 Ind AS 2: Inventories
 Ind AS 16: Property, Plant and Equipment
 Ind AS 116: Leases
 Ind AS 23: Borrowing Costs
 Ind AS 36: Impairment of Assets
 Ind AS 38: Intangible Assets
 Ind AS 40: Investment Property
 Ind AS 41: Agriculture
 Ind AS 105: Non-current Assets held for Sale and Discontinued Operations
 Ind AS 20: Accounting for Government Grants and Disclosure of Government
Assistance
Recognition, Measurement, Presentation & Disclosure of Income
 Ind AS 114: Regulatory Deferral Accounts.
 Ind AS 115: Revenue from Contract with Customers
Recognition, Measurement, Presentation & Disclosure of Expenses & Liabilities

 Ind AS 19: Employee Benefits

 Ind AS 37: Provisions, Contingent Liabilities and Contingent Assets
 Ind AS 12: Income Taxes
 Ind AS 102: Share-based Payment.
Standards dealing with Financial Instruments

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  Ind AS 32: Financial Instruments: Presentation
 Ind AS 107: Financial Instruments: Disclosures
 Ind AS 109: Financial Instruments
Industry Based Standards

 Ind AS 104: Insurance Contracts

 Ind AS 106: Exploration for and Evaluation of Mineral Resources
Disclosure Standards
 Ind AS 24 Related Party Disclosures
 Ind AS 108 Operating Segments
 Ind AS 112 – Disclosure of Interest in Other Entities

Ind AS 101: First Time Adoption of Indian Accounting Standards

Besides, Ind AS Guidance Materials are issued by the Institute of Chartered Accountants of India
in respect of their application in India of Ind AS. These are attached with the Ind AS they relate to
as Appendix. These are largely based on interpretations issued by ASLB by the name of IFRIC &
SIC. Out of the total 20 IFRICs & SICs, 18 has been included as appendix to Ind ASs. IFRIC 2-
Members’ Shares in Co-operative Entities and Similar Instruments and SIC 7- Introduction to
Euro, are considered not relevant to companies in India, hence not issued in India.

List of Appendix included in Ind AS Corresponding to IFRIC/ SIC are:

 Appendix A to Ind AS 16: Changes in Existing Decommissioning, Restoration and Similar

Liabilities.
 Appendix A to Ind AS 37: Rights to Interests arising from Decommissioning, Restoration
and Environmental Rehabilitation Funds
 Appendix B to Ind AS 37: Liabilities arising from Participating in a Specific Market—
Waste Electrical and Electronic Equipment

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  Appendix A to Ind AS 29: Applying the Restatement Approach under Ind AS 29 Financial
Reporting in Hyperinflationary Economies
 Appendix A to Ind AS 34: Interim Financial Reporting and Impairment
 Appendix D to Ind AS 115: Service Concession Arrangements
 Appendix B to Ind AS 19: Ind AS 19— The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction
 Appendix C to Ind AS 109: Hedges of a Net Investment in a Foreign Operation
 Appendix A to Ind AS 10: Distributions of Non- Cash Assets to Owners
 Appendix D to Ind AS 109: Extinguishing Non-cash Financial Liabilities with Equity
Instruments
 Appendix B to Ind AS 16: Stripping Costs in the Production Phase of a Surface Mine
 Appendix C to Ind AS 37: Levies
 Appendix B to Ind AS 21: Foreign Currency Transactions and Advance Consideration
 Appendix C to Ind AS 12: Uncertainty over Income Tax Treatments
 Appendix A to Ind AS 20: Government Assistance—No Specific Relation to Operating
Activities
 Appendix A to Ind AS 12: Income Taxes—Changes in the Tax Status of an Entity or its
Shareholders
 Appendix E to Ind AS 115: Service Concession Arrangements: Disclosures
 Appendix A to Ind AS 38: Intangible Assets—Web Site Costs

Also, the Ind AS Implementation Group of the ICAI constituted the Ind AS Transition Facilitation
Group (ITFG) to address issues faced by preparers, users and other stakeholders on applicability
and implementation of Ind AS. So far, the group has issued 23 Bulletin.

Overview of Ind ASs

Ind AS dealing with a Measurement Basis

1. Ind AS 113-Fair Value Measurement

The standard deals with “how to measure fair value?”

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Salient Features of Ind AS 113

 The Ind AS 113 explains how to measure fair value for financial reporting.
 Some Ind ASs require or permit entities to measure or disclose the fair value of assets,
liabilities or their own equity instruments.
 Fair value is a market-based measurement, not an entity-specific measurement.
 The timing of fair value measurement is not covered.
The Standard Does Not Apply To

The standard does not apply to transactions that are covered under the following standards

o Ind AS 102 – Share - based Payment

o Ind AS 116 – Leases

o Ind AS 36 – Impairment of Assets

Requirements of the Standard

This Ind AS explains that a fair value measurement requires an entity to determine the following:

(a) The particular asset or liability being measured;

(b) For a non-financial asset, the highest and best use of the asset and whether the asset is used in
combination with other assets or on a stand-alone basis;

(c) The market in which an orderly transaction would take place for the asset or liability; and

(d) the appropriate valuation technique(s) to use when measuring fair value. The valuation
technique(s) used should maximise the use of relevant observable inputs and minimise
unobservable inputs. Those inputs should be consistent with the inputs a market participant would
use when pricing the asset or liability.

Ind AS 113

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 Definition Framework Disclosures
of for about
FAIR VALUE Measuring FAIR VALUE
MEASUREMENTS
Definitions

Active market - A market in which transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis.

Cost approach - A valuation technique that reflects the amount that would be required currently
to replace the service capacity of an asset (often referred to as current replacement cost).

Entry Price - The price paid to acquire an asset or received to assume a liability in an exchange
transaction.

Exit Price - The price that would be received to sell an asset or paid to transfer a liability.

Expected Cash Flow - The probability-weighted average (i.e. mean of the distribution) of possible
future cash flows.

Fair Value -The price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.

Highest and best use - The use of a non-financial asset by market participants that would
maximise the value of the asset or the group of assets and liabilities (e.g. a business) within which
the asset would be used.

Income Approach - Valuation techniques that convert future amounts (e.g. cash flows or income
and expenses) to a single current (i.e. discounted) amount. The fair value measurement is
determined on the basis of the value indicated by current market expectations about those future
amounts.

Inputs - The assumptions that market participants would use when pricing the asset or liability,
including assumptions about risk, such as the following:

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(a) The risk inherent in a particular valuation technique used to measure fair value (such as a
pricing model); and

(b) The risk inherent in the inputs to the valuation technique.

Inputs may be observable or unobservable.

Level 1 inputs Quoted prices (unadjusted) in active markets for identical assets or liabilities that
the entity can access at the measurement date.

Level 2 inputs Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly.

Level 3 inputs Unobservable inputs for the asset or liability.

Market approach A valuation technique that uses prices and other relevant information generated
by market transactions involving identical or comparable (i.e. similar) assets, liabilities or a group
of assets and liabilities, such as a business.

Market Corroborated Inputs - Inputs that are derived principally from or corroborated by
observable market data by correlation or other means.

Market Participants - Buyers and sellers in the principal (or most advantageous) market for the
asset or liability that have all of the following characteristics:

(a) They are independent of each other, i.e. they are not related parties as defined in Ind AS 24,
although the price in a related party transaction may be used as an input to a fair value measurement
if the entity has evidence that the transaction was entered into at market terms.

(b) They are knowledgeable, having a reasonable understanding about the asset or liability and the
transaction using all available information, including information that might be obtained through
due diligence efforts that are usual and customary.

(c) They are able to enter into a transaction for the asset or liability.

(d) They are willing to enter into a transaction for the asset or liability, i.e. they are motivated but
not forced or otherwise compelled to do so.

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Most Advantageous Market - The market that maximises the amount that would be received to
sell the asset or minimises the amount that would be paid to transfer the liability, after taking into
account transaction costs and transport costs.

Non-Performance Risk - The risk that an entity will not fulfil an obligation. Non-performance
risk includes, but may not be limited to, the entity’s own credit risk.

Observable Inputs - Inputs that are developed using market data, such as publicly available
information about actual events or transactions, and that reflect the assumptions that market
participants would use when pricing the asset or liability.

Orderly Transaction - A transaction that assumes exposure to the market for a period before the
measurement date to allow for marketing activities that are usual and customary for transactions
involving such assets or liabilities; it is not a forced transaction (e.g. a forced liquidation or distress
sale).

Principal Market The market with the greatest volume and level of activity for the asset or
liability.

Risk Premium - Compensation sought by risk-averse market participants for bearing the
uncertainty inherent in the cash flows of an asset or a liability. Also referred to as a ‘risk
adjustment’.

Transaction Costs - The costs to sell an asset or transfer a liability in the principal (or most
advantageous) market for the asset or liability that are directly attributable to the disposal of the
asset or the transfer of the liability and meet both of the following criteria:

(a) They result directly from and are essential to that transaction.

(b) They would not have been incurred by the entity had the decision to sell the asset or transfer
the liability not been made (similar to costs to sell, as defined in Ind AS 105).

Transport Costs - The costs that would be incurred to transport an asset from its current location
to its principal (or most advantageous) market.

Unit of Account - The level at which an asset or a liability is aggregated or disaggregated in an

Ind AS for recognition purposes.

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Unobservable Inputs - Inputs for which market data are not available and that are developed
using the best information available about the assumptions that market participants would use
when pricing the asset or liability.

Definition of Fair Value

Fair Value –

 It is a price

 received when an asset is sold or paid to transfer a liability

 in an orderly transaction between market participants

 at the measurement date

Requirements of Fair Value Measurement

The objective of a fair value measurement is to estimate the price at which an orderly transaction
to sell the asset or to transfer the liability would take place between market participants at the
measurement date under current market conditions.

A fair value measurement requires an entity to determine all the following:

 The particular asset or liability that is the subject of the measurement (consistently with its
unit of account).

 For a non-financial asset, the valuation premise that is appropriate for the measurement
(consistently with its highest and best use).

 The principal (or most advantageous) market for the asset or liability.

 The valuation technique(s) appropriate for the measurement, considering the availability
of data with which to develop inputs that represent the assumptions that market participants
would use when pricing the asset or liability and the level of the fair value hierarchy within
which the inputs are categorised.

Asset or Liability

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  A fair value measurement is for a particular asset or liability.
 Therefore, when measuring fair value an entity shall take into account the characteristics
of the asset or liability if market participants would take those characteristics into account
when pricing the asset or liability at the measurement date. Such characteristics include,
for example, the following:
(a) The condition and location of the asset; and
(b) Restrictions, if any, on the sale or use of the asset.

The asset or liability measured at fair value might be either of the following:

(a) A Stand-Alone Asset or Liability (e.g. a financial instrument or a non-financial asset); or

(b) A Group of Assets, a Group of Liabilities or a Group of Assets and Liabilities (e.g. a cash
generating unit or a business).

Orderly Transaction

 A fair value measurement assumes that the asset or liability is exchanged in an orderly
transaction between market participants to sell the asset or transfer the liability at the
measurement date under current market conditions.
Place of Transaction

A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes
place either:

(a) In the principal market for the asset or liability; or

(b) In the absence of a principal market, in the most advantageous market for the asset or liability

Assumptions of Market Participants in Determining Fair Value of an Asset or Liability

An entity shall measure the fair value of an asset or a liability using the assumptions that market
participants would use when pricing the asset or liability, assuming that market participants act in
their economic best interest.

Price for determination of Fair Value

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  The price in the principal (or most advantageous) market used to measure the fair value of
the asset or liability shall not be adjusted for transaction costs.
 Transaction costs shall be accounted for in accordance with other Ind ASs.
 Transaction costs do not include transport costs.
What is Fair Value Measurement?

The definition of fair value emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.

Need for Fair Value Measurement

Ind AS 113 remedies the inconsistencies in the requirements for measuring fair value and for
disclosing information about fair value measurements that have led to the diversity in practice and
have reduced the comparability of information reported in financial statements.

Not relevant in Fair Value Measurement

An entity’s intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when
measuring fair value.

Measurement of Non-Financial Asset

A fair value measurement of a non-financial asset takes into account

 a market participant’s ability

 to generate economic benefits
 by using the asset
 in its highest and best use or
 by selling it to another market participant
 that would use the asset in its highest and best use.
Valuation for Non-Financial Asset

 The highest and best use of a non-financial asset might provide maximum value to market
participants through its use in combination with other assets as a group (as installed or
otherwise configured for use) or in combination with other assets and liabilities (e.g. a
business).

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  The highest and best use of a non-financial asset might provide maximum value to market
participants on a stand-alone basis.

Financial or Non-Financial Liability

 A fair value measurement assumes that a financial or non-financial liability or an entity’s

own equity instrument (e.g. equity interests issued as consideration in a business
combination) is transferred to a market participant at the measurement date.
 The transfer of a liability or an entity’s own equity instrument assumes the following:
o A liability would remain outstanding and the market participant transferee would
be required to fulfil the obligation.
o An entity’s own equity instrument would remain outstanding and the market
participant transferee would take on the rights and responsibilities associated with
the instrument.

Liabilities and equity instruments held by other parties as assets

When a quoted price for the transfer of an identical or a similar liability or entity’s own equity
instrument is not available. Then

 Where the identical item is held by another party as an asset,

 An entity shall measure the fair value of the liability or equity instrument from the
perspective of a market participant that holds the identical item as an asset at the
measurement date.

Liabilities and equity instruments not held by other parties as assets

When a quoted price for the transfer of an identical or a similar liability or entity’s own equity
instrument is not available. And

 The identical item is not held by another party as an asset,

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  An entity shall measure the fair value of the liability or equity instrument using a valuation
technique from the perspective of a market participant that owes the liability or has issued
the claim on equity.

Transaction Price Vs Fair Value

When an asset is acquired or a liability is assumed in an exchange transaction for that asset or
liability, the transaction price is the price paid to acquire the asset or received to assume the liability
(an entry price) In contrast, the fair value of the asset or liability is the price that would be received
to sell the asset or paid to transfer the liability (an exit price).

Valuation Techniques

An entity shall use valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable inputs
and minimizing the use of unobservable inputs.

Objective of Valuation Technique

The objective of using a valuation technique is to estimate the price at which an orderly transaction
to sell the asset or to transfer the liability would take place between market participants at the
measurement date under current market conditions.

Types of Valuation Techniques

Three widely used valuation techniques are

 The market approach,

 The cost approach and
 The income approach.
An entity shall use valuation techniques consistent with one or more of those approaches to
measure fair value.

Valuation techniques used to measure fair value shall maximise the use of relevant observable
inputs and minimise the use of unobservable inputs. Examples of markets in which inputs might

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be observable for some assets and liabilities (e.g. financial instruments) include exchange markets,
dealer markets, brokered markets and principal-to-principal markets.

Fair Value Hierarchy

 To increase consistency and comparability in fair value measurements and related

disclosures, this Ind AS establishes a fair value hierarchy that categorises into three levels
the inputs to valuation techniques used to measure fair value.
 The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active
markets for identical assets or liabilities (Level 1 inputs) and
 The lowest priority to unobservable inputs (Level 3 inputs).
 The fair value hierarchy prioritises the inputs to valuation techniques, not the valuation
techniques used to measure fair value.
Level 1 Inputs

 Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date.
Quoted Price

A quoted price in an active market provides the most reliable evidence of fair value and shall be
used without adjustment to measure fair value whenever available

No Adjustments to Level 1 Inputs except in the following circumstance

(a) When an entity holds a large number of similar (but not identical) assets or liabilities (e.g. debt
securities) that are measured at fair value and a quoted price in an active market is available but
not readily accessible for each of those assets or liabilities individually (i.e. given the large number
of similar assets or liabilities held by the entity, it would be difficult to obtain pricing information
for each individual asset or liability at the measurement date).

(b) When a quoted price in an active market does not represent fair value at the measurement date.

(c) When measuring the fair value of a liability or an entity’s own equity instrument using the
quoted price for the identical item traded as an asset in an active market and that price needs to be
adjusted for factors specific to the item or the asset.

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Level 2 Inputs

 Level 2 inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or indirectly.
 If the asset or liability has a specified (contractual) term, a Level 2 input must be observable
for substantially the full term of the asset or liability.
Level 2 Inputs Includes

(a) Quoted prices for similar assets or liabilities in active markets.

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active.

(c) Inputs other than quoted prices that are observable for the asset or liability, for example:

(i) interest rates and yield curves observable at commonly quoted intervals;

(ii) implied volatilities; and

(iii) credit spreads.

(d) market-corroborated inputs.

Adjustments to Level 2 Inputs depends on the following factors

(a) The condition or location of the asset;

(b) The extent to which inputs relate to items that are comparable to the asset or liability and

(c) The volume or level of activity in the markets within which the inputs are observed.

Level 3 Inputs

 Level 3 inputs are unobservable inputs for the asset or liability.

 Unobservable inputs shall be used to measure fair value to the extent that relevant
observable inputs are not available, thereby allowing for situations in which there is little,
if any, market activity for the asset or liability at the measurement date
Disclosure Requirements

An entity shall disclose information that helps users of its financial statements assess both of the
following:

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(a) For assets and liabilities that are measured at fair value on a recurring or non-recurring basis in
the Balance Sheet after initial recognition, the valuation techniques and inputs used to develop
those measurements.

(b) For recurring fair value measurements using significant unobservable inputs (Level 3), the
effect of the measurements on profit or loss or other comprehensive income for the period.

Applicable Business Transactions and relevant Standards

The Ind AS applies to Ind ASs that require or permit fair value measurements or disclosures about
fair value measurements (and measurements, such as fair value less costs to sell, based on fair
value or disclosures about those measurements), except in specified circumstances. It does not
require fair value measurements in addition to those already required or permitted by other Ind
ASs

Ind ASs dealing with the Presentation of Financial Statements

1. Ind AS 1, Presentation of Financial Statements

Ind AS 1 prescribes the basis for presentation of general-purpose financial statements to ensure
comparability both with the entity’s financial statements of previous periods and with the financial
statements of other entities. Though it does not prescribe any fixed format for presentation of
financial statements, it sets out overall requirements for the presentation of financial statements,
guidelines for their structure and minimum requirements for their content. It defines the
components of financial statements which has been discussed earlier.

Basis of Preparation of Financial Statements

 Fair presentation and Compliance with Ind AS: Ind AS 1 requires that the financial
statements must present fairly the financial position, financial performance and cash flows
of an entity. Fair presentation requires the faithful representation of the effects of
transactions, other events, and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses set out in the Framework.
The application of Ind AS, with additional disclosure, when necessary, is presumed to
result in financial statements that achieve a fair presentation. It also requires that an entity
whose financial statements comply with Ind AS must make an explicit and unreserved

26
 statement of such compliance in the notes. It is clearly stated that any inappropriate
accounting policies cannot be rectified either by disclosure of the accounting policies used
or by notes or explanatory material. However, in extremely rare circumstances, if
management opine that compliance with an Ind AS requirement would be so misleading
that it would conflict with the objective of financial statements set out in the Framework,
the entity may depart from the Ind AS requirement, with detailed disclosure of the nature,
reasons, and impact of the departure.
 Going Concern: It is presumed that an entity preparing Ind AS financial statements is a
going concern, i.e. it going to continue its operations in future. If management has
significant concerns about the entity's ability to continue as a going concern, the
uncertainties must be disclosed and in such a case Ind AS 1 requires a series of disclosures
like the basis on which the financial statements are prepared and the reasons why the entity
is not regarded as going concern.

 Materiality and Aggregation: Each material class of similar items must be presented
separately in the financial statements. Dissimilar items may be aggregated only if they are
individually immaterial and are of similar nature or function without compromising on the
understandability of the financial statements by overshadowing material information with
immaterial once.

 Accrual basis of accounting: Ind AS 1 requires that an entity prepare its financial
statements, except for cash flow information, using the accrual basis of accounting.
 Consistency of Presentation: The presentation and classification of items in the financial
statements should be retained from one period to the next unless a change is justified either
by a change in circumstances or a requirement of a new Ind AS.
 Offsetting: Ind AS 1 requires that items of Assets and liabilities, and income and expenses,
should not be offset unless required or permitted by an Ind AS.
 Comparative Information: To enhancing the inter-period comparability of information
and thereby assist users in making economic decisions, Ind AS 1 requires that comparative
information must be disclosed in respect of the previous period for all amounts reported in
the financial statements, both on the face of financial statements and in notes, unless
another Standard requires otherwise. When the presentation or classification of items in the

27
 financial statements is amended, comparative amounts should be reclassified unless the
reclassification is impracticable.
 Frequency of reporting: Financial statements are usually prepared annually. If the annual
reporting period changes and financial statements are prepared for a different period, then
the entity must disclose the reason for the change and a warning about problems of
comparability.

Structure and Content

The financial statements should be identified clearly and each component of the financial
statements should be identified clearly. The following information should also be displayed
prominently and repeated when necessary for proper understanding of the information presented:

a) Name of the reporting entity and any change in that information from the preceding
reporting date.
b) Whether the statements are for an entity or for a group.
c) The date or period covered.
d) The presentation currency (defined in Ind AS 21 – The effects of changes in foreign
exchange rates). Presentation currency is the currency in which the financial statements are
presented.
e) Level of rounding used in presenting amounts (thousands, millions etc.).

Information to be presented in the Balance Sheet

As a minimum, the Balance Sheet shall include line items that present the following amounts:

a) property, plant and equipment;

b) investment property;

c) intangible assets;

d) financial assets (excluding amounts shown under (e), (h) and (i) below);

e) investments accounted for using the equity method;

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 f) biological assets;

g) inventories;

h) trade and other receivables;

i) cash and cash equivalents;

j) the total of assets classified as held for sale and assets included in disposal groups classified
as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and
Discontinued Operations;

k) trade and other payables;

l) provisions;

m) financial liabilities (excluding amounts shown under (k) and (l) above);

n) liabilities and assets for current tax, as defined in Ind AS 12 Income Taxes;

o) deferred tax liabilities and deferred tax assets, as defined in Ind AS 12;

p) liabilities included in disposal groups classified as held for sale in accordance with Ind AS
105;

q) minority interest, presented within equity; and

r) Issued capital and reserves attributable to owners of the parent.

Current/ non-current distinction

Ind AS1 states that an entity should make a distinction between current and non- current assets and
liabilities, except when the presentation based on liquidity provides information that is more
reliable and relevant.

Information to be presented either in the Balance Sheet or in the notes

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An entity should disclose further sub-classifications of the line items presented, classified in an
appropriate manner. The details to be provided would depend on the requirements of Ind AS and
on the size, nature and function of the amounts involved

Regarding share capital and reserves, the entity should disclose the following on the face of the
Balance Sheet or in the notes:

i. Number of shares authorised

ii. Number of shares issued and fully paid and issued but not fully paid
iii. Par value of shares or that shares have no par value
iv. reconciliation of shares outstanding at the beginning and the end of the period
v. description of rights, preferences, and restrictions
vi. Shares held by the entity, including shares held by subsidiaries and associates
vii. shares reserved for issuance under options and contracts
viii. a description of the nature and purpose of each reserve within owners' equity

Statement of Profit and Loss

Ind AS1 requires all non-owner changes in equity to be presented in single Statement of Profit and
Loss.

The following information should be disclosed on the face of the Statement of Profit and Loss,
together with any additional headings or sub-totals as may be required by individual standards or
that may be required to give a fair presentation of the entity's performance

a) Revenue

b) Finance costs

c) Share of the profit or loss of associates and joint ventures accounted for using the equity
method

d) Tax Expenses

e) a single amount comprising the total of

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  the post-tax profit or loss of discontinued operations and

 the post-tax gain or loss recognised on the disposal of the assets or disposal group(s)
constituting the discontinued operation

f) profit or loss

g) each component of other comprehensive income classified by nature

h) each component of other comprehensive income of associates and joint venture accounted
using equity method; and

i) total comprehensive income

The following items must also be disclosed on the face of the Statement of Profit and Loss as
allocations of

a) profit or loss for the period:

 profit or loss attributable to minority interest; and

 Profit or loss attributable to equity holders of the parent.

b) Total comprehensive income for the period as:

 comprehensive income attributable to minority interest; and

 Comprehensive income attributable to equity holders of the parent.

All items of income or expense recognised in a period must be included in profit or loss unless a
Standard requires otherwise. No items may be presented on the face of the Statement of Profit and
Loss or in the notes as extraordinary items.

Following items need to be disclosed either on the face of the statement of profit & loss or in the
notes, if material:

a) write-downs of inventories to net realisable value or of property, plant and equipment to

recoverable amount, as well as reversals of such write-downs;

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 b) restructurings of the activities of an entity and reversals of any provisions for the costs of
restructuring;
c) disposal of items of property, plant and equipment;
d) disposal of investments;
e) discontinued operations;
f) litigation settlements; and
g) other reversals of provisions.

Expenses should be analysed either by nature of expenses (raw materials, staffing costs,
depreciation, etc.) or by function (cost of sales, selling, administrative, etc.) either on the face of
the statement of profit & loss or in the notes. If an enterprise categorizes by function, additional
information on the nature of expenses including depreciation, amortisation expense and employee
benefits expense must be disclosed.

The amount of dividends recognised as distributions to equity holders during the period and the
related amount per share should be disclosed on the face of the Statement of Profit and Loss or the
statement of changes in equity or in the notes.

Statement of Cash Flows

The detailed requirements for preparation and presentation of Statement of Cash Flows have been
dealt in Ind AS 7 and therefore has been discussed in forthcoming section.

Statement of Changes in Equity

An entity shall present a statement of changes in equity showing in the statement:

(a) total comprehensive income for the period, showing separately the total amounts attributable
to owners of the parent and to non-controlling interests;

(b) for each component of equity, the effects of retrospective application or retrospective
restatement recognised in accordance with Ind AS 8; and

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(c) for each component of equity, a reconciliation between the carrying amount at the beginning
and the end of the period, separately disclosing changes resulting from:

(i) profit or loss;

(ii) each item of other comprehensive income: and

(iii) transactions with owners in their capacity as owners, showing separately contributions by and
distributions to owners and changes in ownership interests in subsidiaries that do not result in a
loss of control.

Notes to the Financial Statements

The notes must:

 present information about the basis of preparation of the financial statements and the
specific accounting policies used;
 disclose any information required by Ind ASs that is not presented on the face of the
Balance Sheet, Statement of Profit and Loss, statement of changes in equity, or cash flow
statement; and
 Provide additional information that is not presented on the face of the Balance Sheet,
Statement of Profit and Loss, statement of changes in equity, or cash flow statement that is
deemed relevant to an understanding of any of them.

Notes should be cross-referenced from the face of the financial statements to the relevant note.

Ind AS 1 suggests that the notes should normally be presented in the following order:

 a statement of compliance with Ind ASs

 The significant accounting policies applied, including:
o the measurement basis (or bases) used in preparing the financial statements
o the other accounting policies used that are relevant to an understanding of the
financial statements

33
  supporting information for items presented on the face of the Balance Sheet, Statement of
Profit and Loss, statement of changes in equity, and cash flow statement, in the order in
which each statement and each line item is presented
 other disclosures, including:
o contingent liabilities and unrecognised contractual commitments
o non-financial disclosures, such as the entity's financial risk management objectives
and policies

2. Ind AS 7- Statement of Cash Flows

Cash flows are inflows and outflows of cash and cash equivalents. Cash comprises cash on hand
and demand deposits. Cash equivalents are short term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in
value. Cash and cash equivalents include demand deposits, certain short-term investments and in
some cases, bank overdrafts. Ind AS 7 prescribes principles and guidance on preparation and
presentation of cash flows of an entity segregating them into three categories, i.e. cash flows from
operating, investing and financing activities along with the components of cash and cash
equivalents at the beginning and end of the reporting period.

The main features of statement of Cash Flows under Ind AS are as follows:

 Operating activities are the principal revenue-producing activities of the entity and other
activities that are not investing or financing activities. Cash flows from operating activities
are primarily derived from the principal revenue-producing activities of the entity.
Therefore, they generally result from the transactions and other events that enter into the
determination of profit or loss. An entity shall report cash flows from operating activities
using either the ‘direct method’ or the ‘indirect method’. Under direct method, major
classes of gross cash receipts and payments are presented. However, under indirect method,
profit or loss is adjusted for the effects of transactions of a non-cash nature; deferrals or
accruals of past or future operating cash receipts or payments; and items of income or
expenses associated with investing or financing cash flows. Cash flows arising from taxes

34
 on income shall be separately disclosed and classified as cash flow from operating activities
unless they can be specifically identified with financing or investing activities.
 Investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents and it represent the extent to which
expenditures have been made for resources intended to generate future income and cash
flows. The aggregate cash flows arising from obtaining or losing control of subsidiaries or
other businesses shall be presented separately under this head.
 Financing activities are activities that result in changes in the size and composition of the
contributed equity and borrowings of the entity. An entity shall report separately major
classes of gross cash receipts and gross cash payments arising from investing and financing
activities.
 Investing and financing transactions that do not require the use of cash or cash equivalents
shall be excluded from the statement of cash flows.
 Cash flows arising from transactions in a foreign currency shall be recorded in an entity’s
functional currency by applying to the foreign currency exchange rate between the
functional currency and the foreign currency at the date of the cash flow. The cash flows
of a foreign subsidiary shall be translated at the exchange rates between the functional
currency and the foreign currency at the dates of the cash flows.
 An entity shall disclose the components of cash and cash equivalents and shall present a
reconciliation of the amounts in its statement of cash flows with equivalent items reported
in the balance sheet.
 An entity shall disclose, together with a commentary by management, the amount of
significant cash and cash equivalents held by the entity that are restricted for specific
purposes.
 An entity shall provide disclosures that enable users of financial statements to evaluate
changes in liabilities arising from financing activities, including both changes arising from
cash flows and non-cash changes.
3. Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

35
 Standard prescribes 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.
 Accounting policies are the specific principles, bases, conventions, rules and practices
applied by an entity in preparing and presenting financial statements
 Hierarchy for choosing accounting policies:
– If a standard directly deals with a transaction, use that standard;
– If no standard deals with a transaction, judgment should be applied. The following
sources should be referred to, to make the judgement:
• Requirements and guidance in other standards dealing with similar issues
• Definitions, recognition criteria in the Conceptual Framework for the
Preparation and Presentation of Financial Statements issued by ICAI
• May use the most recent pronouncement by International Accounting
Standards Board (IASB) and in absence of any such pronouncement relating
to the transaction, other GAAP that use a similar conceptual framework
and/or may consult other industry practice / accounting literature that is not
in conflict with Ind AS.
–
 Accounting policies are applied consistently to similar transactions.
 An accounting policy is changed only if required by an Ind AS, or if the change results in
reliable and more relevant information.
 If a change in accounting policy is required by an Ind AS, the pronouncement’s transition
requirements, if any, are followed. If none are specified, or if the change is voluntary, the
new accounting policy is applied retrospectively by restating prior periods.
 If impractical to determine period-specific effects or cumulative effects of the error, then
retrospectively apply to the earliest period that is practicable
 If restatement is impracticable, the cumulative effect of the change is included in profit or
loss. If the cumulative effect cannot be determined, the new policy is applied prospectively.
 The following disclosures should be made for change in accounting policy:
– The title of the standard that caused the change
– Nature of the change in policy

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 – Description of the transitional provisions
– For the current period and each prior period presented, the amount of the adjustment
to:
• Each line item affected
• Earnings per share.
– Amount of the adjustment relating to prior periods not presented
– If retrospective application is impracticable, explain and describe how the change
in policy was applied
– Subsequent periods need not repeat these disclosures.
 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, that results from the
assessment of the present status of, and expected future benefits and obligations associated
with, assets and liabilities. Example change in mortality rate of the employees.
 Changes in accounting estimates result from new information or new developments and,
accordingly, are not corrections of errors.
 The effect of a change in an accounting estimate, shall be recognised prospectively i.e.
changes in accounting estimates are accounted for in the current year, or future years, or
both and there is no restatement.
 The following disclosures should be made by the entity in case of changes in estimates:
– Nature and amount of change that has an effect in the current period (or expected
to have in future)
– Fact that the effect of future periods is not disclosed because of impracticality
– Subsequent periods need not repeat these disclosures.

 Prior period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior periods arising from a failure to use, or misuse of, reliable
information that
– was available when financial statements for those periods were approved for issue;
and
– could reasonably be expected to have been obtained and taken into account in the
preparation and presentation of those financial statements.

37
 Such errors include the effects of mathematical mistakes, mistakes in applying accounting
policies, oversights or misinterpretations of facts, and fraud
 All material errors are corrected by restating comparative prior period amounts and, if the
error occurred before the earliest period presented, by restating the opening Balance Sheet
for the earliest prior period presented.
 Omissions or misstatements of items are material if they could, individually or collectively;
influence the economic decisions of users taken on the basis of the financial statements.
 Following disclosures must be made in relation to prior period error if detected:
– Nature of the prior period error
– For each prior period presented, if practicable, disclose the correction to:
• Each line item affected
• Earnings per share (EPS).
– Amount of the correction at the beginning of earliest period presented
– If retrospective application is impracticable, explain and describe how the error was
corrected
– Subsequent periods need not to repeat these disclosures.

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4. Ind AS 10 Events After the Reporting Period

 The standard prescribes when an entity should adjust its financial statements for events
after the reporting period and 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.
 Events after the end of the reporting period are those events, both favourable and
unfavorable, that occur between the end of the reporting period and the date when the
financial statements are approved for issue.
 Adjusting events – the financial statements are adjusted to reflect those events that provide
evidence of conditions that existed at the end of the reporting period (such as resolution of
a court case after the end of the reporting period). Examples of adjusting events are:
o Events that indicate that the going concern assumption in relation to the whole or
part of the entity is not appropriate
o Settlement after reporting date of court cases that confirm the entity had a present
obligation at reporting date
o Bankruptcy of a customer that occurs after reporting date that confirms a loss
existed at reporting date on trade receivables
o Sales of inventories after reporting date that give evidence about their net realisable
value at reporting date
o Determination after reporting date of cost of assets purchased or proceeds from
assets sold, before reporting date
o Discovery of fraud or errors that show the financial statements are incorrect.

 Non-adjusting events – the financial statements are not adjusted to reflect events that arose
after the end of the reporting period (such as a decline in market prices after year end,
which does not change the valuation of investments at the end of the reporting period). The
nature and impact of such events are disclosed. Examples of non-adjusting events are:
o Major business combinations or disposal of a subsidiary
o Major purchase or disposal of assets, classification of assets as held for sale or
expropriation of major assets by government
o Destruction of a major production plant by fire after reporting date

39
 o Announcing a plan to discontinue operations
o Announcing a major restructuring after reporting date
o Major ordinary share transactions
o Abnormal large changes after the reporting period in assets prices or foreign
exchange rates
o Entering into major commitments such as guarantees
o Commencing major litigation arising solely out of events that occurred after the
reporting period.

 Financial statements are adjusted for conditions that existed at reporting date, i.e. adjusting
events.
 Financial statements are not adjusted for condition that arose after the reporting date, i.e.
non- adjusting events.
 Dividends proposed or declared on equity instruments after the end of the reporting period
are not recognised as a liability at the end of the reporting period. Disclosure is required.
 Financial statements are not prepared on a going concern basis if events after the end of
the reporting period indicate that the going concern assumption is not appropriate.
 An entity must make following disclosures for adjusting and non-adjusting events:
o Date of authorisation of issue of financial statements and by whom
o If the entity’s owners or others have the power to amend the financial statements
after issue, the entity is required to disclose that fact
o For any information received about conditions that existed at reporting date,
disclosure that relate to those conditions should be updated with the new
information.

For each material category of non-adjusting events, the nature of the event and an estimate of its
financial effect or the statement that such estimate cannot be made should be given.

5. Ind AS 21, The Effects of Changes in Foreign Exchange Rates

The objective of Ind AS 21 is to prescribe how to include foreign currency transactions and foreign
operations in the financial statements of an entity and how to translate financial statements into a

40
presentation currency. The principal issues are which exchange rate(s) to use and how to report the
effects of changes in exchange rates in the financial statements. This Standard does not apply to
hedge accounting for foreign currency items, including the hedging of a net investment in a foreign
operation, as they are dealt in Ind AS 109. This Standard does not apply to the presentation in a
statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the
translation of cash flows of a foreign operation as Ind AS 7, Statement of Cash Flows deals with
it. This Standard does not also apply to long-term foreign currency monetary items for which an
entity has opted for the exemption given in paragraph D13AA of Appendix D to Ind AS 101. Such
an entity may continue to apply the accounting policy so opted for such long-term foreign currency
monetary items.

Main points of this Ind AS are:

 Functional currency is the currency of the primary economic environment in which the
entity operates. The primary economic environment in which an entity operates is normally
the one in which it primarily generates and expends cash. If the functional currency is the
currency of a hyperinflationary economy, the entity’s financial statements are restated in
accordance with Ind AS 29, Financial Reporting in Hyperinflationary Economies.
 Foreign currency is a currency other than the functional currency of the entity
 A foreign currency transaction shall be recorded, on initial recognition in the functional
currency, by applying to the foreign currency amount the spot exchange rate between the
functional currency and the foreign currency at the date of the transaction.
 A foreign currency transaction shall be recorded, on initial recognition in the functional
currency, by applying to the foreign currency amount the spot exchange rate between the
functional currency and the foreign currency at the date of the transaction.
 Subsequently, at the end of each reporting period:
o foreign currency monetary items shall be translated using the closing rate;
o non-monetary items that are measured in terms of historical cost in a foreign
currency shall be translated using the exchange rate at the date of the transaction;
and
o non-monetary items that are measured at fair value in a foreign currency shall be
translated using the exchange rates at the date when the fair value was measured.

41
 Exchange differences arising on the settlement of monetary items or on translating
monetary items at rates different from those at which they were translated on initial
recognition during the period or in previous financial statements shall be recognised in
profit or loss in the period in which they arise.
 Foreign operation is an entity that is a subsidiary, associate, joint arrangement or branch of
a reporting entity. Exchange differences arising on a monetary item that forms part of a
reporting entity’s net investment in a foreign operation shall be recognised in profit or loss
in the separate financial statements of the reporting entity or the individual financial
statements of the foreign operation, as appropriate.
 In the consolidated financial statements that include the foreign operation and the reporting
entity, such exchange differences shall be recognised initially in other comprehensive
income and reclassified from equity to profit or loss on disposal of the net investment.
 Any goodwill arising on the acquisition of a foreign operation and any fair value
adjustments to the carrying amounts of assets and liabilities arising on the acquisition of
that foreign operation shall be treated as assets and liabilities of the foreign operation.
 On the disposal of a foreign operation, the cumulative amount of the exchange differences
relating to that foreign operation, recognised in other comprehensive income and
accumulated in the separate component of equity, shall be reclassified from equity to profit
or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized.
 As a rule, when a gain or loss on a non-monetary item is recognised in other comprehensive
income, any exchange component of that gain or loss shall be recognised in other
comprehensive income. Similarly, when a gain or loss on a non-monetary item is
recognised in profit or loss, any exchange component of that gain or loss shall be
recognised in profit or loss.
 If the presentation currency differs from the entity’s functional currency, it translates its
results and financial position into the presentation currency using the following procedures
o assets and liabilities for each balance sheet presented shall be translated at the
closing rate at the date of that balance sheet;
o income and expenses for each statement of profit and loss presented shall be
translated at exchange rates at the dates of the transactions; and

42
 o all resulting exchange differences shall be recognised in other comprehensive
income

6. Ind AS 29: Financial Reporting in Hyperinflationary Economies

o Ind AS 29 is applied to the individual financial statements, and the consolidated financial
statements, of any entity whose functional currency is the currency of a hyperinflationary
economy.
o Hyperinflation is indicated by characteristics of the economic environment of a country
which include, but are not limited to, the following:
o The general population prefers to keep its wealth in non-monetary assets or in a
relatively stable foreign currency
o The general population regards monetary amounts not in terms of the local currency
but in terms of a relatively stable foreign currency
o Sales and purchases on credit take place at prices that compensate for the expected
loss of purchasing power during the credit period
o Interest rates, wages and prices are linked to a price index
o The cumulative inflation rate over three years is approaching, or exceeds, 100%.
o The financial statements of an entity whose functional currency is the currency of a
hyperinflationary economy are stated in terms of the measuring unit current at the end of
the reporting period. Corresponding figures in relation to prior periods are also restated.
o The gain or loss on the net monetary position is included in profit or loss and separately
disclosed.
o In case of historical cost financial statements
o All items in the statement of profit & loss are expressed in terms of the measuring
unit current at the end of the reporting period. Therefore, all amounts need to be
restated by applying the change in the general price index from the dates when the
items of income and expenses were initially recorded in the financial statements.
o In Balance Sheet, amounts not already expressed in terms of the measuring unit
current at the end of the reporting period are restated by applying a general price
index.

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 o Assets and liabilities linked by agreement to changes in prices are adjusted in
accordance with the agreement in order to ascertain the amount outstanding at the
end of the reporting period.
o Monetary items are not restated because they are already expressed in terms of the
monetary unit current at the end of the reporting period.
o All other assets and liabilities are non-monetary. Some non-monetary items are
carried at amounts current at the end of the reporting period, such as net realisable
value and market value, so they are not restated. All other non-monetary assets and
liabilities are restated.
o In case of current cost financial statements
o Items of balance sheet at current cost are not restated because they are already
expressed in the unit of measurement current at the end of the reporting period.
o All amounts in the statement of profit & loss are restated into the measuring unit
current at the end of the reporting period by applying a general price index.
o All items in the statement of cash flows are expressed in terms of the measuring unit current
at the end of the reporting period. Corresponding figures for the previous reporting period,
whether based on either a historical cost approach or a current cost approach, are restated
by applying a general price index.
o When an economy ceases to be hyperinflationary and an entity discontinues the preparation
and presentation of financial statements prepared in accordance with Ind AS 29, it treats
the amounts expressed in the measuring unit current at the end of the previous reporting
period as the basis for the carrying amounts in its subsequent financial statements.

7. Ind AS 33: Earning Per Share

 The principal objective of this standard is to prescribe principles for determining and
presenting earnings per share (EPS) amounts in order to improve performance comparisons
between different entities in the same period and between different accounting periods for
the same entity. However, the prime focus of this Standard is on the denominator of the
earnings per share calculation.

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 This standard is not mandatory on all entities. However, in Indian context, this standard
must be applied to all companies that have issued ordinary shares and to which Ind AS
notified under Companies Act applies. Any other entity that voluntarily presents EPS must
comply with this standard. In case where both consolidated and separate statements are
prepared, disclosures pertaining to this standard must apply to both statements.
 An ordinary share is an equity instrument that is subordinate to all other classes of equity
instruments.
 A potential ordinary share is a financial instrument or other contract that may entitle its
holder to ordinary shares
 An entity should present basic and diluted EPS for each class of ordinary share that has a
different right to share in profit for the period. The EPS should be presented for all periods
presented and with equal prominence.
 An entity that reports a discontinued operation shall disclose the basic and diluted amounts
per share for the discontinued operation either in the Statement of Profit and Loss or in the
notes.
 In Ind AS, EPS is calculated both in case of Separate Financial Statements and
Consolidated Financial Statements
 EPS is reported for profit or loss attributable to equity holders of the parent entity, for profit
or loss from continuing operations attributable to equity holders of the parent entity, and
for any discontinued operations.
 In consolidated financial statements, EPS reflects earnings attributable to the parent’s
shareholders.
 Basic earnings per share shall be calculated by dividing profit or loss attributable to
ordinary equity holders of the parent entity (the numerator) by the weighted average
number of ordinary shares outstanding (the denominator) during the period. In other words,
basic EPS=earnings numerator: after deduction of all expenses including tax, and after
deduction of non-controlling interests and preference dividends/ denominator: weighted
average number of shares outstanding during the period.
 The weighted average number of ordinary shares outstanding during the period and for all
periods presented shall be adjusted for events, other than the conversion of potential

45
 ordinary shares, that have changed the number of ordinary shares outstanding without a
corresponding change in resources
 Dilution is a reduction in EPS or an increase in loss per share on the assumption that
convertible instruments are converted, that options or warrants are exercised, or that
ordinary shares are issued when specified conditions are met.
 Diluted EPS calculated as follows:
o earnings numerator: the profit for the period attributable to ordinary shares is
increased by the after-tax amount of dividends and interest recognised in the period
in respect of the dilutive potential ordinary shares (such as options, warrants,
convertible securities and contingent insurance agreements), and adjusted for any
other changes in income or expense that would result from the conversion of the
dilutive potential ordinary shares;
o denominator: adjusted for the number of shares that would be issued on the
conversion of all of the dilutive potential ordinary shares into ordinary shares; and
o anti-dilutive potential ordinary shares are excluded from the calculation.
 If the number of ordinary or potential ordinary shares outstanding increases as a result of a
capitalization, bonus issue or share split, or decreases as a result of a reverse share split,
the calculation of basic and diluted earnings per share for all periods presented shall be
adjusted retrospectively.

8. Ind AS 34: Interim Financial Reporting

 The objective of this standard is to prescribe the minimum content of an interim financial
report and the recognition and measurement principles for an interim financial report.
 This is not a mandatory statement for all enterprises. This Standard applies if an entity is
required or elects to publish an interim financial report in accordance with International
Financial Reporting Standards.
 Interim financial report means a financial report containing either a complete set of
financial statements or a set of condensed financial statements for an interim period.
 Interim period is a financial reporting period shorter than a full financial year.
 Minimum components of an interim financial report are:

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 o condensed Balance Sheet;
o condensed Statement of Profit and Loss
o condensed statement of changes in equity;
o condensed statement of cash flows; and
o selected explanatory notes.
 The condensed statements are required to include at least:
o Headings and subtotals included in most recent annual financial statements
o Selected minimum explanatory notes - explaining events and transactions
significant to an understanding of the changes in financial position/performance
since last annual reporting date
o Selected line items or notes if their omission would make the condensed financial
statements misleading
o Basic and diluted earnings per share (if applicable) on the face of statement of profit
& loss.
 Prescribes the comparative periods for which interim financial statements are required to
be presented.
 Materiality is based on interim financial data, not forecasted annual amounts.
 Interim financial reporting requires greater use of estimates than annual reporting.
 The notes in an interim financial report provide an explanation of events and transactions
significant to understanding the changes since the last annual financial statements.
 Same accounting policies as used in annual financial statements are used in preparation of
interim financial statements unless there is a change in an accounting policy that is to be
reflected in the next annual financial statements.
 Taxes on Income are recognised based on weighted average annual income tax rate
expected for the full year. Tax rate changes during the year are adjusted in the subsequent
interim period during the year.
 Revenue and costs are recognised when they occur, not anticipated or deferred.
 In case of cost Incurred unevenly, they are anticipated or deferred only if it would be
possible to defer or anticipate at year end.

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  In case of seasonal, cyclic or occasional revenue they are recognized when they occur.
Revenue received during the year should not be anticipated or deferred where anticipation
would not be appropriate at year end.
 For highly seasonal activities, entities should consider reporting additional information for
12 months.
 Interim reports require a greater use of estimates than annual reports.
 When there is change in accounting policy, restate previously reported interim periods of
the current financial year and comparable interim period of any prior financial year that
will be restated in the annual financial statement.

Ind ASs Dealing with Financial Reporting by Group Entities

1. Ind AS 103: Business Combinations

Business combination is a transaction or event in which an acquirer obtains control of one or more
businesses (e.g. acquisition of shares or net assets, legal mergers, reverse acquisitions). A business
is defined as an integrated set of activities and assets that is capable of being conducted and
managed for the purpose of providing a return directly to investors or other owners, members or
participants. Formations of a joint venture or the acquisition of an asset or a group of assets that
does not constitute a business are not business combinations.

Scope Exclusions

 the formation of a joint venture

 the acquisition of an asset or a group of assets that does not constitute a business
 acquisition by the investment entity of an investment in subsidiary that is required to be
measured at fair value through profit or loss.

Method of Accounting for Business Combinations

A business combination must be accounted for by applying the acquisition method.

Important Terms

Control

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  Ownership of more than half the voting right of another entity
 Power over more than half of the voting rights by agreement with investors
 Power to govern the financial and operating policies of the other entity under statute/
agreement
 Power to remove/appoint majority of directors
 Power to cast majority of votes.
Business
 Integrated set of activities and assets
 Capable of being conducted and managed to provide return
 Returns include dividends and cost savings

Acquisition method

Steps in applying the acquisition method are:

 Identification of the 'acquirer' - the combining entity that obtains control of the acquiree.
 Determination of the 'acquisition date' - the date on which the acquirer obtains control of
the acquiree.
 Recognition and measurement of the identifiable assets acquired, the liabilities assumed
and any non-controlling interest (NCI) in the acquiree.
 Recognition and measurement of goodwill or a gain from a bargain purchase option.

Applying the acquisition method

 A business combination must be accounted for by applying the acquisition method, unless
it is a combination involving entities or businesses under common control.
 One of the parties to a business combination can always be identified as the acquirer, being
the entity that obtains control of the other business (the acquiree). An investor controls an
investee when the investor is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power
over the investee. Ind AS 110 Consolidated Financial Statements is used to identify the
acquirer – the entity that obtains control of the acquire.
 The Ind AS establishes principles for recognising and measuring the

49
 o identifiable assets acquired,
o the liabilities assumed and
o any non-controlling interest in the acquiree.
 Any classifications or designations made in recognising these items must be made in
accordance with the contractual terms, economic conditions, acquirer’s operating or
accounting policies and other factors that exist at the acquisition date.
 Acquisition costs are not to be capitalised, must instead be expensed in the period they are
incurred.
 Any costs to issue debt or equity are recognised in accordance with Ind AS 109.
 Each identifiable asset and liability are measured at its acquisition-date fair value.
 Any non-controlling interest in an acquiree is measured at fair value or as the non-
controlling interest’s proportionate share of the acquiree’s net identifiable assets.
 All other components of NCI (e.g. from Ind AS 102 Share-based payments or calls) are
required to be measured at their acquisition-date fair values.
 There are certain exceptions to the recognition and/or measurement principles which cover
contingent liabilities, income taxes, employee benefits, indemnification assets, reacquired
rights, share-based payments and assets held for sale.
 The acquirer, having recognised the identifiable assets, the liabilities and any non-
controlling interests has to identify any difference between:
(a) the aggregate of the consideration transferred, any non-controlling interest in the
acquiree and, in a business combination achieved in stages, the acquisition-date fair
value of the acquirer’s previously held equity interest in the acquiree; and
(b) the net identifiable assets acquired.

 The difference will, generally, be recognised as goodwill. If the acquirer has made a gain
from a bargain purchase that gain is recognised in capital reserve.
 Goodwill can be grossed up to include the amounts attributable to Non-Controlling Interest
 A gain from a bargain purchase is immediately recognised in profit or loss
 The consideration transferred in a business combination (including any contingent
consideration) is measured at fair value

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  Contingent consideration is either classified as a liability or an equity instrument on the
basis of Ind AS 32 Financial Instruments
 Contingent consideration that is within the scope of Ind AS 109 (classified as a financial
liability) needs to be remeasured at fair value at each reporting date with changes reported
in profit or loss
Business Combination in Stages
 An acquirer sometimes obtains control of an acquiree in which it held an equity interest
immediately before the acquisition date. This is known as a business combination achieved
in stages or as a step acquisition. In such cases, obtaining control triggers re-measurement
of previous investments (equity interests). The acquirer remeasures its previously held
equity interest in the acquiree at its acquisition-date fair value. Any resulting gain/loss is
recognised in profit or loss.
Business Combination without consideration
 The acquisition method of accounting for a business combination also applies if no
consideration is transferred. Such circumstances include:
o The acquiree repurchases a sufficient number of its own shares for an existing
investor (the acquirer) to obtain control
Minority veto rights lapse that previously kept the acquirer from controlling an
acquiree in which the acquirer held the majority voting rights
o The acquirer and the acquiree agree to combine their businesses by contract alone.
Subsequent Measurement
 In general, after the date of a business combination an acquirer measures and accounts for
assets acquired and liabilities assumed or incurred in accordance with other applicable Ind
ASs.
 However, Ind AS 103 includes accounting requirements for reacquired rights, contingent
liabilities, contingent consideration and indemnification assets.

Disclosures
i. Disclosure of information about current business combinations that occur in current
reporting period or after the current reporting period but before the financial statements are
approved for issue.

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 ii. Disclosure of information about adjustments in current reporting period that relate to past
business combinations

2. Ind AS 27 Separate Financial Statements

When an entity elects (or is required by local regulations) to present separate financial statements,
Ind AS 27 applies in accounting for investments in:
 Subsidiaries
 Joint ventures
 Associates.
Ind AS 27 does not mandate which entities produce separate financial statements.

Key Definitions

Consolidated financial statements: The financial statements of a group in which the asset,
liabilities, income expenses, equity and cash flows of the parent and its subsidiaries are presented
as those of a single economic entity.

Separate Financial Statements are those presented by a parent (i.e. an investor with control of a
subsidiary) or an investor with joint control of, or significant influence over, an investee, in which
the investments are accounted for at cost or in accordance with Ind AS 109, Financial Instruments.

For definitions of: associate; control of an investee; group; joint control; joint venture; joint
venturer; parent; significant influence; and subsidiary reference may be made to the below
standards:
 Ind AS 110 Consolidated Financial Statements
 Ind AS 111 Joint Arrangements
 Ind AS 28 Investments in Associates and Joint Ventures.
Separate Financial Statements

Separate financial statements can, but are not required to be presented in addition to consolidated
financial statements or, where an entity does not have subsidiaries, individual financial statements
in which investments in associates and joint ventures are accounted for using the equity method.

52
Separate financial statements do not need to be attached to, or accompany, those consolidated or
individual financial statements

 Investments are accounted for:

(i) At cost;

(ii) in accordance with Ind AS 109 Financial Instruments; or

(iii) using the equity method in accordance with Ind AS 28

 An entity that is exempt in accordance with Ind AS 110 from consolidation or Ind AS 28
from applying the equity method may present separate financial statements as its only
financial statements.

Preparation of Separate Financial Statements

Investment in subsidiaries, joint ventures, and associates are accounted for either:

 At cost,

 At fair value in accordance with Ind AS 109, or

 Using the equity method (Ind AS 28).

The entity is required to apply the same accounting for each category of investments.

When investments in subsidiaries, joint ventures, and associates classified as held for sale or for
distribution to owners (or included in a disposal group that is classified as held for sale or for
distribution to owners), they are accounted for:

 In accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued
Operations, if previously accounted for at cost

 In accordance with Ind AS 109

Investments in associates or joint ventures that are measured at fair value in accordance with Ind
AS 109 are required to be measured in the same way in the separate and consolidated financial
statements (i.e. at fair value).

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Dividends received from subsidiaries, joint ventures, and associates are recognised when the right
to receive the dividend is established and accounted for as follows:

 in profit or loss, if the investment is accounted for at cost or at fair value;

 as a reduction from the carrying amount of the investment, if the investment is accounted
for using the equity method.

Disclosure

An entity is required to apply all applicable Ind ASs when providing disclosures in its separate
financial statements.

When a parent qualifies and elects not to prepare consolidated financial statements and instead
prepares separate financial statements, it is required to disclose:

 That the financial statements are separate financial statements

 That the paragraph 4(a) exemption has been used

 The name, principal place of business, address, and country of incorporation, of the entity
whose Ind AS compliant consolidated financial statements are publicly available

 A list of significant investments in subsidiaries, joint ventures and associates, including:

- The name of those investees

- The investees principal place of business and country of incorporation

- The proportion of the ownership interest and its proportion of the voting rights held
in those investees.

 A description of the method used to account for the investments listed under the previous
bullet point.

When a parent (other than a parent using the consolidation exemption) or an investor with joint
control of, or significant influence over, an investee prepares separate financial statements, it is
required to disclose:

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  That the financial statements are separate financial statements

 The reasons why the separate financial statements are prepared if not required by law

 A list of significant investments in subsidiaries, joint ventures and associates, including:

- The name of those investees

- The investees principal place of business and country of incorporation

- The proportion of the ownership interest and the proportion of voting rights held in
those investees.

 A description of the method used to account for the investments listed

 The financial statements prepared in accordance with Ind AS 110, Ind AS 111, or Ind AS
28 to which they relate.

3. Ind AS 28 - Investment in Associates and Joint Ventures

The standard prescribes the accounting for investments in associates and sets out the requirements
for the application of the equity method when accounting for investments in associates and joint
ventures

Application of Standard

The standard is to be applied by all entities that are investors with joint control of, or significant
influence over, an investee.

Definitions

 An associate is an entity over which the investor has significant influence.

 Consolidated financial statements are the financial statements of a group in which assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity.

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  The equity method is a method of accounting whereby the investment is initially recognised
at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the
investee’s net assets.
 The investor’s profit or loss includes its share of the investee’s profit or loss and the
investor’s other comprehensive income includes its share of the investee’s other
comprehensive income.
 A joint arrangement is an arrangement of which two or more parties have joint control.
 Joint control is the contractually agreed sharing of control of an arrangement, which exists
only when decisions about the relevant activities require the unanimous consent of the
parties sharing control
 A joint venture is a joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.
 A joint venturer is a party to a joint venture that has joint control of that joint venture.
 Significant influence is the power to participate in the financial and operating policy
decisions of the investee but is not control or joint control of those policies.

Significant Influence

If an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting
power of the investee, it is presumed that the entity has significant influence

Test of Significant Influence

(a) Representation on the board of directors or equivalent governing body of the investee;

(b) Participation in policy-making processes, including participation in decisions about dividends

or other distributions;

(c) Material transactions between the entity and its investee;

(d) Interchange of managerial personnel; or

(e) Provision of essential technical information.

Application of Equity Method

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  An entity uses the equity method to account for its investments in associates or joint
ventures in its consolidated financial statements.
 An entity that does not have any subsidiaries also uses the equity method to account for its
investments in associates or joint ventures in its financial statements even though those are
not described as consolidated financial statements.
Non-Application of Equity Method

The only financial statements to which an entity does not apply the equity method are separate
financial statements. It presents in accordance with Ind AS 27 Separate Financial Statements.

The Equity Method

 Under the equity method, on initial recognition the investment in an associate or a joint venture
is recognised at cost, and the carrying amount is increased or decreased to recognise the
investor’s share of the profit or loss of the investee after the date of acquisition.
 The investor’s share of the investee’s profit or loss is recognised in the investor’s profit or loss.
 Distributions received from an investee reduce the carrying amount of the investment
Exemptions from Application of Equity Method

An entity need not apply the equity method to its investment in an associate or a joint venture if

 the entity is a parent that is exempt from preparing consolidated financial statements by the
scope exception in paragraph 4(a) of Ind AS 110 or
 If all the following apply:
(a) The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity
and its other owners, including those not otherwise entitled to vote, have been informed about,
and do not object to, the entity not applying the equity method.

(b) The entity’s debt or equity instruments are not traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local and regional markets).

(c) The entity did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organization, for the purpose of issuing any class of
instruments in a public market.

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 (d) The ultimate or any intermediate parent of the entity produces consolidated financial
statements available for public use that comply with Ind ASs.

Points to note under Equity Method

 An investment is accounted for using the equity method from the date on which it becomes
an associate or a joint venture.
 On acquisition of the investment, any difference between the cost of the investment and
the entity’s share of the net fair value of the investee’s identifiable assets and liabilities is
accounted for as follows:
(a) Goodwill relating to an associate or a joint venture is included in the carrying
amount of the investment. Amortisation of that goodwill is not permitted.

(b) Any excess of the entity’s share of the net fair value of the investee’s identifiable
assets and liabilities over the cost of the investment is recognised directly in equity
as capital reserve in the period in which the investment is acquired.

 The most recent available financial statements of the associate or joint venture are used by
the entity in applying the equity method.
 If an entity’s share of losses of an associate or a joint venture equals or exceeds its interest
in the associate or joint venture, the entity discontinues recognising its share of further
losses.
Discontinuing Application of Equity Method

An entity shall discontinue the use of the equity method from the date when its investment ceases
to be an associate or a joint venture as follows:

(a) Subsidiary: If the investment becomes a subsidiary, the entity shall account for its investment
in accordance with Ind AS 103 Business Combinations and Ind AS 110.

(b) Financial Asset: If the retained interest in the former associate or joint venture is a financial
asset, the entity shall measure the retained interest at fair value. The fair value of the retained
interest shall be regarded as its fair value on initial recognition as a financial asset in accordance
with Ind AS 109.

The entity shall recognise in profit or loss any difference between:

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 (i) The fair value of any retained interest and any proceeds from disposing of a part interest in the
associate or joint venture; and

(ii) The carrying amount of the investment at the date the equity method was discontinued.

(c) When an entity discontinues the use of the equity method, the entity shall account for all
amounts previously recognized in other comprehensive income in relation to that investment on
the same basis as would have been required if the investee had directly disposed of the related
assets or liabilities.

Disclosures

No disclosures specified in Ind AS 28.

4. Ind AS 110: Consolidated Financial Statements

The standard establishes principles for the presentation and preparation of consolidated financial
statements when an entity controls one or more other entities.

Requirements of the Standard

 Requires an entity (the parent) that controls one or more other entities (subsidiaries) to
present consolidated financial statements;
 The standard defines the principle of control, and establishes control as the basis for
consolidation;
 The standard sets out how to apply the principle of control to identify whether an investor
controls an investee and therefore must consolidate the investee; and
 The standard sets out the accounting requirements for the preparation of consolidated
financial statements.
Ind AS 110 does not deal with

Accounting requirements for business combinations and their effect on consolidation, including
goodwill arising on a business combination (Ind AS 103 on Business Combinations)

Ind AS 110 does apply to

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  A parent (need not present consolidated financial statements) if it meets all the following
conditions:
(i) It is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity
and all its other owners, including those not otherwise entitled to vote, have been
informed about, and do not object to, the parent not presenting consolidated
financial statements;

(ii) Its debt or equity instruments are not traded in a public market (a domestic or
foreign stock exchange or an over-the-counter market, including local and regional
markets);

(iii) It did not file, nor is it in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose of issuing
any class of instruments in a public market; and

(iv) Its ultimate or any intermediate parent produces financial statements that are
available for public use and comply with IND Ass in which subsidiaries are
consolidated or measured at fair value through profit or loss account.

(v) This Ind AS does not apply to post-employment benefit plans or other long-term
employee benefit plans to which Ind AS 19, Employee Benefits, applies.

(vi) A parent that is an investment entity shall not present consolidated financial
statements if it is required, to measure all of its subsidiaries at fair value through
profit or loss.

Important Definitions

Consolidated Financial Statements - The financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented
as those of a single economic entity.

Control of an Investee - An investor controls an investee when the investor is exposed, or has
rights, to variable returns from its involvement with the investee and has the ability to affect those
returns through its power over the investee.

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Decision Maker - An entity with decision-making rights that is either a principal or an agent for
other parties.

Group - A parent and its subsidiaries.

Non-controlling Interest - Equity in a subsidiary not attributable, directly or indirectly, to a parent.

Parent - An entity that controls one or more entities.

Power - Existing rights that give the current ability to direct the relevant activities.

Protective Rights - Rights designed to protect the interest of the party holding those rights without
giving that party power over the entity to which those rights relate.

Relevant Activities - For the purpose of this Ind AS, relevant activities are activities of the investee
that significantly affect the investee’s returns

Removal Rights - Rights to deprive the decision maker of its decision-making authority.

Subsidiary - An entity that is controlled by another entity.

Determination of Control

 An investor controls an investee when it is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect those returns through its
power over the investee.
 An investor controls an investee if and only if the investor has all the following:
(a) Power over the investee

(b) Exposure, or rights, to variable returns from its involvement with the investee
and

(c) The ability to use its power over the investee to affect the amount of the
investor’s returns

Factors that assist Determination of Control

Consideration of the following factors may assist in making that determination:

1. The purpose and design of the investee

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2. What the relevant activities are and how decisions about those activities are made

3. Whether the rights of the investor give it the current ability to direct the relevant activities

4. Whether the investor is exposed, or has rights, to variable returns from its involvement with
the investee and

5. Whether the investor has the ability to use its power over the investee to affect the amount of
the investor’s returns.

1. The purpose and design of the investee

In assessing the purpose and design of the investee, consider:

 The relevant activities
 How decisions about relevant activities are made
 Who has the current ability to direct those activities
 Who receives returns from those activities.

In some cases, voting rights (i.e. if unrelated to relevant activities) may not be the dominant factor
of control of the investee.

2. Relevant Activities

Relevant activities include (but are not limited to):

 Selling and purchasing of goods or services
 Managing financial assets during their life
 Selecting, acquiring or disposing of assets
 Researching/developing new products or processes
 Determining a funding structure or obtaining funding.

Decisions on relevant activities include (but are not limited to):

 Establishing operating and capital decisions & budgets
 Appointing, remunerating, and terminating an investee’s key management personnel
(KMP) or service providers.

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3. Right to direct the relevant activities

Rights that, either individually or in combination, can give an investor power include (but are not
limited to):
 Rights in the form of voting rights (or potential voting rights) of an investee
 Rights to appoint, reassign or remove members of an investee’s key management personnel
(KMP), or another entity that has the ability to direct the relevant activities
 Rights to direct the investee into (or veto any changes to) transactions for the benefit of the
investor
 Other rights (such as decision-making rights specified in a management contract) that give
the holder the ability to direct the relevant activities.
Special relationships beyond a passive interest
 Sometimes there may be indicators present that an investor has more than simply a passive
interest
 The presence of indicators alone may not satisfy the power criteria, but may add to other
considerations:
o The investee’s KMP who direct relevant activities are current or previous
employees of the investor
o Investee operations are dependent on the investor (e.g. funding, guarantees,
services, materials, etc.)
o A significant portion of the investee activities involve, or are conducted on behalf
of, the investor
o Investee’s exposure or rights to returns is disproportionally greater that it’s voting
(or similar) rights.

Substantive rights
 Only substantive rights (i.e. rights that can be practically exercised) are considered in
assessing power
 Factors to consider whether rights are substantive include (but are not limited to):

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 o Whether there are barriers that prevent the holder from exercising (e.g. financial
penalties, detrimental exercise or conversion price, detrimental terms and
conditions, laws and regulations)
o Whether there is a practical mechanism to facilitate multiple parties exercising
rights
o Whether the party holding the rights would benefit from the exercise of those rights
o Whether the rights are actually exercisable when decisions about relevant activities
need to be made.

Protective rights
 Are designed to protect the interests of the holder, but do not give the holder power over
the investee, e.g. – operational lending covenants; non-controlling interest rights to approve
significant transactions of capital expenditure, debt, and equity; seizure of assets by a
borrower upon default
 Franchise arrangements are generally considered protective rights
Voting rights
Power with a majority of voting rights, occurs where:
 Relevant activities are directed by vote; or
 A majority of the governing body is appointed by vote.
Majority of voting right but no power occurs where:
 Relevant activities are not directed by vote
 Such voting rights are not substantive.

De-facto control
Power without a majority of voting rights, occurs where:
 Contractual arrangements with other vote holders exist
 Relevant activities directed by arrangements held
 The investor has practical ability to unilaterally direct relevant activities, considering all
facts and circumstances:
o Relative size and dispersion of other vote holders
o Potential voting rights held – by the investor and other parties
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 o Rights arising from contractual arrangements
o Any additional facts or circumstances (i.e. voting patterns).

Potential voting rights

 Potential voting rights are only considered if substantive
 Must consider the purpose and design of the instrument.
4. Exposure, or rights, to variable returns (i.e. returns that are not fixed, and vary as a result
of performance of an investee)

Based on the substance of the arrangement (not the legal form) assesses whether investee returns
are variable, and how variable they are. Variable returns can be: only positive; only negative; or
both positive and negative. Including:
 Dividends, other distributions of economic benefits from an investee (e.g. interest from
debt securities issued by the investee) and changes in the value of the investor’s investment
in that investee
 Fees from servicing assets or liabilities, fees and exposure to loss from providing credit or
liquidity support, residual interests in net assets on liquidation, tax benefits, and access to
future liquidity
 Returns unavailable to other interest holders – synergies, economies of scale, cost savings,
sourcing scarce products, access to proprietary knowledge, limiting operations or assets to
enhance the value of the investor’s other assets.
5. Link between power and returns – delegated power

 When an investor with decision-making rights assesses whether it controls an investee, it

determines whether it is a principal or an agent. An agent is primarily engaged to act on behalf
of the principal and therefore does not control the investee when it exercises its decision-
making authority
 An investor may delegate its decision-making authority to an agent on specific issues or on all
relevant activities. When assessing whether it controls an investee, the investor treats the
decision-making rights delegated to its agent as held by itself directly
 A decision maker considers the relationship between itself, the investee and other parties
involved, in particular the following factors below, in determining whether it is an agent:

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 o Scope of decision-making authority
o Rights held by other parties
o Remuneration
o Returns from other interests
RELATIONSHIP WITH OTHER PARTIES

In assessing control an investor considers the nature of relationships with other parties and whether
they are acting on the investor’s behalf (de facto agents). Such a relationship need not have a
contractual arrangement, examples may be:
o The investor’s related parties
o A party whose interest in the investee is through a loan from the investor
o A party who has agreed not to sell, transfer, or encumber its interests in the investee
without the approval of the investor
o A party that cannot fund its operations without investor (sub-ordinated) support
o An investee where the majority of the governing body or key management personal are
the same as that of the investor
o A party with a close business relationship with the investor
CONTROL OF SPECIFIED ASSETS (SILOS)
An investor considers whether it treats a portion of an investee as a deemed separate entity and
whether it controls it. Control exists if and only if, the following conditions are satisfied:
 Specified assets of the investee (and related credit enhancements, if any) are the only source
of payment for specified liabilities of, or specified other interests in, the investee
 Parties other than those with the specified liability do not have rights or obligations related
to the specified assets or to residual cash flows from those assets
 In substance, returns from the specified assets cannot be used by the remaining investee
and none of the liabilities of the deemed separate entity are payable from the assets of the
remaining investee.

Thus, in substance, all the assets, liabilities and equity of that deemed a separate entity are ring-
fenced from the overall investee. Such a deemed separate entity is often called a ‘silo
Continuous Reassessment

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An investor shall reassess whether it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control

Consolidation Procedure

Consolidated financial statements:

 Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent
with those of its subsidiaries.

 Offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the
parent’s portion of equity of each subsidiary (Ind AS 103 explains how to account for any
related goodwill).

 Eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows
relating to transactions between entities of the group (profits or losses resulting from intragroup
transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in
full). Intragroup losses may indicate an impairment that requires recognition in the
consolidated financial statements. Ind AS 12 Income Taxes applies to temporary differences
that arise from the elimination of profits and losses resulting from intragroup transactions.

 Parent and subsidiaries must have uniform accounting policies and reporting dates. If not,
alignment adjustments must be quantified and posted to ensure consistency. Reporting dates
cannot vary by more than 3 months.
 Consolidation of an investee begins from the date the investor obtains control of the investee
and ceases when the investor loses control of the investee.
NON-CONTROLLING INTERESTS

 A parent presents non-controlling interests in the consolidated Balance Sheet within equity,
separately from the equity of the owners of the parent
 Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing
control of the subsidiary are equity transactions.
LOSS OF CONTROL

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 Derecognition of the assets and liabilities of the former subsidiary from the consolidated
Balance Sheet
 Recognition of any investment retained in the former subsidiary at its fair value when control
is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary
in accordance with relevant Ind ASs.
 Where subsidiary constitutes a business, recognise the gain or loss associated with the loss of
control in profit or loss
 Where subsidiary does not constitute a business than Ind As requires:
o Recognition of the gain or loss in profit or loss to the extent of the unrelated investors
interest in the associate or joint venture. The remaining part is eliminated against the
carrying amount of the investment
o Retained interest is an associate or joint venture using the equity method: Recognition
of the gain or loss in profit or loss to the extent of the unrelated investors
o Retained interest accounted for at fair value in accordance with IFRS 9: Recognition
of the gain or loss in full in profit or loss.
INVESTMENT ENTITIES
Investment entities are required to measure interests in subsidiaries at fair value through profit or
loss in accordance with Ind AS 109 Financial Instruments, instead of consolidating them.
Definition of an investment entity
 Obtains funds from one or more investors for the purpose of providing those investor(s) with
investment management services
 Commits to its investor(s) that its business purpose is to invest funds solely for returns from
capital appreciation, investment income, or both
 Measures and evaluates performance of substantially all of its investments on a fair value basis.
Other typical characteristics (not all have to be met, but if not met additional disclosures are
required):
 More than one investment
 More than one investor
 Investors not related parties of the entity
 Ownership interests in the form of equity or similar interests.

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Disclosures

No disclosures are specified in Ind AS 110.

5. Ind AS 111: Joint Arrangements

An entity applies Ind AS 111 to determine the type of joint arrangement in which it is involved.
This standard establishes principles for the financial reporting of parties to joint arrangements.

Requirements of the Standard

A party to the joint arrangement is required to

 Determine the type of joint arrangement in which it is involved

 By assessing its rights and obligations arising from the arrangement.
Definitions

Joint arrangement - An arrangement of which two or more parties have joint control.

Joint control - The contractually agreed sharing of control of an arrangement, which exists only
when decisions about the relevant activities require the unanimous consent of the parties sharing
control.

Joint operation - A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

Joint operator - A party to a joint operation that has joint control of that joint operation.

Joint venture - A joint arrangement whereby the parties that have joint control of the
arrangement have rights to the net assets of the arrangement.

Joint venturer - A party to a joint venture that has joint control of that joint venture.

Party to a joint arrangement - An entity that participates in a joint arrangement, regardless of

whether that entity has joint control of the arrangement.

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Separate vehicle - A separately identifiable financial structure, including separate legal entities or
entities recognised by statute, regardless of whether those entities have a legal personality.

Joint Arrangement

 A joint arrangement binds the parties by way of contractual agreement (does not have to
be in writing, instead it is based on the substance of the dealings between the parties). It
gives two (or more) parties joint control.
 The Ind AS defines joint control as the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities (i.e. activities
that significantly affect the returns of the arrangement) require the unanimous consent of
the parties sharing control.
 This can be explicit or implicit:
o E.g. joint control exists if two parties hold 50% voting rights, and a 51% majority
is required to make decisions regarding relevant activities
o E.g. joint control does not exist if, after considering all contractual agreements, the
minimum required majority of voting rights can be achieved by more than one
combination of parties agreeing together.

 Joint de-facto control is based on the same de-facto control principle as Ind AS 110. Joint
de-facto control only exists if the parties are contractually bound to vote together in relation
to decisions on relevant activities. In assessing joint de-facto control, an entity may
consider previous voting attendance, but not previous voting results (i.e. whether other
parties historically voted the same way as the entity).
 The assessment of substantive and protective rights is based on the same principles as Ind
AS 110:
o Substantive rights (rights that can be practically exercised) are considered in
assessing power
o Protective rights (rights designed to protect the interests of the holder) are not
considered in assessing power

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 Arrangements are not within the scope of Ind AS 111, if joint control (or joint de-facto
control) does not exist (i.e. no contractual unanimous consent required for decisions
that relate to the relevant activities of the arrangement).
 In a joint arrangement, no single party controls the arrangement on its own.
 An arrangement can be a joint arrangement even though not all of its parties have joint
control of the arrangement.
 Joint arrangements are classified either as:
 Joint operation
 Joint venture
 Joint operations - A joint operation is a joint arrangement whereby the parties that have
joint control of the arrangement (i.e. joint operators) have rights to the assets, and
obligations for the liabilities, relating to the arrangement. A joint arrangement that is not
structured through a separate vehicle is a joint operation. The parties are called Joint
Operators.
 Joint ventures - A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement (i.e. joint venturers) have rights to the net assets of the
arrangement. A joint arrangement in which the assets and liabilities relating to the
arrangement are held in a separate vehicle can be either a joint venture or a joint operation.
The parties are called Joint Venturers.
 Joint operations and joint ventures can coexist when the parties undertake different
activities that form part of the same framework agreement.
 Classification depends upon the assessment of the rights and obligations of the parties, and
considers the Joint Arrangement’s
a) Structure: Joint arrangements (JA) not structured through a separate vehicle are
classified as a joint operation. JAs structured through a separate vehicle may be
classified as either a joint operation or joint venture depending on analysis of factors
below.
b) Legal form: The legal form of the separate vehicle may be relevant in determining
whether parties have rights to assets and obligations for liabilities, or the rights to
net assets of the JA. However, must consider whether any contractual terms and/or
other facts and circumstances impact the rights of the parties conferred by the legal

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 form. Partnerships gives parties rights to assets and liabilities, rather than net
assets. JA is therefore classified as a joint operation. Whereas unlimited liability
vehicles do not give parties rights to assets, merely guarantees liabilities. JAs in
such legal forms are therefore classified as a joint venture.
c) Contractual terms: Usually, the rights and obligations agreed in the contractual
terms are consistent, or do not conflict, with those conferred by legal form.
However, parties must assess contractual terms to confirm is in fact the case. On
their own, guarantees provided to third parties, and obligations for unpaid or
additional capital do not result in an obligation for liabilities and hence
classification as a joint operation
d) Other facts and circumstances: Other facts and circumstances may give parties
rights to substantially all economic benefits from the JA or cause the JA to depend
on the parties to continuously settle its liabilities. E.g. JAs designed to primarily
sell output to the parties give the parties substantially all economic benefits, and
means the JA relies on cash flows from the parties to settle its liabilities. JA is
therefore classified as a joint operation.

RECOGNITION AND MEASUREMENT: JOINT CONTROLLING PARTIES

Joint Operator

 A joint operator shall recognise in relation to its interest in a joint operation:

 Its assets, including its share of any assets held jointly;

 Its liabilities, including its share of any liabilities incurred jointly;

 Its revenue from the sale of its share of the output arising from the joint operation;

 Its share of the revenue from the sale of the output by the joint operation; and

 Its expenses, including its share of any expenses incurred jointly.

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  A joint operator shall account for the assets, liabilities, revenues and expenses relating to
its interest in a joint operation in accordance with the Ind ASs applicable to the particular
assets, liabilities, revenues and expenses.

Joint Venturer

 A joint venturer is required to recognise an investment and to account for that investment
using the equity method in accordance with Ind AS 28 Investments in Associates and Joint
Ventures, unless the entity is exempted from applying the equity method as specified in that
standard.
 Party that participates in, but does not have joint control of, a joint venture shall account
for its interest in the arrangement in accordance with Ind AS 109 Financial Instruments
Disclosure Requirements

The disclosure requirements for parties with joint control of a joint arrangement are specified in
Ind AS 112 Disclosure of Interests in Other Entities

Important Points

 An enforceable contractual arrangement is often, in writing, usually in the form of a

contract or documented discussions between the parties
 The contractual arrangement generally deals with such matters as:
 The purpose, activity and duration of the joint arrangement.

 How the members of the board of directors, or equivalent governing body, of the
joint arrangement, are appointed.

 The decision-making process: the matters requiring decisions from the parties, the
voting rights of the parties and the required level of support for those matters. The
decision-making process reflected in the contractual arrangement establishes joint
control of the arrangement

 The capital or other contributions required of the parties.

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 how the parties share assets, liabilities, revenues, expenses or profit or loss relating
to the joint arrangement.

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 Ind ASs Dealing with Assets

1. Ind AS 2: Inventories

Inventories are assets which are

 held for sale in the ordinary course of business [e.g. merchandise held by a retailer],
 in the process of production for sale; [e.g. finished goods, work in progress, and raw
material held by manufacturer], or
 in the form of materials or supplies to be consumed in production or in rendering services.

Ind AS 2 Inventories prescribes the accounting treatment for inventories including issues in
determination of costs and its subsequent recognition as an expense. It deals with all types of
inventories except:

i. financial instruments and

ii. Biological assets related to agricultural activity and agricultural produce at the point of
harvest.

Measurement of Inventories

Inventories are measured at the lower of cost and net realisable value (NRV)

Cost of Inventories

Includes:

 Costs of purchase,

 Costs of conversion

 Other costs to bring inventory into its present condition and location.

Excludes:

 Abnormal waste

 Storage costs (unless necessary for the production process)

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  Admin overheads not related to production

 Selling costs

 Interest cost (where settlement is deferred)

Ind AS 23 Borrowing Costs identifies rare circumstances where borrowing costs can be included.

Net Realisable Value

NRV is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and the estimated costs to make the sale.

Cost of Purchase

The costs of purchase of inventories comprise the purchase price, import duties and other taxes
(other than those subsequently recoverable by the entity from the taxing authorities), and transport,
handling and other costs directly attributable to the acquisition of finished goods, materials and
services. Trade discounts, rebates and other similar items are deducted in determining the costs of
purchase.

Cost of Conversion

The costs of conversion of inventories for manufactured goods include costs directly related to the
units of production, such as direct labor and overheads. The allocation of overheads must be
systematic and rational. The allocation of fixed overheads, i.e. expenses which are fixed in amount
irrespective of quantum of production, should be based on normal production levels. In the periods
of drastically low production certain portion of the fixed overheads should be directly taken to
operations and should not be charged to inventory as these would inflate the amount at which the
inventories are carried. However, in periods of abnormally high production, the amount of fixed
overhead allocated to each unit of production is decreased so that inventories are not measured
above cost.

On the other hand, variable production overheads, i.e. expenses which vary in direct proportion to
quantum of production, are allocated to each unit of production on the basis of the actual use of
the production facilities.

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Other Costs

Beside the purchase cost and the cost of conversion there are certain other costs which are added
to the cost of inventory. However, the prerequisite condition for recognizing these in inventories
is that it should be essential to incur these expenses to bring the inventories to its present location
and condition. Certain examples of such costs would be costs of designing products for specific
customers or non-production overheads.

Cost which are not part of inventories

i. abnormal amounts of wasted materials, labor or other production costs

ii. storage costs, unless those costs are necessary in the production process before a further
production stage;
iii. administrative overheads that do not contribute to bringing inventories to their present
location and condition;
iv. selling costs;
v. Research cost;
vi. Some development cost;
vii. Borrowing cost except for certain circumstances as specified in Ind AS 23 Borrowing Cost.
The above expenses are usually not included in the costs of inventory rather they are expensed in
the period in which they are incurred.

Entity may purchase inventories on deferred settlement terms. In such cases, the arrangement
effectively contains a financing element, that element, for example a difference between the
purchase price for normal credit terms and the amount paid, is recognized as interest expense over
the period of the financing and not recognized in cost of inventories. To illustrate this, suppose an
entity A purchase certain raw material from entity B at Rs. 1,05,000 which it would pay to entity
B after 3 months. The normal credit period allowed by entity B is 1 weak in which case it charges
Rs. 1,00,000 for similar merchandise. In this case, Rs. 1,00,000 will only be considered in the cost
of purchases of material and Rs. 5000 will be regarded as financing charges and expensed in profit
or losses accordingly.

Certain Exception to measurement principle

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Agricultural produce, such as wool, logs and grapes are the harvested product of biological assets
and are recognized as inventory. The cost of such agricultural produce at initial recognition is its
fair value less estimated point-of-sale costs at the point of harvest. Similarly, when an investment
property is reclassified as inventory i.e. when an entity proposes to develop the property for sale,
the property's cost at initial recognition would be its cost less accumulated depreciation or fair
value at the date of transfer, depending on the measurement alternative the entity previously
adopted in accounting for the investment property.

Cost of inventories of a service provider

To the extent that service providers have inventories, they measure them at the costs of their
production. These costs generally include

i. labor and other costs of personnel directly engaged in providing the service, including
supervisory personnel, and
ii. attributable overheads.
The expenses which are not recognized in cost of inventory are

i. Labor and other costs relating to sales and general administrative personnel and non-
attributable overheads as these costs are recognized as expenses in the period in which they
are incurred; and
ii. profit margins.
Joint products and by- products

Sometimes, an entity may produce more than one product simultaneously in a production process.
The inventory valuation in these cases would greatly depend on the significance of the products
produced during the process. Usually, when the each of the products has significant values, they
are considered as joint product and where one product has significant value and others are
relatively insignificant, they are referred to as by- products.

In case of joint products, when the costs of conversion of each product are not separately
identifiable, they are allocated between the products on a rational and consistent basis. Generally,
the allocation is based on the relative sales value of each product either at the stage in the
production process when the products become separately identifiable, or at the completion of
production. Often after the split off, each product may require certain additional costs to be
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 incurred for their completion and ready for sale. The allocation of joint cost, in such case should
take into account the additional individual product costs yet to incurred after the point at which
joint production ceases.

On the other hand, in case of by-products, the by-products are measured at net releasable value
and this value is deducted from the cost of the main product.

Methods of inventory costing permitted under Ind AS

1. Specific Identification

2. First in First out Method (FIFO)

3. Weighted Average Cost

4. Standard Cost

5. Retail Method

6. Net Realizable Value

Disclosures

Inventories should be presented as a line item on the face of the balance sheet.

The financial statements shall disclose:

i. the accounting policies adopted in measuring inventories, including the cost formula used;
ii. the total carrying amount of inventories and the carrying amount in classifications
appropriate to the entity;
iii. the carrying amount of inventories carried at fair value less costs to sell;
iv. the amount of inventories recognised as an expense during the period;
v. the amount of any write-down of inventories recognised as an expense in the period;
vi. the amount of any reversal of any write-down that is recognised as a reduction in the amount
of inventories recognised as expense in the period;
vii. the circumstances or events that led to the reversal of a write-down of inventories; and
viii. the carrying amount of inventories pledged as security for liabilities.

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Classification of inventory (in the Balance Sheet or notes) should be in a manner appropriate to
the entity and applied consistently. The most common classifications are supplies, raw materials,
work-in-progress and finished goods. The inventory of service provider may be described as work
in progress. An entity adopts a format for profit or loss that results in amounts being disclosed
other than the cost of inventories recognised as an expense during the period.

2. Ind AS 16: Property, Plant and Equipment

Property, plant and equipment, hereafter also referred to as PPE, are long lived non-financial and
tangible asset that holds the promise of providing economic benefits to an enterprise for a period
greater than that covered by entity’s current year financial statement. Therefore, these assets are
capitalized and not expenses as when the costs are incurred. The costs of these assets are allocated
over expected periods of benefit.

Biological assets, intangible assets (including computer software, trademarks, licenses),

investment property, investments in subsidiaries, associates and joint ventures are not PPE.
However, land and separable assets used in agricultural activity should be considered as PPE. Ind
AS 16 Property, Plant and Equipment prescribe the accounting treatment for property, plant and
equipment. The standard deals with recognition of the assets, the determination of their carrying
amounts and the depreciation charges and impairment losses to be recognised in relation to them.
However, the standard does not apply in the following cases:

 property, plant and equipment classified as held for sale in accordance with Ind AS 105
Non-current Assets Held for Sale and Discontinued Operations;
 biological assets related to agricultural activity
 the recognition and measurement of exploration and evaluation assets; or
 mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative
resources.

Recognition

Items of property, plant, and equipment should be recognised as assets when it is probable that:

 the future economic benefits associated with the asset will flow to the enterprise; and

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 the cost of the asset can be measured reliably.

This recognition principle is applied to all property, plant, and equipment costs at the time they are
incurred. These costs include costs incurred initially to acquire or construct an item of property,
plant and equipment and costs incurred subsequently to add to, replace part of, or service it.

Ind AS16 does not prescribe the unit of measure for recognition – what constitutes an item of
property, plant, and equipment. Note, however, that if the cost model is used (see below) each part
of an item of property, plant, and equipment with a cost that is significant in relation to the total
cost of the item must be depreciated separately.

Ind AS16 recognises that parts of some items of property, plant, and equipment may require
replacement at regular intervals. The carrying amount of an item of property, plant, and equipment
will include the cost of replacing the part of such an item when that cost is incurred if the
recognition criteria (future benefits and measurement reliability) are met. The carrying amount of
those parts that are replaced is derecognised in accordance with the derecognition provisions of
Ind AS 16

Also, continued operation of an item of property, plant, and equipment (for example, an aircraft)
may require regular major inspections for faults regardless of whether parts of the item are
replaced. When each major inspection is performed, its cost is recognised in the carrying amount
of the item of property, plant, and equipment as a replacement if the recognition criteria are
satisfied. If necessary, the estimated cost of a future similar inspection may be used as an indication
of what the cost of the existing inspection component was when the item was acquired or
constructed.

Initial Measurement

They should be initially recorded at cost. Cost includes all costs necessary to bring the asset to
working condition for its intended use. This would include not only its original purchase price but
also costs of site preparation, delivery and handling, installation, related professional fees for
architects and engineers, and the estimated cost of dismantling and removing the asset and
restoring the site

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If payment for an item of property, plant, and equipment is deferred, interest at a market rate must
be recognised or imputed.

If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature), the
cost will be measured at the fair value unless (a) the exchange transaction lacks commercial
substance or (b) the fair value of neither the asset received nor the asset given up is reliably
measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying
amount of the asset given up.

Measurement Subsequent to Initial Recognition

Ind AS16 permits two accounting models:

i. Cost Model. The asset is carried at cost less accumulated depreciation and impairment.
ii. Revaluation Model. The asset is carried at a revalued amount, being its fair value at the
date of revaluation less subsequent depreciation, provided that fair value can be measured
reliably.

The Revaluation Model

Under the revaluation model, revaluations should be carried out regularly, so that the carrying
amount of an asset does not differ materially from its fair value at the reporting date.

If an item is revalued, the entire class of assets to which that asset belongs should be revalued.

Revalued assets are depreciated in the same way as under the cost model (see below).

If a revaluation results in an increase in value, it should be credited to other comprehensive income

and accumulated in equity under the heading "revaluation surplus" unless it represents the reversal
of a revaluation decrease of the same asset previously recognised as an expense, in which case it
should be recognised as income in profit or loss.

A decrease arising as a result of a revaluation should be recognised as an expense to the extent that
it exceeds any amount previously credited to the revaluation surplus relating to the same asset.

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When a revalued asset is disposed of, any revaluation surplus may be transferred directly to
retained earnings, or it may be left in equity under the heading revaluation surplus. The transfer to
retained earnings should not be made through the Statement of Profit and Loss (that is, no
"recycling" through profit or loss).

Depreciation (Cost and Revaluation Models)

For all depreciable assets:

The depreciable amount (cost less prior depreciation, impairment, and residual value) should be
allocated on a systematic basis over the asset's useful life

The residual value and the useful life of an asset should be reviewed at least at each financial year-
end and, if expectations differ from previous estimates, any change is accounted for prospectively
as a change in estimate under Ind AS 8.

The depreciation method used should reflect the pattern in which the asset's economic benefits are
consumed by the enterprise

The depreciation method should be reviewed at least annually and, if the pattern of consumption
of benefits has changed, the depreciation method should be changed prospectively as a change in
estimate under Ind AS 8.

Depreciation should be charged to the Statement of Profit and Loss, unless it is included in the
carrying amount of another asset

Depreciation begins when the asset is available for use and continues until the asset is
derecognised, even if it is idle.

Recoverability of the Carrying Amount

Ind AS 36 requires impairment testing and, if necessary, recognition for property, plant, and
equipment. An item of property, plant, or equipment shall not be carried at more than recoverable

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amount. Recoverable amount is the higher of an asset's fair value less costs to sell and its value in
use.

Any claim for compensation from third parties for impairment is included in profit or loss when
the claim becomes receivable.

Derecognition (Retirements and Disposals)

An asset should be removed from the Balance Sheet on disposal or when it is withdrawn from use
and no future economic benefits are expected from its disposal. The gain or loss on disposal is the
difference between the proceeds and the carrying amount and should be recognised in the
Statement of Profit and Loss.

3. Ind AS 40: Investment Property

Investment property is property (land or a building—or part of a building—or both) held (by the
owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both,
rather than for:

(a) use in the production or supply of goods or services or for administrative purposes; or

(b) sale in the ordinary course of business.

Examples of investment property:

 Land held for long-term capital appreciation

 Land held for undecided future use
 Building leased out under an operating lease
 Vacant building held to be leased out under an operating lease
 Property that is being constructed or developed for future use as investment property

The following are not investment property and, therefore, are outside the scope of Ind AS 40

 property held for use in the production or supply of goods or services or for administrative
purposes;

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  property held for sale in the ordinary course of business or in the process of construction
of development for such sale (Ind AS 2 Inventories);
 property being constructed or developed on behalf of third parties
 owner-occupied property (Ind AS 16 Property, Plant and Equipment), including property
held for future use as owner-occupied property, property held for future development and
subsequent use as owner-occupied property, property occupied by employees and owner-
occupied property awaiting disposal; and
 property leased to another entity under a finance lease.

Recognition

Investment property shall be recognised as an asset when, and only when:

(a) it is probable that the future economic benefits that are associated with the investment property
will flow to the entity; and

(b) the cost of the investment property can be measured reliably

Measurement

An investment property shall be measured initially at its cost. Transaction costs shall be included
in the initial measurement.

The Standard requires Investment Properties to be measured subsequently in accordance with cost
model as prescribed in Ind AS 16 for all investment properties other than those that meet the criteria
of classification as held for sale as specified in Ind AS 105. Unlike, Ind AS, IFRS permit use of
fair value model except in some situations for measurement of investment after initial recognition.

An investment property shall be derecognised (eliminated from the Balance Sheet) on disposal or
when the investment property is permanently withdrawn from use and no future economic benefits
are expected from its disposal.

Gains or losses arising from the retirement or disposal of investment property shall be determined
as the difference between the net disposal proceeds and the carrying amount of the asset and shall
be recognised in profit or loss in the period of the retirement or disposal.

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Compensation from third parties for investment property that was impaired, lost or given up shall
be recognised in profit or loss when the compensation becomes receivable
Disclosures

An entity must disclose:

(a) its accounting policy for measurement of investment property.

(b) when classification is difficult, the criteria it uses to distinguish investment property
from owner-occupied property and from property held for sale in the ordinary
course of business.

(c) the extent to which the fair value of investment property (as measured or disclosed
in the financial statements) is based on a valuation by an independent valuer who
holds a recognised and relevant professional qualification and has recent experience
in the location and category of the investment property being valued. If there has
been no such valuation, that fact shall be disclosed.

(d) the amounts recognised in profit or loss for:

 rental income from investment property;

 direct operating expenses (including repairs and maintenance) arising from

investment property that generated rental income during the period; and

 direct operating expenses (including repairs and maintenance) arising from

investment property that did not generate rental income during the period.

(e) the existence and amounts of restrictions on the realisability of investment property
or the remittance of income and proceeds of disposal.

(f) contractual obligations to purchase, construct or develop investment property or for

repairs, maintenance or enhancements.

(g) the depreciation methods used;

(h) the useful lives or the depreciation rates used;

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(i) the gross carrying amount and the accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period;

(j) a reconciliation of the carrying amount of investment property at the beginning and
end of the period, showing the following:

 additions, disclosing separately those additions resulting from acquisitions

and those resulting from subsequent expenditure recognised as an asset;

 additions resulting from acquisitions through business combinations;

 assets classified as held for sale or included in a disposal group classified as

held for sale in accordance with Ind AS 105 and other disposals;

 depreciation;

 the amount of impairment losses recognised, and the amount of impairment

losses reversed, during the period in accordance with Ind AS 36;

 the net exchange differences arising on the translation of the financial

statements into a different presentation currency, and on translation of a
foreign operation into the presentation currency of the reporting entity;

 transfers to and from inventories and owner-occupied property; and

 other changes; and

(k) the fair value of investment property. In the exceptional cases when an entity cannot
determine the fair value of the investment property reliably, it shall disclose:

 a description of the investment property;

 an explanation of why fair value cannot be determined reliably; and

 if possible, the range of estimates within which fair value is highly likely to lie.

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4. Ind AS 116: Leases

Ind AS 116 was notified by Ministry of Corporate Affairs on 30 March 2019 and it is applicable
for annual reporting periods beginning on or after 1 April 2019.

Objective

Ind AS 116 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and faithful representation of the transactions by lessees and lessors. This information
gives a basis for users of financial statements to assess the effect that leases have on the financial
position, financial performance and cash flows of an entity.

Scope

The standard applies to all leases, including leases of right-of-use assets in a sublease, except for
Leases to explore for or use minerals, oil, natural gas and similar nonregenerative resource, Leases
of biological assets, Service concession arrangements, Licenses of intellectual property granted by
a lessor and Rights held by a lessee under licensing agreements within the scope of Ind AS 38,
Intangible Asset. Also, a lessee can elect not to apply the recognition, measurement and
presentation requirements of Ind AS 116 to short-term leases; and low value leases by disclosing
that fact and providing certain information to make the effect of the exemption known to users of
its financial statements.

Identifying a lease

When entering a contract, an entity shall assess whether the contract is, or contains, a lease. A
contract is, or contains, a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. Below conditions need to be fulfilled if
the contract is to be classified as lease:

 Identified asset.

 Lessee obtains substantially all of the economic benefits.

 Lessee directs the use.

Accounting by Lessee:

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Initial recognition:

 A Lessee will recognise assets and liabilities for all leases for a term of more than 12
months, unless the underlying asset is of low value.

 A Lessee is required to recognise a right of use asset representing its right to use the
underlying leased asset and a lease liability representing its obligations to make lease
payments.

 A lessee will measure right-of-use assets similarly to other non-financial assets (such as
property, plant and equipment) and lease liabilities similarly to other financial liabilities.

 A lessee recognises depreciation as per IND AS 16 Property plant and equipment, of the
right-of-use asset and interest on the lease liability. Lease liability = Present value of lease
rentals + present value of expected payments at the end of lease. The lease liability will be
amortised using the effective interest rate method. Right to use asset = Lease liability +
lease payments (advance)-lease incentives to be received if any initial + initial direct costs
+ cost of dismantling/ restoring etc.

 A lessee shall either present in the balance sheet, or disclose in the notes:
o Right-of-use assets separately from other assets.
o Lease liabilities separately from other liabilities.

Accounting by Leasor

 A lessor shall classify each of its leases as either an operating lease or a finance lease.

 Whether a lease is a finance lease or an operating lease depends on the substance of the
transaction rather than the form of the contract. A lease is classified as a finance lease if it
transfers substantially all the risks and rewards. incidental to ownership of an underlying
asset. A lease is classified as an operating lease if it does not transfer substantially all the
risks and rewards incidental to ownership of an underlying asset.

 For operating leases, lessors continue to recognize the underlying asset and add any initial
direct costs incurred connection in with obtaining the lease to the carrying amount of the
underlying asset. Lessor shall recognise lease payments from operating leases as income

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 on either a straight-line basis or another systematic basis, if that basis is more representative
of the pattern in which benefit from the use of the underlying asset is diminished

 For finance leases, lessors derecognize the underlying asset and recognize a net investment
in the lease. Leasor shall recognise finance income over the lease term, based on a pattern
reflecting a constant periodic rate of return on the lessor’s net investment in Lease.

 Any selling profit or loss is recognized at lease commencement.

Lease modification

A lessee accounts for a lease modification as a separate lease if both of the following conditions
exist:

– the modification increases the scope of the lease by adding the right to-use one or
more underlying assets; and
– the consideration for the lease increases by an amount equivalent to the stand-alone
price for the increase in scope and any appropriate adjustments to that stand-alone
price to reflect the circumstances of the particular contract.

For a lease modification that is not a separate lease, at the effective date of the modification, the
lessee accounts for the lease modification by remeasuring the lease liability using a discount rate
determined at that date and:

– for lease modifications that decrease the scope of the lease, the lessee decreases the
carrying amount of the right-of-use asset to reflect the partial or full termination of
the lease, and recognises a gain or loss that reflects the proportionate decrease in
scope; and
– for all other lease modifications, the lessee makes a corresponding adjustment to
the right-of-use asset.

Presentation

Lessor shall present underlying assets subject to operating leases in its balance sheet according to
the nature of the underlying asset.

Disclosures

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To ensure lessees provide comprehensive information on lease-related financial matters, following
minimum disclosures has been prescribed.

 Lessees must disclose lease-related information in their financial statements to help users
assess the impact of leases on financial position, performance, and cash flows.

 Information should be presented in a single note or section, avoiding duplication if already

presented elsewhere.

 Following are the disclosures-

 Depreciation of right-of-use assets,

 Interest on lease liabilities,

 Expenses for short-term and low-value leases,

 Variable lease payments,

 Sublease income,

 Total cash outflow for leases,

 Additions to right-of-use assets,

 Gains/losses from sale and leaseback, and

 Carrying amount of assets.

 Disclosures are typically in tabular format, including costs included in the carrying amount
of other assets.

 If short-term lease commitments differ from disclosed expenses, they must be separately
reported.

 Additional disclosures may include the nature of leasing activities, potential cash outflows,
lease restrictions, and sale and leaseback transactions.

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5. Ind AS 38: Intangible Assets

An intangible asset is an identifiable non-monetary asset without physical substance.

The three critical attributes of an intangible asset are:

I. identifiability

II. control (power to obtain benefits from the asset)

III. future economic benefits (such as revenues or reduced future costs)

An intangible asset is identifiable when it:

 is separable (capable of being separated and sold, transferred, licensed, rented, or

exchanged, either individually or as part of a package) or

 arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations

Recognition and Measurement

Initial Recognition
The recognition of an item as an intangible asset requires an entity to demonstrate that the item
meets:
(a) The definition of an intangible asset; and
(b) The recognition criteria.
This requirement applies to costs incurred initially to acquire or internally generate an intangible
asset and those incurred subsequently to add to, replace part of, or service it.

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; and
b) The cost of the asset can be measured reliably.
The probability recognition criterion is always considered to be satisfied for intangible assets that
are acquired separately or in a business combination.

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The probability recognition criterion is always considered to be satisfied for intangible assets that
are acquired separately or in a business combination.
An intangible asset shall be measured initially at cost.
The cost of a separately acquired intangible asset comprises:
a) its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates; and
b) any directly attributable cost of preparing the asset for its intended use.
In accordance with Ind AS 103 Business Combinations, if an intangible asset is acquired in a
business combination, the cost of that intangible asset is its fair value at the acquisition date. If an
asset acquired in a business combination is separable or arises from contractual or other legal
rights, sufficient information exists to measure reliably the fair value of the asset.
(a) In accordance with this Standard and Ind AS 103, an acquirer recognises at the acquisition date,
separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had
been recognised by the acquire before the business combination. This means that the acquirer
recognises as an asset separately from goodwill an in-process research and development project of
the acquiree if the project meets the definition of an intangible asset.
Internally generated intangible assets
Internally generated goodwill shall not be recognised as an asset.
No intangible asset arising from research (or from the research phase of an internal project) shall
be recognised. Expenditure on research (or on the research phase of an internal project) shall be
recognised as an expense when it is incurred.

An intangible asset arising from development (or from the development phase of an internal
project) shall be recognised if, and only if, an entity can demonstrate all of the following:
(a) the technical feasibility of completing the intangible asset so that it will be available
for use or sale.
(b) its intention to complete the intangible asset and use or sell it.
(c) its ability to use or sell the intangible asset.
(d) how the intangible asset will generate probable future economic benefits. Among
other things, the entity can demonstrate the existence of a market for the output of

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 the intangible asset or the intangible asset itself or, if it is to be used internally, the
usefulness of the intangible asset.
(e) the availability of adequate technical, financial and other resources to complete the
development and to use or sell the intangible asset.
(f) its ability to measure reliably the expenditure attributable to the intangible asset
during its development.
Internally generated brands, mastheads, publishing titles, customer lists and items similar in
substance shall not be recognised as intangible assets.

Measurement after recognition

An entity shall choose either the cost model or the revaluation model as its accounting policy. If
an intangible asset is accounted for using the revaluation model, all the other assets in its class
shall also be accounted for using the same model, unless there is no active market for those assets.

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

Revaluation model: After initial recognition, an intangible asset shall be carried at a revalued
amount, being its fair value at the date of the revaluation less any subsequent accumulated
amortisation and any subsequent accumulated impairment losses.

For the purpose of revaluations under this Standard, fair value shall be determined by reference to
an active market. Revaluations shall be made with such regularity that at the end of the reporting
period the carrying amount of the asset does not differ materially from its fair value.

Definition of active market and useful life

An active market is a market in which all the following conditions exist:
(a) the items traded in the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.

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If an intangible asset’s carrying amount is increased as a result of a revaluation, the increase shall
be recognised in other comprehensive income and accumulated in equity under the heading of
revaluation surplus. However, the increase shall be recognised in profit or loss to the extent that it
reverses a revaluation decrease of the same asset previously recognised in profit or loss. If an
intangible asset’s carrying amount is decreased as a result of a revaluation, the decrease shall be
recognised in profit or loss. However, the decrease shall be recognised in other comprehensive
income to the extent of any credit balance in the revaluation surplus in respect of that asset.

Useful life
An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if
finite, the length of, or number of production or similar units constituting, that useful life. An
intangible asset shall be regarded by the entity as having an indefinite useful life when, based on
an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the
asset is expected to generate net cash inflows for the entity.

Useful life is:

(a) the period over which an asset is expected to be available for use by an entity; or
(b) the number of production or similar units expected to be obtained from the asset
by an entity.

The useful life of an intangible asset that arises from contractual or other legal rights shall not
exceed the period of the contractual or other legal rights, but may be shorter depending on the
period over which the entity expects to use the asset. If the contractual or other legal rights are
conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include
the renewal period(s) only if there is evidence to support renewal by the entity without significant
cost. To determine whether an intangible asset is impaired, an entity applies Ind AS 36

Intangible assets with finite useful lives

The depreciable amount of an intangible asset with a finite useful life shall be allocated on a
systematic basis over its useful life. Depreciable amount is the cost of an asset, or other amount
substituted for cost, less its residual value. Amortisation shall begin when the asset is available for

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use, i.e. when it is in the location and condition necessary for it to be capable of operating in the
manner intended by management. Amortisation shall cease at the earlier of the date that the asset
is classified as held for sale (or included in a disposal group that is classified as held for
sale) in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued
Operations and the date that the asset is derecognised. The amortisation method used shall reflect
the pattern in which the asset's future economic benefits are expected to be consumed by the entity.
If that pattern cannot be determined reliably, the straight-line method shall be used. The
amortisation charge for each period shall be recognised in profit or loss unless this or another
Standard permits or requires it to be included in the carrying amount of another asset.
The residual value of an intangible asset is the estimated amount that an entity would currently
obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were
already of the age and in the condition expected at the end of its useful life. The residual value of
an intangible asset with a finite useful life shall be assumed to be zero unless:
a) There is a commitment by a third party to purchase the asset at the end of its useful life; or
b) There is an active market for the asset and:
(i) Residual value can be determined by reference to that market; and
(ii) It is probable that such a market will exist at the end of the asset’s useful life.

The amortisation period and the amortisation method for an intangible asset with a finite useful
life shall be reviewed at least at each financial year-end. If the expected useful life of the asset is
different from previous estimates, the amortisation period shall be changed accordingly. If there
has been a change in the expected pattern of consumption of the future economic benefits
embodied in the asset, the amortization method shall be changed to reflect the changed pattern.
Such changes shall be accounted for as changes in accounting estimates in accordance with Ind
AS 8.

Intangible assets with indefinite useful lives

An intangible asset with an indefinite useful life shall not be amortised. In accordance with Ind AS
36 Impairment of Assets, an entity is required to test an intangible asset with an indefinite useful
life for impairment by comparing its recoverable amount with its carrying amount
(a) Annually, and

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(b) Whenever there is an indication that the intangible asset may be impaired.
The useful life of an intangible asset that is not being amortised shall be reviewed each period to
determine whether events and circumstances continue to support an indefinite useful life
assessment for that asset. If they do not, the change in the useful life assessment from indefinite to
finite shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8
Accounting Policies, Changes in Accounting Estimates and Errors.

6. Ind AS 36: Impairment of Assets

An asset is impaired when its carrying amount exceeds its recoverable amount. Ind AS 36 is
intended to ensure that assets are carried at no more than their recoverable amount, and to define
how recoverable amount is calculated.

Ind AS 36 applies to all assets except:

 inventories (see Ind AS 2)

 deferred tax assets (see Ind AS 12)
 assets arising from employee benefits (see Ind AS 19)
 financial assets (see Ind AS 109)
 certain agricultural assets carried at fair value less cost to sell (see Ind AS 41)
 insurance contract assets (see Ind AS 104)
 assets held for sale (see Ind AS 105)

Therefore, Ind AS 36 applies to (among other assets):

 land
 buildings
 machinery and equipment
 investment properties
 intangible assets
 goodwill
 investments in subsidiaries, associates, and joint ventures

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  assets carried at revalued amounts under Ind AS 16 and Ind AS 38

Key definitions:

Carrying amount: the amount at which an asset is recognised in the Balance Sheet after deducting
accumulated depreciation and accumulated impairment losses

Recoverable amount: The higher of an asset's fair value less costs to sell (sometimes called net
selling price) and its value in use

Fair value: The amount obtainable from the sale of an asset in a bargained transaction between
knowledgeable, willing parties.

Value in use: The discounted present value of estimated future cash flows expected to arise from:

 the continuing use of an asset, and from

 its disposal at the end of its useful life.

Identifying an Asset That May Be Impaired

At each reporting date, review all assets to look for any indication that an asset may be impaired
(its carrying amount may be in excess of the greater of its net selling price and its value in use).
Ind AS 36 has a list of external and internal indicators of impairment. If there is an indication that
an asset may be impaired, then you must calculate the asset's recoverable amount.

The recoverable amounts of the following types of intangible assets should be measured annually
whether or not there is any indication that it may be impaired. In some cases, the most recent
detailed calculation of recoverable amount made in a preceding period may be used in the
impairment test for that asset in the current period:

 an intangible asset with an indefinite useful life.

 an intangible asset not yet available for use.
 goodwill acquired in a business combination.

Determining Recoverable Amount

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  If fair value less costs to sell or value in use is more than carrying amount, it is not necessary
to calculate the other amount. The asset is not impaired.
 If fair value less costs to sell cannot be determined, then recoverable amount is value in
use.
 For assets to be disposed of, recoverable amount is fair value less costs to sell.

Fair Value less Costs to Sell

 If there is a binding sale agreement, use the price under that agreement less costs of
disposal.
 If there is an active market for that type of asset, use market price less costs of disposal.
Market price means current bid price if available, otherwise the price in the most recent
transaction.
 If there is no active market, use the best estimate of the asset's selling price less costs of
disposal.
 Costs of disposal are the direct added costs only (not existing costs or overhead).

Value in Use

The calculation of value in use should reflect the following elements:

 an estimate of the future cash flows the entity expects to derive from the asset in an arm's
length transaction;
 expectations about possible variations in the amount or timing of those future cash flows;
 the time value of money, represented by the current market risk-free rate of interest;
 the price for bearing the uncertainty inherent in the asset; and
 other factors, such as illiquidity, that market participants would reflect in pricing the future
cash flows the entity expects to derive from the asset.

Cash flow projections should be based on reasonable and supportable assumptions, the most recent
budgets and forecasts, and extrapolation for periods beyond budgeted projections. Ind AS 36
presumes that budgets and forecasts should not go beyond five years; for periods after five years,
extrapolate from the earlier budgets. Management should assess the reasonableness of its

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assumptions by examining the causes of differences between past cash flow projections and actual
cash flows.

Cash flow projections should relate to the asset in its current condition – future restructurings to
which the entity is not committed and expenditures to improve or enhance the asset's performance
should not be anticipated.

Estimates of future cash flows should not include cash inflows or outflows from financing
activities, or income tax receipts or payments.

Discount Rate

In measuring value in use, the discount rate used should be the pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the asset.

The discount rate should not reflect risks for which future cash flows have been adjusted and
should equal the rate of return that investors would require if they were to choose an investment
that would generate cash flows equivalent to those expected from the asset.

For impairment of an individual asset or portfolio of assets, the discount rate is the rate the
company would pay in a current market transaction to borrow money to buy that specific asset or
portfolio.

If a market-determined asset-specific rate is not available, a surrogate must be used that reflects
the time value of money over the asset's life as well as country risk, currency risk, price risk, and
cash flow risk. The following would normally be considered:

 the enterprise's own weighted average cost of capital;

 the enterprise's incremental borrowing rate; and
 other market borrowing rates.

Recognition of an Impairment Loss

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  An impairment loss should be recognised whenever recoverable amount is below carrying
amount.
 The impairment loss is an expense in the Statement of Profit and Loss (unless it relates to
a revalued asset where the value changes are recognised directly in equity).
 Adjust depreciation for future periods.

Cash-Generating Units

Recoverable amount should be determined for the individual asset, if possible.

If it is not possible to determine the recoverable amount (fair value less cost to sell and value in
use) for the individual asset, then determine recoverable amount for the asset's cash-generating
unit (CGU). The CGU is the smallest identifiable group of assets:

 that generates cash inflows from continuing use, and

 that are largely independent of the cash inflows from other assets or groups of assets.

Impairment of Goodwill

Goodwill should be tested for impairment annually.

To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating units,
or groups of cash-generating units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units or groups of units. Each unit or group of units to which the goodwill is so allocated shall:

 represent the lowest level within the entity at which the goodwill is monitored for internal
management purposes; and
 not be larger than a segment based on either the entity's primary or the entity's secondary
reporting format determined in accordance with Ind AS 108 Operating Segments.

A cash-generating unit to which goodwill has been allocated shall be tested for impairment at least
annually by comparing the carrying amount of the unit, including the goodwill, with the
recoverable amount of the unit:

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  If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and
the goodwill allocated to that unit is not impaired.
 If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity
must recognise an impairment loss.

The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of
units) in the following order:

 first, reduce the carrying amount of any goodwill allocated to the cash-generating unit
(group of units); and
 then, reduce the carrying amounts of the other assets of the unit (group of units) pro rata
on the basis.

The carrying amount of an asset should not be reduced below the highest of:

 its fair value less costs to sell (if determinable);

 its value in use (if determinable); and
 zero.

If the preceding rule is applied, further allocation of the impairment loss is made pro rata to the
other assets of the unit (group of units).

Reversal of an Impairment Loss

 Same approach as for the identification of impaired assets: assess at each Balance Sheet
date whether there is an indication that an impairment loss may have decreased. If so,
calculate recoverable amount.
 No reversal for unwinding of discount.
 The increased carrying amount due to reversal should not be more than what the
depreciated historical cost would have been if the impairment had not been recognised.
 Reversal of an impairment loss is recognised as income in the Statement of Profit and Loss.
 Adjust depreciation for future periods.
 Reversal of an impairment loss for goodwill is prohibited.

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7. Ind AS 23: Borrowing Costs

Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing
of funds. Ind AS 23 prescribes the accounting treatment for borrowing costs.

Key Definitions

Borrowing cost is:

 interest expense (calculated by the effective interest method under Ind AS 39),

 finance charges in respect of finance leases recognised in accordance with Ind AS 116
Leases, and

 exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs

Borrowing cost does not include amortisation of ancillary costs incurred in connection with
borrowings. Nor does it include actual or imputed cost of equity capital, including any preferred
capital not classified as a liability pursuant to Ind AS 32.

A qualifying asset is an asset that takes a substantial period of time to get ready for its intended
use. That could be property, plant, and equipment and investment property during the construction
period, intangible assets during the development period, or "made-to-order" inventories.

With regard to exchange difference required to be treated as borrowing costs:

a) the adjustment should be of an amount which is equivalent to the extent to which

the exchange loss does not exceed the difference between the cost of borrowing in
functional currency when compared to the cost of borrowing in a foreign currency.

b) where there is an unrealised exchange loss which is treated as an adjustment to

interest and subsequently there is a realised or unrealised gain in respect of the
settlement or translation of the same borrowing, the gain to the extent of the loss
previously recognised as an adjustment should also be recognised as an adjustment
to interest.

Recognition

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  An entity shall capitalize borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that asset.

 An entity shall recognise other borrowing costs as an expense in the period in which it
incurs them.

 To the extent that an entity borrows funds specifically for the purpose of obtaining a
qualifying asset, the entity shall determine the amount of borrowing costs eligible for
capitalisation as the actual borrowing costs incurred on that borrowing during the period
less any investment income on the temporary investment of those borrowings.

 To the extent that an entity borrows funds generally and uses them for the purpose of
obtaining a qualifying asset, the entity shall determine the amount of borrowing costs
eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset.
The capitalisation rate shall be the weighted average of the borrowing costs applicable to
the borrowings of the entity that are outstanding during the period, other than borrowings
made specifically for the purpose of obtaining a qualifying asset.

 The amount of borrowing costs that an entity capitalizes during a period shall not exceed
the amount of borrowing costs it incurred during that period

An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the
commencement date. The commencement date for capitalisation is the date when the entity first
meets all of the following conditions:

a) it incurs expenditures for the asset;

b) it incurs borrowing costs; and

c) it undertakes activities that are necessary to prepare the asset for its intended use or sale.

An entity shall suspend capitalisation of borrowing costs during extended periods in which it
suspends active development of a qualifying asset.

An entity shall cease capitalising borrowing costs when substantially all the activities necessary to
prepare the qualifying asset for its intended use or sale are completed.

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8. Ind AS 41 Agriculture
Ind AS 41 prescribes the accounting treatment and disclosures related to agricultural activity for
the following:

a) Biological assets

b) Agricultural produce at the point of harvest

c) Government grants covered in para 34-35 of Ind AS 41

The standard does not apply to:

a) land related to agricultural activity [ Ind AS 16] or

b) Intangible assets related to agricultural activity [ Ind AS 38]

Key concepts

Agricultural activity is the management by an entity of the biological transformation of biological

assets for sale, into agricultural produce, or into additional biological assets.

Biological assets are living animals and plants.

Agricultural produce is the harvested product from biological assets.

Point of sale costs: Commissions to brokers and dealers, levies by regulatory agencies and
commodity exchanges, and transfer taxes. Point of sale costs do not include transport and other
costs necessary to get assets to a market

Harvest is the detachment of produce from a biological asset or the cessation of a biological asset’s
life processes.

Accounting Treatment

An enterprise should recognise a biological asset or agriculture produce only when the enterprise
controls the asset as a result of part events, it is probable that future economic benefits will flow
to the enterprise, and the fair value or cost of the asset can be measured reliably.

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Biological assets should be measured on initial recognition and at subsequent reporting dates at
fair value less estimated point-of-sale costs, unless fair value cannot be reliably measured.

Agricultural produce should be measured at fair value less estimated point-of-sale costs at the point
of harvest. Because harvested produce is a marketable commodity, there is no 'measurement
reliability' exception for produce.

The gain on initial recognition of biological assets at fair value, and changes in fair value of
biological assets during a period, are reported in net profit or loss.

A gain on initial recognition of agricultural produce at fair value should be included in net profit
or loss for the period in which it arises.

All costs related to biological assets that are measured at fair value are recognised as expenses
when incurred, other than costs to purchase biological assets.

Ind AS 41 presumes that fair value can be reliably measured for most biological assets. However,
that presumption can be rebutted for a biological asset that, at the time it is initially recognised in
financial statements, does not have a quoted market price in an active market and for which other
methods of reasonably estimating fair value are determined to be clearly inappropriate or
unworkable. In such a case, the asset is measured at cost less accumulated depreciation and
impairment losses. But the enterprise must still measure all of its other biological assets at fair
value. If circumstances change and fair value becomes reliably measurable, a switch to fair value
less point-of-sale costs is required.

The following guidance is provided on the measurement of fair value:

 a quoted market price in an active market for a biological asset or agricultural produce is
the most reliable basis for determining the fair value of that asset. If an active market does
not exist, Ind AS 41 provides guidance for choosing another measurement basis. First
choice would be a market-determined price such as the most recent market price for that
type of asset, or market prices for similar or related assets;

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  if reliable market-based prices are not available, the present value of expected net cash
flows from the asset should be use, discounted at a current market-determined pre-tax rate;
 in limited circumstances, cost is an indicator of fair value, where little biological
transformation has taken place or the impact of biological transformation on price is not
expected to be material; and
 the fair value of a biological asset is based on current quoted market prices and is not
adjusted to reflect the actual price in a binding sale contract that provides for delivery at a
future date.

Other Issues

The change in fair value of biological assets is part physical change (growth, etc.) and part unit
price change. Separate disclosure of the two components is encouraged, not required.

Fair value measurement stops at harvest. Ind AS 2, Inventories, applies after harvest.

Agricultural land is accounted for under Ind AS 16, Property, Plant and Equipment. However,
biological assets that are physically attached to land are measured as biological assets separate
from the land.

Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for under
Ind AS 38, Intangible Assets.

Government Grants

Unconditional government grants received in respect of biological assets measured at fair value
are reported as income when the grant becomes receivable.

If such a grant is conditional (including where the grant requires an entity not to engage in certain
agricultural activity), the entity recognises it as income only when the conditions have been met.

Disclosure

Disclosure requirements in Ind AS 41 include:

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  description of an enterprise's biological assets, by broad group
 change in fair value during the period
 fair value of agricultural produce harvested during the period
 description of the nature of an enterprise's activities with each group of biological assets
and non-financial measures or estimates of physical quantities of output during the period
and assets on hand at the end of the period
 information about biological assets whose title is restricted or that are pledged as security
 commitments for development or acquisition of biological assets
 financial risk management strategies
 methods and assumptions for determining fair value
 reconciliation of changes in the carrying amount of biological assets, showing separately
changes in value, purchases, sales, harvesting, business combinations, and foreign
exchange differences

Disclosure of a quantified description of each group of biological assets, distinguishing between

consumable and bearer assets or between mature and immature assets, is encouraged but not
required.

If fair value cannot be measured reliably, additional required disclosures include:

 description of the assets

 an explanation of the circumstances
 if possible, a range within which fair value is highly likely to fall
 gain or loss recognised on disposal
 depreciation method
 useful lives or depreciation rates
 gross carrying amount and the accumulated depreciation, beginning and ending

If the fair value of biological assets previously measured at cost now becomes available, certain
additional disclosures are required.

Disclosures relating to government grants include the nature and extent of grants, unfulfilled
conditions, and significant decreases in the expected level of grants.

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9. Ind AS 105 Non- Current Assets Held for Sale and Discontinued Operations

Non-current assets are those assets that do not meet the criteria of current asset as defined in Ind
AS 1. The standard lays down the criteria to be met for classification of such assets as held for sale
and principle governing measurement of such assets and requisite disclosures.

SCOPE

This standard applies to all recognised non-current assets and disposal groups of an entity that are:
 held for sale; or
 held for distribution to owners.
Assets classified as non-current in accordance with Ind AS 1 Presentation of Financial Statements
shall not be reclassified as current assets until they meet the criteria of Ind AS 105. If an entity
disposes of a group of assets, possibly with directly associated liabilities (i.e. an entire cash-
generating unit), together in a single transaction and if a non-current asset in the group meets the
measurement requirements in Ind AS 105, then Ind AS 105 applies to the group as a whole.
However, non-current assets to be abandoned cannot be classified as held for sale.
Exclusions to measurement requirements of Ind AS 105 (Disclosure requirements still to be
complied with):
 Deferred tax assets (Ind AS 12 Income Taxes)
 Assets arising from employee benefits (Ind AS 19 Employee Benefits)
 Financial assets in the scope of Ind AS 109 Financial Instruments
 Non-current assets that are measured at fair value less cost to sale (Ind AS 41 Agriculture)
 Contractual rights under insurance contracts (Ind AS 104 Insurance Contracts).
Important Terms
Cash-generating unit – The smallest identifiable group of assets that generates cash inflows that
are largely independent of the cash inflows from other assets or groups of assets.

Discontinued operation – A component of an entity that either has been disposed of or is classified
as held for sale and either:
 Represents a separate major line of business or geographical area
 Is part of a single coordinated plan to dispose of a separate major line of business or
geographical area of operations

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  Is a subsidiary acquired exclusively with a view to resale.

Classification Of Non-Current Assets (Or Disposal Groups) Held for Sale or Distribution to
Owners
Entity should classify a non-current asset (or disposal group) as held for sale if its carrying amount
will be recovered principally through a sale transaction rather than through continuing use. The
following criteria must be met:
 The asset (or disposal group) is available for immediate sale
 The terms of asset sale must be usual and customary for sales of such assets
 The sale must be highly probable
 Management is committed to a plan to sell the asset
 Asset must be actively marketed for a sale at a reasonable price in relation to its current
fair value
 Sale should be completed within one year from classification date
 Sale transactions include exchanges of non-current assets for other non-current assets when
the exchange has commercial substance in accordance with Ind AS 16 Property, Plant and
Equipment
 When an entity acquires a non-current asset exclusively with a view to its subsequent
disposal, it shall classify the non-current asset as held for sale at the acquisition date only
if the one-year requirement is met
 There are special rules for subsidiaries acquired with a view for resale.
It should be noted herein that the classification criteria also apply to non-current assets (or disposal
groups) held for distribution to owners. A reclassification from held for sale to held for distribution
to owners is not a change to a plan and therefore not a new plan.
Measurement
Immediately prior to classification as held for sale/distribute, carrying amount of the asset is
measured in accordance with applicable Ind Ass. After classification, it is measured at the lower
of carrying amount and fair value less costs to sell/distribute. Assets covered under certain other
Ind ASs are scoped out of measurement requirements of this standard as stated above. Impairment
must be considered both at the time of classification as held for sale and subsequently. Subsequent
increases in fair value cannot be recognised in profit or loss in excess of the cumulative impairment

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losses that have been recognised with this Standard or with Ind AS 36 Impairment of Assets. Non-
current assets (or disposal groups) classified as held for sale are not depreciated.
DISCLOSURES
 Non-current assets (or a disposal group) held for sale are disclosed separately from other
assets in the Balance Sheet. If there are any liabilities, these are disclosed separately from
other liabilities.
 Description of the nature of assets (or disposal group) held for sale and facts and
circumstances surrounding the sale
 A gain or loss resulting from the initial or subsequent fair value measurement of the
disposable group or non-current asset held for sale if not presented separately in the
statement of Profit or Loss and the line item that includes that gain or loss
 Prior year balances in the Balance Sheet are not reclassified as held for sale
 If applicable, the reportable segment (Ind AS 108) in which the non-current asset or
disposable group is presented.
DISCONTINUED OPERATIONS
Classification as a discontinued operation depends on when the operation also meets the
requirements to be classified as held for sale. Results of discontinued operations are presented as
a single amount in the statement of profit & loss. An analysis of the single amount is presented in
the notes or in the statement of profit & loss. Cash flow disclosure is required – either in the notes
or statement of cash flows. Comparatives are restated accordingly.

10. Ind AS 20: Accounting for Government Grants and Disclosure of Government Assistance
Scope
This standard applies in accounting for and disclosure of Government Grants and in the disclosure
of other forms of government assistance.
However, the standard does not deal with:
 Government assistance that is provided for an entity in the form of benefits that are
available in determining taxable income or are determined or limited to the basis of income
tax liability;
 Government participation in the ownership of an entity;

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  Government grants covered by Ind AS 41 Agriculture.
Important Terms
Government refers to government, government agencies and similar bodies whether local,
national or international.
Government assistance is action by government designed to provide an economic benefit specific
to an entity or range of entities qualifying under certain criteria. Government assistance for the
purpose of this Standard does not include benefits provided only indirectly through action affecting
general trading conditions, such as the provision of infrastructure in development areas or the
imposition of trading constraints on competitors.
Government grants:
 Assistance by government
 In the form of transfers of resources to an entity
 In return for past or future compliance with certain conditions relating to the operating
activities of the entity
 Exclude forms of government assistance which cannot reasonably have a value placed on
them and which cannot be distinguished from the normal trading transactions of the entity.

TYPES OF GOVERNMENT GRANTS

 Grants related to assets are government grants whose primary condition is that an entity
qualifying for them should purchase, construct or otherwise acquire long-term assets.
Subsidiary conditions may also be attached restricting the type or location of the assets or
the periods during which they are to be acquired or held.
 Grants related to income are government grants other than those related to assets.
Recognition & Measurement of Government Grants
Government grants, including non-monetary grants at fair value, shall not be recognised until there
is reasonable assurance that:

 the entity will comply with the conditions attaching to them; and

 the grants will be received.

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A forgivable loan from government is treated as a government grant when there is reasonable
assurance that the entity will meet the terms for forgiveness of the loan.

Government grants shall be recognised in profit or loss on a systematic basis over the periods in
which the entity recognises as expenses the related costs for which the grants are intended to
compensate. Grants related to depreciable assets are usually recognised in profit or loss over the
periods and in the proportions in which depreciation expense on those assets is recognised

A government grant that becomes receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support to the entity with no future related
costs shall be recognised in profit or loss of the period in which it becomes receivable.

A Non-monetary government grant, the fair value of the non-monetary asset is assessed and
both grant and asset are accounted for at that fair value.

Presentation of Government Grants

(a) Grants related to assets

 Government grants related to assets, including non-monetary grants at fair value, shall be
presented in the balance sheet by setting up the grant as deferred income.

 The grant set up as deferred income is recognised in profit or loss on a systematic basis
over the useful life of the asset.

 The purchase of assets and the receipt of related grants can cause major movements in the
cash flow of an entity. For this reason and in order to show the gross investment in assets,
such movements are disclosed as separate items in the statement of cash flows.

(b) Grants related to Income

Grants related to income are sometimes presented as a credit in the statement of profit and loss,
either separately or under a general heading such as ‘Other income’; alternatively, they are
deducted in reporting the related expense.

Repayment of government grants

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A government grant that becomes repayable shall be accounted for as a change in accounting
estimate as set out in Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Repayment of a grant related to income shall be applied first against any unamortised deferred
credit recognised in respect of the grant. To the extent that the repayment exceeds any such deferred
credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit
or loss. Repayment of a grant related to an asset shall be recognised by reducing the deferred
income balance by the amount repayable.

Disclosures

The following matters shall be disclosed:

 the accounting policy adopted for government grants, including the methods of
presentation adopted in the financial statements;

 the nature and extent of government grants recognised in the financial statements and an
indication of other forms of government assistance from which the entity has directly
benefited; and

 unfulfilled conditions and other contingencies attaching to government assistance that has
been recognised.

Ind ASs dealing with Income

1. Ind AS 114: Revenue Deferral Accounts

Regulatory deferral account balances arise when an entity provides goods or services to customers
at a price or rate that is subject to rate regulation. The standard permits the rate regulated entity to
account for ‘regulatory deferral account balances’ in accordance with the previous GAAP in its
initial adoption and the subsequent financial periods. In Indian Scenario, the Guidance Note on
Accounting for Rate Regulated Activities issued by ICAI is the previous GAAP.

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An entity subject to rate regulation coming into existence after the Ind AS comes into force or an
entity whose activities become subject to rate regulation subsequent to preparation and
presentation of its first Ind AS financial statements shall be entitled to apply the requirements of
the previous GAAP in respect of such rate regulated activities
Important Terms
Rate-regulated activities: Activities that are subject to rate regulation.
Rate Regulation: ‘Cost of Service Regulation’ as defined in the Guidance Note on Accounting
for Rate Regulated Activities (hence forth referred to as GN in this chapter). [Cost of Service
regulation as per the GN is a form of regulation for setting an entity’s prices (rates) in which there
is a cause-and-effect relationship between the entity’s specific costs and its revenues.]
Rate regulator: ‘Regulator’ as defined in the GN [A regulator is defined in GN as an authorised
body empowered by statute or by any government or any authorised agency of a government to
set rates that binds an entity’s customers.]
Regulatory deferral account balance: A ‘Regulatory Asset’ or a ‘Regulatory Liability’ as defined
in the GN.
[GN defines a regulatory asset as an entity’s right to recover fixed or determinable amounts of
money towards incurred costs as a result of the actual or expected actions of its regulator under
the applicable regulatory framework.
GN defines a regulatory liability as an entity’s obligation to refund or adjust fixed or determinable
amounts of money as a result of actual or expected action of its regulator under the applicable
regulatory framework.]
Summary of requirements of Ind AS 114

Recognition and Measurement

This standard, therefore, provides an exemption from para 11 of Ind AS 8, ‘Accounting policies,
changes in accounting estimates and errors’, which requires an entity to consider the requirement
of Ind AS dealing with similar matters and the requirement of conceptual framework when setting
its accounting policies.

An entity within the scope of Ind AS 114 is able to make a voluntary irrevocable election in its
first annual IFRS financial statements whether or not to recognise regulatory deferral balances in
accordance with this Standard.

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An entity that has elected to apply Ind AS 114 in its first annual IFRS financial statements,
continues to apply the recognition, measurement, impairment and derecognition requirements in
accordance with its previous GAAP to all its regulatory deferral account balances.
Changes are only permitted if they result in the financial statements being either:
 More relevant and no less reliable, or
 More reliable and no less relevant.

Presentation
However, the presentation of such amounts shall comply with the presentation requirements of this
standard, which may require changes in the entity’s previous GAAP presentation policies.
Balance Sheet
The total of regulatory deferral account debit balances, and regulatory deferral account credit
balances, are presented separately from, and after, al other items. They are not split into current
and non-current portions
Statement of Profit & Loss
The net movements in regulatory deferral account balances related to both profit or loss, and other
comprehensive income are presented separately from, and after, all other items and subtotaled
appropriately.
Interaction With Other Ind ASs
 Estimates used in determining regulatory deferral account balances (Ind AS 10)
 Scope of income tax requirements (Ind AS 12)
 Where rates are permitted or required to be increased to recover some or all of an entity’s
tax expense (Ind AS 12)
 Presentation with respect to income taxes (Ind AS 12)
 Presentation of basic and diluted earnings per share (Ind AS 33)
 Impairment of regulatory deferral account balances (Ind AS 36)
 Impairment of cash generating units (CGU) containing regulatory deferral account
balances (Ind AS 36)
 Recognition and measurement of regulatory deferral account balances in an acquiree (Ind
AS 103)

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  Presentation in respect of non-current assets held for sale and discontinued operations (Ind
AS 105)
 Consistent accounting policies for subsidiaries (Ind AS 110)
 Disclosures of regulatory deferral account balances in material subsidiaries with non-
controlling interests, material joint ventures, and material associates (Ind AS 112)
 Disclosures of gain or loss on the loss of control over a subsidiary (Ind AS 112).

2. Ind AS 115: Revenue from Contracts with Customers

Scope
This standard applies to all contracts with customers, except:

 Lease contracts (refer to Ind AS 116)

 Insurance contracts (refer to Ind AS 104)

 Financial instruments and other contractual rights or obligations (refer to Ind AS 109, 110,
111, Ind AS 27, and Ind AS 28)

 Certain non-monetary exchanges.

Key Concepts

Contract asset An entity’s right to consideration in exchange for goods or services that the entity
has transferred to a customer when that right is conditioned on something other than the passage
of time (for example, the entity’s future performance).

Contract liability An entity’s obligation to transfer goods or services to a customer for which the
entity has received consideration (or the amount is due) from the customer.

Customer A party that has contracted with an entity to obtain goods or services that are an output
of the entity’s ordinary activities in exchange for consideration.

Performance obligation A promise in a contract with a customer to transfer to the customer

either:

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 a) a good or service (or a bundle of goods or services) that is distinct; or

b) a series of distinct goods or services that are substantially the same and that have the same
pattern of transfer to the customer.

Revenue Income arising in the course of an entity’s ordinary activities.

Stand-alone selling price (of a good or service) The price at which an entity would sell a promised
good or service separately to a customer.

Transaction price (for a contract with a customer) The amount of consideration to which an entity
expects to be entitled in exchange for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties.

THE ‘FIVE STEP’ MODEL

Step 1 – Identify the contract

Step 2 – Identify the performance obligations

Step 3 – Determine the transaction price

Step 4 – Allocate the transaction price to each performance obligation

Step 5 – Recognise revenue as each performance obligation is satisfied

STEP 1 – IDENTIFY THE CONTRACT

Features of a ‘contract’
Contracts, and approval of contracts, can be written, oral or implied by an entity’s customary
business practices.
Ind AS 115 requires contracts to have all of the following attributes:
 The contract has been approved
 The rights and payment terms regarding goods and services to be transferred can be
identified
 The contract has commercial substance
 It is probable that the consideration will be received (considering only the customer’s
ability and intention to pay).

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If each party to the contract has a unilateral enforceable right to terminate a wholly unperformed
contract without compensating the other party (or parties), no contract exists under Ind AS 115.

Combining multiple contracts

Contracts are combined if they are entered into at (or near) the same time, with the same customer,
if either:
 The contracts are negotiated as a package with a single commercial objective
 The consideration for each contract is interdependent on the other, or
 The overall goods or services of the contracts represent a single performance obligation.
Contract modifications
A change in enforceable rights and obligations (i.e. scope and/or price) is only accounted for as a
contract modification if it has been approved, and creates new or changes existing enforceable
rights and obligations.
Contract modifications are accounted for as a separate contract if, and only if:
 The contract scope changes due to the addition of distinct goods or services, and
 The change in contract price reflects the standalone selling price of the distinct good or
service.
Contract modifications that are not accounted for as a separate contract are accounted for as either:
(i) Replacement of the original contract with a new contract (if the remaining goods or
services under the original contract are distinct from those already transferred to the
customer)
(ii) Continuation of the original contract (if the remaining goods or services under the
original contract are distinct from those already transferred to the customer, and the
performance obligation is partially satisfied at modification date).
(iii) Mixture of (i) and (ii) (if elements of both exist).
STEP 2 – IDENTIFY THE PERFORMANCE OBLIGATIONS
Performance obligations are the contractual promise by an entity, to transfer to a customer, distinct
goods or services, either individually, in a bundle, or as a series over time. Activities of the entity
that do not result in a transfer of goods or services to the customer (e.g. certain internal

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administrative ‘set-up activities’) are not performance obligations of the contract with the
customer and do not give rise to revenue
DEFINITION OF ‘DISTINCT’ (TWO CRITERIA TO BE MET)
(i) The customer can ‘benefit’ from the good or service:
Benefit from the good or service can be through either:
 Use, consumption, or sale (but not as scrap)
 Held in a way to generate economic benefits.
Benefit from the good or service can be either:
 On its own
 Together with other readily available resources (i.e. those which can be acquired by the
customer from the entity or other parties).
(ii) The promise to transfer a good or service is separable from other promises in the contract
The assessment requires judgement, and consideration of all relevant facts and circumstances.
A good or service may not be separable from other promised goods or services in the contract, if:
 There are significant integration services with other promised goods or services
 It modifies/customises other promised goods or services
 It is highly dependent/interrelated with other promised goods or services.

STEP 3 – DETERMINE THE TRANSACTION PRICE

The transaction price is the amount of consideration an entity expects to be entitled to in exchange
for transferring the promised goods or services (not amounts collected on behalf of third parties,
e.g. sales taxes or value added taxes).
The transaction price may be affected by the nature, timing, and amount of consideration, and
includes consideration of significant financing components, variable components, amounts
payable to the customer (e.g. refunds and rebates), and non-cash amounts.
Accounting for a significant financing component
If the timing of payments specified in the contract provides either the customer or the entity with
a significant benefit of financing the transfer of goods or services the transaction price is adjusted
to reflect the cash selling price at the point in time control of the goods or services is transferred.
A significant financing component can either be explicit or implicit.
Factors to consider include:

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  Difference between the consideration and cash selling price
 Combined effect of interest rates and length of time between transfer of control of the goods
or services and payment.

A significant financing component does not exist when

 Timing of the transfer of control of the goods or services is at the customer’s discretion
 The consideration is variable with the amount or timing based on factors outside of the
control of the parties
 The difference between the consideration and cash selling price arises for other non-
financing reasons (i.e. performance protection).

Discount rate to be used Must reflect credit characteristics of the party receiving the financing and
any collateral/security provided.

Practical expedient – If period between transfer and payment is 12 months or less do not account
for any significant financing component.
Accounting for variable consideration
Variable Consideration for e.g. Discounts, rebates, refunds, credits, concessions, incentives,
performance bonuses, penalties, and contingent payments must be estimated using either:
(i) Expected value method: based on probability weighted amounts within a range
(i.e. for large number of similar contracts)

(ii) Single most likely amount: the amount within a range that is most likely to
eventuate (i.e. where there are few amounts to consider).
Variable consideration is only recognised if it is highly probable that a subsequent change in its
estimate would not result in a significant revenue reversal (i.e. a significant reduction in cumulative
revenue recognised)
Accounting for consideration payable to the customer
Consideration payable to the customer includes cash paid (or expected to be paid) to the customer
(or the customer’s customers) as well as credits or other items such as coupons and vouchers.

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They are accounted for as a reduction in the transaction price, unless payment is in exchange for
a good or service received from the customer in which case no adjustment is made – except where:
 The consideration paid exceeds the fair value of the goods or services received (the
difference is set against the transaction price)
 The fair value of the goods or services cannot be reliably determined (full amount taken
against the transaction price).
Accounting for non-cash consideration
Non cash transaction is accounted for at fair value (if not reliably determinable, it is measured
indirectly by reference to stand-alone selling price of the goods or services).

STEP 4 – ALLOCATE THE TRANSACTION PRICE TO EACH PERFORMANCE

OBLIGATION
The transaction price (determined in Step 3) is allocated to each performance obligation
(determined in Step 2) based on the stand-alone selling price of each performance obligation.
If the stand-alone selling price(s) are not observable, they are estimated. Approaches to estimate
may include:
i. Adjusted market assessment approach
ii. Expected cost plus a margin approach
iii. Residual approach (i.e. residual after observable stand-alone selling prices of
other performance obligations have been deducted).

However, restrictive criteria must be met for approach (iii) to be applied.

Allocating a ‘discount’
A discount exists where the sum of the stand-alone selling price of each performance obligation
exceeds the consideration payable.
Discounts are allocated on a proportionate basis, unless there is observable evidence that the
discount relates to one or more specific performance obligation(s) after meeting all of the following
criteria:
 The goods or services (or bundle thereof) in the performance obligation are regularly sold
on a stand-alone basis, and at a discount

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  The discount is substantially the same in amount to the discount that would be given on a
stand-alone basis.
Allocating variable consideration
Variable consideration is allocated entirely to a performance obligation (or a distinct good or
service within a performance obligation), if both:
 The terms of the variable consideration relate specifically to satisfying the performance
obligation (or transferring the distinct good or service within the performance obligation)
 The allocation of the variable consideration is consistent with the principle that the
transaction price is allocated based on what the entity expects to receive for satisfying the
performance obligation (or transferring the distinct good or service within the performance
obligation).

STEP 5 – RECOGNISE REVENUE AS EACH PERFORMANCE OBLIGATION IS

SATISFIED
The transaction price allocated to each performance obligation (determined in Step 4) is
recognised as/when the performance obligation is satisfied, either
i. Over time, or
ii. At a point in time.
Satisfaction occurs when control of the promised good or service is transferred to the customer
who has:
 Ability to direct the use of the asset
 Ability to obtain substantially all the remaining benefits from the asset.

The following factors must be considered when assessing transfer of control:

 Entity has present right to payment for the asset
 Entity has physically transferred the asset
 Legal title of the asset
 Risks and rewards of ownership
 Acceptance of the asset by the customer.

RECOGNISING REVENUE OVER TIME

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Revenue is applied over a period of time if any of the following three criteria are met:
1. Customer simultaneously receives and consumes all of the benefits
2. The entity’s work creates or enhances an asset controlled by the customer
3. The entity’s performance does not create an asset with an alternative use to the entity,
and the entity has an enforceable right to payment for performance completed to date

Customer simultaneously receives and consumes all of the benefits

If another entity would not need to substantially re-perform the work already performed by the
entity in order to satisfy the performance obligation, the customer is considered to be
simultaneously receiving and consuming benefits. e.g. many recurring service contracts (such as
cleaning services).
The entity’s work creates or enhances an asset controlled by the customer
The asset being created or enhanced (e.g. a work in progress asset) could be tangible or intangible.
The entity’s performance does not create an asset with an alternative use to the entity, and the
entity has an enforceable right to payment for performance completed to date
(i) Alternate use
Assessment as to alternate use requires judgment and consideration of all facts and circumstances.
An asset does not have an alternate use if the entity cannot practically or contractually redirect the
asset to another customer, such as:
 Significant economic loss, i.e. through rework, or reduced sale price (practical)
 Enforceable rights held by the customer to prohibit redirection of the asset (contractual).
Whether or not the asset is largely interchangeable with other assets produced by the entity should
also be considered in determining whether practical or contractual limitations occur.
(ii) Enforceable right to payment
To assess whether entity has enforceable right to payment both the specific contractual terms and
any applicable laws or regulations must be considered. Ultimately, other than due to its own failure
to perform as promised, an entity must be entitled to compensation that approximates the selling
price of the goods or services transferred to date. The profit margin does not need to equal the
profit margin expected if the contract was fulfilled as promised. For example, it could be a
proportion of the expected profit margin that reflects performance to date.

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Revenue that is recognised over time is recognised in a way that depicts the entity’s performance
in transferring control of goods or services to customers. Methods include:
(a) Output methods: (e.g. Surveys of performance completed to date, appraisals of
results achieved, milestones reached, units produced/delivered etc.)
(b) Input methods: (e.g. Resources consumed, labour hours, costs incurred, time
lapsed, machine hours etc.), excluding costs that do not represent the seller’s
performance.
(ii) RECOGNISING REVENUE AT A POINT IN TIME
Revenue is recognised at a point in time if the criteria for recognising revenue over time are not
met. Revenue is recognised at the point in time at which the entity transfers control of the asset to
the customer
Measurement
An entity shall recognise the amount of allocated transaction price as revenue once a performance
obligation is satisfied. Transaction price which can be fixed or variable amount is determined based
on the terms of contract and entity’s customary practice.
If the consideration includes a variable amount, an entity should estimate the amount of
consideration to which it will be entitled in exchange for transferring the promised goods or
services to a customer. Estimation can be done either using the weighted expected value method
or at the most likely amount.
In determining the transaction price, an entity should adjust the promised amount of consideration
for the time value of money if significant financing components exist.
When customer promises to pay consideration other than in cash form, an entity should measure
it at fair value. If fair value cannot be reasonably measured, then entity should measure the
consideration indirectly by reference to the stand-alone selling price of the goods or service in
exchange for consideration.
Entity should allocate the transaction price to each performance obligation identified in a contract
on a relative stand-alone selling price basis (It is the price at which an entity would sell a promised
good or service separately to a customer). If this price is directly not available, it should be
estimated using methods such as:
 The adjusted market assessment approach
 Expected cost plus margin approach

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  Residual approach

Presentation
When either party has performed, an entity shall present the contract in balance sheet as contract
asset or contract liability, depending upon the relationship between the entity’s performance and
the customer’s payment. An entity shall present the unconditional right to consideration separately
as receivable.
Disclosures
Ind AS 115 contains extensive disclosure requirement. The standard requires the disclosure of
quantitative and qualitative information about: the nature of the entity’s revenues; how much is
recognised and when; and any uncertainties about those revenues and related cash flows. Key
disclosure requirements include disaggregation of revenue, significant judgements and
reconciliation of revenue.

Ind ASs on Expenses & Liabilities

1. Ind AS 102: Share-Based Payments

A share-based payment is a transaction in which the entity receives or acquires goods or services
either as consideration for its equity instruments or by incurring liabilities for amounts based on
the price of the entity's shares or other equity instruments of the entity. The accounting
requirements for the share-based payment depend on how the transaction will be settled, that is,
by the issuance of

(a) Equity,

(b) Cash, or

(c) Equity or cash.

Ind AS 102 applies to all entities. There is no exemption for private or smaller entities.
Furthermore, subsidiaries using their parent's or fellow subsidiary's equity as consideration for
goods or services are within the scope of the Standard.

There are two exemptions to the general scope principle.

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1. The issuance of shares in a business combination should be accounted for under Ind AS 103
Business Combinations. However, care should be taken to distinguish share-based payments
related to the acquisition from those related to employee services.

2. Ind AS 102 does not address share-based payments within the scope of Ind AS 32 Financial
Instruments: Disclosure and Presentation, or Ind AS 109 Financial Instruments. Therefore, Ind AS
32 and 109 should be applied for commodity-based derivative contracts that may be settled in
shares or rights to shares.

Ind AS 102 does not apply to share-based payment transactions other than for the acquisition of
goods and services. Share dividends, the purchase of treasury shares, and the issuance of additional
shares are therefore outside its scope.

Recognition and Measurement

The issuance of shares or rights to shares requires an increase in a component of equity. Ind AS
102 requires the offsetting debit entry to be expensed when the payment for goods or services does
not represent an asset. The expense should be recognised as the goods or services are consumed.
For example, the issuance of shares or rights to shares to purchase inventory would be presented
as an increase in inventory and would be expensed only once the inventory is sold or impaired.

The issuance of fully vested shares, or rights to shares, is presumed to relate to past service,
requiring the full amount of the grant-date fair value to be expensed immediately. The issuance of
shares to employees with, say, a three-year vesting period is considered to relate to services over
the vesting period. Therefore, the fair value of the share-based payment, determined at the grant
date, should be expensed over the vesting period.

As a general principle, the total expense related to equity-settled share-based payments will equal
the multiple of the total instruments that vest and the grant-date fair value of those instruments. In
short, there is truing up to reflect what happens during the vesting period. However, if the equity-
settled share-based payment has a market related performance feature, the expense would still be
recognised if all other vesting features are met. The following example provides an illustration of
a typical equity-settled share-based payment.

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2. Ind AS 19: Employee Benefits

Employee benefits are all forms of consideration given by an entity in exchange for service
rendered by employees.

Ind AS19 applies to (among other kinds of employee benefits):

 wages and salaries

 compensated absences (paid vacation and sick leave)
 profit sharing plans
 bonuses
 medical and life insurance benefits during employment
 housing benefits
 free or subsidised goods or services given to employees
 pension benefits
 post-employment medical and life insurance benefits
 long-service or sabbatical leave
 'jubilee' benefits
 deferred compensation programmes
 termination benefits.

Short-term employee benefits

Short-term employee benefits are employee benefits (other than termination benefits) that are due
to be settled within twelve months after the end of the period in which the employees render the
related service. When an employee has rendered service to an entity during an accounting period,
the entity shall recognise the undiscounted amount of short-term employee benefits expected to be
paid in exchange for that service:
(a) as a liability (accrued expense), after deducting any amount already paid. If the amount already
paid exceeds the undiscounted amount of the benefits, an entity shall recognise that excess as an
asset (prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in
future payments or a cash refund; and

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(b) as an expense, unless another Standard requires or permits the inclusion of the benefits in the
cost of an asset

Post-employment benefits

Post-employment benefits are employee benefits (other than termination benefits) which are
payable after the completion of employment. Post-employment benefit plans are formal or
informal arrangements under which an entity provides post-employment benefits for one or more
employees. Post-employment benefit plans are classified as either defined contribution plans or
defined benefit plans, depending on the economic substance of the plan as derived from its
principal terms and conditions

Defined contribution plans are post-employment benefit plans under which an entity pays fixed
contributions into a separate entity (a fund) and will have no legal or constructive obligation to
pay further contributions if the fund does not hold sufficient assets to pay all employee benefits
relating to employee service in the current and prior periods. Under defined contribution plans:

(a) the entity’s legal or constructive obligation is limited to the amount that it agrees to contribute
to the fund.

Thus, the amount of the post-employment benefits received by the employee is determined by the
amount of contributions paid by an entity (and perhaps also the employee) to a post-employment
benefit plan or to an insurance company, together with investment returns arising from the
contributions; and

(b) in consequence, actuarial risk (that benefits will be less than expected) and investment risk
(that assets invested will be insufficient to meet expected benefits) fall on the employee.

When an employee has rendered service to an entity during a period, the entity shall recognise the
contribution payable to a defined contribution plan in exchange for that service:

(a) as a liability (accrued expense), after deducting any contribution already paid. If the
contribution already paid exceeds the contribution due for service before the end of the reporting
period, an entity shall recognise that excess as an asset (prepaid expense) to the extent that the
prepayment will lead to, for example, a reduction in future payments or a cash refund; and

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(b) as an expense, unless another Standard requires or permits the inclusion of the contribution in
the cost of an asset

Defined benefit plans are post-employment benefit plans other than defined contribution plans.
Under defined benefit plans:

(a) the entity’s obligation is to provide the agreed benefits to current and former employees; and

(b) actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance,
on the entity. If actuarial or investment experience are worse than expected, the entity’s obligation
may be increased.

Other long-term employee benefits

Other long-term employee benefits are employee benefits (other than post-employment benefits
and termination benefits) that are not due to be settled within twelve months after the end of the
period in which the employees render the related service.

The Standard requires a simpler method of accounting for other long-term employee benefits than
for postemployment benefits: actuarial gains and losses and past service cost are recognised
immediately.

Termination benefits

Termination benefits are employee benefits payable as a result of either:

(a) an entity’s decision to terminate an employee’s employment before the normal retirement date;
or

(b) an employee’s decision to accept voluntary redundancy in exchange for those benefits.

An entity shall recognise termination benefits as a liability and an expense when, and only when,
the entity is demonstrably committed to either:

(a) terminate the employment of an employee or group of employees before the normal retirement
date; or

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(b) provide termination benefits as a result of an offer made in order to encourage voluntary
redundancy.

Where termination benefits fall due more than 12 months after the reporting period, they shall be
discounted.

In the case of an offer made to encourage voluntary redundancy, the measurement of termination
benefits should be based on the number of employees expected to accept the offer

3. Ind AS 12: Income Taxes

Ind AS 12 Income Taxes prescribes the accounting treatment for income taxes being the accounting
for the current and deferred tax consequences of

(a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised
in an entity’s Balance Sheet; and

(b) transactions and other events of the current period that are recognised in an entity’s financial
statements

Current Tax

The tax payable to (or receivable from) the tax authorities in the jurisdiction(s) in which an entity
operates is accounted for according to the basic principles of accounting for liabilities and assets.

Current tax (for current and prior periods) should, to the extent unpaid, be recognised as a liability

If the amount already paid in respect of current and prior period exceeds the amount due for those
periods, the excess should be recognised as an asset.

The benefit relating to a tax loss that can be carried back to recover current tax of a previous period
should be recognised as an asset.

Deferred taxation

a) Deferred tax liability

A deferred tax liability shall be recognised when there is a taxable temporary difference between
the tax base of an asset or liability and its corresponding carrying amount in the Balance Sheet.

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This arises when the carrying amount of an asset exceeds it tax base. Consequently, the future
recovery of the carrying amount will generate taxable profit; e.g.

Accumulated depreciation of an asset in the financial report is less than the cumulative depreciation
allowed up to the reporting date for tax purposes, e.g. depreciation of an asset is accelerated for
tax purposes

Development costs have been capitalized and will be amortized to the Statement of Profit and Loss
but were deducted in calculating taxable amounts in the reporting period in which they were
incurred.

A taxable temporary difference also arises when the carrying amount of a liability is less than its
tax base, because the future settlement of its tax base will generate taxable profit (e.g. a loan
initially recognised at fair value net of borrowing costs incurred in the loan establishment but the
tax deductions for the costs are amortised over the life of the loan).

A deferred tax liability will not be recognised if arising from:

i. the initial recognition of goodwill or goodwill which amortisation is not deductible for tax
purposes

ii. the initial recognition of an asset or liability in a transaction which is not a business
combination, and at the time of the transaction, affects neither accounting profit nor taxable
profit (tax loss)

Deferred tax asset

A deferred tax asset is recognised when there is a deductible temporary difference between the tax
base of an asset or liability and its carrying amount in the Balance Sheet, but only to the extent that
it is probable that taxable profit will be available against which the deductible temporary difference
can be utilised. A deductible temporary difference arises when the carrying amount of a liability
exceeds its tax base, as the future settlement of its carrying amount will be deductible (e.g.
provision for warranty is recognised in the accounts at the point of sale but it is only recognised as
a tax deduction when the expense is incurred and paid). Further, a deductible temporary difference
arises when the carrying amount of an asset is less than its tax base, as its future recovery will
generate a tax deduction (e.g. a depreciable asset where accumulated depreciation is greater for

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accounting than tax purposes, or an asset is revalued downwards but the unrealised loss is not tax
deductible until the loss is crystallised by disposal). A deferred tax asset will not be recognised if
arising from the initial recognition of an asset or liability in a transaction that is not a business
combination and at the time of the transaction, affects neither accounting profit nor taxable profit
(tax loss).

A deferred tax asset shall be recognised for the carry forward of unused tax losses and unused tax
credits, but only to the extent that it is probable that future taxable profit will be available against
which the unused tax losses and unused tax credits can be utilised.

Allocation
This Standard requires an entity to account for the tax consequences of transactions and other
events in the same way that it accounts for the transactions and other events themselves. Thus, for
transactions and other events recognised in profit or loss, any related tax effects are also recognised
in profit or loss. For transactions and other events recognised outside profit or loss (either in other
comprehensive income or directly in equity), any related tax effects are also recognised outside
profit or loss (either in other comprehensive income or directly in equity, respectively). Similarly,
the recognition of deferred tax assets and liabilities in a business combination affects the amount
of goodwill arising in that business combination or the amount of the bargain purchase gain
recognised.

4. Ind AS 37: Provisions, Contingent Liabilities and Contingent Assets

Ind AS 37 prescribes the accounting and disclosure for all provisions, contingent liabilities and
contingent assets, except:

(a) those resulting from financial instruments that are carried at fair value;

(b) those resulting from executory contracts, except where the contract is onerous. Executory
contracts are contracts under which neither party has performed any of its obligations or both
parties have partially performed their obligations to an equal extent;

(c) those arising in insurance entities from contracts with policyholders; or

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(d) those covered by another Standard.

Ind AS 37 represents a very important standard in Ind AS literature, as it is necessary to be aware

of the principle of past obligating events, the transfer of economic benefits and the principles of
estimation.

Provisions

A provision is a liability of uncertain timing or amount.

Recognition

A provision should be recognised when:

a) an entity has a present obligation (legal or constructive) as a result of a past event;

(c) it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation; and
(d) a reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision shall be recognised

In rare cases it is not clear whether there is a present obligation. In these cases, a past event is
deemed to give rise to a present obligation if, taking account of all available evidence, it is more
likely than not that a present obligation exists at the end of the reporting period.

Measurement
The amount recognised as a provision shall be the best estimate of the expenditure required to
settle the present obligation at the end of the reporting period. The best estimate of the expenditure
required to settle the present obligation is the amount that an entity would rationally pay to settle
the obligation at the end of the reporting period or to transfer it to a third party at that time.

Where the provision being measured involves a large population of items, the obligation is
estimated by weighting all possible outcomes by their associated probabilities. Where a single
obligation is being measured, the individual most likely outcome may be the best estimate of the
liability. However, even in such a case, the entity considers other possible outcomes.

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Contingent liabilities
A contingent liability is:
a) a possible obligation that arises from past events and whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of the entity; or
b) a present obligation that arises from past events but is not recognised because:
i. it is not probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; or
ii. the amount of the obligation cannot be measured with sufficient reliability.

An entity should not recognise a contingent liability. An entity should disclose a contingent
liability, unless the possibility of an outflow of resources embodying economic benefits is remote.
Contingent assets
A contingent asset is a possible asset that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the entity.
An entity shall not recognise a contingent asset. However, when the realisation of income is
virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.
The main requirements of this standard are summarized as follows:

Provisions and contingent liabilities

Where, as a result of past events, there may be an outflow of resources embodying future
economic benefits in settlement of: (a) a present obligation; or (b) a possible obligation
whose existence will be confirmed only by the occurrence or non-occurrence of one or more
uncertain future events not wholly within the control of the entity
There is a present There is a possible obligation or There is a possible
obligation that probably a present obligation that may, obligation or a present
requires an outflow of but probably will not, require obligation where the
resources an Outflow of resources. likelihood of an outflow of
resources is remote.
A provision is recognised No provision is recognised No provision is recognised

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 (paragraph 14). (paragraph 27). (paragraph 27).
Disclosures are required Disclosures are required for No disclosure is required
for the contingent liability (paragraph 86).
the provision (paragraph 86).
(paragraphs 84 and 85).

A contingent liability also arises in the extremely rare case where there is a liability that cannot be
recognised because it cannot be measured reliably. Disclosures are required for the contingent
liability.

Contingent assets

Where, as a result of past events, there is a possible asset whose existence will be confirmed
only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the entity.
The inflow of economic The inflow of economic The inflow is not probable
benefits is virtually benefits is probable, but not
certain virtually certain.

The asset is not contingent No asset is recognised No asset is recognised

(Paragraph 33). (Paragraph 31). (Paragraph 31).
Disclosures are required No disclosure is required
(Paragraph 89). (Paragraph 89).

Reimbursements

Some or all of the expenditure required to settle a provision is expected to be reimbursed

by another party.

The entity has no The obligation for the The obligation for the
obligation amount expected to be amount expected to be
for the part of the reimbursed remains with reimbursed remains with
expenditure to be the entity and it is virtually the entity and the

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 reimbursed by the other certain that reimbursement reimbursement is not
party will be received if the entity virtually certain if the entity
settles the provision. settles the provision.

The entity has no liability The reimbursement is The expected reimbursement

for recognised as a separate is not recognised as an asset
the amount to be asset in the Balance Sheet and (paragraph 53).
reimbursed may be
(paragraph 57). offset against the expense in
the statement of
Profit & Loss. The
amount recognised for the
expected reimbursement
does not exceed the liability
(paragraphs 53 and 54).
No disclosure is required. The reimbursement is The expected reimbursement
disclosed together with the is disclosed
amount recognised for the (paragraph 85(c)).
reimbursement
(paragraph 85(c)).

Ind ASs on Financial Instruments

1. Ind AS 32: Presentation of Financial Instruments

Ind AS 32, Financial Instruments: Presentation, addresses the presentation of financial

instruments as financial liabilities or equity. Ind AS 32 includes requirements for

 The presentation of financial instruments as either financial liabilities or equity, including

when a financial instrument should be presented as a financial liability or equity instrument
by the issuing entity;

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  How to separate and present the components of compound financial instruments that
contains both liability and equity elements;

 The accounting treatment of reacquired equity instruments of the entity;

 The presentation of interests, dividends, losses, and gains related to financial instruments;
and

 The circumstances in which financial assets and financial liabilities should be offset

 Ind AS 32 complements the requirements for recognizing and measuring financial assets
and financial liabilities in Ind AS 109, Financial Instruments, and the disclosure
requirements for financial instruments in Ind AS 107, Financial Instruments: Disclosures.

Debt/ Equity Classification

Financial Instruments should be presented based on their substance rather than their legal form.
Any liability that is a contractual obligation to deliver cash or other financial assets, or to exchange
financial assets or liabilities with other entity in terms that are potentially unfavourable to the
entity, is a financial liability. Moreover, a contract that will or may be settled in the entity’s own
equity instruments and is non-derivative for which the entity is or may be obliged to deliver a
variable number of entity’s own equity is also a financial liability.

On the other hand, an equity instrument is any contract that evidences residual interest in the assets
of an entity after deducting all its liabilities. Therefore, an instrument is an equity instrument if,
and only if both the conditions in (a) and (b) are satisfied.

(a) The instrument contains no contractual obligation

 To deliver cash or another financial asset to another entity; or

 to exchange financial assets or financial liabilities with another entity under conditions that
is potentially unfavourable to the issuer.

(b) If the instrument will or may be settled in the company's own shares, it is

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  a non-derivative for which the entity is not obliged to deliver a variable number of the
entity’s own equity instruments; or

 a derivative that will or may be settled by the exchange of a fixed amount of cash or another
financial asset for a fixed number of the entity’s own equity instruments. For this purpose,
the entity’s own equity instruments do not include instruments that are themselves
contracts for the future receipt or delivery of the entity’s own equity instruments.

Proper presentation and classification of an issued financial instrument as either a financial liability
or an equity instrument determines whether interest, dividends, gains, and losses relating to that
instrument are recognized in profit or loss or directly in equity

Financial Assets are any asset that is:

 Cash

 An equity instrument of another entity

 A contractual right

 to receive cash or another financial asset from another entity

 Exchange financial assets and liabilities with another entity under conditions that are
potentially favourable to the entity

 A contract that will or may be settled in the entity's own equity instruments and is:

 Non derivative for which the entity is or may be obliged to receive a variable number
of entities own equity instrument; or

 A derivative that will or may be settled other than by the exchange of a fixed amount
of cash or other financial asset for a fixed number of the entity own equity
instruments. For this purpose, the entity’s own equity instrument does not include
instruments that are themselves contracts for future receipt or delivery of the entity’s
own equity instruments.

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Some of the examples of financial assets are cash, bank balance, trade account receivables, loans,
debt securities, etc.

Contracts and contractual rights

The terms 'contract', 'contractual right' and 'contractual obligation' is fundamental to the definitions
of financial instruments, financial assets and financial liabilities. The reference to a 'contract' is to
an agreement between two or more parties that have clear economic consequences and which the
parties have little, if any, discretion to avoid, usually because the agreement is enforceable at law.
Contracts, and thus financial instruments, may take a variety of forms and need not be in writing.
Contractual rights and contractual obligations are rights and obligations that arise out of a contract.
Assets and liabilities that are not contractual in nature are not financial assets or financial liabilities
even though it may result in the receipt or delivery of cash.

Most contracts give rise to a variety of rights and obligations, and the rights and obligations arising
from a contract will often change or be added to as the contract is performed. Some of these rights
and obligations may fall within the definition of financial instruments and some may not. For
example, an unperformed contract for the purchase or sale of tangible assets usually gives rise to
rights and obligations to exchange a physical asset for a financial asset (although it is possible that,
if the contract is breached, the exchange will involve the payment of compensation). These rights
and obligations do not represent a financial instrument. Under the same contract, once the physical
asset has been delivered, a debtor or creditor will usually arise and this will be a financial
instrument.

In each case, one party's contractual right to receive (or obligation to pay) cash is matched by the
other party's corresponding obligation to pay (or right to receive), meaning that each case is an
example of a financial instrument. A company holding a convertible bond has a contractual right
to receive another financial asset (shares, with cash as an alternative) from the issuer.

In very broad terms, financial assets will, or are likely to, lead to a company receiving cash in the
future; financial liabilities will, or are likely to, lead to a company paying out cash in the future.
But the cash may be received, or paid, via a whole chain of contractual rights or obligations – for
example, a company may hold an option to acquire a convertible bond that can be converted into

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shares that can be sold for cash. So, the definitions of financial asset and financial liability in Ind
AS 32 are in general terms.

Exclusions from Financial Assets:

There are several exclusions from the normal classification and accounting rules for financial
assets. The items excluded are:

i. a hedged item in a fair value hedge

ii. Interests in subsidiaries, associates and joint ventures, except where they are held
temporally for disposal in near future.

iii. rights and obligations under leases, except for embedded derivatives included in lease
contracts

iv. employers' assets and liabilities under employee benefit plans

v. rights and obligations under an insurance contract

vi. financial instruments issued by the entity that meet the definition of an equity instrument

vii. Contracts for contingent consideration in a business combination. This exemption applies
only to the acquirer

viii. contracts between an acquirer and a vendor in a business combination to buy or sell an
acquiree at a future date

ix. financial instruments, contracts and obligations under share-based payment transactions,
except for contracts that can be settled net in cash or another financial instrument

x. loan commitments that cannot be settled net in cash and which the entity has not designated
as at fair value through profit or loss

Financial Liability as per the standard is any liability that is

 a contractual obligation

 to deliver cash or other financial assets to another entity; or

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  to exchange financial assets or liabilities with other entity in terms that are potentially
unfavourable to the entity; or

 a contract that will or may be settled in the entity’s own equity instrument and is

 a non-derivative for which the entity is or may be obliged to deliver a variable number of
entity’s own equity instruments; or

 is a derivative that will or may be settled other than by fixed amount of cash or another
financial asset for a fixed number of entities own equity instruments.

The standard defines equity instrument as any contract that represents a residual interest in assets
of the entity after deducting all its liability.

Sometimes the terms of financial instrument are such that they contain components of both equity
and liability such instruments are called compound instruments. The liability and equity
components of a compound instrument are required to be accounted for separately.

Equity- Liability Classification

Many instruments that have the legal form of equity are, in substance, liabilities. A financial
instrument should be classified as a financial liability or an equity instrument depending on the
substance of the arrangement rather than the legal form. Liabilities arise when the issuer is
contractually obligated to deliver cash or another financial asset to the holder of the instrument.
An instrument is an equity instrument only if the issuer has no such obligation, i.e. it has an
unconditional right to avoid settlement in cash or another financial asset. The ability to defer
payment is not enough to achieve equity classification, unless payment can be deferred
indefinitely. Generally, an obligation for the entity to deliver its own shares is not a financial
liability because an entity's own shares are not considered its financial assets. An exception to this
is where an entity is obliged to deliver a variable number of its own equity instruments.

The key questions that must be addressed when determining classification as a financial liability
or equity instrument are therefore:

 Is settlement in cash or another financial asset neither mandatory nor at the option of the
holder?

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  Does the issuer have the unconditional right (i.e. full discretion) to avoid payments in cash
or other financial assets or to defer payment indefinitely?

 if settlement in cash, another financial asset or a variable number of shares is dependent on

the outcome of uncertain future events beyond the issuer's and the holder's control, is the
event that would cause such settlement extremely rare, highly abnormal and very unlikely
to occur?

 If the instrument is, or may be, settled in own shares, is the number of shares that will or
may be delivered fixed, so that the holder is fully exposed to fluctuations in the issuer's
share price?

 If the instrument is, or may be, settled in fixed number of entity’s own shares, is the exercise
price fixed in any currency?

Now let us study each of these issues in some details

Obligation to deliver cash or another financial asset

The obligation to deliver cash or another financial asset may arise explicitly or it may arise
indirectly through the terms and conditions of the financial instrument. All the terms and conditions
of the contract should be carefully assessed to determine the nature of obligation.

Unconditional right to avoid payment

An instrument qualifies to be classified as equity only if the entity has absolute discretion to avoid
delivering cash or another financial asset. Otherwise, the instrument meets the definition of a
financial liability. The management should have discretion to unilaterally set the timing and
amount (including zero) of the payment. Such discretion should exist indefinitely for an
instrument to be classified as equity. For example, an ability of the management of the issuer to
unilaterally set the amount of any dividends, combined with no stated redemption date, might
result in equity classification.

A potential inability or restriction on the ability of an entity to satisfy its obligation to transfer
financial assets does not mean the entity has an unconditional right to avoid payment. For instance,
an instrument requiring fixed payments only if there are distributable profits but not otherwise, is

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not an equity instrument. The presence or absence of distributable profits is not within
management's control, and therefore does not give management the discretion to avoid payment
of dividends.

For similar reasons the following factors do not affect classification of a preference share as either
a financial liability or an equity instrument:

 A history of making distributions

 An intention to make distributions in the future

 A possible negative impact on the price of ordinary shares of the issuer if distributions are
not made

 The amount of an issuer's reserves

 An issuer's expectation of profit or loss for a period

 An ability or inability of the issuer to influence the amounts of its profit or loss for the
period

Settlement based on uncertain future events

The terms of some instruments may give rise to an obligation to pay cash or transfer another
financial asset only on the occurrence of one or more uncertain future events. For instance, an
instrument may include clauses which call for redemption in the event of changes in tax legislation
or failure to comply with financial performance measures or covenants etc. Where such specified
events are beyond the entity's control, the entity does not have the unconditional right to avoid
payment, and hence the instrument is classified as a liability. Liability treatment may be avoided
only where an entity can demonstrate that either:

 the related contingent settlement provision is not genuine. An example may be where
settlement is contingent upon the occurrence of an event that is extremely rare, highly
abnormal and very unlikely to occur

 settlement in cash or another financial asset is only required in the event of liquidation of
the issuer

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Settlement in entity’s own shares

Since the entity's own equity instruments do not represent financial assets of the entity, an entity's
obligation to deliver its own equity instruments is generally not a financial liability. However,
where there is an obligation of an entity to deliver a variable number of its own equity instruments
or to exchange a fixed number of its own equity instruments for a variable amount of cash or other
assets is a financial liability. In such cases, the entity is using its own shares as currency to settle
an obligation that is either fixed in amount or those changes with a variable other than the price of
the entity's own shares. As a result, the holder of the contract is not fully exposed to changes in the
entity's share price and the contract does not evidence a residual interest in the entity's assets after
deducting all of its liabilities.

Some examples:

ITEMS CLASSIFICATION

Ordinary shares equity, since right to receive cash if form of cash or

otherwise at issuers discretion

Advance received not financial liability, since obligation to deliver goods or

services

Warranty obligations -do-

Tax provisions Non-financial liability, since it is statutory obligation and

not contractual obligation

Company’s registration fees, etc. -do-

Mandatorily redeemable shares Financial liability

Bill payables Financial liability

Trade creditors Financial liability

Perpetual instruments with Financial liability

mandatory coupon payments

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 Puttable instruments Financial liability

Instrument requiring mandatory Financial liability

payment of % of profit

Instrument redeemable at option Equity, since outflow of cash avoidable

of issuer

Instrument redeemable Financial liability

mandatorily on fulfilment of
certain condition

Deposits Financial liability

Contingent settlement Financial liability, if provisions genuine and not limited to

liquidation

Dividends Not a financial liability if declaration at discretion of issuer

Declared dividend Financial liability

Dividend pusher/stopper Not financial liability

Bank overdraft Financial liability

Offsetting a Financial Asset and a Financial Liability

A financial asset and liability should be offset against each other, to present net amount in the
Balance Sheet only when an enterprise has a currently enforceable right to set off the recognised
amounts and intends to either settle on net basis or simultaneously settle the liability and realize
the asset. Otherwise, in case of transfer of a financial asset that does not qualify for derecognition
the entity should not offset the transferred asset and associated liability.

It is important to note that the existence of an enforceable right to set off financial asset and
financial liability is by itself not sufficient basis for offsetting. Together with it, there should also
be an intention to do so. When offset is applied entity has the right to pay or receive a single net

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amount in relation to two instruments and if it intends to do so, in effect the entity has single
financial asset or financial liability.

Offsetting Vs Derecognition

Offsetting of a financial asset with a financial liability is different from derecognising financial
assets or liabilities. Unlike de-recognition, offsetting does not remove an asset or liability from
Balance Sheet. Rather it amounts to net presentation of the asset or liability as either a net asset or
a net liability. Moreover, derecognition of a financial instrument can give rise to gain or loss on
Derecognition whereas there is no such gain or loss in case of offsetting.

Legal right to offset

Legal right to offset is debtor’s legal right, by contract or otherwise to settle or otherwise eliminate
all or portion of an amount due to creditor by applying against that amount due an amount due
from the creditor. As the right here are legal right, the circumstance that gives rise to such a right
will vary from one legal jurisdiction to another. Thus, for each relationship between two parties it
is necessary to consider the particular laws applicable to it. Sometimes a debtor may have legal
right to offset an amount due from third party against amount due from creditor, provided there is
a legal agreement to do so between three parties.

Intention to offset

The existence of an enforceable right to set off financial asset and financial liability is by itself not
sufficient basis for offsetting; there should also be an intention to do so. The intention of offset is
presumed to be there either when entity intents to exercise the right to offset or to settle
simultaneously an offsetting financial asset and financial liability. The intention of one or both
parties to settle on net basis is not sufficient if there is no legally enforceable right to do so.

2. Ind AS 107 Financial Instruments Disclosures

An entity must group its financial instruments into classes of similar instruments and, when
disclosures are required, make disclosures by class.

The two main categories of disclosures required by Ind AS 107 are:

i. Information about the significance of financial instruments

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 ii. Information about the nature and extent of risks arising from financial instruments

i. Financial Instruments are very important part of any entity’s financial statements. One of the
purposes of these disclosure requirements are to enable the users of the financial statements to
evaluate the significance of financial instruments held or issued by entity, in assessing its financial
position and performance

Certain minimum disclosures requirement has been prescribed by the standards. However, the
location for the required Balance Sheet disclosures has not been specified. The disclosures may be
given at the face of the Balance Sheet or by the way of notes to the financial statements.

Financial assets as at fair value through profit or loss

Entities are required to give extensive disclosures when it designates a loan or receivable as at fair
value though profit or loss. This is because, applying fair value option to these instruments makes
a significant impact on financial statements as fair value movements are recognised in the financial
statements. The required disclosure includes maximum amount of credit exposure, the impact of
credit derivatives on the credit exposure, and changes in fair value of loans or receivables (or group
of loans and receivables) and any related credit derivatives due to changes in credit risk, both
during the period and cumulatively. Since it is difficult for many entities to identify and reliably
measure changes in fair value of loans and receivables attributable to change in own credit risks,
entities are allowed to calculate the amount of change in fair value that is not attributable to change
in market condition that give rise to market risks. Entities are allowed to use other methods if it
represents the effect of credit risks more faithfully. However, entities need to disclose the method
used and if entity believes that the disclosures does not faithfully represent the changes in fair
value of financial asset attributable to changes in its credit risk, it should give the reason for such
conclusion and other relevant factors.

Financial liabilities at fair value through profit or loss

Extensive disclosures are required when an entity designates a financial liability as at fair value
through profit or loss, particularly about the credit worthiness. The change in fair value of financial
liability during the period and cumulative, due to change in the credit risk of that liability should
be disclosed. Since it is difficult for many entities to identify and reliably measure changes in fair
value of financial liabilities attributable to change in own credit risks, entities are allowed to

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calculate the amount of change in fair value that is not attributable to change in market condition
that give rise to market risks. Entities may use other methods, if they can demonstrate that it results
in more faithful representation of change in fair value attributable to changes in credit risk of the
liability. Entities need to disclose the method used and if entity believes that the disclosures does
not faithfully represent the changes in fair value of financial asset attributable to changes.
Moreover, entities are also required to disclose the carrying amount of the financial liability at fair
value through profit or loss and the amount entity would contractually liable to pay at maturity to
the holder of the instrument.

Other Disclosures in Balance Sheet

Reclassification: Entities are required to disclose the amount and reason for reclassification of
financial assets from cost or amortised cost to fair value or vice versa, for each category of financial
assets. As discussed earlier, reclassification into or out of financial asset or liability as at fair value
through profit or loss is not permitted. Hence, in practice disclosure relating to reclassification into
and out of available for sale category will be required.

Transferred assets not Derecognized: As discussed earlier, some transfers of financial assets do
not qualify for derecognition. In such cases, it is important that user of the financial statements is
able to evaluate the extent and nature of the risk and rewards entity continues to be exposed to and
extent of its continuing involvement with the asset. The disclosures for derecognition are required
for each class of financial assets, which can be either be according to type of financial asset or
according to nature of risk and reward retained. The entities are required to disclose for each class
of such financial assets:

 The nature of the assets

 The nature of the risk and rewards of ownership to which entity remain exposed

 The carrying amount of the assets and associated liabilities when entity continues to
recognise all of the assets and in case entity continues to recognise to the extent of its
continuing involvement, the total carrying amount of the original assets are also disclosed.

Collateral Received: An entity should disclose the fair value and terms and condition of use of
financial or non-financial assets received as collateral which the company has right to sell or

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repledge in the collateral in the absence of default. It should also disclose the fair value of any such
collateral sold or repledged and whether the entity has an obligation to return it.

Collateral Given: In respect to collateral pledged by the entity it should disclose the carrying
amount and terms and conditions of financial assets pledged as collateral. Moreover, in respect of
collateral given, for which counterparty has, right to sell or repledge, it should be classified
separately from other financial assets.

Allowance Account For credit losses: Entities are required to present a reconciliation of changes
in allowance account, for credit losses due to impairment for each class of financial assets during
the period. Such disclosures are useful for assessing the adequacy of the allowance for impairment
losses. However, components of reconciliation have not been specified and preparer has flexibility
of determining the most appropriate format.

Compound financial instruments with multiple embedded derivatives: If an entity issues a

compound instrument i.e. an instrument with both liability and equity component, with multiple
derivatives (as in the case of callable convertible debentures), it should disclose the existence of
such features.

Defaults and Breaches: Entities are required to disclose details of any defaults of principal,
interest, sinking fund, or redemption terms during the period of any financial liability that is loan
payable by the entity. Moreover, the carrying amount of any such loans that are in default at the
reporting date is required and whether the default was remedied or the terms of the loan payable
were renegotiated before the issue of financial statements should also be stated. Similar disclosures
are also required for breaches of other loan agreement if those breaches permit the lender to
demand accelerated repayment. However, disclosure need not be given if the breaches are
remedied or terms of loan are renegotiated on or before the reporting date. This information is
relevant to users for determining the entities credit worthiness and affects the future fund-raising
prospects of the company.

Financial Instruments in Statement of Profit and Loss and equity

As in the case of minimum Balance Sheet related disclosures, an entity is permitted to present the
required Statement of Profit and Loss disclosures on either the face of the Statement of Profit and

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Loss or in the notes to financial statements. Disclosures in respect to following item of income,
expense, gains and losses should be disclosed by the entity:

Net gains or losses for each financial instrument category of financial instrument as defined earlier.
The financial assets and liabilities held for trading has to be shown separately from those
designated as at fair value through profit or loss on initial recognition.

Total interest income and total interest expense, calculated using effective interest method for
financial assets or financial liabilities other than not at fair value through profit or loss, should be
disclosed.

Fee income and expense, other than those included in determining effective interest rate, arising
from financial assets and liabilities other than financial assets and liabilities as at fair value -
through profit or loss. Moreover, the disclosure shall be provided of trust and other fiduciary
activities that result in the holding or investing of assets on behalf of individuals, trusts, retirement
benefit plans, and other institutions. Such information is useful in assessing the level of such
activities by entity and in estimating probable future income of the entity.

Interest income on impaired financial assets that is determined using the rate of interest used to
discount the future cash flows for measuring impairment loss.

The amount of any impairment loss for each class of financial asset

As stated earlier, the class is generally lower level of aggregation than a category. For example, an
entity may disclose impairment of available for sale debt securities separately from available for
sale equity securities, if the classes are significant.

NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS AND

HOW THE RISKS ARE MANAGED

Ind AS 107 requires certain quantitative and qualitative disclosures to be made in financial
instruments to enable the users to make appropriate assessment of nature and extend of risks arising
from financial instrument and strategy adopted to manage them.

Qualitative disclosure
 Exposure to risk and how it arises
 Objectives, policies and processes for managing risk and method used to measure risk.
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Quantitative disclosure
 Summary of quantitative data about exposure to risk based on information given to key
management
 Concentrations of risks.
Liquidity Risk It is the risk that an entity will encounter difficulty in meeting obligations
associated with financial liabilities
The following disclosures are required in respect of liquidity risk:

Maturity analysis for financial liabilities that shows the remaining contractual maturities
 Time bands and increment are based on the entities’ judgement
 How liquidity risk is managed

Credit Risk: Credit Risk refers to the risk that one party to the financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.

As regards Credit Risk following disclosures should be made:

Maximum exposure to credit risk without taking into account collateral

 Collateral held as security and other credit enhancements
 Information of financial assets that are either past due (when a counterparty has failed to
make a payment when contractually due) or impaired
 Information about collateral and other credit enhancements obtained

Market Risk: This is the risk that the fair value or the future cash flow of the financial instrument
will fluctuate because of the changes in the market price. It comprises of three types of risks, which
are currency risk, interest rate risk and other price risk.

For proper depiction of Market Risks, Ind AS 107 requires the following:

 A sensitivity analysis (including methods and assumptions used) for each type of market risk
exposed, showing impact on profit or loss and equity; or

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 If a sensitivity analysis is prepared by an entity, showing interdependencies between risk
variables and it is used to manage financial risks, it can be used in place of the above sensitivity
analysis.

Currency Risk: It is the risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates.

Interest Rate Risk: It is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in market interest rate.

Other Price Risk: It is the risk that the fair value or future cash flows of a financial instrument
will fluctuate because of changes in the market price other than those arising from interest rate risk
and currency risk. These changes may be caused by the factors specific to the individual financial
instrument or its issuer, or factors affecting all similar financial instruments traded in the market.

Other Disclosures

1. Accounting Policies

Normally, measurement bases and accounting policies used in preparation and understanding of
financial statements are disclosed. For financial instruments these requirements would include the
following:

 Criteria for designating financial assets and financial liabilities as at fair value through
profit or loss

 Nature of financial assets or liabilities that have been designated as at fair value through
profit or loss

 Narrative description of justification of designation of financial asset or financial liability

as at fair value through profit or loss

 Criteria for designating financial asset as available for sale

 Determining when the carrying amount of impaired financial assets are reduced directly
and when allowance account has to be used.

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  Criteria for writing off the amount charged to allowance account against the carrying
amount of impaired financial assets.

 Whether trade date or settlement date accounting model is used for accounting of regular
way purchases and sales of financial assets.

 Method of determining net gains or net losses on each category of financial instrument. For
example, whether the net gains or net losses on items at fair value through profit or loss
includes interest or dividend income.

 The criteria for determining the objective evidence of impairment loss.

 When the terms of financial assets that would otherwise be past due or impaired have been
renegotiated, the accounting policy for financial assets that are subject to renegotiation.

2 Hedge Accounting Disclosures

Hedging activities are integral and a very significant part of many entities. These activities are
integral to entity’s financial risk management policy. Hedge accounting is not mandatory for an
enterprise. It is adopted to remove the difference in timing of recognition of gains and losses on
exposure that is being hedged and the hedging instrument. This accounting choice can have
significant effect on the financial statement.

For all hedges, entity must disclose a description of each type of hedge, description and fair values
at reporting date of the financial instruments designated as hedging instruments date and nature of
the risks being hedged. Since, in cash flow hedges, entity has to make significant judgments about
expectation of the cash flow and these hedges also requires recognition of gains and losses directly
in equity which are recycled to profit or loss, greater transparency is required. Therefore, some
additional disclosures are required for cash flow hedges, which are:

 The expected period of cash flows and timing of their effect in profit or loss

 Description of any forecast transaction which was hedged previously, but no longer
expected to occur

 The amount recognised in appropriate equity account during the period

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  Amount recycled from equity to profit or loss for the period

 The amount removed from appropriate equity account and included in the initial cost or
other carrying amount of non-financial asset or non-financial liability whose acquisition or
incurrence was a hedged highly probable forecast transaction.

 The ineffectiveness recognised in profit or loss that arises from cash flow hedges.

In case of fair value hedges the gain or loss on the hedging instrument and gain or loss on the
hedged item are immediately recognised in profit or loss in all periods. The net of these represents
the effective portion of the fair value hedge. Therefore, the gain or loss on the hedging instrument
and gain or loss on the hedged item attributable to hedged risk are separately disclosed either on
the face of the financial statement or in the notes to financial statements.

The ineffectiveness recognised in profit or loss that arises from hedges of net investment in foreign
operation is also disclosed.

Information about the fair values of each class of financial asset and financial liability, along with:

 Comparable carrying amounts.

 Description of how fair value was determined.
 Detailed information if fair value cannot be reliably measured.

Reclassification

If the entity has reclassified a financial asset out of a category to another category, it shall disclose:

a) the date of reclassification

b) a detailed explanation of change in business model and a qualitative description of its effect
on entity’s financial statements

c) the amount reclassified into and out of each category;

For each reporting period until derecognition, for asset reclassified out of fair value through profit
and loss, the entity must disclose

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 a) the effective interest rate and on date of reclassification of the financial asse and

b) interest/ revenue recognised

All financial instruments measured at fair value must be classified into the levels below (that reflect
how fair value has been determined):
 Level 1: Quoted prices, in active markets
 Level 2: Level 1 quoted prices are not available but fair value is based on observable
market data
 Level 3: Inputs that are not based on observable market data.

A financial Instrument will be categorised based on the lowest level of any one of the inputs used
for its valuation.
The following disclosures are also required:
 Significant transfers of financial instruments between each category – and reasons why
 For level 3, a reconciliation between opening and closing balances, incorporating;
gains/losses, purchases/sales/settlements, transfers
 Amount of gains/losses and where they are included in profit and loss
 For level 3, if changing one or more inputs to a reasonably possible alternative would
result in a significant change in FV, disclose this fact.
Clarify that the current maturity analysis for non-derivative financial instruments should include
issued financial guarantee contracts

Add disclosure of a maturity analysis for derivative financial liabilities.

3. Ind AS 109- Financial Instruments

Ind AS 109 is based on IFRS 9 and it replaced IAS 39. This is one standard that was adopted in
early in India than rest of the world.

The standards’ scope is broad. The standards cover all types of financial instruments, including
receivables, payables, investments in bonds and shares, borrowings and derivatives. They also

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apply to certain contracts to buy or sell non-financial assets (such as commodities) that can be net-
settled in cash or another financial instrument.

Ind AS 109 introduces single classification and measurement model for financial assets dependent
on both:

 The entity’s business model objective for managing financial assets

 The contractual cash flow characteristics of financial assets.
Ind AS 109 removes the requirement to separate embedded derivatives from financial asset host
contracts. it instead requires a hybrid contract to be classified in its entirety at either amortised cost
or fair value. Separation of embedded derivatives has been retained for financial liabilities subject
to criteria being met.

Important Definitions

A financial asset is cash; a contractual right to receive cash or another financial asset; a contractual
right to exchange financial assets or liabilities with another entity under potentially favourable
conditions; or an equity instrument of another entity.

A financial liability is a contractual obligation to deliver cash or another financial asset; or to

exchange financial instruments with another entity under potentially unfavourable conditions.

An equity instrument is any contract that evidences a residual interest in the entity’s assets after
deducting all of its liabilities.

A derivative is a financial instrument that derives its value from an underlying price or index;
requires little or no initial net investment; and is settled at a future date.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date
Directly attributable transaction costs are incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial asset or financial liability.
Principal is the fair value of the financial asset at initial recognition

Interest is typically the compensation for the time value of money and credit risk.

Initial Recognition of Financial Assets and Liabilities

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A financial asset or liability is recognised in the Balance Sheet when and only when, an entity
becomes party to the contractual provisions of the instrument.

Initial Measurement of Financial Assets and Liabilities

A financial asset or liability is measured at its fair value. For those financial assets and liabilities
not classified at fair value through profit or loss, directly attributable transaction costs should be
added to fair value. The fair value of a financial instrument is normally the transaction price, that
is, the fair value of the consideration given or received. However, in some circumstances, the
transaction price may not be indicative of fair value. Ind AS permits departure from the transaction
price only if fair value is evidenced by a quoted price in an active market for an identical asset or
liability (that is, a Level 1 input) or based on a valuation technique that uses only data from
observable markets.

Classification of Financial Assets

Based on the entity’s business model objective for managing financial assets and the contractual
cash flow characteristics of financial assets they are classified as either:
a) Amortised cost,
b) Fair value through profit or loss,
c) Fair Value through other comprehensive income

Financial Assets Subsequently Measured at Amortised cost

To classify a financial asset as subsequently measured at amortised cost both of the below
conditions must be met:

 The financial assets held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows;
 The contractual term of the financial asset give rise on specified dates to cash flow that are
solely payments of principal and interest on the principal amount outstanding
Business model assessment is determined by the entity’s key management personnel in the way
that assets are managed and their performance is reported. The business model is determined at a
level that reflects how groups of financial assets are managed together to achieve a particular

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business objective. It is not an instrument-by-instrument analysis. Rather it can be performed at a
higher level of aggregation.

An entity’s business model for managing financial assets is a matter of fact and not merely an
assertion. It is typically observable through the activities that the entity undertakes to achieve the
objective of the business model. The business model for managing financial assets is not
determined by a single factor or activity. Instead, management has to consider all relevant evidence
available at the date of the assessment. Such relevant evidence includes, but is not limited to the
following:
 How the performance of the business model (and the financial assets held within) is
evaluated and reported to the entity’s key management personnel
 The risks that affect the performance of the business model (and the financial assets held
within) and, in particular, the way those risks are managed
 How managers of the business are compensated (for example, whether the compensation
is based on the fair value of the assets managed or the contractual cash flows collected)

Contractual cash flow assessment is based on an instrument-by-instrument assessment.

Financial assets with cash flows that are solely payments of principal and interest (SPPI) on the
principal amount outstanding can be classified as subsequently measured at amortised cost. Here,
interest is consideration for only the time-value of money and credit risk. In case of FOREX
financial assets assessment is made in the denomination currency (i.e. FX movements are not taken
into account).

Subsequent Measurement: Such financial assets are subsequently measured at amortised cost
using effective interest rate.

Financial Assets measured at Fair Value through Other Comprehensive Income (FVTOCI)

A financial asset shall be measured at fair value through other comprehensive income if both of
the following conditions are met:

(a) the financial asset is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets and

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(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.

Such Assets are subsequently measured at fair value with all gains and losses recognised in other
comprehensive income Changes in fair value are not subsequently recycled to profit and loss.
Dividends are recognised in profit or loss.
Financial Assets measured at Fair value through profit or loss (FVTPL)

A financial asset shall be measured at fair value through profit or loss unless it is measured at
amortised cost in or at fair value through other comprehensive income. However, an entity may
make an irrevocable election at initial recognition for particular investments in equity instruments
that would otherwise be measured at fair value through profit or loss to present subsequent changes
in fair value in other comprehensive income Note: the option to designate is irrevocable.

Such financial assets are subsequently measured at fair value, with all gains and losses recognised
in profit or loss.
Financial assets: Equity instruments

Investments in equity instruments are always measured at fair value. Equity instruments are those
that meet the definition of equity from the perspective of the issuer as defined in Ind AS 32. Equity
instruments that are held for trading are required to be classified as FVPL. For all other equities,
management has the ability to make an irrevocable election on initial recognition, on an
instrument-by-instrument basis, to present changes in fair value in OCI rather than profit or loss.
If this election is made, all fair value changes, excluding dividends that are a return on investment,
will be included in OCI. There is no recycling of amounts from OCI to profit and loss (for example,
on sale of an equity investment), nor are there any impairment requirements.

However, the entity might transfer the cumulative gain or loss within equity.

Financial liabilities

Financial liabilities are measured at the amortised cost using effective interest rate method unless
they are classified as FVPL. Financial liabilities are classified as FVPL if they are designated at
initial recognition as such (subject to various conditions), if they are held for trading or are
derivatives (except for a derivative, that is, a financial guarantee contract or a designated and
effective hedging instrument). For liabilities designated at FVPL, changes in fair value related to

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changes in own credit risk are presented separately in OCI. Amounts in OCI relating to own credit
are not recycled to profit or loss even when the liability is derecognised and the amounts are
realised. However, the standard does allow transfers within equity.

Derivatives

Derivatives (including separated embedded derivatives) are measured at fair value. All fair value
gains and losses are recognised in profit or loss except where the derivatives qualify as hedging
instruments in cash flow hedges or net investment hedges.
Financial liabilities and equity

The classification of a financial instrument by the issuer as either a liability (debt) or equity can
have a significant impact on an entity’s gearing (debt-to-equity ratio) and reported earnings. It can
also affect the entity’s debt covenants.

The critical feature of a liability is that under the terms of the instrument, the issuer is or can be
required to deliver either cash or another financial asset to the holder; it cannot avoid this
obligation. For example, a debenture under which the issuer is required to make interest payments
and redeem the debenture for cash is a financial liability.

An instrument is classified as equity when it represents a residual interest in the issuer’s assets
after deducting all its liabilities; or, put another way, when the issuer has no obligation under the
terms of the instrument to deliver cash or other financial assets to another entity. Ordinary shares
or common stock where all the payments are at the discretion of the issuer are examples of equity
of the issuer.

In addition, the following types of financial instrument are accounted for as equity, provided they
have particular features and meet specific conditions:

 Puttable financial instruments (for example, some shares issued by co-operative entities
and some partnership interests)
 Instruments or components of instruments that impose on the entity an obligation to deliver
to another party a pro rata share of the net assets of the entity only on liquidation (for
example, some shares issued by limited life entities)

The classification of the financial instrument as either debt or equity is based on the substance of
the contractual arrangement of the instrument rather than its legal form. This means, for example,

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that a redeemable preference share, which is economically the same as a bond, is accounted for in
the same way as a bond. The redeemable preference share is therefore treated as a liability rather
than equity, even though legally it is a share of the issuer.

Other instruments may not be as straightforward. An analysis of the terms of each instrument in
light of the detailed classification requirements is necessary, particularly as some financial
instruments contain both liability and equity features. Such instruments, for example, bonds that
are convertible into a fixed number of equity shares, are accounted for as separate liability and
equity (being the option to convert if all the criteria for equity are met) components.

The treatment of interest, dividends, losses and gains in the statement of profit & loss follows the
classification of the related instrument. If a preference share is classified as a liability, its coupon
(preference dividend) is shown as interest cost. However, the discretionary coupon on an
instrument that is treated as equity is shown as a distribution within equity.
Derecognition of Financial Instruments

Derecognition is the term used for ceasing to recognise a financial asset or financial liability on an
entity’s balance sheet. These rules are more complex.

Assets

An entity that holds a financial asset may raise finance using the asset as security for the finance
or as the primary source of cash flow to repay the finance. Derecognition requirements of Ind AS
109 determine whether the transaction is a sale of the financial assets (and therefore the entity
ceases to recognise the assets) or whether finance has been secured on the assets (and the entity
recognises a liability for any proceeds received). This evaluation can be straightforward. For
example, it is clear with little or no analysis that a financial asset is derecognised in an
unconditional transfer of it to an unconsolidated third party, with no risks and rewards of the asset
being retained.

Conversely, derecognition is not allowed where an asset has been transferred, but substantially all
the risks and rewards of the asset have been retained through the terms of the agreement. However,
the analysis may be more complex in other cases. Securitisation and debt factoring are examples
of more complex transactions where derecognition will need careful consideration.

Liabilities

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An entity may only cease to recognise (derecognise) a financial liability when it is extinguished–
that is, when the obligation is discharged, cancelled or expires, or when the debtor is legally
released from the liability by law or by the creditor agreeing to such a release. An exchange
between an existing borrower and lender of debt instruments with substantially different terms or
substantial modification of the terms of an existing financial liability of part thereof is accounted
for as an extinguishment. The difference between the carrying amount of a financial liability
extinguished or transferred to a 3rd party and the consideration paid is recognised in profit or loss.

IMPAIRMENT OF FINANCIAL ASSETS

The impairment requirements are applied to:

 Financial assets measured at amortised cost (incl. trade receivables)
 Financial assets measured at fair value through OCI
 Loan commitments and financial guarantees contracts where losses are currently accounted
for under Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets
 Lease receivables.

Ind AS 109 outlines a three-stage model (general model) for impairment based on changes in credit
quality since initial recognition. It is based on changes in expected credit losses of a financial
instrument that determine
 the recognition of impairment, and
 the recognition of interest revenue.

Stage 1 includes financial instruments that have not had a significant increase in credit risk since
the initial recognition or have low credit risk at the reporting date. For these assets, 12-month
expected credit losses (ECL) are recognised and interest revenue is calculated on the gross carrying
amount of the asset (that is, without deduction for credit allowance). 12-month ECL result from
default events that are possible within 12 months after the reporting date. It is not the expected
cash shortfalls over the 12-month period but the entire credit loss on an asset weighted by the
probability that the loss will occur in the next 12 months.

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Stage 2 includes financial instruments that have had a significant increase in credit risk since the
initial recognition (unless they have low credit risk at the reporting date) but that do not have
objective evidence of impairment. For these assets, lifetime ECL are recognised, but interest
revenue is still calculated on the gross carrying amount of the asset. Lifetime ECL are the expected
credit losses that result from all possible default events over the expected life of the financial
instrument. EPL are the weighted average credit losses with the probability of default (PD) as the
weight.

Stage 3 includes financial assets that have objective evidence of impairment at the reporting date.
For these assets, lifetime ECL are recognised and interest revenue is calculated on the net carrying
amount (that is, net of credit allowance).

ECL are a probability-weighted estimate of credit losses. A credit loss is the difference between
the cash flows that are due to an entity in accordance with the contract and the cash flows that the
entity expects to receive discounted at the original effective interest rate. Since ECL consider the
amount and timing of payments, a credit loss arises even if the entity expects to be paid in full, but
later than when contractually due.

The model includes some operational simplifications for trade receivables, contract assets and
lease receivables as they are often held by entities that do not have sophisticated credit risk
management systems. These simplifications eliminate the need to calculate 12-month ECL and to
assess when a significant increase in credit risk has occurred.

For trade receivables or contract assets that do not contain a significant financing component, the
loss allowance needs to be measured at the initial recognition as well as throughout the life of the
receivable at an amount equal to lifetime ECL. As a practical expedient, a provision matrix may
be used to estimate ECL for these financial instruments.

For trade receivables or contract assets which contain a significant financing component in
accordance with Ind AS 115 and lease receivables, an entity has an accounting policy choice. It
can either apply the simplified approach (measuring the loss allowance at an amount equal to
lifetime ECL at initial recognition and throughout its life), or apply the general model. As an
exception to the general model, if the credit risk of a financial instrument is low at the reporting
date, management can measure impairment using 12-month ECL, and so it does not have to assess
whether a significant increase in credit risk has occurred.

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Hedge accounting

Hedging is the process of using a financial instrument (usually a derivative) to mitigate all or some
of the risk of a hedged item. Hedge accounting changes the timing of recognition of gains and
losses on either the hedged item or the hedging instrument so that both are recognised in profit or
loss within the same accounting period, in order to record the economic substance of the
combination of the hedged item and instrument.

To qualify for hedge accounting, an entity must (a) formally designate and document a hedge
relationship between a qualifying hedging instrument and a qualifying hedged item at the inception
of the hedge, and (b) both at inception and on an ongoing basis, demonstrate that the hedge is
effective.

There are three types of hedge relationships:

I. Fair value hedge: A hedge of the exposure to changes in the fair value of a recognised asset
or liability, or a firm commitment
II. Cash flow hedge: A hedge of the exposure to variability in cash flows of a recognised asset
or liability, a firm commitment or a highly probable forecast transaction
III. Net investment hedge: A hedge of the foreign currency risk on a net investment in a foreign
operation

For a fair value hedge, the hedged item is adjusted for the gain or loss attributable to the hedged
risk. That element is included in the statement of profit & loss where it will offset the gain or loss
on the hedging instrument. For an effective cash flow hedge, gains and losses on the hedging
instrument are initially included in other comprehensive income.

The amount included in other comprehensive income is the lesser of the fair value of the hedging
instrument and hedge item. Where the hedging instrument has a fair value greater than the hedged
item, the excess is recorded within the profit or loss as ineffectiveness. Gains or losses deferred in
other comprehensive income are reclassified to profit or loss when the hedged item affects the
statement of profit & loss. If the hedged item is the forecast acquisition of a non-financial asset or
liability, the entity may choose an accounting policy of adjusting the carrying amount of the non-
financial asset or liability for the hedging gain or loss at acquisition, or leaving the hedging gains

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or losses deferred in equity and reclassifying them to profit and loss when the hedged item affects
profit or loss.

Hedges of a net investment in a foreign operation are accounted for similarly to cash flow hedges.

A retrospective effectiveness testing is not required under Ind AS 109. Ind AS 109 requires
ensuring that the hedge ratio is appropriate. Companies need to verify that the hedge ratio is aligned
with the requirement of their economic hedging strategy (risk management strategy). Deliberate
imbalances must be avoided. A mismatch of weightings between the hedged item and the hedging
instrument should not be used to achieve an accounting outcome that is inconsistent with the
purpose of hedge accounting. This doesn’t imply that the hedge relationship must be perfect, but
the weightings of the hedging instruments and hedged item actually used cannot be selected in
order to introduce ineffectiveness. Companies need to carefully document their hedging strategy
and financial instrument classification at inception. Ind AS 109 prohibits voluntary de-designation
of hedges if risk management strategy of the company has not changed.

Ind ASs dealing with Industry Based Standards

1. Ind AS 104: Insurance Contracts

An insurance contract is a "contract under which one party (the insurer) accepts significant
insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
if a specified uncertain future event (the insured event) adversely affects the policyholder."

Ind AS 104 applies to virtually all insurance contracts (including reinsurance contracts) that an
entity issues and to reinsurance contracts that it holds. It also applies to financial instruments that
an entity issues with a discretionary participation feature.

It does not apply to other assets and liabilities of an insurer, such as financial assets and financial
liabilities within the scope of Ind AS 109 Financial Instruments. Furthermore, it does not address
accounting by policyholders. If insurance contracts include a deposit component, unbundling may
be required.

The following are examples of contracts that are insurance contracts, if the transfer of insurance
risk is significant:

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  Insurance against theft or damage to property
 Insurance against product liability, professional liability, civil liability or legal expenses
 Life insurance and prepaid funeral expenses
 Life-contingent annuities and pensions
 Disability and medical cover
 Surety bonds, fidelity bonds, performance bonds and bid bonds
 Credit insurance that provides for specified payments to be made to reimburse the holder
for a loss it incurs because a specified debtor fails to make payment when due
 Product warranties (other than those issued directly by a manufacturer, dealer or retailer)
 Title insurance
 Travel assistance
 Catastrophe bonds that provide for reduced payments of principal, interest or both if a
specified event adversely affects the issuer of the bond
 Insurance swaps and other contracts that require a payment based on changes in climatic,
geological or other physical variables that are specific to a party to the contract
 Reinsurance contracts.
The following are examples of items that are not insurance contracts:
 Investment contracts that have the legal form of an insurance contract but do not expose
the insurer to significant risk
 Contracts that pass all significant insurance risk back to the policyholder
 Self-insurance i.e. retaining a risk that could have been covered by insurance
 Gambling contracts
 Derivatives that expose one party to financial risk but not insurance risk
 A credit-related guarantee
 Product warranties issued directly by a manufacturer, dealer or retailer
 Financial guarantee contracts accounted for under Ind AS 109 Financial Instruments

Ind AS 104:

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  Prohibits provisions for possible claims under contracts that are not in existence at the
reporting date (such as catastrophe and equalisation provisions).
 Requires a test for the adequacy of recognised insurance liabilities and an impairment test
for reinsurance assets.
 Requires an insurer to keep insurance liabilities in its Balance Sheet until they are
discharged or cancelled, or expire, and prohibits offsetting insurance liabilities against
related reinsurance assets.
 Required an insurer to assess at the end of each reporting period whether its recognised
insurance liabilities are adequate, using current estimates of future cash flows under its
insurance contracts. If that assessment shows that the carrying amount of its insurance
liabilities is not sufficient, the liability is increased and a corresponding expense is
recognised in profit or loss.

Disclosures

An insurer is required to disclose information that identifies and explains the amounts arising from
insurance contracts:
 Its accounting policies for insurance contracts and related assets, liabilities, income and
expense
 Recognised assets, liabilities, income and expense
 The process used to determine the assumptions that have the greatest effect on
measurement
 The effect of any changes in assumptions
 Reconciliations of changes in liabilities and assets.
An insurer is required to disclose information that enables the user of its financial statement to
evaluate the nature and extent of risks arising from insurance contracts:
 Its objectives, policies and processes for managing risks
 Information about insurance risk
 Information about credit risk, liquidity risk and market risk
 Information about exposures to market risk arising from embedded derivatives.

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2. Ind AS 106: Exploration for And Evaluation of Mineral Resources

Ind AS 106 provides guidance on accounting for exploration and evaluation expenditures,
including the recognition of exploration and evaluation assets

Exploration and evaluation assets are exploration and evaluation expenditures recognised as
assets in accordance with the entity’s accounting policy.

Exploration and evaluation expenditures are expenditures incurred by an entity in connection

with exploration for and evaluation of mineral resources before the technical feasibility and
commercial viability of extracting a mineral resource are demonstrable.

Exploration for and evaluation of mineral resources include the search for mineral resources,
including minerals, oil, natural gas and similar non-regenerative resources after the entity has
obtained legal rights to explore in a specific area, as well as the determination of the technical
feasibility and commercial viability of extracting the mineral resource

Important aspects of Ind AS 106 are:

(a) permits an entity to develop an accounting policy for exploration and evaluation assets without
specifically considering the requirements of paragraphs 11 and 12 of Ind AS 8 Accounting Policies,
Changes in Accounting Estimates and Errors.

Thus, an entity adopting Ind AS 106 may continue to use the accounting policies applied
immediately before adopting this Ind AS. This includes continuing to use recognition and
measurement practices that are part of those accounting policies.

(b) requires entities recognising exploration and evaluation assets to perform an impairment test
on those assets when facts and circumstances suggest that the carrying amount of the assets may
exceed their recoverable amount.

(c) varies the recognition of impairment from that in Ind AS 36 Impairment of Assets but measures
the impairment in accordance with that Standard once the impairment is identified.

(d) requires disclosure of information that identifies and explains the amounts recognised in its
financial statements arising from the exploration for and evaluation of mineral resources, including

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(i) its accounting policies for exploration and evaluation expenditures including the recognition of
exploration and evaluation assets.

(ii) the amounts of assets, liabilities, income and expense and operating and investing cash flows
arising from the exploration for and evaluation of mineral resources

Ind ASs dealing with Disclosure Requirements

1. Ind AS 24: Related Party Transactions

A party is related to an entity if:
a) Directly, or indirectly through one or more intermediaries, the party:
i. Controls, is controlled by, or is under common control with, the entity (this includes
parents, subsidiaries and fellow subsidiaries);
ii. Has an interest in the entity that gives it significant influence over the entity; or
iii. has joint control over the entity;
b) The party is an associate (as defined in Ind AS 28 Investments in Associates) of the entity;
c) The party is a joint venture in which the entity is a venturer (see Ind AS 31 Interests in
Joint Ventures);
d) The party is a member of the key management personnel of the entity or its parent;
e) The party is a close member of the family of any individual referred to in (a) or (d);
f) The party is an entity that is controlled, jointly controlled or significantly influenced by, or
for which significant voting power in such entity resides with, directly or indirectly, any
individual referred to in (d) or (e); or
g) The party is a post-employment benefit plan for the benefit of employees of the entity, or
of any entity that is a related party of the entity.
A related party transaction is a transfer of resources, services or obligations between related
parties, regardless of whether a price is charged. Close members of the family of an individual
are those family members who may be expected to influence, or be influenced by, that
individual in their dealings with the entity. They may include:
(a) the individual's domestic partner and children;
(b) children of the individual's domestic partner;
(c) brother, sister, mother, father, and

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 (d) dependents of the individual or the individual's domestic partner.

Relationships between parents and subsidiaries shall be disclosed irrespective of whether there
have been transactions between those related parties. An entity shall disclose the name of the
entity’s parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the
ultimate controlling party produces financial statements available for public use, the name of the
next most senior parent that does so shall also be disclosed.
An entity shall disclose key management personnel compensation in total and for each of the
following categories:
(a) short-term employee benefits;
(b) post-employment benefits;
(c) other long-term benefits;
(d) termination benefits; and
(e) share-based payment.
If there have been transactions between related parties, an entity shall disclose the nature of the
related party relationship as well as information about the transactions and outstanding balances
necessary for an understanding of the potential effect of the relationship on the financial
statements. These disclosure requirements are in addition to the requirements to disclose key
management personnel compensation. At a minimum, disclosures shall include:
a. the amount of the transactions;
b. the amount of outstanding balances including commitments, and
i. and their terms and conditions, including whether they are secured, and the
nature of the consideration to be provided in settlement; and
ii. details of any guarantees given or received;
c. provisions for doubtful debts related to the amount of outstanding balances; and
d. the expense recognised during the period in respect of bad or doubtful debts due
from related parties.
The disclosures required by paragraph 18 shall be made separately for each of the following
categories:
(a) the parent;
(b) entities with joint control or significant influence over the entity;

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 (c) subsidiaries;
(d) associates;
(e) joint ventures in which the entity is a venturer;
(f) key management personnel of the entity or its parent; and
(g) other related parties.
Items of a similar nature may be disclosed in aggregate except when separate disclosure is
necessary for an understanding of the effects of related party transactions on the financial
statements of the entity.

2. Ind AS 108: Operating Segments

Ind AS 108 defines an operating segment as follows. An operating segment is a component of an

entity:

 that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the
same entity);
 whose operating results are reviewed regularly by the entity's chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance; and
 for which discrete financial information is available.

Reportable segments

Ind AS 108 requires an entity to report financial and descriptive information about its reportable
segments. Reportable segments are operating segments or aggregations of operating segments that
meet specified criteria:

 its reported revenue, from both external customers and intersegment sales or transfers, is
10 per cent or more of the combined revenue, internal and external, of all operating
segments; or

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  the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in
absolute amount, of (i) the combined reported profit of all operating segments that did not
report a loss and (ii) the combined reported loss of all operating segments that reported a
loss; or
 its assets are 10 per cent or more of the combined assets of all operating segments.

If the total external revenue reported by operating segments constitutes less than 75 per cent of the
entity's revenue, additional operating segments must be identified as reportable segments (even if
they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's
revenue is included in reportable segments.
Diagram for identifying reportable segments
Identify operating segments
based on management
reporting system.

YES
Aggregate
Do some operating segments segments if
meet all aggregation criteria? desired
NO
Do some operating segments
meet the quantitative
thresholds?
YES
NO
YES
Do some of the remaining
Aggregate operating segments meet a
segments if majority of the aggregation
desired criteria?
NO
Do identified reportable
segments account for 75% of
the total revenue?
YES
NO
Report additional segment if
external revenue of all
segments is less than 75% of
total revenue,

These are Aggregate remaining segments

reportable into 'all other segments'
segments. category.

Disclosure Requirements

Required disclosures include:

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 i. general information about how the entity identified its operating segments and the types of
products and services from which each operating segment derives its revenues;
ii. information about the reported segment profit or loss, including certain specified revenues
and expenses included in segment profit or loss, segment assets and segment liabilities and
the basis of measurement; and
iii. reconciliations of the totals of segment revenues, reported segment profit or loss, segment
assets, segment liabilities and other material items to corresponding items in the entity's
financial statements.
iv. some entity-wide disclosures that are required even when an entity has only one reportable
segment, including information about each product and service or groups of products and
services.
v. Analyses of revenues and certain non-current assets by geographical area – with an
expanded requirement to disclose revenues/assets by individual foreign country (if
material), irrespective of the identification of operating segments.
vi. information about transactions with major customers.
vii. considerable segment information at interim reporting dates.

3. Ind AS 112 – Disclosure of Interest in Other Entities

Application of Standard

Ind AS 112 applies to entities that have an interest in

 A subsidiary,
 A joint arrangement,
 An associate or
 An unconsolidated structured entity.
Requirements of the Standard

The standard requires an entity to disclose information that enables users of financial statements
to evaluate:

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(a) The nature of, and risks associated with, its interests in other entities; and

(b) The effects of those interests on its financial position, financial performance and cash flows.

The standard talks about the minimum disclosures an entity must provide. It also requires an entity
to consider the level of detail necessary to satisfy the disclosure objective.

Definitions

Income from a structured entity - For the purpose of this Ind AS, income from a structured
entity includes, but is not limited to, recurring and non-recurring fees, interest, dividends, gains or
losses on the remeasurement or derecognition of interests in structured entities and gains or losses
from the transfer of assets and liabilities to the structured entity.

Interest in another entity - For the purpose of this Ind AS, an interest in another entity refers to
contractual and non-contractual involvement that exposes an entity to variability of returns from
the performance of the other entity.

An interest in another entity can be evidenced by, but is not limited to, the holding of equity or
debt instruments as well as other forms of involvement such as the provision of funding, liquidity
support, credit enhancement and guarantees. It includes the means by which an entity has control
or joint control of, or significant influence over, another entity.

An entity does not necessarily have an interest in another entity solely because of a typical
customer supplier relationship.

Structured Entity - An entity that has been designed so that voting or similar rights are not the
dominant factor in deciding who controls the entity, such as when any voting rights relate to
administrative tasks only and the relevant activities are directed by means of contractual
arrangements.

Disclosures Required

An entity shall disclose

(a) The significant judgements and assumptions it has made in determining the nature of its interest
in another entity or arrangement, and in determining the type of joint arrangement in which it has
an interest

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(b) Information about its interests in:

(i) Subsidiaries

(ii) Joint arrangements and associates

(iii) Structured entities that are not controlled by the entity (unconsolidated structured
entities)

Disclosure of Significant Judgments and Assumptions

An entity shall disclose information about significant judgements and assumptions it has made
(and changes to those judgments and assumptions) in determining:

(a) That it has control of another entity, i.e. an investee as described in Ind AS 110 Consolidated
Financial Statements;

(b) That it has joint control of an arrangement or significant influence over another entity; and

(c) The type of joint arrangement (i.e. joint operation or joint venture) when the arrangement has
been structured through a separate vehicle.

Interest in Subsidiaries

An entity shall disclose information that enables users of its consolidated financial statements

(a) To understand:

(i) The composition of the group; and

(ii) The interest that non-controlling interests have in the group’s activities and cash flows
and

(b) To evaluate:

(i) The nature and extent of significant restrictions on its ability to access or use assets, and
settle liabilities, of the group

(ii) The nature of, and changes in, the risks associated with its interests in consolidated
structured entities

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 (iii) The consequences of changes in its ownership interest in a subsidiary that do not result
in a loss of control and

(iv)The consequences of losing control of a subsidiary during the reporting period

Interests in joint arrangements and associates

An entity shall disclose information that enables users of its financial statements to evaluate:

(a) The nature, extent and financial effects of its interests in joint arrangements and associates,
including the nature and effects of its contractual relationship with the other investors with joint
control of, or significant influence over, joint arrangements and associates

(b) The nature of, and changes in, the risks associated with its interests in joint ventures and
associates

Interests in unconsolidated structured entities

An entity shall disclose information that enables users of its financial statements:

(a) To understand the nature and extent of its interests in unconsolidated structured entities

(b) To evaluate the nature of, and changes in, the risks associated with its interests in
unconsolidated structured entities.

The Standard Does Not Apply To

(a) Post-employment benefits plans or other long-term employee benefit plans to which Ind AS 19
Employee Benefits applies.

(b) An entity’s separate financial statements to which Ind AS 27 Separate Financial Statements
applies.

(c) An interest held by an entity that participates in, but does not have joint control of, a joint
arrangement unless that interest results in significant influence over the arrangement or is an
interest in a structured entity.

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(d) An interest in another entity that is accounted for in accordance with Ind AS 109 Financial
Instruments. However, an entity shall apply this Ind AS:

(i) when that interest is an interest in an associate or a joint venture that, in accordance with
Ind AS 28 Investments in Associates and Joint Ventures, is measured at fair value through
profit or loss; or

(ii) when that interest is an interest in an unconsolidated structured entity.

Other Additional Considerations

Schedule III of the Companies Act, 2013

The Ministry of Corporate Affairs vide its notification dated 6th April, 2016 notified amendments
to Schedule III of the Companies Act, 2013 thereby inserting Division II to Schedule III for
preparation of financial statements by those entities who have to comply with Indian Accounting
Standards (Ind AS). Division II to Schedule III to the Companies Act, 2013 is a framework for
preparing financial statements for companies that follow the Companies (Indian Accounting
Standards) Rules, 2015. It identifies the potential and significant accounting, reporting and
disclosure requirements that are applicable to preparers and users of Ind AS financial statements.

The Corporate Laws & Corporate Governance Committee (CL&CGC) of The Institute of the ICAI
has also issued a Guidance Note on Division II to Schedule III of the Companies Act, 2013 for
companies required to comply with Ind AS.

Income Computation and Disclosure Standards (ICDS) prescribed under Sec 145 of Income
Tax Act, 1961-

Sec 145 (2) has empowered the Central Government to notify in the Official Gazette from time-
to-time accounting standards to be followed by any class of assessees or in respect of any class of
income. Vide Notification S.O.69 (E) dated 25.01.1996, the Central Government had notified the
following accounting standards to be followed by all assessees following the mercantile system of
accounting, namely

 Accounting standard I- Disclosure of Accounting policies

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  Accounting Standard II relating to disclosure of prior period and extraordinary items and
changes in accounting policies.

However, on 31st March, 2015, via Notification no. 32/2015, F. No. 134/48/2010‐ TPL, CBDT
issued 10 Income Computation and Disclosure Standards to be followed by all assessees,
following the mercantile system of accounting, for the purposes of computation of income
chargeable to income-tax under the head “Profit and gains of business or profession” or “Income
from other sources” from financial year 2016-17 onwards. Subsequent to various representations
from taxpayers seeking guidance and clarifications for implementation of ICDS, the Finance
Ministry, vide a Press Release dated July 6, 2016, deferred the implementation of ICDS by one
year to AY 2017-18 [FY 2016-17]. Old ICDS were rescinded and new issued by Notification No.
87/2016.

 ICDS-I: Accounting Policies

 ICDS-II Valuation of Inventories
 ICDS-III Construction Contracts
 ICDS-IV Revenue Recognition
 ICDS-V Tangible Fixed Assets
 ICDS-VI The Effects of Changes in Foreign Exchange Rates
 ICDS-VII Government Grants
 ICDS-VIII Securities
 ICDS-IX Borrowing Costs
 ICDS-X Provisions, Contingent Liabilities and Contingent Assets

ICDS are the computation and disclosures standards notified by government as guiding
principles for computing income to align the computation in income tax and accounting.
Important aspects of ICDS in income tax is the reporting of them in the 3CD audit reports.
Since, ICDS are linked to the accounting standards, general principles of Accounting Standards
also apply to the ICDS. However, Income Tax Act will always prevail over the accounting
standards when it comes to computing of income for taxation purposes. CBDT has clarified
that the books of account are to be maintained in accordance with the accounting policies
applicable to the assessees, and ICDS to be used just for computing taxes.

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Securities and Exchange Board of India (SEBI)

All listed entities complying with Ind ASs must also take due note of requirements of SEBI.

Relevant provisions of the SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2015 (Listing Regulations), SEBI (Mutual Fund) Regulations 1996, and other
relevant circulars issued by SEBI must be carefully studied to incorporate any further
information required by them.

Requirements of Industry Specific Regulators

Entities should also consider the applicable legal and regulatory requirements under which
they fall. Therefore, banks, insurance companies, electricity companies, telecom companies,
NBFC’s must align and provide additional details pertaining to the requirements by their
specific regulators.

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