Introduction to Ind AS Presentation of Financial Statement ... · Presentation of Financial Statement & Accounting of ppe and related ... (IND AS 16) 5. Intangible assets ... Unless

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SKA

Introduction to Ind ASPresentation of Financial Statement &Accounting of ppe and related Standards

Vivek AgarwalFCA, ACS, DISA (ICAI), B Com (Hons)

Partner

S K Agrawal & Cowww.skagrawal.co.in

ACAE CA Study Circle , EIRC - ICAI

28th Dec 2016

http://www.skagrawal.co.in/

www.skagrawal.co.inSKA [email protected] I 2

“The more you learn, you

learn that you still have lot

to learn”


1. Introduction

2. Financial Statement (IND AS 1)

3. Accounting Policies, Changes in Accounting

Estimates and Errors (IND AS 8)

4. Property, plant and equipment (IND AS 16)

5. Intangible assets (IND AS 38)

Agenda

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Introduction


Setting the Context

MCA had issued a roadmap for implementation of Indian Accounting Standards (Ind

AS) converged with IFRS. Ind AS which has been made applicable in two phases

As per the roadmap, all subsidiaries, associates and joint ventures (if any) would also

be covered in Phase as per their parent

As part of Ind AS implementation, management should be able to select accounting

policies and process to achieve long term objective

Ind AS implementation is not just an accounting change but will have significant

impact on business, systems, processes, communication with various stakeholders etc

and need to be considered strategically

1

2

3

3


Progress in recent times

Previous plan – 1 April 2011

July 2014 – Finance Minister’s budget speech

January 2015 – press release on revised roadmap issued by the MCA

February 2015 – roadmap for transition to Ind AS notified and 39 Ind AS

issued

Carve-outs exist, but are manageable

March 2015 – CBDT notifies 10 Income Computation and Disclosure

Standards (ICDS) to address tax issues and then defers same for FY 2016-

17

Ind AS standards published in the official gazette. New standard on

revenue recognition (Ind AS 115) deferred and Ind AS 18 notified


Unintended consequences of carve outs – Common control acquisitions

Early adoption of new financial instruments standard

Phased implementation – Banks, NBFCs and Insurance companies is not

covered in first phase as they are governed by respective statute

Conforming changes to other regulations – Indirect Taxes, Distributable

profits

Transition adjustments – Treatment of reserves

SEBI considerations – Quarterly/Half Yearly reporting, IPO’s & restatement

of 5 year data

MAT considerations

…but, some challenges remain


Roadmap for Ind AS

MANDATORY IMPLEMENTATION OF IND-AS VOLUNTARY IMPLEMENTATION

KEY MATTERS

Listed Companies or

Companies in the process of

Listing and having net worth

of INR 500 Crores or more

(debt or equity, In or outside

India listing)

All other unlisted Companies

having net worth of INR 500

Crores or more

Holding, Subsidiary, Joint

venture or Associates of

companies covered above

Listed Companies or

Companies in the process of

Listing and having net worth

of less than INR 500 Crores

or more (debt or equity, In or

outside India listing)

All other unlisted Companies

having net worth of INR 250

Crores or more but less than

INR 500 Crores

Holding, Subsidiary, Joint

venture or Associates of

companies covered above

Once Ind AS is followed, it shall be followed for all subsequent years

Accounting period beginning

from 1 April 2016 with

comparatives for March 2016

Accounting period beginning

from 1 April 2017 with

comparatives for March 2017

Any company can voluntarily

adopt Ind AS from year

beginning 1 April 2015 with

comparative for 2014-15

Roadmap is released in a press

release, 39 IND AS notified

Banks, Insurance Companies

and NBFCs falls in phase as per

their statute, mainly from 2018-

19.


Timeline for Transition to Ind AS – Phase 1

1/4/2015 31/3/2016 31/3/2017

Reporting PeriodTransition Date Comparative Period

• Opening

Balance

Sheet

Comparatives

(Quarterly/Annual):

• Balance Sheet

• Statement of

Profit & Loss

• Statement of

Changes in

Equity

Actuals

(Quarterly/Annual):

• Balance Sheet

• Statement of

Profit & Loss

• Statement of

Changes in

Equity

Financial Statements as per AS

Financial Statements as per Ind AS


Timeline for Transition to Ind AS – Phase 2

1/4/2016 31/3/2017 31/3/2018

Reporting PeriodTransition Date Comparative Period

• Opening

Balance

Sheet

Comparatives

(Quarterly/Annual):

• Balance Sheet

• Statement of

Profit & Loss

• Statement of

Changes in

Equity

Actuals

(Quarterly/Annual):

• Balance Sheet

• Statement of

Profit & Loss

• Statement of

Changes in

Equity

Financial Statements as per AS

Financial Statements as per Ind AS


Rule 4(2) of the Companies (Indian Accounting Standards) Rules, 2015, states as under:

“For the purposes of calculation of net worth of companies under sub-rule (1), the following

principles shall apply, namely:-

(a) the net worth shall be calculated in accordance with the stand-alone financial statements of

the company as on 31st March, 2014 or the first audited financial statements for accounting

period which ends after that date;

(b) for companies which are not in existence on 31st March, 2014 or an existing company

falling under any of thresholds specified in sub-rule (1) for the first time after 31st March,

2014, the net worth shall be calculated on the basis of the first audited financial statements

ending after that date in respect of which it meets the thresholds specified in sub-rule (1).

Explanation.- For the purposes of sub-clause (b), the companies meeting the specified

thresholds given in sub-rule (1) for the first time at the end of an accounting year shall apply

Indian Accounting Standards (Ind AS) from the immediate next accounting year in the

manner specified in sub-rule (1)”.


SEBI issued a circular on Nov 30, 2015 prescribing the formats for publishing financial under the

newly issued SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

Companies adopting Ind AS for the first time will need to ensure that comparatives filed in such

quarterly/annual financial results are also Ind AS compliant.

Disclosures regarding reconciliation of equity, total comprehensive income and explanation

relating to changes in its accounting policies and use of exemptions etc. is required in the

quarterly results for the period covered by its first Ind - AS Financial Statements

So, for June 2016 quarter, following will be required –

Financial Results - QE Jun 2015, QE Mar 2016 and QE Jun 2016

Financial Results - YE 2015 -16

Segmental reporting – for above periods

Following reconciliations between IGAAP and Ind AS (equity, income statement, CF)

Equity – as at 31st Mar 2015, 30 thJun 2015 and 31st Mar 2016

Income Statement - QE Jun 2015,

Income Statement – YE 2015-16

CF –narrative explanation for YE 2015 -16

Ind – AS – Listed Companies Quarterly Reporting


Investors

Lenders

Suppliers

Customers

Government and other agencies

Employees

Public

Users of Financial Statements



Should present fairly - faithful representation

Entity must:

– select and apply appropriate accounting policies keeping in mind

the GAAP hierarchy,

– present the information such that it provides, relevant, comparable

and understandable information, and

– provide additional disclosures where necessary.

Note disclosures are not a substitute for proper accounting

May depart from GAAP

Fair Presentation and Compliance with Ind AS

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Fundamental Accounting Assumptions

1. Going Concern

2. Consistency

3. Accrual

Selection of Accounting Policies

1. Prudence

2. Substance over form

3. Materiality

IND AS -1 – DISCLOSURE OF APs


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. Materiality depends on the

size and nature of the omission or misstatement

judged in the surrounding circumstances. The size

or nature of the item, or a combination of both,

could be the determining factor.

Materiality


Assessment made by management

Use going concern basis to prepare financial statements

unless:

Intention to liquidate

Intention to cease trading

No realistic alternative but to liquidate

If other basis is used, disclose:

Basis used

Reason for not using going concern basis

Disclose uncertainties which cast significant doubt upon

ability to continue as going concern

Going concern


Materiality and aggregation

Separate presentation of material items

Aggregation of immaterial amounts except when required

by law

Applies to statement of profit and loss and balance sheet

Offsetting

Balance sheet

Never, unless required or permitted by another Ind AS

Statement of profit and loss

Never, unless:

Required or permitted by another Ind AS

Present on a net basis similar transactions, immaterial

gains or losses (e.g., foreign exchange gains and losses)


Consistency of presentation

Unless change required by Ind AS or significant change in

operations or apparent from review of financial statements

that another presentation or classification would be more

appropriate

Accrual basis of accounting

Except for cash flow information


Identify what is included

Must display the following

1. the name of the entity

2. whether the financial statements are consolidated or

not

3. the date of the balance sheet or period covered

4. the reporting currency and

5. the level of rounding (e.g. INR in lacs)

Presentation


Comparative information

For at least one prior period except when Ind ASs permit or

require otherwise

Reclassification, disclose:

Nature and reason of reclassification

Amount of each item or items reclassified

If impracticable, disclose:

Reason for not reclassifying

The nature of adjustments that would have been made


Balance Sheet

Statement of Profit and Loss

Statement of Changes in

Equity

Statement of Cash Flows

Notes

Summary of significant

accounting policies

Other explanatory

information

Comparative information in

respect of the preceding period

A balance sheet as at the

beginning of the earliest

comparative period (in certain

cases)

Components of Financial Statements

2 Balance Sheets

2 Profit and

Loss

2 Cash Flows

2 Changes in equity

And notes Components of

Financial

Statements


Assets

Current

Non-current

Disposal Group

Liabilities

Current

Non-current

Disposal group

Equity

Share

capital

Reserves

Others

Structure and Content: Balance Sheet


Requirement to present classified balance sheet:

Current and non-current assets and liabilities unless a presentation

based on liquidity provides information that is reliable and more

relevant

If not separately classified based on above exception, present assets

and liabilities in order of liquidity

For each item, disclose amounts expected to be recovered or settled

after more than 12 months; if combined with items expected to be

recovered or settled in no more than 12 months

Deferred tax assets/liabilities – always non-current

Long-term debt expected to be refinanced under an existing loan facility

is non-current; even if due within twelve months – this is only if the

entity has a discretion to roll-over or refinance the obligation and

expects to do so



Current and Non-Current Assets

An entity shall classify an asset as current when

An entity shall classify all other assets as non-current

it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;

it holds the asset primarily for the purpose of trading;

it expects to realise the asset within twelve months after the reporting period; or

the asset is cash or a cash equivalent (as per Ind AS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.


Current and Non-Current Liabilities

An entity shall classify a liability as current when

An entity shall classify all other liabilities as non-current

it expects to settle the liability in its normal operatingcycle;

it holds the liability primarily for the purpose of trading;

the liability is due to be settled within twelve monthsafter the reporting period; or

it does not have an unconditional right to defersettlement of the liability for at least 12 months after thereporting period .


Long-term debt considered as current if breach of covenant and can be

called

Liability becomes payable on demand

Post balance sheet cure of a covenant violation will not change the

classification to non-current

Non-current if twelve months grace period given by balance sheet

date

In respect of debt classified as current, no change in classification on

account of the following events

Post balance sheet debt refinancing on long-term basis

Post balance sheet cure of a covenant violation or provision of

grace period to rectify the defect



Requirement to present minimum line items on the face of balance sheet:

Property, plant and equipment

Investment property

Intangible assets

Financial assets

Investments accounted for using the equity method

Biological assets

Inventories

Trade and other receivables

Cash and cash equivalents

Assets classified as held for sale and assets included in disposal groups

classified as held for sale

Trade and other payables



Requirement to present minimum line items on the face of balance sheet

(Contd.)

Provisions

Financial liabilities

Current tax liabilities and assets

Deferred tax liabilities and assets

Non-controlling interests, presented within equity

Issued capital and reserves attributable to the equity holders of the

parent

Assets classified as held for sale and assets included in disposal group

classified as held for sale

Liabilities included in disposal group classified as held for sale



Additional line items may be needed when such a presentation is

relevant to an understanding of the entity’s financial position

Separate line items for assets measured on different basis

Option to disclose further sub-classifications of assets either on the

face of balance sheet or in the notes



Profit and Loss (PL)

Total of income less expenses, excluding the components of other comprehensive income.

Other Comprehensive Income (OCI)

Comprises items of income and expense (including reclassification adjustments*) that are not recognised in PL as required or permitted by other Ind ASs.

Total Comprehensive Income

Change in equity during a period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.

These are amounts reclassified to PL in the current period that were

recognised in OCI in the current or previous periods.

Structure and Content: Statement of Profit and Loss


Requirement to present minimum line items in the Statement of Profit and

Loss:

Revenue (presenting separately interest revenue calculated using the

effective interest method)

Gains and losses arising from the derecognition of financial assets

measured at amortised cost;

Finance costs

Impairment losses (including reversals of impairment losses or

impairment gains)

Share of the profit or loss of associates and joint ventures accounted for

using the equity method

If a financial asset is reclassified out of the amortised cost measurement

category so that it is measured at fair value through profit or loss, any

gain or loss arising from a difference between the previous amortised

cost of the financial asset and its fair value at the reclassification date



Requirement to present minimum line items in the Statement of Profit and

Loss (continued):

If a financial asset is reclassified out of the fair value through other

comprehensive income measurement category so that it is measured at

fair value through profit or loss, any cumulative gain or loss previously

recognised in other comprehensive income that is reclassified to profit or

loss

Share of the profit or loss of associates and joint ventures accounted for

using the equity method

Tax expense

A single amount comprising the total of

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



Each component of other comprehensive income classified

by nature (including share of OCI of associates and JV

accounted for using the equity method)

Total Comprehensive Income

Allocation of profit or loss for the period must be presented

on the face of statement of profit and loss as

Profit or loss attributable to non-controlling interests;

Profit or loss attributable to owners of the parent

Additional line items/subtotals may be needed to give a true

and fair the financial performance

Extraordinary items - Prohibited



Need to disclose following items separately, if material:

Write-down of inventories to net realisable value as well as

reversal of such a write-down

Write-down of PPE to recoverable amount as well as reversal of

such a write-down

Restructuring provisions as well as reversal of such a provision

Disposals of items of property, plant and equipment

Disposal of investments

Discontinued operations

Litigation settlements

Other reversal of provisions



Requirement to present an analysis of expenses

using a classification based on the nature of

expense method – functional classification of

expenses prohibited

Disclose dividends per share, declared or

proposed



Presentation of Profit and Loss (based on the nature of expense method)

Revenue

Other income

X

X

Changes in inventories of finished goods and work

in progress

Raw materials and consumable used

Employee benefit expense

Depreciation and amortisation expense

Other expenses

Total expense

X

X

X

X

X

(X)

Accounting Profit

Tax expense

Profit for the period

X

(X)

X


Nature of Expense presentation

Revenue X

Other income X

Changes in inventories of finished goods and work in progress X

Raw materials and consumables used X

Employee benefits expense X

Depreciation and amortization expense X

Other expenses X

Total expenses (X)

Profit before tax X

Presentation of Income Statements


An entity shall disclose the amount of income tax relating to

each component of other comprehensive income, including

reclassification adjustments, either in the statement of profit

and loss or in the notes.

An entity may present components of other comprehensive

income either:

net of related tax effects, or

before related tax effects with one amount shown for the

aggregate amount of income tax relating to those

components.

An entity shall disclose reclassification adjustments relating

to components of other comprehensive income.

Structure and Content: Other Comprehensive Income


1. changes in the revaluation surplus for property, plant

and equipment and intangible assets,

2. certain actuarial gains/losses on defined benefit

plans,

3. gains/losses arising on translation of financial

statements of foreign operations,

4. gains/losses arising from re-measuring available for

sale securities and

5. gains/losses on cash flow hedges.





Changes in Equity

Share capital

Reserves

Other components

of equity

Statement of Changes in Equity (SOCIE)

Other

Comprehensive

Income

Directly in

equity


This statement presents the following:

1. total comprehensive income

2. for each component of equity, the effects of

retrospective application/restatement

3. reconciliation between the carrying amount of

each component of equity at the beginning and

end of the period.

Structure and Content: Statement of Changes in Equity


Notes:

– augment the basic statements

– include information about the way they have been

prepared

– provide additional descriptive and supportive

information

– should be cross-referenced

– accounting policies

– key sources of estimation uncertainty

– nature and structure of an entity’s capital and how

it is managed



Statement of Changes in Equity includes the following :

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;

c. for each component of equity, a reconciliation between the carrying

amount at the beginning and the end of the period, separately disclosing

each changes resulting from:

i. profit or loss;

ii. each item of other comprehensive income;

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; and

iv. any item recognised directly in equity such as amount recognised

directly in equity as capital reserve with paragraph 36A of Ind AS 103.



Option to present the following either on the face of statement

of changes in equity or in the notes:

For each component of equity, an analysis of other

comprehensive income by item

The amount of dividends recognised as distributions to

owners during the period, and the related amount of

dividends per share.



Statement of Changes in Equity


Basis of preparation of financial statements

Accounting policies

Disclosures required by Ind ASs

Capital management disclosure

Additional information necessary presentation of ‘true

and fair view’

‘Systematic manner’ – cross referenced

Structure and Content: Notes


Requirement to disclose the judgments, apart from those

involving estimations, that management has made in the

process of applying the entity’s accounting policies and that

have the most significant effect on the amounts recognised in

the financial statements

Critical Accounting Judgments


Requirement to disclose key assumptions about the future and

other sources of estimation uncertainty that have a significant

risk of causing a material adjustment to the carrying amounts

of assets and liabilities in the next year.

Disclosures may include:

Nature of assumption or other estimation uncertainty

Carrying amount at the end of the reporting period

Sensitivity analysis

Expected resolution of an uncertainty and the range of

reasonably possible outcomes within the next financial year

Changes, if any, made to the assumptions and the effect on

reported amounts

Key Assumptions/Estimation Uncertainty


Ind AS 1 includes guidance on the meaning of presenting a ‘true and fair

view’ and emphasises that the application of Ind AS is presumed to

result in financial statements that give a ‘true and fair view’.

Ind AS 1 requires an entity to present assets and liabilities in order of

liquidity only when a liquidity presentation provides information that is

reliable and is more relevant than a current/non-current presentation

Presentation of minimum line items on the face of balance sheet and

statement of profit and loss is required

Ind AS 1 allows presentation of additional line items/subtotals if they are

needed to present a ‘true and fair view’ of the financial position or

financial performance

Key Learning Points


Expenses are presented in the statement of profit and loss by nature-

wise classification

Ind AS 1 requires disclosure, on the face of the statement of changes in

equity, of total income and expenses for the period (including amounts

recognised directly in equity), showing separately the amounts

attributable to equity holders of the parent and to non-controlling interests

Ind AS 1 also requires presentation of critical accounting judgments and

estimates

Key Learning Points


Ind AS 8

Accounting Policies,

Changes in Accounting

Estimates and Errors


Accounting Policies


Policies

Accounting Estimates


Estimates

Prior Period Errors

Scope


Accounting policies are the specific principles, bases, conventions, rules and

practices applied in preparing and presenting financial statements.

Principles are the guidelines which must be followed when reporting financial

transactions.

Bases are the methods in which accounting principles may be applied

to financial transactions. Eg. Method used to depreciate assets.

Conventions consists of practices that arise from the practical application

of accounting principles and is designed to help accountants overcome practical

problems that arise while reporting financial transactions.

Rules are the golden rules of debit and credit of accounting.

Practices are the ways by which its accounting policies are implemented and

adhered to on a routine basis.

Accounting Policies


When an Ind AS specifically applies to a transaction, the accounting

policy applied to that transaction shall be determined by applying the

respective Ind AS, else management shall use its judgement in developing

and applying an accounting policy that results in information that is relevant

and reliable.

In making the judgement, management shall refer to:

a) the definitions, recognition criteria and measurement concepts for assets,

liabilities, income and expenses in the Framework;

b) Ind AS on similar and related issues;

c) Other financial reporting standards like IFRS, US GAAP.

Eg.- Accounting of spare parts, stand-by equipment and service equipment,

Accounting of De-merger.

Accounting policies should be applied consistently.

Accounting Policies


An Accounting policy can be changed only if the change :

a) is required by an Ind AS (Mandatory change); or

b) results in providing reliable and more relevant information about the

transaction on the entity’s financial statement (Voluntary change).

Accounting treatment of Changes in accounting policy:

If transitional provisions are mentioned in the respective Ind AS, then apply

those provisions, else apply the change retrospectively unless impracticable.

Retrospective means adjust the opening balance of each affected

component of equity for the earliest prior period presented and the

comparative amounts disclosed for each prior period presented as if the new

accounting policy had always been applied.

Change in Accounting Policies


In accordance with the transitional provisions therein.

If no Transitional Provision OR if

accounting policy is changed voluntarily

Changes shall be applied

retrospectively

How to Apply the Changes ?

Change in Accounting Policies


Inventory as per old Accounting Policy Inventories are valued at Cost.

Item Qty Cost ValueA 10 120 1200B 20 225 4500C 30 200 6000

11700

Inventory as per new Accounting Policy Inventories are valued at lower of Cost and Net

Realizable Value (NRV).Item Qty Cost NRV Lower Value

A 10 120 125 120 1200B 20 225 220 220 4400C 30 200 150 150 4500

10100

Eg. of change in accounting policy


Accounting estimates are the estimations used by management to recognize

amounts in the financial statements where precise values cannot be

determined.

A change in accounting estimate is an adjustment of the carrying amount

of an asset or a liability, or the amount of the periodic consumption of an

asset (depreciation), that results from the assessment of the present status of,

and expected future benefits and obligations associated with, assets and

liabilities.

Changes in accounting estimates result from new information or new

developments and accordingly are not corrections of errors.

Changes in Accounting Estimates


Accounting treatment of Changes in accounting estimate:

The effects of change in accounting estimate is applied prospectively i.e.

from the date of the change in estimate by including it in profit or loss

in:

a) The period of the change, if the change affects that period only; or

b) The period of the change and future periods, if the change affects both.

If change in accounting estimate relates to items of asset, liability or

equity, it shall be recognised by adjusting the carrying amount of the

related item of asset, liability or equity in the period of the change.

Eg:- Change in amount of bad debts or change in the useful life of

depreciable assets.

Changes in Accounting Estimates


A change in the measurement basis applied is a change in an accounting

policy, not a change in an accounting estimate.

When it is difficult to distinguish between change in accounting policy and

accounting estimate, the change is treated as a change in accounting

estimate.

Particulars Accounting Policies Accounting Estimates

What it is? Principles, bases, conventions,

rules and practices.

Amount / Patterns

Examples: Change from historical cost to

realisable value.

Change in the useful life of

depreciable asset.

Accounting

treatment when

there is a change in

Retrospectively Prospectively

Accounting Policies Versus Accounting Estimates


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:

a) was available when financial statement for those periods were approved for

issue, and

b) could reasonably be expected to have been obtained and taken into account

in the preparation and presentation of those financial statement.

Such errors include -

a) the effects of mathematical mistakes,

b) mistakes in applying accounting policies,

c) oversights or misinterpretations of facts, and

d) fraud.

Eg:- Forget to include borrowing cost in the cost of machinery.

Prior Period Errors


Accounting treatment of Prior period errors:

The entity must correct material prior period errors retrospectively in

the first set of financial statements approved for issue after their

discovery by restating:

a) the comparative amounts for the prior period presented in which the

error occurred; or

b) the opening balance of assets, liabilities and equity for the earliest

period presented, if the error occurred before the earliest prior period

presented

unless impracticable.

Immaterial prior period error can be corrected in the financial

statement of the period in which it is discovered.

Prior Period Errors


ParticularsChange in Accounting

estimatesPrior Period Errors

When there isResult from new information

or new developments.

Result from failure to use or

misuse of available

information.

Examples:Change in the useful life of

depreciable asset.

Forget to include borrowing

cost in the cost of machiney.

Accounting

treatment when

there is

Prospectively Retrospectively

CHANGE IN Accounting ESTIMATEs Versus PRIOR PERIOD ERRORS


Non-application of new accounting pronouncements that havebeen issued but are not yet effective as at the end of thereporting period is disclosed. In such a case, known or reasonablyestimable information relevant to assessing the possible impactthat application of the new accounting pronouncements will haveon the financial statements on initial application is also disclosed.

NEW ACCOUNTING PRONOUNCEMENTS


Accounting

Policy

Accounting

Estimate

Prior

Period

Error

Prospectively

Retrospectively Retrospectively

Q. Does restatement of prior period figures amounts to voluntary revision of

financial statements?

A. No, as entity is restating prior period figures in the current period financial

statement so it does not amounts to voluntary revision of financial statements.

Summary


Sr. No. Particulars Ind AS / IFRS AS

1 Accounting Policy -

Definition

Wider and includes bases, conventions,

rules and practices.

Restricted to accounting principles

and methods to apply accounting

principles.

2 Accounting Policy -

SelectionWhen an Ind AS / IFRS specifically

applies to a transaction, the accounting

policy applied to that transaction shall be

determined by applying the respective Ind

AS / IFRS, else management shall use its

judgement in developing and applying an

accounting policy that results in

information that is relevant and reliable.

The major considerations governing

the selection and application of

accounting policies are:-

a. Prudence

b. Substance over Form

c. Materiality

3 Change in

Accounting Policy -

Criteria

An Accounting policy can be changed

only if the change :

a) is required by an Ind AS / IFRS; or

b) results in providing reliable and more

relevant information about the transaction

on the entity’s financial statement.

An Accounting policy can be

changed only if the change :

a) is required by an AS; or

b) is required by statute; or

c) results in more appropriate

presentation of the entity’s financial

statement.

Comparison


Sr.

No.Particulars Ind AS / IFRS AS

4 Change in Accounting Policy -

Accounting treatment in

absence of Transitional

Provisions

Rectrospectively unless

impracticable.

Does not specify.

5 Change in Accounting Estimate

- Definition

Very clear definition. Not in such clear terms.

6 Prior period errors - Definition Very clear and wide

definition.

Not in such clear terms.

7 Prior period errors include

frauds

Specifically mentioned. Not specifically

mentioned.

8 Prior period errors -

Accounting treatment

Retrospectively unless

impracticable.

Prospectively.

9 Prior period errors – Seperately

reported in current year Profit

and Loss

Seperate disclosure not

required.

Seperate disclosure

required.

Comparison


Presentation of Financial Statement Design of Building

Accounting policies Foundation of Building

Framework Boundary of Building

Respective standards Floors of Building

Principles of respective standards Flats at respective floor of Building

Building will be strong when its foundation is strong.

Similarly Financial statement will be strong when its accounting policies are

strong.

Here, Financial Statement will be strong means that Financial Statement

comprises of Accounting Policies which are transparent, crystal clear and help

users in making economic decisions.


Ind AS 16

Property Plant and

Equipments


Indian GAAP Vs. Ind AS

Particulars Indian GAAP IND- ASCost of acquisition Transaction value is considered as

the purchase cost of fixed assets.Amount of cash or cash equivalents paid or the fair

value of other consideration given to acquire an asset. The concept of fair value of consideration would have

implications in cases of deferred payment arrangements.

Asset retirement

obligationNo specific guidelines To be included as part of initial cost of asset and a

liability equivalent to the present value of such costs would need to be recognised.

Foreign exchange

differenceFollowing the notification issued by

MCA on 31 March 2009, several companies have elected to either

capitalise foreign exchange differences or accumulate exchange

differences in FCMITD

Ind AS does not permit the capitalisation of foreign exchange differences. However, in certain cases, exchange differences may be treated as part of

borrowing costs and accordingly be capitalised as additional interest costs.

Rate of depreciation-

reviewNo specific requirement Ind AS requires the residual value, useful life estimates

and depreciation method to be reviewed at least at the end of each financial year.

Method of

DepreciationChoice with companies to follow

either the SLM or WDVInd AS requires that the depreciation needs to reflect

the pattern in which the asset’s future economic benefits are expected to be consumed by the company.


Indian GAAP Vs. Ind AS

Particulars Indian GAAP IND- AS

Substantial period of time

definition

A period of 12 months is ordinarily considered as a substantial period of time, unless a shorter or

longer period can be justified.

No bright line rules for determining what constitutes ‘a substantial period of time’.

Interest expensesContractual interest expense is considered as a

part of borrowing costs

Under Ind AS, the amount of interest expense to be included as borrowing costs is based on the

effectiveinterest rate method.

Borrowing rate

Borrowing costs are capitalised based on company level borrowings and no separate adjustments are made to compute group

borrowing rate.

Ind AS requires that the consolidated group’s average borrowing rate needs to be considered

for capitalisation of general borrowing costs.

Component Accounting

Recommendatory but not mandatoryInd AS requires that components, which are significant and have a significantly different useful life, should be depreciated separately

RevaluationIf revaluation does not cover all assets, selection

of asset to be revalued to be made on a systematic basis.

Choice of cost or revaluation method is applied to an entire class of PP&E.


Tangible Items

AND

Held for Use in

• Production

• Supply• Rental• Administration

Expected to be used for more than one period


Recognition

Start Future economic benefits will flow to the entity

Used singly or in combination to produce goods or services

Exchanged for other assets

Used to settle a liability

Distributed to the owners of the entity

Cost measured reliably

Recognition


Measurement at Initial Recognition

Directly attributable

cost

Cost of dismantling and

restoring site

Purchase price

• Cost of employee benefit

• Costs of site preparation

• Initial delivery and handling cost

• Installation and handling cost

• Professional fees

• Import duties• Non- refundable

purchase taxes• Deducting trade

discounts• Deducting rebates

Appendix AChanges in Existing Decommissioning,

Restoration and Similar Liabilities


Measurement : Spare parts and Replacement costs

Spare parts and servicing equipment are usually carried as inventory and recognised in profit

or loss as consumed except:

Major spare parts and stand-by equipment with expected use during more than one

period

Spare parts and servicing equipment which can only be used in connection with an item

of PPE

Cost of new component purchased for replacement will be capitalized and depreciated over

the period not exceeding the useful life of the principal asset (Refer component accounting

in next slide) .

Indian GAAP

Replacements which leads a capital asset to its full productive capacity or a contribution

after damage, accident, or prolonged use, without increase in its previously estimated

service life or productive capacity.

Should be charged to profit & loss as and when incurred.

Improvements or betterments leading to increase in estimated service life or productive

capacity.

Should be capitalized


Measurement of Subsequent Costs

SUBSEQUENT COSTS

Spare Parts & Servicing Equipment

Day to day servicing

Replacement at regular intervals / nonrecurring replacement

Inspection Cost

www.skagrawal.co.inSKA [email protected] I80

Cessation of Capitalisation

Cost incurred while item yet

to be used

Initial Operating

loss

Relocating / reorganizing

cost

Once asset is in

location and

condition to be used


Measurement after Recognition

Cost ModelRevaluation

Model

Cost – (Accumulated Depreciation +

Impairment loss)

Current value –(Accumulated Depreciation +

Impairment loss)

or


Revaluation Model

ABC Ltd. has the following assets:

Assets A B C

Carrying Amount 20000 24000 30000

Fair Value 24000 30000 16000

If the company decides to revalue A and B, but not C, the position will be as:

Assets A B C Total

Carrying Amount (revaluation of entire class not done)

24000 30000 30000 84000

Carrying Amount (entire class revalued)

24000 30000 16000 70000

Entire class to be revalued


Revaluation Model

The gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset; or

The accumulated depreciation is eliminated against the gross carrying amount of the asset

Carrying amount of Revalued Asset


Restate GB & AD Reduce AD

Cost 1 2

Gross Block (GB)Accumulated depreciation (AD)

10020

11022

10012

Carrying amount 80 88 88


Revaluation Model : 6 Treatments

Cost of Asset 25,000 Position at the end of 4th year

Life (in years) 10 Gross Block 25,000

Depreciation method SLM Acc. Dep. (2,500 x 4) 10,000

Income Tax rate 30% Carrying amount (CA) 15,000

Asset revalued at 21,000. The 6 effects are as follows:

CA of asset increases (21,000-15000) by

6,000

BS

Revaluation Surplus (RS) created (6000 x 70%) by

4,200

OCI

Deferred tax liability created (6000 x 30%) by

1,800

BS

Depreciation expense increases (6,000/6) by

1,000

PL

Income tax expenses reduces(1000 x 30%) by

300

PL

Amount from RS transferred to Retained Earning (1,000 x 70%)

700

CIE



Component accounting

Cost of each significant item of PPE to be recognised separately which may not

have different useful life

Item of PPE means parts having a cost that is significant to total cost

Identification of such parts required to recognise replacement cost, if required

Example :

Ship costs 150, useful life 10 years,

Estimated docking cost 15, planned after 3 years

Component 1

Cost: 135

Life: 10 years

Component 2

Cost: 15

Life: 3 years

Capitalise as

incurred

Total Ship

Cost 150


Componentization- key considerations

Componentization

Materiality/

Significant

components

Useful life of

components

Replacement

costs

Major inspection/

Overhaul


Componentization- key considerations : Materiality/Significant components

Identification of material/ significant components separately may involve complex

judgement. Item may not be material in a particular year become so in later years.

Materiality is a matter of management and needs to be decided on the facts of

each case. Normally, a component having original cost

equal to or less than 5% of the original cost - Not material

equal to 25% of the original cost - material

As per ICAI, the Company may consider 10% of original cost of asset as threshold

to determine whether a component is material/significant.

Consider impact on

retained earnings

current year profit or loss

future profit or loss

to decide materiality. Component with material impact will require separate

identification.


Componentization- key considerations :Useful life of components

Each significant component of the asset having useful life, which is different from the useful

life of the remaining asset, is depreciated separately.

*higher useful life for a component can be used only when management intends to use the

component even after expiry of useful life for the principal asset.

Illustration

Useful life of an asset under Schedule II is 10 years. The management has estimated that

useful life of principal asset is 10 years. If a component of asset has useful life of 8 years,

AS 6 requires the company to depreciate the component using 8 year life only.

If the component has 12 year life, the company has an option to either depreciate the

component using either 10 year life as prescribed in the Schedule II or over its estimated

useful life of 12 years, with appropriate justification.

However, higher useful life for the component can be used only when management intends

to use the component even after expiry of useful life for the principal asset.

Useful life of

component < Useful life of principal asset - Consider lower life

Management’s

estimate of useful life < Statute - Consider lower life

Useful life of the

component > Useful life of the principal asset -

Option to use either the

higher or lower useful life*


Componentization- key considerations Replacement costs

Currently, replacement costs are expensed off

Under component accounting, companies will capitalize these costs as a

separate component of the asset, with consequent expensing of net carrying

value of the replaced component. i.e. derecognised previous part.

If it is not practicable to determine carrying amount of the replaced component,

it may use the cost of the replacement as an indication of what the cost of the

replaced part was at the time it was acquired or constructed.

Under component accounting also, the costs of the day-to-day servicing of the

item are not recognised in the carrying amount of an item of fixed asset. These

costs are expensed in the statement of profit and loss as incurred.


Componentization- key considerations : Major inspection/overhaul

Under Indian GAAP, no specific guidance is available on component

accounting, particularly, major inspection/ overhaul accounting. Ind AS

specified some guidelines for the same.

For assets requiring major inspection/ overhaul on a periodic basis,

companies have an option of either:

identifying major inspection/ overhaul as a separate component, or

treating it as repair expense.

Note:

Options selected should be applied consistently.

If a company selects the first option, major inspection/ overhaul will

constitute separate identifiable part which is aggregated with other parts

having similar life for depreciation purposes. In other case, it would be

expensed through profit and loss account.


Componentization- key considerations : Major inspection/overhaul

Option 1 – Identifying major inspection/overhaul as a separate component

As per Ind-AS 16, major inspection/ overhaul is treated as a separate part, regardless of

whether any physical parts of the asset are replaced.

On purchase a new asset, it is received after major inspected/ overhaul by the manufacturer.

Hence, it is identified and depreciated separately.

If major inspection/ overhaul has been identified at the time of original purchase, there is no

issue in application of this principle.

However, if it had not previously been identified, the recognition and de-recognition principles

will apply. In such a case, estimated cost of a future similar inspection/ overhaul to be used as

an indication of the cost of the existing inspection/ overhaul component to be derecognized

after considering the depreciation impact.

Option 2 – Treating major inspection/overhaul as a repair expense

It may be argued that under AS 10 approach, all repair expenditure (including major inspection/

overhaul) need to be charged to P&L as incurred. Though schedule II mandates component

accounting, it does not state that application of component accounting is based on Ind-AS 16

principles.

Hence, AS 10 applies for repair expenditure (including major inspection / overhaul).

Under this option, the application of component accounting is restricted only to physical parts. Neither

on initial recognition nor subsequently, the company identifies major inspection/ overhaul as separate

component. Rather, any expense on major inspection/ overhaul is charged to P&L as incurred.


Example 1 - Furnace

A new furnace was installed on 1 January 2008 in a heat treatment plant.

Total expenditure on the furnace amounted to Rs. 5 million.

The furnace’s expected useful life, given the nature of the plant’s production, is

estimated to be 20 years, which is in accordance with the useful lives normally

recommended by technical experts for this type of asset.

Various components identified at the time of capital expenditure are:

Useful life Amt

1. Hearth brickwork, vault, walls 6 Yrs 1500000

2. Heating system: burners, pipe work, lever, ventilators 10 Yrs 60000

3. Control mechanism, cervo motors, mechanism for controlling the

temperature and operating parameters 5 Yrs 300000

4.Visits and overhauls by an external maintenance company every

two years of the mechanical sections, input and output feeds, rollers,

etc.

2 Yrs 200000

Furnace (main element and others) 20 Yrs 2400000

Total capital expenditure 500000


Example 4: Components of a Building

Roof covering

Fire protection

system

Elevators

Plumbing

system

Floor

coverings

Electrical and

lightning

system

HVAC system

Interior

finishing

Building (Main

Building Shell)


Hull

Keel

Engine

Navigation

system

Other fit out

assets

Major overhaul/

inspections

Ship

Example 4: Components of a Ship


Companies are required to determine the values of all major components of

the assets.

Significant change in accounting for replacement costs. Currently companies

expense such costs in the year of incurrence. Under the component accounting,

companies will capitalize these costs, with consequent expensing of net carrying

value of the replaced part.

Major inspection/overhaul costs can be capitalized in certain cases and

depreciated over the period during which the benefits of such costs are utilized

e.g. 3 years or 5 years as the case may be.

Componentization will involve significant effort in capital intensive industries

to determine the various components in production lines and their separate

useful lives.

Significant changes are required in the processes including the ERP and

other IT software for identification of components and computation of

depreciation accordingly.

Key impact of componentization


Componentization approach

The key steps, which can be followed while identifying the components of plant

& machinery and building are as follows:

Review of asset entries in the fixed assets register;

Review of componentisation of major fixed assets based on certain

threshold limits (e.g. INR 10 Lacs) so as to ensure adequate coverage of

the total gross block;

The componentization to be carried out in certain cases where :

The gross block of the major components of major parent assets make

up for at least 10% of the gross block of the respective major parent

asset; and

The lives of major component parts are materially different from the

useful lives considered for the respective major parent asset.


Componentization approach

To identify possible components (including replacement, major inspection), the

company should obtain inputs from:

Vendor from which particular machinery has been purchased

Technical Engineer/ Production In charge/Maintenance head

Going through EPC contracts and O & M contracts to identify major components

Parameters to be considered for estimating useful lives:

Building

Useful lives as given in Schedule II of Companies Act 2013

Usage – in use / not in use

Alternative use of Building

State of repairs and maintenance policy of the company

Historical trends of decommissioning

Company’s plan for future usage

Benchmarking with best/global industry practice being followed

Plant and Machinery (In addition to the points as specified above):

Nature & type of asset

Number of shifts working/Continuous process

Supplier recommended lives

Refurbishment status

Technological obsolescence / product obsolescence etc.


SITE RESTORATION AND

DECOMMISSIONING OBLIGATIONS


Site restoration and decommissioning obligations

Recognition

Recognised at the time of initial recognition

of PPE

Discounting Accounting

Measurement

Requires significant judgment due to:

Dependency on scale of

operations,

Environmental damage caused,

Uncertainty regarding timing of

decommissioning, Costs which may

be directly attributable to

decommissioning etc.

Where the effect of the time

value of

money is material, the amount

of a provision shall be at discounted value.

The periodic unwinding of the discount

shall be recognised in profit or loss as a

finance cost as it occurs. The same cannot

be capitalised under Ind AS 23.

The associated decommissioning

costs should also be capitalised

It should form part of the cost of the

assets acquired or constructed

It may also be necessary to

recognise a further

decommissioning provision during

the production phase

Site-restoration

and

Decommissioning

Obligations


Site restoration and decommissioning obligations - Case study

The facts relevant to well are summarized below:

Decommissioning costs : INR 14000

Discount rate : 10%

Net present value : INR 800

Period : 30

Show accounting treatment of site restoration and decommissioning obligation.

Response:

Management should include INR 800 in the carrying amount of the asset at the

time of installation and corresponding provision with equivalent amount.

Each year an adjustment is made for the amount of borrowing cost; calculated

as the current balance of provision multiplied by the discount rate Year 1 : INR 800*10% = INR 80

Year 2 : INR (800 + 80)*10% = INR 88

Similarly for the rest of the years


Response (Contd.):

Site restoration and decommissioning obligations- Case study (Contd.)

Year Opening balance Provisions Interest @ 10% Closing Balance Provision

1 800 80 880

2 880 88 968

….

30 12727 1273 14000

Entries:

Recognition of decommissioning costs while recognising asset

PPE-Dr 800

Provisions decommissioning-Cr 800

Year 1 for interest

Interest expense –Dr 80


Year 30 for interest

Interest expense – Dr 1273




Depreciation

Each part of an item of PPE with a cost that is significant in relation to thetotal cost of the item shall be depreciated separately.

The depreciation charge for each period shall be recognised in PLunless it is included in the carrying amount of another asset.

The depreciable amount of an asset shall be allocated on a systematicbasis over its useful life.

The depreciation method (SLM, DBM, UOPM) used shall reflect the patternat which the asset’s future economic benefits are expected to be consumedby the entity.


FV > CA – but as long as

Residual value < CAResidual Value => CA

Asset unused/available for

sale

Depreciation charged

Depreciation zero

Depreciation ceases

Recognition of Depreciation


Derecognition

No future economic benefits are expected

from its use or disposal

On disposal

Gain not classified as Revenue


Example – Profit before depreciation 100 per year. Asset 100. Income Tax rate 40%. Depreciation (SLM) –Financial 20%, Tax 25%. Fair value 75 at the end of year 2.

Year 1 2 3 4 5

Profit before depreciationDepreciation

10020

10020

10025

10025

10025

Accounting ProfitTax expense –

Current taxDeferred tax expenseDeferred tax liability

80

302 32

80

302 32

75

3030

75

3030

75

40

(10) 30

Profit for the periodOther Comprehensive IncomeRevaluation surplus Less: Deferred tax liability

48 48

15(6) 9

45 45 45

Total comprehensive income 48 57 45 45 45

Year 2 3 4 5

Revaluation surplus (net of tax)Balance bfCreatedTransferred to retained earnings

–9–

9–

(3)

6–

(3)

3–

(3)

Balance cf 9 6 3 –

Statement of Profit and Loss and Other Comprehensive Income

Statement of Changes in Equity



Intangible asset

An identifiable non-monetaryasset without physical substance

Can be contractual/non-contractual

Obtain their worth from the rights and benefits approved to

their owner/creator

Derive value from their economic

condition and do not have a fixed

exchange value for money

May be confined ina physical form


ConditionsAn intangible asset should meet the following conditions –

is separable (can be sold without disposing of the business as a

whole)or

arises from contractual or other legal rights, irrespective of

separability

controlled by an entity

enjoys the future economic benefits

can restrict the access of other entities to those benefits

identifiable


Intangible Asset - Characteristics

Characteristics of an intangible asset:

identifiable non-monetary asset without physical substance.

Control

Existence of future economic benefits

Examples are brands, trademarks and customer related intangibles

An asset is identifiable if it is either:

a. is separable, ie is capable of being separated or divided from the entity and sold,

transferred, licensed, rented or exchanged, either individually or together with a

related contract, identifiable asset or liability, regardless of whether the entity intends

to do so; or

b. 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.

An entity controls an asset if the entity has the power to obtain the future economic

benefits flowing from the underlying resource and to restrict the access of others to

those benefits. The capacity of an entity to control the future economic benefits from

an intangible asset would normally stem from legal rights that are enforceable in a

court of law.


Intangible Asset - Characteristics

The future economic benefits flowing from an intangible asset may include revenue

from the sale of products or services, cost savings, or other benefits resulting from the

use of the asset by the entity. For example, the use of intellectual property in a

production process may reduce future production costs rather than increase future

revenues.

Not all the items meet the definition of an intangible asset, i.e. identifiability, control over

a resource and existence of future economic benefits.

If an item within the scope of this Standard does not meet the definition of an intangible

asset, expenditure to acquire it or generate it internally is recognised as an expense

when it is incurred. However, if the item is acquired in a business combination, it forms

part of the goodwill recognised at the acquisition date. Goodwill is not amortized but

tested for impairment atleast annually.

Under IGAAP goodwill

is amortized over a

period not exceeding 5

years


Recognition criteriaAn intangible asset is recognised when both the following criteria are

satisfied –

It is probable that future economic benefits will flow

The cost can be measured reliably

Sale of products or services or cost savings/other benefits

Cost of purchasing or developing the asset

the definition of an intangible asset

the recognition criteria of an asset

An intangible asset shall be measured initially at cost


Initial measurement

Initially measured at cost

Separate

acquisition

Cost includes

purchase price,

duties and taxes,

after deducting

trade discounts and

rebates and

includes any

directly attributable

cost of preparing

the asset for its

intended use.

Acquisition as part

of a Business

combination

a. Cost is the fair

value on date of

acquisition

b. Probability

recognition

criterion is

presumed to be

satisfied

c. Reliable

measurement

presumed to be

satisfied

Acquisition by

government grant

a. Acquired free

of charge or for

nominal

consideration

by way of a

government

grant.

b. Recorded at

either fair value

or cost which

may be

nominal

Exchange of

assets

a. Cost is the fair

value except

when exchange

transaction has

no commercial

substance or

the fair value of

either the asset

received/ asset

given up is not

reliably

measurable

Internally

generated

intangible asset

Cost is the sum

of expenditure

incurred from the

date when the

intangible

asset first meets

the recognition

criteria.


Internally generated Intangible assets:

Internally generated goodwill shall not be recognised as an asset.

It is sometimes difficult to assess whether an internally generated intangible asset

qualifies for recognition because of problems in:

a. identifying whether and when there is an identifiable asset that will generate

expected future economic benefits; and

b. determining the cost of the asset reliably. In some cases, the cost of generating an

intangible asset internally cannot be distinguished from the cost of maintaining or

enhancing the entity’s internally generated goodwill or of running day-to-day

operations.

Therefore, in addition to complying with the general requirements for the recognition and

initial measurement of an intangible asset, an entity applies the requirements and guidance

in Ind AS 38 to all internally generated intangible assets.

If an entity cannot distinguish the research phase from the development phase of an

internal project to create an intangible asset, the entity treats the expenditure on that

project as if it were incurred in the research phase only.

Internally generated brands, mastheads, publishing titles, customer lists and items

similar in substance shall not be recognised as intangible assets.

Internally generated intangible assets


Internally generated intangible assets

Internally generated intangibles are classified into research phase and development phase:

Research Phase Development Phase

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.

Examples of research activities are:

a. activities aimed at obtaining new knowledge;

b. the search for, evaluation and final selection

of, applications of research findings or other

knowledge;

c. the search for alternatives for materials,

devices, products, processes, systems or

services; and

d. the formulation, design, evaluation and final

selection of possible alternatives for new or

improved materials, devices, products,

processes, systems or services.

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 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.


• Words, names, symbols or devices used in business to indicate the source of a product and to distinguish it from the products of other entities

Trademarks

• Set of exclusive rights, granted by the jurisdiction to a creator of an artificial work, to copy, distribute and adapt the work

Copyright

Computer software

• Protected legally such as a patent or copyright

Examples of intangible assets when separately acquired


Cost Less: Accumulated

amortisation (if any)

Less: Accumulated

impairment losses (if

any)

Cost Model

Revaluation Model

Under IGAAP only

the cost model is

allowed

Revalued amount (being

fair value with reference

to an active market)

Less: Accumulated

amortisation

(if any)

Less: Accumulated

impairment losses (if

any)

The revaluation option is only available if there is an active market for the intangible asset.

Active market is defined by IFRS 13.

Subsequent measurement


Subsequent measurement

After initial recognition, an entity must choose either of the following for subsequent measurement –

Cost model (Generally used)

• Intangible assets should be carried at costless any amortisation and impairment losses.

Revaluation model (Rarely used)

• This can only be used if the intangible assethas a readily ascertainable market value.


Revaluation model

Subsequent carrying value increased as a result of revaluation

increase recognised as revaluation surplus in OCI under equity

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.

Subsequent carrying value decreased as a result of revaluation

decrease shall be recognised in profit or loss.

decrease shall be recognised in OCI to the extent of any credit balance in the

revaluation surplus in respect of that asset.


Derecognition

An intangible asset should be derecognised either –

The gain or loss that arises on derecognition should bedetermined as the difference between net disposalproceeds, if any, and the carrying amount of the asset.The gain should not be classified as revenue but shouldbe recognised as other income in profit or loss.

on disposal (that can either be a sale or by entering into a lease

or by donation)

when no future economic benefits are expected from its use

or disposal.

or


Useful life

Entity shall assess whether useful life of an intangible asset is finite or

indefinite. ‘Indefinite’ does not mean ‘infinite’.

Finite lived intangibles Indefinite lived intangibles

Under IGAAP no concept of indefinite lived IA

Factors to consider in determining useful life:

typical product life cycles for the asset and

information on estimates of useful lives of similar

assets;

technical, technological or other types of

obsolescence;

changes in the market demand for the products

or services output;

expected actions by competitors or potential

competitors; and

the level of maintenance expenditure required

and period of control over the asset (licenses)

Classified as such when useful life

cannot be determined.

Useful life reviewed at each period

end (finite-change in accounting

estimate)

‘Indefinite’ life does not mean

‘infinite’.

Not amortized but only tested for

impairment at least annually


Impairment of assets

The following assets need impairment testing atleast annually-

CGU to which goodwill has been allocated

Intangible asset with an indefinite useful life

Intangible asset not yet available for use

The most recent detailed calculation of recoverable amount made in an earlier

period can continue to be used, provided all of the following conditions are met:

If the intangible asset is part of a cash-generating unit, the cash-generating

unit’s assets and liabilities have not changed significantly since the previous

calculation

The earlier calculation resulted in an amount that exceeded the carrying

amount by a substantial margin

Analysis of intervening events shows that the likelihood of impairment is

remote

The impairment test may be performed at any time during an annual period,

provided the test is performed at the same time every year


Questions

Identify which of the following assets will be investment properties under IAS 40?

1.Land held for long-term capital appreciation rather than for short-term sale in the ordinary course of

business:

1.YES

2.Land held for a currently undetermined future use. (The entity has not determined that it will use the land

as owner-occupied property or for short-term sale in the ordinary course of business, the land is regarded

as held for capital appreciation.

1.YES

3.Property being constructed or developed on behalf of third parties.

1.NO

4.Building owned by the entity (or held by the entity under a finance lease) and leased out under one or

more operating leases.

1.YES

5.Building that is vacant but is held to be leased out under one or more operating leases.

1.YES

6.Property that is being constructed or developed for future use as investment property.

1.YES (Investment properties after Jan 2009 & PPE before Jan 2009)

7.Property that is leased to another entity under a finance lease.

1.NO.

8.Parking which is attached to an apartment building which given on rent and resident of which can only

utilise such parking. Parking fee is included in monthly rent of apartment building. Whether such parking is

an investment property?

YES, such parking shall form part of larger building used for same business purpose



THANK YOU

Since 1968

S. K. AGRAWAL & CO.CHARTERED ACCOUNTANTS

www.skagrawal.co.in

For further information please

contact

VIVEK AGARWAL

Partner

Email: [email protected]

Handheld : +91 96817 06868

mailto:[email protected]

Documents

Introduction to Ind AS Presentation of Financial Statement ... · Presentation of Financial Statement & Accounting of ppe and related ... (IND AS 16) 5. Intangible assets ... Unless