INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING …3.9 Business Combinations 182 3.9.1 Adjustments for first time adoption for business combinations to which Ind AS 103 is not applied

Preface I-5

Chapter-heads I-9

1

INTRODUCTION TO INTERNATIONAL FINANCIALREPORTING STANDARDS

1.1 IFRS - The Global Standard 11.1.1 IFRSs in G20 31.1.2 Shortcomings of IFRS Convergence 5

1.2 IFRS At A Glance 61.2.1 Brief discussion on IFRS standards and

interpretations 111.3 IASB Conceptual Framework for Financial Reporting 26

1.3.1 Objectives of financial statements 271.3.2 Qualitative Characteristics 301.3.3 Elements of Financial Statements 341.3.4 Recognition of the elements of financial statements 381.3.5 Measurement bases 411.3.6 Capital Maintenance 42

1.4 IFRS - A set of principle based financial reporting standards 43

2

INTRODUCTION TO INDIAN ACCOUNTING STANDARDS

2.1 Ind-ASs - A Set of IFRS converged financial reportingstandards 47

2.2 Ind-ASs Timeline 53

PAGE

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I-11

2.3 How to apply Ind ASs 59

2.4 Parallel Application of ASs 60

2.5 Major Divergences of Ind-ASs from IFRSs 60

ANNEX 2.1 : Notification, dated 16-2-2015 70

3

FIRST-TIME ADOPTION OF INDIAN ACCOUNTINGSTANDARDS

3.1 Introduction 763.1.1 Scope of Ind AS 101 773.1.2 Meaning of first time adoption 77

3.2 Process of First Time Adoption of Ind ASs 783.3 Preparation of Ind AS opening Balance Sheet 813.4 Estimates 923.5 Presentation and Disclosures 953.6 Interim financial reports 963.7 Exceptions to retrospective application of other Ind ASs 97

3.7.1 Derecognition of financial assets and financialliabilities 98

3.7.2 Hedge accounting 993.7.3 Non-controlling interests 1023.7.4 Classification and measurement of financial assets 1033.7.5 Impairment of financial assets 105

3.7.6 Embedded derivatives 106

3.7.7 Government loans 107

3.8 Optional Exemptions 1113.8.1 Share-based payment transactions 1123.8.2 Insurance contracts 1193.8.3 Deemed cost 1193.8.4 Leases 1283.8.5 Cumulative translation differences 1393.8.6 Long term foreign currency monetary items 1443.8.7 Investments in subsidiaries, joint ventures and

associates 1453.8.8 Assets and liabilities of subsidiaries, associates and

joint ventures 145

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CONTENTS I-12

3.8.9 Compound financial instruments 147

3.8.10 Designation of previously recognised financialinstruments 149

3.8.11 Fair value measurement of financial assets orfinancial liabilities at initial recognition 159

3.8.12 Decommissioning liabilities included in the costof property, plant and equipment 159

3.8.13 Financial assets or intangible assets accounted forin accordance with Appendix C Service ConcessionArrangements to Ind AS 115 163

3.8.14 Extinguishing financial liabilities with equityinstruments 172

3.8.15 Severe hyperinflation 173

3.8.16 Joint Ventures - Transition from proportionateconsolidation to the equity method 173

3.8.17 Joint operations - Transition from the equitymethod to accounting for assets and liabilities 174

3.8.18 Transition provisions in an entity’s separate financialstatements 177

3.8.19 Stripping cost in the production phase of a surfacemine 177

3.8.20 Designation of contracts to buy or sell a non-financial item 178

3.8.21 Revenue from contracts with customers 178

3.8.22 Non-current assets held for sale and discontinuedoperations 179

3.9 Business Combinations 182

3.9.1 Adjustments for first time adoption for businesscombinations to which Ind AS 103 is not appliedretrospectively 183

3.10 Miscellaneous Issues 189

3.10.1 Ind AS 2 Inventories 190

3.10.2 Ind AS 10 Events after the Reporting Period 192

3.10.3 Ind AS 19 Employee Benefits 194

3.10.4 Ind AS 37 Provisions, Contingent Assets andContingent Liabilities 195

3.10.5 Ind AS 41 Agriculture 198

3.10.6 Ind AS 24 Related Party Transactions 198

3.10.7 Ind AS 12 Income Taxes 198

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I-13 CONTENTS

3.10.8 Impairment of Assets 199

3.10.9 Statement of Changes in Equity 199

3.10.10 Consolidated Financial Statements 199

3.10.11 Borrowing costs 200

4

PRESENTATION OF FINANCIAL STATEMENTS

4.1 Objective and Scope of Ind AS 1 202

4.2 Various Components of Ind AS based Financial Statements 203

4.3 General Features of financial statements 204

4.4 Structure and Contents of Financial Statements 212

4.5 Presentation of Balance Sheet 213

4.5.1 Disclosure of details about equity share capital andreserves 217

4.5.2 Application of current non-current classification 219

4.5.3 Disclosure of age of various assets and liabilities 220

4.6 Current and Non-current Classifications 220

4.6.1 Current Assets 220

4.6.2 Operating cycle 224

4.6.3 Current Liabilities 236

4.7 Statement of Profit and Loss 242

4.7.1 Presentation of expenses 244

4.7.2 Minimum Information to be presented in theStatement of Income 245

4.7.3 Information to be presented in the Statement ofProfit and Loss or in the notes 246

4.8 Other Comprehensive Income 248

4.8.1 Reclassification adjustment 249

4.9 Statement of Changes in Equity 258

4.10 Statement of Cash Flows 263

4.11 Notes to Accounts 263

4.11.1 Disclosure of accounting policies 264

4.11.2 Sources of Estimation of Uncertainty 266

4.11.3 Capital Disclosures 272

4.11.4 Disclosure Capital Management 273

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CONTENTS I-14

4.11.5 Puttable financial instruments classified as equity 274

4.11.6 Other disclosures 274

5

STATEMENT OF CASH FLOWS

5.1 Importance of Cash Flow Reporting 276

5.2 Presentation of Statement of Cash Flow 277

5.3 Cash and Cash Equivalents 280

5.3.1 Investments in money market mutual funds 283

5.3.2 Restricted cash 283

5.3.3 Compensating balances 284

5.3.4 Bank Overdraft 284

5.3.5 Cash balance in foreign currency 284

5.3.6 Repatriation restriction 285

5.4 Components of Cash and Cash Equivalents 285

5.5 Cash flows from operating activities 286

5.5.1 Direct method 288

5.5.2 Indirect Method 289

5.5.3 Cash Flows Classification of Interest and Dividend 292

5.5.4 Cash flow classification of taxes on income 293

5.6 Cash Flows from Investment activities 294

5.7 Cash flows from financing activities 300

5.8 Net presentation of cash flows 302

5.9 Foreign currency cash flows 303

5.10 Investments in subsidiaries, associates and joint venture 304

5.10.1 Changes in ownership interests in subsidiaries andother businesses 304

5.11 Consolidated Statement of Cash Flows 316

5.12 Disclosures 337

6

EARNINGS PER SHARE

6.1 Introduction 339

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I-15 CONTENTS

6.1.1 Difference with AS 20 Earnings Per Share 340

6.1.2 Difference with IAS 33 Earnings Per Share 341

6.1.3 Scope of Ind AS 33 341

6.1.4 Presentation of earnings per share 342

6.2 Measurement of Basic Earning Per Share 342

6.2.1 Earnings available to ordinary holders 343

6.2.2 Computation of weighted average ordinary shares 346

6.3 Diluted Earnings Per Share 350

6.3.1 Earning Adjustment 351

6.3.2 Adjustment to shares 352

6.3.3 Options, Warrants and their equivalents 359

6.3.4 Share based payment 367

6.3.5 Purchased options 369

6.3.6 Written put options 369

6.3.7 Potential ordinary shares of subsidiary, jointventure and associate 370

6.3.8 Contingently issuable shares 372

6.4 Retrospective adjustments 378

6.4.1 Bonus issue 378

6.4.2 Right Issue 379

6.4.3 Share consolidation 380

6.5 Special issues in preference shares 382

6.5.1 Increasing rate preference shares 382

6.5.2 Premium or discount on repurchase of preferenceshares 384

6.5.3 Induced conversion of preference shares 386

6.6 Disclosures 386

7

OPERATING SEGMENTS

7.1 Introduction 3927.2 Applicability of Ind AS 108 3967.3 Meaning of Operating Segment 397

7.3.1 Cost centre as operating segment 398

PAGE

CONTENTS I-16

7.3.2 Chief Operating Decision Maker (CODM) 3997.3.3 Matrix structure 4037.3.4 Meaning of expresison ‘operating results are

regularly reviewed’ 4047.3.5 Availability of discrete financial information 4057.3.6 Interests in Joint Arrangements as operating

segment 4057.3.7 Associate as operating segment 4067.3.8 Discontinued operations as operating segment 406

7.4 Reportable segments 4087.4.1 Aggregation Criteria 4087.4.2 Quantitative thresholds 4087.4.3 External revenue thresholds 4147.4.4 Miscellaneous issues 415

7.5 Disclosures 4157.5.1 General Information 4167.5.2 Information about profit or loss, assets and liabilities 4177.5.3 Measurement bases 4187.5.4 Reconciliations 4217.5.5 Restatement of previous years segment information 421

7.6 Entity-wide disclosures 422

7.7 Corporate Segment Disclosures 424

7.8 First Time Adoption of Ind AS 108 429

8

RELATED PARTY DISCLOSURES


8.2 Meaning of related party as per Ind AS 24 432

8.3 Who are not ‘related parties’ ? 444

8.4 Related Party Transactions 445

8.5 Related Party Disclosures 446

8.6 Government related entities 452

ANNEX 8.1 : Related party transactions as per theCompanies Act, 2013 455

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I-17 CONTENTS

9

CONSOLIDATED FINANCIAL STATEMENTS


9.1.1 Objectives of Ind AS 110 461


9.1.3 Consolidation requirements under the CompaniesAct, 2013 464

9.2 Meaning of Control 465

9.2.1 Purpose and design of an investee 466

9.2.2 Relevant activities 467

9.2.3 Power over the investee 468

9.2.4 Rights that give an investor power over an investee 471

9.2.5 Substantive rights 473

9.2.6 Protective Rights 475

9.2.7 Franchise agreement 475

9.2.8 Voting rights 476

9.2.9 Power without a majority voting right 476

9.2.10 Potential voting rights 479

9.3 Variable Returns 480

9.4 Link between power and return 481

9.4.1 Scope of decision making authority 482

9.4.2 Rights held by other parties 482

9.4.3 Remuneration 482

9.4.4 Exposure to variability of returns from other interests 483

9.4.5 Relationship with other parties 484

9.4.6 Control of specified assets 485

9.4.7 Continuous assessment 486

9.5 Consolidation 486

9.5.1 Consolidation procedures 486

9.5.2 Uniform accounting policies 506

9.5.3 Measurement 506

9.5.4 Potential voting rights 507

9.5.5 Reporting date 507

PAGE

CONTENTS I-18

9.5.6 Change in non-controlling interests 507

9.5.7 Loss of control 510

9.6 Consolidation of foreign subsidiary 513

9.7 Investment entity 521

9.7.1 Business Purpose 522

9.7.2 Earnings for investments 523

9.7.3 Fair value measurement 524

9.7.4 Typical characteristics 525

9.7.5 Accounting for change in investment entity status 526

ANNEX 9.1 : Consolidation requirements under the CompaniesAct, 2013 527

10

JOINT ARRANGEMENTS


10.1.1 Objective and scope of Ind AS 111 534

10.2 Meaning of Joint Arrangement 534

10.2.1 Joint control 535

10.3 Classification of Joint Arrangements 541

10.4 Financial Statements of Joint Operator 548

10.4.1 Application of Ind AS 103 Business combination 550

10.4.2 Accounting for sales or contribution of assets to ajoint operation 552

10.4.3 Accounting for purchases of assets from a jointoperation 552

10.4.4 Accounting parties who are not joint operator 552

10.5 Accounting for Joint Ventures 552

10.5.1 Accounting for interest by other parties who dohave joint control 553

11

INVESTMENTS IN ASSOCIATES AND JOINT VENTURES


PAGE

I-19 CONTENTS

11.1.1 Requirements of the Companies Act, 2013 556

11.2 Meaning of associate under Ind AS 102 559

11.2.1 Significant influence 559

11.3 Equity method accounting 562

11.3.1 Exclusions from equity method accounting 565

11.3.2 Equity method procedures 566

11.4 Impairment loss 574

11.5 Discontinuing the use of the equity method 576

11.6 Changes on ownership status 585

11.7 Classification as held for sale 585


11.8.1 Disclosures as per the Companies Act, 2013 592

12

DISCLOSURE OF INTEREST IN OTHER ENTITIES


12.1.1 Objectives of Ind AS 112 598

12.1.2 Aggregated disclosures 599

12.2 Scope of Ind AS 112 600

12.3 Disclosure of significant judgments and assumptions 601

12.4 Disclosure of investment entity status 601

12.5 Disclosure of interest in subsidiaries 603

12.5.1 Disclosure of different reporting period of thesubsidiary 603

12.5.2 Information about subsidiary and non-controllinginterest 603

12.5.3 Nature and extent of significant restrictions 605

12.5.4 Interests in unconsolidated subsidiaries 606

12.6 Disclosures of Interests in Joint Arrangements andAssociates 608

12.7 Interests in unconsolidated structured entities 611

12.7.1 Nature of interest 616

12.7.2 Nature of risk 616

PAGE

CONTENTS I-20

13

SEPARATE FINANCIAL STATEMENTS


13.1.1 Applicability of Ind AS 27 632

13.1.2 Cases of exemption from consolidation 633

13.1.3 Cases of exemption from equity method accounting 633

13.2 Measurement principles 634

13.3 Applicability of Ind AS 27 to investment entities 635

13.4 Investments in subsidiaries, associates or joint venturesclassified as held for sale or disposal group 637

13.5 Accounting for Dividends 639

13.6 Re-organisation of an entity that holds investments insubsidiaries, associates and joint ventures 640


14

INTERIM FINANCIAL REPORTING



14.2 Interim period and Interim Financial Report 645

14.2.1 Components of Interim Financial Report (IFR) 645

14.2.2 Comparatives of Interim Financial Report 647

14.3 Materiality 650

14.4 Significant events and transactions 650

14.5 Recognition and Measurement 653

14.5.1 Accounting Policies 654

14.5.2 Application of Recognition and Measurementprinciples of IFR 658

14.5.3 Estimates 663

14.5.4 Restatement of previously reported interim periods 664

14.6 Interim Financial Reporting and Impairment 664

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I-21 CONTENTS

15

FINANCIAL REPORTING IN HYPERINFLATIONARYECONOMIES



15.1.2 Meaning of Hyperinflationary economy 667

15.2 Restatement of Financial Statements 668

15.3 Economy ceases as hyperinflationary economy 676

15.4 Applying the Restatement Approach under Ind AS 29 676

15.5 Disclosure of Basis of Preparation of Financial Statements 680

15.6 First Time Adoption of Ind AS 29 685

ANNEX 15.1 : Case Analysis : Accounting for Hyperinflation inVenezuela 686

16

ACCOUNTING POLICIES, CHANGES IN ACCOUNTINGESTIMATES AND ERRORS


16.2 Accounting Policies 696

16.2.1 Selection of Accounting Policies 697

16.3 Changes in Accounting Policies 698

16.3.1 Applying change in accounting policies 699

16.3.2 Disclosures relating to change in accountingpolicies 704

16.4 Prior Period Errors 706

16.4.1 Disclosures relating to prior period errors 710

16.5 Meaning of impracticability 710

16.6 Change in Accounting Estimates 711

16.6.1 Prospective application of change in accountingestimate 713

16.6.2 Disclosures of Change in Accounting Estimates 714

ANNEX 16.1 : Accounting Policies of selected IFRSs compliantcompany - Lafarge 2013 715

PAGE

CONTENTS I-22

17

EVENTS AFTER THE REPORTING PERIOD


17.2 Meaning of the term events after the reporting period 745

17.2.1 Adjusting and Non-adjusting Events 747

17.3 Examples of adjusting events 748

17.4 Examples of non-adjusting events 754

17.5 Dividend declared after the reporting period 756

17.6 Restriction on adoption of Going Concern basis 757


17.8 Distribution of Non-cash Assets to Owners 759

17.8.1 Timing of recognition of dividend payable 760

17.8.2 Measurement of dividend in the form of non-cashasset 760

17.8.3 Accounting entries 761

17.8.4 Presentation and Disclosures 763

18

FAIR VALUE MEASUREMENT


18.1.1 Objectives and scope of Ind AS 113 767

18.2 Meaning of fair value 768

18.2.1 The asset or liability 768

18.2.2 The Transaction 769

18.2.3 Market participants 774

18.2.4 The price 775

18.3 Application to non-financial assets 775

18.3.1 Valuation premise 776

18.4 General principles of measuring fair value of liabilities 778

18.4.1 Liability or equity instrument is held by otherparties as asset 778

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I-23 CONTENTS

18.4.2 Liability or equity instrument is not held by otherparties as asset 779

18.4.3 Non-performance risk 77918.4.4 Restriction on transfer 78118.4.5 Fair value of liability with demand feature 78118.4.6 Application of financial assets and financial liabilities

with offsetting positions in market risks or counter-party credit risk 782

18.5 Fair value at Initial Recognition 78418.6 Valuation Techniques 787

18.6.1 Inputs to the valuation techniques 79218.6.2 Input based on bid ask spread 79318.6.3 Fair value hierarchy 79318.6.4 Level 1 Inputs 79518.6.5 Level 2 Inputs 79718.6.6 Level 3 Inputs 79918.6.7 Measuring fair value when the volume or level of

activity for an asset or liability has significantlydecreased 800

18.6.8 Identifying transactions that are not orderly 80118.6.9 Using quoted prices provided by third parties 802

18.7 Application of present value technique 80218.7.1 Risk and uncertainty 80318.7.2 Discount Rate Adjustment Technique 80418.7.3 Expected Present Value Technique 80518.7.4 Applying present value techniques to liabilities and

an entity’s own equity instruments not held by otherparties as assets 807

18.8 Valuation of unquoted Equity Instruments 81018.8.1 Transaction price paid for an identical instrument

of the investee 81318.8.2 Comparable company valuation multiples 81418.8.3 Income approach 82318.8.4 Adjusted net asset method 826

18.9 Disclosures 82618.9.1 Classification of assets and liabilities for fair value

disclosure 83118.9.2 Policies determining the timing of transfers 831

PAGE

CONTENTS I-24

19

REVENUE FROM CONTRACTS WITH CUSTOMERS


SECTION I

GENERAL PRINCIPLES OF ACCOUNTINGFOR CONTRACTS WITH CUSTOMERS


19.2.1 Contracts partially within scope of Ind AS 115 837

19.3 Identifying contracts 841

19.3.1 Nature of contract 841

19.3.2 Combination of contracts 842

19.3.3 Contract modification 843

19.4 Collectibility of the consideration 850

19.5 Identifying performance obligations 852

19.5.1 Distinct goods or services 853

19.6 Satisfaction of performance obligation 857

19.6.1 Performance obligation satisfied over time 858

19.6.2 Performance obligation satisfied at a point in time 861

19.6.3 Customer’s acceptance 862

19.6.4 Measuring progress 863

19.7 Transaction price 866

19.7.1 Variable consideration 867

19.7.2 Financing components 870

19.7.3 Non-cash consideration 875

19.7.4 Consideration payable to a customer 877

19.8 Allocation of transaction price 878

19.8.1 Allocation of variable consideration 882

19.9 Contract costs 884

19.9.1 Incremental costs incurred for obtaining a contract 884

19.9.2 Costs to fulfil a contract 885

19.9.3 Amortisation of contract asset 887

19.9.4 Impairment of contract asset 887

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I-25 CONTENTS

19.10 Presentation 888


19.11.1 Disaggregation of revenue 895

19.11.2 Significant judgments 897

19.11.3 Disclosures assets recognised from costs to obtainor fulfil a contract with customers 898

SECTION II

SPECIAL TRANSACTIONS

19.12 Special issues in revenue recognition 899

19.12.1 Sale with a right of return 900

19.12.2 Warranties 902

19.12.3 Principal versus agent consideration 904

19.12.4 Option for additional goods 904

19.12.5 Unexercised rights 906

19.12.6 Non-refundable upfront fees 906

19.12.7 Licensing 907

19.12.8 Repurchase agreements 908

19.12.9 Consignment arrangements 910

19.12.10 Bill and hold arrangement 911

19.12.11 Construction contracts 912

SECTION III

SERVICE CONCESSION ARRANGEMENTS


19.14 Scope of service concession arrangements 922

19.14.1 Control over the price 922

19.14.2 Retention of significant residual interest 923

19.14.3 Meaning of control 923

19.14.4 Features of service concession arrangement 923

19.15 Accounting for service concession arrangement 925


19.17 Requirement of Schedule II of the Companies Act, 2013 935

PAGE

CONTENTS I-26

20

INVENTORIES

20.1 Introduction 94020.1.1 Scope of Ind AS 2 940

20.2 Meaning of Inventories 94220.3 Cost of Inventories 944

20.3.1 Cost of purchases 94520.3.2 Cost of conversion 94920.3.3 Costing main products and by-products 95120.3.4 Other costs 95520.3.5 Cost of agricultural produce harvested from

biological assets 95620.3.6 Acquisition of inventories on defer payment basis 956

20.4 Determination of Net Realisable Value 95820.4.1 Circumstances when inventories are written down

to net realisable value 95820.4.2 Procedures for writing down inventories below

the cost 96020.4.3 Reversal of write down 961

20.5 Recognition of Expense 96120.6 Disclosures 961

20.6.1 Illustrative disclosures 962

21

EMPLOYEE BENEFITS

21.1 Meaning and Scope 96421.2 Various Categories of Employee Benefits 96521.3 Short term employee benefits 971

21.3.1 Short term compensated absences 97121.3.2 Profit Sharing and Bonus Plans 97521.3.3 Disclosures for short term employee benefits 975

21.4 Post-employment Benefits 97621.4.1 Accounting for defined contribution plans 976

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I-27 CONTENTS

21.5 Accounting for defined benefit plans 97821.5.1 Actuarial Valuation Method 98321.5.2 Planned Assets 98421.5.3 Asset ceiling 98521.5.4 Net interest on the net defined benefit liability (asset) 98521.5.5 Actuarial assumptions 99321.5.6 Past Service Cost 99821.5.7 Reimbursements 100621.5.8 Settlement 100621.5.9 Contribution from employees or third parties 100821.5.10 The Limit on a Defined Benefit Asset, Minimum

Funding Requirements and their Interaction 100921.5.11 Presentation 1013

21.6 Other Long Term Employee Benefits 103221.7 Termination Benefits 103621.8 Multi-employer plan, state plan and insurance policy 1039

22

BORROWING COSTS

22.1 Introduction 104422.2 Core principle of Ind AS 23 104522.3 Scope of Ind AS 23 104522.4 Meaning of borrowing cost 1045

22.4.1 Exchange difference treated as finance cost 105022.5 Qualifying Assets 105122.6 Recognition Principles 105222.7 Issues in Capitalisation Borrowing Costs 1053

22.7.1 Linking borrowing costs relating to generalborrowings to qualifying assets 1055

22.7.2 Commencement of Capitalisation 105722.7.3 Suspension of capitalisation of borrowing costs 105822.7.4 Cessation of capitalisation of borrowing costs 105822.7.5 Capitalisation of borrowing costs and Impairment

testing 105922.8 Disclosures 1059

PAGEPAGE

CONTENTS I-28

23

INCOME TAXES



23.3 Important definitions 1062

23.4 Tax base 1063

23.5 Temporary differences 1066

23.6 Deferred tax assets and deferred tax liabilities 1068

23.7 Deferred tax expense and deferred tax income 1070

23.8 Recognition Principles 1076

23.9 Investment property 1076

23.10 Employee benefit provisions 1078

23.11 Provision for product warranty 1078

23.12 Assets carried at fair value 1080

23.13 Financial Liabilities measured at amortised cost 1084

23.14 Financial asset carried at fair value through othercomprehensive income 1085

23.15 Research costs 1086

23.16 Business Combination 1087

23.17 Reassessment of unrecognised deferred tax asset 1090

23.18 Unused tax losses and tax credits 1090

23.19 Investments in Subsidiaries, Branches, Associates andinterest in Joint Ventures 1091



23.22 Income Taxes - Changes in the Tax Status of an Enterpriseor its Shareholders 1102

24

PROPERTY, PLANT AND EQUIPMENT



PAGEPAGE

I-29 CONTENTS

24.2 Initial Recognition 1107

24.2.1 Measurement at initial recognition 1108

24.2.2 Meaning of costs 1108

24.2.3 Component-wise recognition of PPE 1109

24.2.4 Cost of self-constructed asset 1115

24.2.5 Interest on defer payment 1118

24.2.6 Inspection costs 1119

24.2.7 Capitalisation of decommissioning expenses 1119

24.2.8 Exchange of assets 1122

24.3 Subsequent Measurement 1122

24.3.1 Subsequent costs 1123

24.3.2 Application of revaluation model 1124

24.4 Depreciation 1126

24.4.1 Commencement and cessation of depreciation 1127

24.4.2 Residual value 1128

24.4.3 Useful life 1128

24.5 Derecognition of PPE 1130

24.5.1 Gain or loss arising from derecognition of PPE 1132

24.6 Compensation for impairment loss 1132

24.7 Restored PPE 1132


24.9 Stripping Costs in the Production Phase of a Surface Mine 1135

ANNEX 24.1 : Requirements for depreciation charge under theCompanies Act, 2013 1142

ANNEX 24.2 : Text of the Schedule II to the Companies Act, 2013 1148

ANNEX 24.3 : Componentisation of Assets 1156

25

DECOMMISSIONING, RESTORATION AND SIMILARLIABILITIES


25.1.1 Decommissioning and site restoration funds 1159

25.2 Initial recognition of decommissioning and site restorationliability 1160

PAGE

CONTENTS I-30

25.2.1 Issues in Estimation of Decommissioning Costs 1161

25.3 Change in Decommissioning and Site Restoration Liability 1165

25.3.1 Accounting policy under cost model 1166

25.3.2 Accounting Policy under revaluation model 1166

25.4 Rights to Interests arising from Decommissioning, Restora-tion and Environmental Rehabilitation Funds 1174

26

INTANGIBLE ASSETS


26.1.1 Intangible assets within the scope of other Ind ASs 1181

26.1.2 Justification of scope exception 1182

26.2 Meaning of Intangible Asset 1182

26.3 Recognition and Initial Measurement 1187

26.3.1 How should the ‘expected future economic benefits’criterion be tested ? 1187

26.4 Separately acquired intangible assets 1189

26.4.1 Cessation of recognition of costs in the carryingamount of an intangible asset 1191

26.4.2 Acquisition of intangible asset on defer paymentbasis 1191

26.5 Acquisition of Intangible Asset as Part of BusinessCombination 1193


26.5.2 Subsequent expenditure on an acquired in-processresearch and development project 1195

26.6 Acquisition of intangible assets through Government Grants 1195

26.7 Exchange of Assets 1196

26.8 Internally Generated Goodwill and Other Intangible Assets 1198

26.9 Internally Developed Research and Development Activities 1199

26.9.1 Cost of internally generated intangible assets 1201

26.10 Recognition of an expense 1203

26.11 Measurement after Initial Recognition 1205

26.12 Useful Life 1208

26.12.1 Factors of useful life of an intangible asset 1208

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I-31 CONTENTS

26.12.2 Illustrative assessment of the useful life ofintangible assets 1210

26.13 Amortisation policy for intangibles having finite useful life 1214

26.13.1 Revenue based amortization policy 1216

26.14 Residual value 1219

26.15 Review of amortisation period and amortisation method 1219

26.16 Impairment loss 1220

26.17 Retirement and disposals 1221


26.19 Nature of website costs 1231

26.19.1 Website costs which are not treated as IntangibleAssets 1231

26.19.2 Test for Intangible Assets 1232

26.19.3 Accounting Treatment 1233

27

INVESTMENT PROPERTY

27.1 Meaning and Scope of Investment Property 1236

27.2 Classification of Investment Property 1238

27.2.1 Partly owner-occupied property 1238

27.2.2 Ancillary services 1239

27.2.3 Property under construction 1240

27.2.4 Investment property leased out to holding orsubsidiary company 1241

27.2.5 Property taken under operating lease 1242

27.3 Measurement of investment property at initial recognition 1243

27.3.1 Initial cost of investment property held underfinance lease 1245

27.3.2 Investment property acquired under exchangetransaction 1246

27.4 Measurement after initial recognition 1247

27.4.1 Cost Model 1248

27.5 Disclosure of Fair value 1251

27.5.1 Inability to measure fair value reliably 1252

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CONTENTS I-32

27.5.2 Fair value of investment property underconstruction 1254

27.6 Transfers 1255

27.7 Disposals 1257

27.7.1 Impairment loss and compensation from thirdparties 1258


28

AGRICULTURE



28.2 Meaning of biological asset and agricultural produce 1266

28.3 Bearer Plant 1270

28.3.1 Accounting for bearer plant 1271

28.4 Recognition and measurement 1273

28.4.1 Exception to fair value measurement 1274

28.5 Measurement of fair value of biological assets 1275

28.5.1 Discounted cash flow approach 1278

28.6 Accounting for gain or loss 1281

28.7 Government grants 1282



28.9.1 Illustrative Disclosures 1285

29

IMPAIRMENT OF ASSETS


29.1.1 Meaning impairment loss 1290


29.2 Identifying an asset that may be impaired 1296

PAGE

I-33 CONTENTS

29.2.1 Testing impairment of certain intangible assets andgoodwill 1301

29.2.2 Impairment Indicators of investments in subsi-diaries, associates and joint ventures 1303

29.3 Measurement of recoverable amount 1305

29.3.1 Value in Use 1306

29.3.2 Fair value less costs of disposal 1316

29.3.3 Committed restructuring costs 1317

29.4 Measurement and recognition of impairment loss 1319

29.5 Cash Generating Unit (CGU) 1326

29.5.1 Various types of cash generating units 1329

29.5.2 Evaluation of independent cash flows in internaltransfers 1330

29.5.3 Allocation of Goodwill to Cash Generating Unit 1332

29.5.4 Testing cash generating with corporate assets forimpairment 1336

29.5.5 Testing cash-generating units with goodwill forimpairment 1337

29.5.6 Impairment loss of cash generating unit 1341

29.6 Reversal of Impairment Loss 1352

29.6.1 Reversal of impairment loss of cash generating unit 1360


29.7.1 Disclosures of impairment loss and reversal ofimpairment loss by class of assets 1363

29.7.2 Segment-wise disclosure of impairment loss orreversal of impairment loss 1364

29.7.3 Disclosures regarding material impairment lossevents and reversals 1364

29.7.4 Disclosure of unallocated goodwill 1365

29.7.5 Disclosures in respect of CGUs having significantamount of goodwill or intangible assets havingindefinite useful lives 1365

29.7.6 Disclosures in respect of CGUs having insignificantamount of goodwill or intangible assets havingindefinite useful lives 1369

PAGE

CONTENTS I-34

30

LEASES


30.1.1 Applicability 1375

30.2 Terms Defined 1376

30.3 Lease Classification 1379

30.3.1 Meaning of Lease terms 1379

30.3.2 Finance Lease Situations 1387

30.3.3 Lease classification of land and building 1390

30.4 Accounting for finance lease 1391

30.4.1 Finance Lease Accounting in the Books of Lessee 1391

30.4.2 Accounting for Finance Lease in the books of lessor 1399

30.4.3 Accounting for finance lease in the books ofmanufacturer or dealer lessor 1401

30.5 Accounting for Operating Lease 1403

30.5.1 Accounting for operating lease by the lessee 1408

30.6 Sale and Leaseback 1412

30.6.1 Treatment of sale and leaseback transaction ofoperating lease type? 1414

30.7 Illustrative Disclosures 1415

30.8 Operating lease Incentives 1417

30.9 Evaluating the Substance of Transactions Involving theLegal Form of a Lease 1418

31

DETERMINING WHETHER AN ARRANGEMENT CON-TAINS A LEASE


31.2 Evaluation of the Arrangement 1422

31.2.1 Specific asset test 1422

31.2.2 Right to use the asset 1424

31.3 Reassessment of the Arrangement 1426

PAGE

I-35 CONTENTS

31.4 Split Accounting 1427

31.5 Service Concession Arrangement and Arrangement treatedas Lease 1428

31.6 A UK Case Study 1431

32

EXPLORATION FOR AND EVALUATION OF MINERALRESOURCES


32.1.1 Successful Efforts Method and Full Cost Method 1442

32.1.2 Exploration and evaluation expenses and assets 1443

32.1.3 Objectives and scope of Ind AS 106 1444

32.2 Measurement 1445

32.3 Impairment 1447


32.4.1 Corporate Accounting Practices 1448

33

GOVERNMENTS GRANTS AND ASSISTANCE



33.2 Meaning of Government grants 1456

33.2.1 Distinction between Government grants andgovernment assistance 1458

33.3 Recognition principle 1458

33.3.1 Capital and income approaches 1458

33.3.2 Recognition of grants in the Statement of Profitand Loss 1459

33.4 Grants as compensation for income or losses 1460

33.4.1 Presentation of grants related to income 1466

33.5 Grants related to assets 1467

33.5.1 Presentation of deferred grant 1469

PAGE

CONTENTS I-36

33.6 Government Grants — No Specific Relation to OperatingActivities 1470

33.7 Accounting for forgivable loan 1470

33.8 Below market interest rate loan 1471

33.9 Repayment of Government Grants 1473

33.10 Government Assistance 1474


34

REGULATORY DEFERRAL ACCOUNTS


34.1.1 Indian situation 1479

34.2 Guidance Note of Accounting for Rate Regulated Activities 1480

34.3 First Time Adoption of Ind ASs by rate regulated entities 1489

34.4 Regulatory deferral account balances 1490

34.4.1 Definitions 1491

34.4.2 Temporary exemption from applying Paragraph 11of Ind AS 8 1491

34.4.3 Continuation of existing accounting policies 1492

34.4.4 Changes in accounting policies 1493

34.5 Application of other standards 1494

34.6 Presentation of regulatory deferral account balances 1498


34.7.1 Corporate accounting practices 1503

35

FOREIGN CURRENCY TRANSLATION


35.2 Identification of functional currency 1513

35.3 Net investments in foreign operations 1515

35.4 Monetary and non-monetary items 1516

35.5 Reporting foreign currency transactions 1516

PAGE

I-37 CONTENTS

35.5.1 Settlement of monetary items within the reportingperiod 1517

35.5.2 Translation of monetary items on the reporting date 1521

35.5.3 Non-monetary items 1528

35.5.4 Net investment in foreign operations which aremonetary items 1531

35.5.5 Books and records maintained in a currency otherthan functional currency 1532

35.5.6 Accounting for change in functional currency 1532

35.5.7 Long term foreign currency monetary items 1533

35.6 Use of a presentation currency other than the functionalcurrency 1533

35.6.1 Functional currency as currency of hyper-inflationary economies 1541

35.6.2 Disposal or partial disposal of a foreign operation 1542

35.7 Tax effects of all exchange differences 1543


36

NON-CURRENT ASSETS HELD FOR SALE AND DISCON-TINUED OPERATIONS


36.2 Objectives and scope 1550

36.2.1 Scope of Ind AS 105 1551

36.3 Definitions 1552

36.3.1 Disposal Group 1553

36.3.2 Discontinued operations 1553

36.4 Classification 1554

36.4.1 Firm purchase commitment 1556

36.4.2 Extension of the timeframe to complete sale 1557

36.4.3 Events after the reporting period 1559

36.4.4 Assets acquired with intention of disposal 1559

36.4.5 Piecemeal disposal 1560

36.4.6 Non-current Assets or disposal group held fordistribution 1560

PAGE

CONTENTS I-38

36.5 Non-current Assets which are to be Abandoned 1561

36.6 Measurement of Non-current Assets or Disposal Group heldfor Sale 1562

36.7 Changes in Plan of Sale 1568

36.8 Presentation and disclosure 1569

36.8.1 Presentation of Discontinued Operations 1569

36.8.2 Presentation of Non-current Assets or disposalgroup held for Sale 1571

36.8.3 Additional Disclosures 1572

36.8.4 Corporate Disclosures 1572

36.9 Critics of IFRS 5 1577

37

SHARE-BASED PAYMENT


37.2 Share Based Payment Transactions 1582

37.2.1 Conflict Between IFRS 2 and IAS 32 1584


37.2.3 Share based payment arising out of Ind AS 103Business Combinations 1585

37.3 Recognition of share-based payment 1586

37.3.1 Grant date 1587

37.4 Measurement of equity settled share-based transactions 1588

37.4.1 Unidentifiable goods and services 1590

37.5 Equity settled share-based payment transaction at fair valueof equity 1591

37.5.1 Vesting conditions 1592

37.5.2 Measurement fair value of equity instrumentsgranted 1598

37.5.3 Valuation technique 1604

37.6 Modifications, cancellation and settlement 1613

37.6.1 Cancellation and settlement 1617

37.7 Cash settled share-based payment transaction 1619

37.8 Share based payment transactions with cash alternatives 1621

PAGE

I-39 CONTENTS

37.9 Share-based payment transactions among group entities 1624

37.9.1 Share-based payment arrangements involving anentity’s own equity instruments 1626

37.9.2 Share-based payment arrangements involvingequity instruments of the parent 1627

37.9.3 Share-based payment arrangements involvingcash-settled payments to employees 1628

37.9.4 Transfer of employees between group entities 1629


38

PROVISIONS, CONTINGENT LIABILITIES AND CONTIN-GENT ASSETS


38.2 Recognition of provision 1642

38.3 Measurement of provision 1648

38.3.1 Discounting of provision 1659

38.4 Onerous Contracts 1660

38.5 Restructuring 1661

38.6 Contingent Liabilities 1664

38.7 Contingent Assets 1664


38.9 Liabilities arising from participating in a specific market –Waste Electrical and Electronic Equipment 1677

38.10 Levies 1678

39

FINANCIAL INSTRUMENTS : PRESENTATION

39.1 Basic principles and scope 1683

39.2 Meaning of Financial Instruments 1684

39.2.1 Financial Asset 1685

39.2.2 Financial Liability 1686

39.2.3 Equity Instruments 1694

PAGE

CONTENTS I-40

39.3 Contract to be settled using entity’s own equity instruments 1697

39.3.1 Settlement Options 1705

39.4 Contractual obligation to pay cash or other financial asset 1705

39.5 Non-financial contracts 1707

39.6 Contingent Settlement provisions 1711

39.7 Deemed Equity 1712

39.7.1 Puttable Instruments classified as Equity 1712

39.7.2 Instruments containing obligation to pro ratadistribution in liquidation 1714

39.8 Preference shares 1718

39.9 Compound Financial Instruments 1720

39.9.1 Induced early conversion 1724

39.10 Derivative Instruments 1725

39.10.1 Purchased and Written Option to buy or sell ownequity shares 1728

39.10.2 Forward or futures contract to buy or sell ownequity 1738

39.11 Treasury shares 1742

39.12 Transaction costs of an equity issue 1743

39.13 Interest, dividend, gain and loss 1743

39.14 Offsetting Financial Assets and Liabilities 1744

39.14.1 Legally enforceable right to offset 1744

39.14.2 Settlement on net basis 1745

39.14.3 Simultaneous settlement 1746

39.14.4 Cases of inappropriate offsetting 1747

39.14.5 Master netting arrangement 1747

39.14.6 Synthetic instrument 1748

39.15 Compulsorily convertible debentures 1748

39.16 Treatment in Consolidated Financial Statements 1749

39.17 Illustrative Disclosures of Equity 1750

PAGE

I-41 CONTENTS

40

FINANCIAL INSTRUMENTS

SECTION I

SCOPE AND IMPORTANT TERMS

40.1 Background of IFRS 9 1760

40.2 Objective and Scope 1761

40.2.1 Applicability of Ind AS 109 to non-financial contracts 1764

40.2.2 Financial Guarantee 1766

40.3 Important definitions 1767

40.3.1 Amortised Cost 1767

40.3.2 Derivatives 1775

SECTION II

RECOGNITION, CLASSIFICATIONAND MEASUREMENT

40.4 Recognition of financial assets and financial liabilities 1782

40.5 Classification of financial assets 1784

40.5.1 Classification of financial assets at amortised cost 1785

40.5.2 Financial asset as at fair value through profit orloss 1786

40.5.3 Classifying financial assets at fair value throughother comprehensive income 1789

40.6 Business model 1790

40.6.1 Holding assets in order to collect cash flows 1794

40.6.2 Nature of contractual cash flows 1796

40.7 Classification of financial liabilities 1806

40.7.1 Liabilities designated as at fair value throughprofit or loss 1807

40.8 Measurement of financial assets and financial liabilities 1812

40.8.1 Initial measurement 1812

40.8.2 Subsequent measurement of financial assets 1815

40.8.3 Investment in unquoted equity shares 1821

PAGE

CONTENTS I-42

40.8.4 Subsequent measurement of financial liabilities 1821

40.9 Loan to Employees 1824

40.10 Foreign Currency Loan 1831

SECTION III

TRADE DATE AND SETTLEMENT DATE ACCOUNTING

40.11 Regular way purchase or sale 1835

40.12 Trade date and Settlement Date Accounting 1838

SECTION IV

DERECOGNITION

40.13 Derecognition of Financial Assets 1844

40.13.1 Derecognition by transfer 1845

40.13.2 Evaluation of transfer of risks and rewards ofownership 1846

40.13.3 Transfer of control 1847

40.13.4 Transfers that qualify derecognition 1849

40.14 Continuing involvement in the transferred assets 1859

40.15 Accounting for non-cash collateral 1866

40.16 Derecognition of financial liability 1867

40.17 Gains or losses on financial asset or financial liability 1869

SECTION V

RECLASSIFICATION

40.18 Reclassification 1871

SECTION VI

EMBEDDED DERIVATIVES

40.19 Meaning of embedded derivative 1878

40.20 Separation of Embedded Derivative from Host Contract 1879

40.20.1 Not Closely related economic characteristics andrisks 1880

40.20.2 Cases in which economic characteristics and risksare closely related 1883

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I-43 CONTENTS

40.20.3 Separation of non-option based embeddedderivatives 1885

40.20.4 Separation of option-based embedded derivatives 1888

40.20.5 Reassessment of embedded derivative 1889

40.21 Callable bonds 1890

SECTION VII

IMPAIRMENT OF FINANCIAL ASSETS

40.22 Applicability of impairment analysis 190140.23 Expected credit loss and loss allowance models 1902

40.23.1 Recognition of expected credit loss 190340.23.2 Purchased or originated credit impaired financial

assets 190340.23.3 Trade receivables, contract assets and lease

receivables 190340.24 Determining significant increase in credit risk 1904

40.24.1 Indicators of change in credit risk 1906

40.24.2 Collective and individual assessment 190840.24.3 Timing of recognizing life time expected credit

losses 191140.25 Measurement of expected credit losses 1913

40.25.1 Time value of money 1915

40.25.2 Collateral 1918

40.26 Modified assets 1919

40.27 Write off 1920

SECTION VIII

HEDGE ACCOUNTING

40.28 Objective of hedge accounting 1921

40.29 Designating Hedged Items 1922

40.29.1 Risk component 1926

40.29.2 Components of a nominal amount 1928

40.30 Hedging instruments 1931

40.30.1 Designating hedging instruments 1932

40.31 Qualifying hedging Criteria 1933

PAGE

CONTENTS I-44

40.31.1 Economic relationship between hedged item andhedging instrument 1934

40.31.2 Hedging effectiveness 1935

40.31.3 Hedging ratio 1935

40.31.4 Measurement of hedge ineffectiveness 1937

40.32 Accounting for qualifying hedging relationships 1938

40.32.1 Accounting for Fair Value Hedge 1940

40.32.2 Accounting for cash flow hedge 1941

40.32.3 Hedges of net investment in foreign operations 1944

40.32.4 Accounting for time value of option 1945

40.32.5 Accounting for the forward element 1946

40.32.6 Hedges of a group of items 1948

40.32.7 Option to designate a credit exposure 1949

40.33 Discontinuation of hedge accounting 1949

40.34 Rebalancing 1950

SECTION IX

EXTINGUISHING OF FINANCIAL LIABILITIESWITH EQUITY INSTRUMENT

40.35 Debt for equity swap 1951

40.35.1 Accounting of debt for equity swap 1952

41

FINANCIAL INSTRUMENTS : DISCLOSURES


41.1.1 Scope of Ind AS 107 1956

41.2 General Principles of Ind AS 107 Disclosures 1958

41.2.1 Summary of disclosure requirements 1961

41.3 Disclosure of significant accounting policies 1962

41.4 Disclosures of carrying amounts of financial assets andfinancial liabilities 1966

41.5 Credit risk disclosures of financial assets designated asat fair value through profit or loss 1967

41.6 Financial liabilities designated at fair value through profitor loss 1968

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I-45 CONTENTS

41.7 Disclosures regarding financial assets measured at fairvalue through other comprehensive income 1970

41.8 Reclassification disclosures 1971

41.9 Offsetting of financial assets and financial liabilities 1972

41.10 Collaterals 1977

41.11 Impairment allowance 1978

41.12 Compound financial instruments with multiple embeddedderivatives 1978

41.13 Defaults and Breaches 1978

41.14 Disclosures of profit and loss items 1978

41.15 Transfer of financial assets 1980

41.16 Hedge accounting disclosures 1985

41.17 Option to designate a credit exposure as measured at fairvalue through profit or loss 1990

41.18 Fair value disclosures 1991

41.19 Risk disclosures 1992

41.19.1 Credit risk disclosures 1994

41.19.2 Liquidity risk disclosures 1999

41.19.3 Market risk disclosures 2000

41.20 Illustrative Corporate Disclosures 2000

42

BUSINESS COMBINATIONS



42.2 Meaning of Business 2046

42.3 Business Combinations 2050

42.3.1 Parties in a business combination 2050

42.3.2 Structure of business combinations 2050

42.3.3 Acquisition method of accounting 2051

42.4 Identifying the acquirer 2052

42.4.1 Reverse acquisition 2054

42.4.2 Date of acquisition 2055

42.5 Recognition assets acquired and liabilities assumed 2056

PAGE

CONTENTS I-46

42.5.1 Identification of assets and liabilities 2059

42.5.2 Pre-existing relationships and future services 2061

42.5.3 Reacquired right 2064

42.5.4 Income taxes 2065

42.5.5 Employee benefits 2065

42.5.6 Indemnification assets 2065

42.5.7 Assets held for sale 2067

42.5.8 Acquiree’s previous goodwill 2067

42.5.9 Contingent liabilities 2067

42.6 Intangible Assets 2069

42.6.1 Recognition of intangible assets 2073

42.6.2 Intangible asset arising out of operating lease 2076

42.7 Share-based Payment Awards 2077

42.7.1 Equity-settled share-based payment transactionsof the acquirer 2082

42.8 Measurement principles 2082

42.8.1 Measurement of Goodwill 2083

42.8.2 Bargain purchase 2085

42.9 Purchase consideration 2088

42.9.1 Measurement period 2092

42.10 Contingent consideration 2095

42.10.1 Arrangements for contingent payments toemployees or selling shareholders 2102

42.11 Business combination in stages 2110

42.12 Business combination without the transfer of consideration 2112

42.13 Business combination by exchange of equity interest 2114

42.13.1 Special considerations in applying the acquisitionmethod to combinations of mutual entities 2114

42.14 Classification of assets acquired and liabilities assumed 2115

42.15 Expenses of Business Combination 2116

42.16 Accounting for Reverse Acquisition 2116


42.18 Business Combinations of Entities under common control 2124

42.18.1 Pooling of Interest Method 2126

PAGE

I-47 CONTENTS

43

INSURANCE CONTRACTS


43.1.1 Scope of Ind AS 104 2136

43.2 Meaning of Insurance contracts 2138

43.2.1 Features of insurance contract 2139

43.2.2 Fixed-fee service contracts 2140

43.2.3 Distinction between insurance risk and other risks 2140

43.2.4 Consequences if a contract is not classified asan insurance contract 2147

43.2.5 Classification of insurance contracts in India 2148

43.3 Significant insurance risk 2149

43.3.1 Quantification of significant insurance risk 2152

43.4 Embedded Derivatives 2157

43.5 Unbundling of Deposits 2159

43.6 Temporary Exemptions from Other Ind ASs 2163

43.7 Liability Adequacy Test 2163

43.8 Change in accounting policies 2170

43.9 Insurance contracts acquired in a business acquisition orportfolio transfer 2175

43.10 Deferred Acquisition Costs 2176

43.10.1 Accounting treatment for deferred acquisition cost 2177

43.11 Discretionary Participation Features 2182

43.12 Discretionary participation features in financial instruments 2183


SUBJECT INDEX 2189

PAGE

CONTENTS I-48

Documents

INTRODUCTION TO INTERNATIONAL FINANCIAL REPORTING …3.9 Business Combinations 182 3.9.1 Adjustments for first time adoption for business combinations to which Ind AS 103 is not applied