Projects: Converged Indian Accounting Standards

TABLE OF CONTENTS

Sr No.	Chapters	Page No.
1.	Introduction	7-15
1.1	Backdrop of the study	7
1.2	Objectives of the study	13
1.3	Literature Review	14
1.4	Scope and Limitations of the study	16

2.	Research Methodology	17
2.1	Research Design	17
2.2	Sample Design	17
2.3	Data collection tools/method used(data analysis)	17
2.4	Data analysis techniques	17

3.	Findings, Recommendations and Conclusion	18-108

4.	Bibliography(webliography)	109

Backdrop of the Study

One of the foremost requirements to operate a Business successfully is to have a good financial reporting system in place. Keeping this in mind, Accounting Professionals and Accounting Bodies across the globe, during last decade, had tried to put a financial reporting system in place which is harmonized, robust and have extensive applicability. IASB (formerly IASC) came out with IFRS which were adopted formally by members of European Union in 2005. In subsequent years, many other countries either adopted IFRS or converged to IFRS. An upcoming economy on world economic map, India, too, decided to converge to IFRS.

International Financial Reporting Standards (IFRS), together with International
Accounting Standards (IAS), are a "principles-based" set of standards that establish broad rules rather than dictating specific accounting treatments. From 1973 to 2001, IAS were issued by the International Accounting Standards Committee (IASC). In April 2001 the International Accounting Standards Board (IASB) adopted all IAS and began developing new standards called IFRS.

Accounting standards

In India accounting standards are issued by Accounting Standards Board (ASB) which is formed by Institute of Chartered Accountants of India (ICAI) in 1997. ICAI is a statutory body constituted by an act of parliament. The ASB is the apex body for release of accounting standards in India. The composition of the ASB is broad based to include industry, representatives of various departments of government and regulatory authorities, financial institutions and academic and professional bodies. Industry is represented on the ASB by their associations, viz., ASSOCHAM, CII and FICCI.

Accounting standards are written, policy documents issued by expert accounting body or by Government or other regulatory authorities covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement.the ASB has issued 32 AS (AS8 being redundant).

How widespread is the adoption of IFRS around the world

More than 12000 companies in approximately 113 nations have adopted IFRS including listed companies in the European Union. Other countries, including Canada and India, were expected to transition to IFRS by 2011. Mexico plans to adopt IFRS for all listed companies starting in 2012. Some estimate that the number of countries requiring or accepting IFRS could grow to 150 in the next few years. Japan has introduced a roadmap for adoption in in 2012. Still other countries have plans to converge (eliminate significant differences) their national standards with IFRS.

Why IFRS?

By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS or if they have a foreign investor that must use IFRS. Companies may also benefit by using IFRS if they wish to raise capital abroad.

Structure of IFRS

IFRS are considered a "principles based" set of standards in that they establish broad rules as well as dictating specific treatments.

International Financial Reporting Standards comprise:

International Financial Reporting Standards (IFRS) - standards issued after 2001

International Accounting Standards (IAS) - standards issued before 2001

Interpretations originated from the International Financial Reporting

Interpretations Committee (IFRIC) - issued after 2001

Standing Interpretations Committee (SIC) - issued before 2001

The International Accounting Standards Committee (IASC) foundation and International Accounting Standards Board (IASB)

The International Accounting Standards Committee (IASC) foundation consists of 22 trustees that form the international accounting standards board (IASB). These trustees provide oversight of the operations of the International Accounting Standard Committee foundation (IASC) foundation and IASB. It began its operation to develop, in the public interest, a single set of high quality, global accounting standards that require transparent and general purpose financial statements. The IASB is funded by the international accounting standard committee foundation (IASC) foundation. The responsibilities of the trustees include appointment of members of IASB, standards advisory council and international financial reporting interpretations committee (IFRIC), monitoring the IASB’s effectiveness and adherence to its due process and consultation procedures, approval of budget for the IASC foundation etc.

THE IASB FRAMEWORK

The IASB has a framework for the preparation and presentation of financial statements.

The framework assists the IASB:

In the development of future IFRS and in its review of existing IFRS

In promoting the harmonization of regulations, accounting standards and procedures relating to the presentation of financial statements by providing a basis for reducing the number of alternative accounting treatments permitted by IFRS.

Standards Interpretation Committee (SIC)

The Standing Interpretations Committee (SIC) was established in 1997 to consider contentious accounting issues that needed authorative guidance to stop widespread variation in practice. The Standing Interpretations Committee which was super ceeded by the IFRIC in 2002.

International financial reporting interpretations committee (IFRIC)

The IFRIC is appointed by the trustees to assist the IASB in establishing and improving standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements. The trustees established IFRIC IN MARCH 2002, when it replaced the previous interpretations committee; the standing interpretation committee (SIC).The role of the IFRIC is to provide timely guidance on newly identified financial reporting issues which are not specifically addressed in IFRS. It promotes the rigorous and uniform application of IFRS.

IFRS in Indian context.

Over the years, specifically from around the year 2000, ICAI has been issuing/ amending accounting standards (AS) based on IFRS with a view to harmonise with IFRS. With the intention of the institute to move towards IFRS for accounting periods commencing on or after 1st April 2011 the Ministry Of Corparate affairs has issued 35 converged Indian Accouning standards which are called IND AS.

Company profile

HPCL is a Fortune 500 company, with an annual turnover of Rs. 1,08,599 Crores and sales/income from operations of Rs 1,14,889 Crores (US$ 25,306 Millions) during FY 2009-10, having about 20% Marketing share in India and a strong market infrastructure.

HPCL operates 2 major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum (MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing a refinery at Bhatinda, in the state of Punjab, as a Joint venture with Mittal Energy Investments Pte. Ltd.

HPCL also owns and operates the largest Lube Refinery in the country producing Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base Oil production.

HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101 Regional Offices facilitated by a Supply & Distribution infrastructure comprising Terminals, Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the years, has moved from strength to strength on all fronts. The refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8 MMTPA presently. On the financial front, the turnover grew from Rs. 2687 Crores in 1984-85 to an impressive Rs 1,16,428 Crores in FY 2008-09

In order to strengthen core processes and modernize, HPCL has developed ambitious plans for expansion and diversification in the areas of increasing energy demand, technological upgradation and environment management.

1.2 Objective(s) of the Study

Primary objective

· Identifying the differences between IFRS and INDIAN GAAP

Secondary objective

To understand the various Accounting standards that exists.
To understand the significance of harmonizing global accounting standards

1.3 Literature Review

Adoption of International Financial Reporting Standards (IFRS) or convergence with the standards is now a global phenomenon. International Accounting Standards Committee (IASB) requires countries to adopt the IFRS from January 2005. Australia, Russia, New Zealand, the entire European Union (EU), several countries in the Middle East and Africa are some of the countries that have decided on a wholesale mandatory change to IFRS. However, the United States of America, South Africa, Turkey, Singapore and Malaysia, to name but a few, is committed to the convergence of local standards with the international benchmark. United Kingdom, Australia, Hong Kong, Singapore and many other European Union countries are some of the countries that have decided on a change to IFRS beginning from 2005. For these countries, the annual financial statements for year ending 2005 will be the first complete set of financial statements to be presented under IFRS. India has joined the IFRS bandwagon, effective 1 January 2006. New Zealand, however, will adopt only in 2007, followed by Russia. China and Japan are implementing the international standards one at a time.

Scope of IFRS

IFRSs are designed to apply to the general purpose financial statements and other financial reporting of all profit oriented entities.
The IASB achieves its objectives primarily by developing and publishing IFRSs and promoting the use of those standards in general purpose financial statements and other financial reporting. In developing IFRSs, the IASB works with national standard-setters to maximize the convergence of IFRSs and national standards.
IFRSs set out recognition, measurement, presentation and disclosure requirements dealing with transactions and events that are important in general purpose financial statement.

IFRSs applies to all general purpose financial statements that are directed towards the common information needs of wide range of users for example shareholders, creditors, employees and public at large.
The objective of financial statement is to provide information about the financial position, performance and cash flows of an entity that is useful to those users in making economic decisions.
Interpretations of IFRSs are prepared by the IFRIC to give authoritative guidance on issues that are likely to receive unacceptable treatment, in the absence of such guidance.

Features of IFRS

THE IFRS applies when an entity adopts IFRS for the first time by an explicit and unreserved statement of compliance with IFRS.
THE IFRS requires disclosures that explain how the transition from previous GAAP to IFRS affected the entity’s reported financial position, financial performance and cash flows.
An entity is required to apply the IFRS if the first IFRS financial statements are for a period beginning on or after 1^st January 2004.

1.4 The Scope and Limitations of the Study

Scope

1. Confined to only standards that are practiced at HPCL.

Limitations

1. Converged Accounting standards have been issued by the ministry of corporate affairs on 25^thFeb,2011. However notification regarding applicability is still awaited.

2. The research is restricted to the information on the standards (currently applicable) available through secondary data.

3. The study is done only on basic principles and hence numerical data analysis is not a part of this study.

2. Research Methodology

2.1 Research design

The research design is a descriptive research method.

2.2 Sampling design

Not applicable to this type of study.

2.3 Data collection tools/methods use

The information available in public domain viz. authorized web sites like ICAI, MCA and IASB have been relied upon for extraction of standards and their interpretations. Information was also collected through detailed disussions with personnel from the IFRS cell of HPCL.

Findings, Recommendations and Conclusion

Difference between Accounting Standards (AS) and IND AS.

1. INVENTORIES (IND AS-2, AS- 2)

The objective of IND AS -2 states that this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard deals with the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also deals with the cost formulas that are used to assign costs to inventories.

The objective of AS-2 states that the primary issue in accounting of inventories is the determination of the value at which the inventories are carried in the financial statements until the related revenues are recognized. This statement deals with determination of such value, including the ascertainment of cost of inventories and any write down thereof to net realizable value.

Key differences

In IND AS , the Standard does not apply to the measurement of inventories held by commodity broker-traders who measure their inventories at fair value less costs to sell. When such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change.

Interest and borrowing cost are usually considered as not relating to bringing the inventories to their present location and condition and therefore are usually not included in cost of inventories in AS.
Paragraph 34 of Ind AS 2 dealing with recognition of inventories as an expense is not included in AS-2.
Paragraph 19 of Ind AS 2 dealing with Cost of inventories of a service provider is not included in AS – 2.
Last 2 lines of paragraph 29 of Ind AS gives a clarification about service providers which says that service providers generally accumulate costs in respect of each service for which a separate selling price is charged. Therefore, each such service is treated as a separate item.
Along with other disclosures mentioned in IND AS , it should also disclose

i. the amount of inventories recognised as an expense during the period;

ii. the amount of any write-down of inventories recognised as an expense in the period in accordance with paragraph 34,

iii. the amount of any reversal of any write-down that is recognized as a reduction in the amount of inventories recognized as expense in the period in accordance with paragraph 34;

iv. the circumstances or events that led to the reversal of a write-down of inventories in accordance with paragraph 34; and

v. the carrying amount of inventories pledged as security for liabilities.

VII. Paragraph 37 and 39 of IND AS is a new insertion which states

Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are merchandise, production supplies, materials, work in progress and finished goods. The inventories of a service provider may be described as work in progress.

An entity adopts a format for profit or loss that results in amounts being disclosed other than the cost of inventories recognised as an expense during the period. Under this format, the entity presents an analysis of expenses using a classification based on the nature of expenses. In this case, the entity discloses the costs recognised as an expense for raw materials and consumables, labour costs and other costs together with the amount of the net change in inventories for the period.

2. Borrowing cost (IND AS – 23, AS- 16)

The objective of IND AS-23 states that borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Other borrowing costs are recognised as an expense.

The objective of AS-16 states that this standard is to prescribe the accounting treatment of borrowing cost.

Key differences

I. The scope of IND AS mentions that An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production of:

a) qualifying asset measured at fair value, for example, a biological asset;

b) inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis.

II. AS 16 provides no guidance as to how the adjustment prescribed in paragraph 6(e) is to be determined. Paragraph 6A is added in Ind AS 23 to provide the guidance.

III. The disclosure of IND AS states that an entity shall disclose:

a) the amount of borrowing costs capitalised during the period;

and

b) the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.

IV. The disclosure of AS states that the financial statement shall disclose:

a) The accounting policy adopted for borrowing cost;

b) The amount of borrowing cost capitalized for the period

3. Events after reporting period (IND AS-10 , AS-4)

The objective of IND AS is to prescribe:

a) When an entity should adjust its financial statements for events after the reporting period;

and

b) the disclosures that an entity should give about the date when the financial statements were approved for issue and about events after the reporting period.

The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate.

KEY DIFFERENCES

The scope of IND AS states that it shall be applied in the accounting for, and disclosure of, events after the reporting period.

The scope of AS states that it deals with the treatment in the financial statement of

a) Contingencies

b) Events occurring after the balance sheet date

The following which may result in contengencies are excluded from the scope of his statement in view of special consideration applicable to them:

a) Liabilities of life insurance and general insurance enterprise arising feom policies issues;

b) Obligation under retirement benefit plans; and

c) Commitments arising from long term leased contracts

Paragraph 8 and 9 of IND AS deals with Recognition and measurement in adjusting events after the reporting period which states that
An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events after the reporting period.

For example;

a)the settlement after the reporting period of a court case that confirms that the entity had a present obligation at the end of the reporting period. The entity adjusts any previously recognised provision related to this court case in accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets or recognises a new provision. The entity does not merely disclose a contingent liability because the settlement provides additional evidence that would be considered in accordance with paragraph 16 of Ind AS 37.

b) the receipt of information after the reporting period indicating that an asset was impaired at the end of the reporting period, or that the amount of a previously recognised impairment loss for that asset needs to be adjusted.

c) the determination after the reporting period of the cost of assets purchased, or the proceeds from assets sold, before the end of the reporting period.

d) the determination after the reporting period of the amount of profit-sharing or bonus payments, if the entity had a present legal or constructive obligation at the end of the reporting period to make such payments as a result of events before that date.

e) the discovery of fraud or errors that show that the financial statements are incorrect.

Paragraph 10 and 11 deals with Recognition and measurement in Non-adjusting events after the reporting period which states that

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

For example

An example of a non-adjusting event after the reporting period is a decline in market value of investments between the end of the reporting period and the date when the financial statements are approved for issue. The decline in market value does not normally relate to the condition of the investments at the end of the reporting period, but reflects circumstances that have arisen subsequently. Therefore, an entity does not adjust the amounts recognised in its financial statements for the investments.

Paragraph 12 and 13 deals with dividends which states that

If an entity declares dividends to holders of equity instruments (as defined in Ind AS 32 Financial Instruments: Presentation) after the reporting period, the entity shall not recognise those dividends as a liability at the end of the reporting period.

VII. Paragraph 14, 15 and 16 deals with Going concern which states that

An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.

VIII. Paragraph 17 and 18 deals with Disclosure in case of Date of approval for issue and states that

An entity shall disclose the date when the financial statements were approved for issue and who gave that approval. If the entity’s owners or others have the power to amend the financial statements after issue, the entity shall disclose that fact.

It is important for users to know when the financial statements were approved for issue, because the financial statements do not reflect events after this date.

IX. Paragraph 19 and 20 deals with Updating disclosure about conditions at the end of the reporting period which states

If an entity receives information after the reporting period about conditions that existed at the end of the reporting period, it shall update disclosures that relate to those conditions, in the light of the new information.

In some cases, an entity needs to update the disclosures in its financial statements to reflect information received after the reporting period, even when the information does not affect the amounts that it recognises in its financial statements.

Paragraph 21 and 22 deals with Disclosure in case of Non-adjusting events after the reporting period.

If non-adjusting events after the reporting period are material, non-disclosure could influence the economic decisions that users make on the basis of the financial statements. Accordingly, an entity shall disclose the following for each material category of non-adjusting event after the reporting period:

a)the nature of the event; and

b)an estimate of its financial effect, or a statement that such an estimate cannot be made.

For example

a) a major business combination after the reporting period Ind AS103 Business Combinations requires specific disclosures in such cases) or disposing of a major subsidiary;

b) announcing a plan to discontinue an operation;

c) the destruction of a major production plant by a fire after the reporting period;

d) announcing, or commencing the implementation of, a major restructuring

In AS paragraph 4 deals with contingencies which states

The term contingencies used in this statement is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur.

Paragraph 5 deals with accounting treatment of contingent losses

The accounting treatment of a contingent loss is determined by the expected outcome of the contingency. If it is likely that the contingent will result in a loss to the enterprise then it is prudent to provide for that loss in the financial statements.

If there is a conflicting or insufficient evidence for estimating the amount of a contingent loss, then disclosure is made of the existence and nature of the contingent.

Paragraph 6 deals with accounting treatment of contingent gains

Contingency gains are not recognized in the financial statements since their recognition may result in recognition of revenue which may never be realized. However, when the realization of gain is virtually certain, then such gain is not a contingency and accounting for the gain would be appropriate.

Paragraph 7 deals with determination of amounts at which contingencies are included in financial statements.
Paragraph 8 deals with events occurring after the balance sheet date

Paragraph 9 deals with Disclosures and states that the disclosure requirements herein referred to apply only in respect of those contingencies or events which affect the financial position to a material extent.

If a contingent loss is not provided for, its estimate and nature of its financial effect are generally disclosed by way of notes unless the possibility of a loss is remote.

When the events occurring after the balance sheet date are disclosed in the report of the approving authority , the information given comprise the nature of the events and an estimate of their financial effects or a statement that such an estimate cannot be made.

4. Accounting for Government Grants and Disclosure of Government Assistance (IND AS 20 , AS 12 )

Ind AS shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.

AS deals with accounting for government grants. Government grants are sometimes called by other names such as subsidies, cash incentives, duty drawbacks etc.

The following definitions are an insertion in IND AS

Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.

Grants related to assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held.

Grants related to income are government grants other than those related to assets.

Forgivable loans are loans which the lender undertakes to waive repayment of under certain prescribed conditions.

Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.

5. CASH FLOW STATEMENT (IND AS 7 , AS- 3 )

KEY DIFFERENCES

Paragrpah 8 of IND AS is a new insertion which states that

Bank borrowings are generally considered to be financing activities. However, where bank overdrafts which are repayable on demand form an integral part of an entity's cash management, bank overdrafts are included as a component of cash and cash equivalents. A characteristic of such banking arrangements is that the bank balance often fluctuates from being positive to overdrawn.

Paragraph 14 of IND AS gives a clarification about cash receipts from rents and subsequent sales of such assets which mentions that cash payments to manufacture or acquire assets held for rental to others and subsequently held for rental to others and subsequently held for sale as described in paragraph 68A of Ind AS 16 Property, Plant and Equipment are cash flows from operating activities.
In para 17 of IND AS there are 2 examples of cash flows arising from financing activities which are a new insertion. They are

a) cash payments to owners to acquire or redeem the entity’s shares;

b) cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.

In Para 25 of AS of foreign currency cash flow a clarification is made which has not been made in IND AS. It states that a rate that approximates the actual rate may be used if the result is substantially the same as would arise if the rates at the date of cash flows were used. The effects of changes in the exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period.
Extraordinary items in AS do not form a part of IND AS. It mentions that

The cash flows arising from extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed.

The cash flows arising from extraordinary items are disclosed separately as arising from operating, investing or financing activities in the cash flow statement to enable users to understand their nature and effect on the present and future cash flows of the entity. These disclosures are in addition to the separate disclosures of the nature and amount of extraordinary items required by AS 5.

The total amount of interest paid during a period is disclosed in the statement of cash flows whether it has been recognised as an expense in profit or loss or capitalised in accordance with Ind AS 23 Borrowing Costs whereas in AS 3 it is in accordance with Fixed Assets.
Para 40 of IND AS which relates to change in ownership interest in subsidiaries and other business 2 points are an insertion which state that

An entity shall disclose, in aggregate, in respect of both obtaining and losing control of subsidiaries and other businesses during the period each of the following:

a) the amount of cash and cash equivalents in the subsidiaries or other businesses over which control is obtained or lost;

and

b) the amount of the assets and liabilities other than cash or cash equivalents in the subsidiaries or other businesses over which control is obtained or lost, summarised by each major category.

Para 42,42A, 42 B of IND AS are new insertions

The aggregate amount of the cash paid or received as consideration for obtaining or losing control of subsidiaries or other businesses is reported in the statement of cash flows net of cash and cash equivalents acquired or disposed of as part of such transactions, events or changes in circumstances.

Cash flows arising from changes in ownership interests in a subsidiary that do not result in a loss of control shall be classified as cash flows from financing activities.

Changes in ownership interests in a subsidiary that do not result in a loss of control, such as the subsequent purchase or sale by a parent of a subsidiary’s equity instruments, are accounted for as equity transactions (see Ind AS 27, Consolidated and Separate Financial Statements). Accordingly, the resulting cash flows are classified in the same way as other transactions with owners described in paragraph 17.

6. Employee benefits (IND AS 19, AS 15)

KEY DIFFERENCES

Para 32 A of IND AS relating to multi employer plans is a new insertion and gives a clarification that

There may be a contractual agreement between the multi-employer plan and its participants that determines how the surplus in the plan will be distributed to the participants (or the deficit funded). A participant in a multi-employer plan with such an agreement that accounts for the plan as a defined contribution plan in accordance with paragraph 30 shall recognise the asset or liability that arises from the contractual agreement and the resulting income or expense in profit or loss.

Para 34 B is a new insertion in IND AS which states that participation in such a plan is a related party transaction for each individual group entity. An entity shall therefore, in its separate or individual financial statements, make the following disclosures:

a)the contractual agreement or stated policy for charging the net defined benefit cost or the fact that there is no such policy.

b)the policy for determining the contribution to be paid by the entity.

c) if the entity accounts for an allocation of the net defined benefit cost in accordance with paragraph 34A, all the information about the plan as a whole in accordance with paragraphs 120-121.

d) if the entity accounts for the contribution payable for the period in accordance with paragraph 34A, the information about the plan as a whole required in accordance with paragraphs 120A(b) –(e), (j), (n), (o), (q) and 121. The other disclosures required by paragraph 120A, do not apply.

Para 58 A and 58 B of IND AS are new insertion and state that

The application of paragraph 58 shall not result in a gain being recognised solely as a result of a past service cost in the current period. The entity shall therefore recognise immediately under paragraph 54 the following, to the extent that it arises while the defined benefit asset is determined in accordance with paragraph 58(b):

a)past service cost of the current period to the extent that it exceeds any reduction in the present value of the economic benefits specified in paragraph 58(b)(ii). If there is no change or an increase in the present value of the economic benefits, the entire past service cost of the current period shall be recognised immediately under paragraph 54.

Paragraph 58A applies to an entity only if it has, at the beginning or end of the accounting period, a surplus* in a defined benefit plan and cannot, based on the current terms of the plan, recover that surplus fully through refunds or reductions in future contributions. In such cases, past service cost that arises in the period, the recognition of which is deferred under paragraph 54, will increase the amount specified in paragraph 58(b)(i). If that increase is not offset by an equal decrease in the present value of economic benefits that qualify for recognition under paragraph 58(b)(ii), there will be an increase in the net total specified by paragraph 58(b) and, hence, a recognised gain. Paragraph 58A prohibits the recognition of a gain in these circumstances.

The limit in paragraph 58(b) does not override the delayed recognition of certain past service cost (see paragraph 96), other than as specified in paragraph 58A. Paragraph 120A(f)(iii) requires an entity to disclose any amount not recognised as an asset because of the limit in paragraph 58(b).

Para 93 B, C and D are new insertion in IND AS which states

Actuarial gains and losses recognised in other comprehensive income shall be presented in the statement of profit and loss.

An entity shall also recognise any adjustments arising from the limit in paragraph 58(b) in other comprehensive income.

Actuarial gains and losses and adjustments arising from the limit in paragraph 58(b) that have been recognised in other comprehensive income shall be recognised immediately in retained earnings. They shall not be reclassified to profit or loss in a subsequent period.

Para 95 of AS is not included in IND AS which clarifies how past service cost arises and how is it measured.
IND AS business combinations is a new insertion in recognition and measurement: plan assets and it clarifies that

In a business combination, an entity recognises assets and liabilities arising from post-employment benefits at the present value of the obligation less the fair value of any plan assets. The present value of the obligation includes all of the following, even if the acquiree had not yet recognised them at the acquisition date:

a) actuarial gains and losses that arose before the acquisition date;

b) past service cost that arose from benefit changes, or the introduction of a plan, before the acquisition date.

Para 118 of IND AS gives a distinction between current assets and liabilities from non-current assets and liabilities which has not been given in AS.
Para 133 of IND AS states that

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

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

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

While AS states that

An entity is demonstrably committed to a termination when, and only when, the entity has a detailed formal plan for the termination and is without realistic possibility of withdrawal. The detailed plan shall include, as a minimum:

a) the location, function, and approximate number of employees whose services are to be terminated;

b) the termination benefits for each job classification or function; and

c) the time at which the plan will be implemented. Implementation shall begin as soon as possible and the period of time to complete implementation shall be such that material changes to the plan are not likely.

Transitional provisions in AS have not been included in IND AS.

7. LEASES (IND AS 17, AS- 19)

The objective of IND AS states that this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to leases.

The objective AS states that this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to finance and operating leases.

Scope

IND AS shall be applied in accounting for all leases other than:

a) leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources;

and

b) licensing agreements for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights.

However, this Standard shall not be applied as the basis of measurement for:

a) property held by lessees that is accounted for as investment property

b) investment property provided by lessors under operating leases

c) biological assets held by lessees under finance leases; or

d) biological assets provided by lessors under operating leases

This Standard applies to agreements that transfer the right to use assets even though substantial services by the lessor may be called for in connection with the operation or maintenance of such assets. This Standard does not apply to agreements that are contracts for services that do not transfer the right to use assets from one contracting party to the other.

AS shall be applied in accounting for all leases other than:

a) Lease agreements to explore for or use natural resources, such as oil, gas , timber, metals and other mineral rights; and

b) Licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights; and

c) Lease agreements to use lands.

KEY DIFFERENCES

Para 5 of IND AS is a new insertion which clarifies that A lease agreement or commitment may include a provision to adjust the lease payments for changes in the construction or acquisition cost of the leased property or for changes in some other measure of cost or value, such as general price levels, or in the lessor’s costs of financing the lease, during the period between the inception of the lease and the commencement of the lease term. If so, the effect of any such changes shall be deemed to have taken place at the inception of the lease for the purposes of this Standard.
Para 15 A, 16, 17 deals with leases relating to land and buildings is a new insertion and clarifies that

When a lease includes land and buildings elements, an entity assesses the classification of each element as finance or an operating lease separately in accordance with paragraphs 7–13. In determining whether the land element is an operating or a finance lease, an important consideration is that land normally has an indefinite economic life.

Whenever necessary in order to classify and account for a lease of land and buildings, the minimum lease payments (including any lump-sum upfront payments) are allocated between the land and the buildings elements in proportion to the relative fair values of the leasehold interests in the land element and buildings element of the lease at the inception of the lease. If the lease payments cannot be allocated reliably between these two elements, the entire lease is classified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease.

For a lease of land and buildings in which the amount that would initially be recognised for the land element, in accordance with paragraph 20, is immaterial, the land and buildings may be treated as a single unit for the purpose of lease classification and classified as a finance or operating lease in accordance with paragraphs 7-13. In such a case, the economic life of the buildings is regarded as the economic life of the entire leased asset.

According TO LEASES IN THE FINANCIAL STATEMENTS OF LESSEES OF IND AS

At the commencement of the lease term, lessees shall recognise finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee’s incremental borrowing rate shall be used. Any initial direct costs of the lessee are added to the amount recognised as an asset.

According TO LEASES IN THE FINANCIAL STATEMENTS OF LESSEES OF AS

At the inception of a finance lease , the lessee shall recognise the lease as an asset and a liability. Such recognition should be at an amount equal to the fair value of the leased asset at the inception of the lease. However if the fair value of the leased assets exceeds the present value of the minimum lease payments from the standpoint of the lessee,the amount recorded as an asset and a liability should be the present value of the minimum lease payments, from the standpoint of the lessee. In calculating the present value of the minimum lease payments the discount rate is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee’s incremental borrowing rate shall be used.

Para 38 of IND AS is a new insertion which gives clarification about indirect cost.

8. RELATED PARTY DISCLOSURE (IND AS 24, AS 18)

Objective

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

The objective of AS is to establish requirements for disclosure of:

a) Related party relationships;

and

b) Transactions between a reporting enterprise and its related parties.

KEY DIFFERENCES

SCOPE

The scope of IND AS is different from AS since it includes

a) identifying related party relationships and transactions;

b) identifying outstanding balances, including commitments, between an entity and its related parties;

c) Identifying the circumstances in which disclosure of the items in (a) and

(b) is required; and

d) Determining the disclosures to be made about those items.

Iden WHEREAS AS includes

a) reporting related party relationships and transactions between a reporting enterprise and its related parties.

It also includes that this standard deals with related parties such as

a) enterprises that directly or indirectly through one or more intermediaries control or are controllable by or are under common control with, the reporting enterprise

b) associates and joint venture of the reporting enterprise and the investing party or venture in respect of which the reporting enterprise is an associate or a joint venture;

c) individuals owing directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual;

d) key management personnel and relatives of any such personnel and

e) enterprises over which any person described in (c) or (d) is able to exercise significant influence.

I. Para 6 of IND AS is new insertion and gives a clarification on how a related party relationship could have an effect on the profit or loss and financial position of an entity.

II. Para 15-20 of IND AS is a new insertion and clarifies that

The requirement to disclose related party relationships between a parent and its subsidiaries is in addition to the disclosure requirements in Ind AS 27 Consolidated and Separate Financial Statements, Ind AS 28 Investments in Associates and Ind AS 31 Interests in Joint Ventures.

An entity shall disclose key management personnel compensation in total and for each of the following categories:

· post-employment benefits;

· other long-term benefits

· termination benefits; and

· share-based payment.

III. Para 22 and 23 of IND AS is a new insertion and states that

Participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities is a transaction between related parties.

Disclosures that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions are made only if such terms can be substantiated.

Para 25-27 of IND AS is a new insertion and relates to the Government-related entities and states the following

A reporting entity is exempt from the disclosure requirements in relation to related party transactions and outstanding balances, including commitments, with:

a) a government that has control, joint control or significant influence over the reporting entity;

and

b) another entity that is a related party because the same government has control, joint control or significant influence over both the reporting entity and the other entity.

If a reporting entity applies the exemption in the above paragraph , it shall disclose the following about the transactions and related outstanding balances referred to in above paragraph :

a) the name of the government and the nature of its relationship with the reporting entity (ie control, joint control or significant influence);

b) the following information in sufficient detail to enable users of the entity’s financial statements to understand the effect of related party transactions on its financial statements:

(i)the nature and amount of each individually significant transaction; and

(ii)for other transactions that are collectively, but not individually, significant, a qualitative or quantitative indication of their extent.

In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in paragraph 26(b), the reporting entity shall consider the closeness of the related party relationship and other factors relevant in establishing the level of significance of the transaction such as whether it is:

a) significant in terms of size;

b) carried out on non-market terms;

c) outside normal day-to-day business operations, such as the purchase and sale of businesses; disclosed to regulatory or supervisory authorities;

d) reported to senior management;

e) subject to shareholders approval

9. CONSOLIDATED FINANCIAL STATEMENTS (IND AS 27, AS 21 )

I. AS does not deal with

Accounting for investments in associates

Accounting for investments in joint venture

II. Para 5 ,6 ,7 of IND AS is a new insertion and gives a clarification about investment in associates or venture.

III. Presentation of Consolidated Financial Statements under IND AS states that

A parent shall present consolidated financial statements in which it consolidates its investments in subsidiaries in accordance with this Standard. Where a parent is a company, the consolidated financial statements shall be in the form set out in Appendix C to this Standard or as near thereto as circumstances admit.

Wheras Presentation of Consolidated Financial Statements under AS states that

A parent which presents consolidated financial statements should present these statements in addition to its separate financial statements.

IV. Para 8 of AS which states about the need to be provided to users about financial statements of parent is not included in IND AS.

V. Under scope of consolidated financial statements para 13 of IND AS is concerned with control which is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists when the parent owns half or less of the voting power of an entity when there is:

a) power over more than half of the voting rights by virtue of an agreement with other investors;

b) power to govern the financial and operating policies of the entity under a statute or an agreement;

c) power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; or

d) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

WHEREAS Under scope of consolidated financial statements para 10 of AS is concerned with control which is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity and also control which exists when an enterprise controls the composition of the board of directors or of the corresponding governing body so as to obtain economic benefits from its activities. For the purpose of this standard, an entity is considered to control the composition of:

a) the board of directors of the company if it has the power ,without the consent or concurrence of any other person , to appoint or remove all or a majority of directors of the company.an enterprise is deemed to have the power to appoint a director, if any of the following conditions is satisfied :

i. a person cannot be appointed as a director without the exercise in his favour by that enterprise of such a power as aforesaid; or

ii. a persons appointment as director follows necessarily from his appointment to a position held by him in that enterprise; or

iii. a director is nominated by that enterprise or a subsidiary thereof.

b) The governing body of an enterprise that is not a company, if it has the power without the consent or the concurrence of any other person, to appoint or remove all the majority of members of governing body of that other enterprise. An enterprise is deemed to have power to appoint a member , if any of the following conditions is satisfied :

a) A person cannot be appointed as a member of the governing body wouthout the exercise in his favour by that other enterprise of such a power;

b) A persons appointment as a member of the governing body follows necessarily from his appointment to a position held by him in that other enterprise; or

c) The member of the governing body is nominated by that other enterprise.

VI. Para 14 of IND AS is a new insertion and it mentions that when an entity owns share warrants, share call options, debt or equity instruments that are convertible into ordinary shares3, or other similar instruments that have the potential, if exercised or converted, to give the entity voting power or reduce another party’s voting power over the financial and operating policies of another entity (potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by another entity, are considered when assessing whether an entity has the power to govern the financial and operating policies of another entity. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.

VII. Para 15 of IND AS is a new insertion and it specifies how to assess whether potential voting rights contribute to control.

VIII. Para 11 of AS is not included in IND AS and mentions when a subsidiary should be excluded from consolidation. It states that it should be excluded when control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future or if it operates under severe long- term restrictions which significantly impair its ability to transfer funds to the parent.

IX. In Consolidation Procedure the steps taken differ in the manner that in AS

Any excess cost to the parent of its investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made should be described as goodwill to be recognized as an asset.

When cost to the parent of its investment in a subsidiary is less than he parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made the difference should be treated as a capital reserve.

Minority interest in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent.

Minority interest in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of parents shareholders. Minority interest in the net assets consists of :

a) Amount of equity attributable to minorities at the date on which investment in the subsidiary is made

b) The minorities share of movements in equity since the date the parent subsidiary relationship came in existence.

Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the purpose of above computations.

But in case of IND AS

non-controlling interests in the profit or loss of consolidated subsidiaries for the reporting period are identified; and

non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the parent’s ownership interests in them. Non-controlling interests in the net assets consist of:

i. the amount of those non-controlling interests at the date of the original combination calculated in accordance with Ind AS 103 Business Combinations and

ii. the non-controlling interests’ share of changes in equity since the date of the combination.

X. In para 19 of AS the difference between the end of the reporting period of the subsidiary and that of the parent shall be no more than SIX months whereas in para 23 of IND AS the difference between the end of the reporting period of the subsidiary and that of the parent shall be no more than THREE months.

XI. Para 26, 27, 28 of IND AS are a new insertion which state that

The income and expenses of a subsidiary are included in the consolidated financial statements from the acquisition date as defined in Ind AS 103 Business Combinations. Income and expenses of the subsidiary shall be based on the values of the assets and liabilities recognised in the parent’s consolidated financial statements at the acquisition date. For example, depreciation expense recognised in the consolidated statement of profit and loss after the acquisition date shall be based on the fair values of the related depreciable assets recognised in the consolidated financial statements at the acquisition date. The income and expenses of a subsidiary are included in the consolidated financial statements until the date when the parent ceases to control the subsidiary.

Non-controlling interests shall be presented in the consolidated balance sheet within equity, separately from the equity of the owners of the parent.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e transactions with owners in their capacity as owners).

In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received shall be recognised directly in equity and attributed to the owners of the parent.

Loss of Control

A parent can lose control of a subsidiary with or without a change in absolute or relative ownership levels. This could occur, for example, when a subsidiary becomes subject to the control of a government, court, administrator or regulator. It also could occur as a result of a contractual agreement.

A parent might lose control of a subsidiary in two or more arrangements (transactions). However, sometimes circumstances indicate that the multiple arrangements should be accounted for as a single transaction. In determining whether to account for the arrangements as a single transaction, a parent shall consider all of the terms and conditions of the arrangements and their economic effects. One or more of the following may indicate that the parent should account for the multiple arrangements as a single transaction:

a) They are entered into at the same time or in contemplation of each other.

b) They form a single transaction designed to achieve an overall commercial effect.

c) The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement.

d) One arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. An example is when one disposal of shares is priced below market and is compensated for by a subsequent disposal priced above market.

If a parent loses control of a subsidiary, it:

a) derecognises the assets (including any goodwill) and liabilities of the subsidiary at their carrying amounts at the date when control is lost;

b) derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them);

c) recognises:

i. the fair value of the consideration received, if any, from the transaction, event or circumstances that resulted in the loss of control; and

ii. if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution;

d) recognises any investment retained in the former subsidiary at its fair value at the date when control is lost;

e) reclassifies to profit or loss, or transfers directly to retained earnings if required in accordance with other Indian Accounting Standards, the amounts identified in paragraph 35; and

f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent.

If a parent loses control of a subsidiary, the parent shall account for all amounts recognised in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the parent reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. For example, if a subsidiary has available-for-sale financial assets and the parent loses control of the subsidiary, the parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets. Similarly, if a revaluation surplus previously recognised in other comprehensive income would be transferred directly to retained earnings on the disposal of the asset, the parent transfers the revaluation surplus directly to retained earnings when it loses control of the subsidiary.

On the loss of control of a subsidiary, any investment retained in the former subsidiary and any amounts owed by or to the former subsidiary shall be accounted for in accordance with other Indian Accounting Standards from the date when control is lost.

The fair value of any investment retained in the former subsidiary at the date when control is lost shall be regarded as the fair value on initial recognition of a financial asset in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement or, when appropriate, the cost on initial recognition of an investment in an associate or jointly controlled entity.

Accounting for Investments in Subsidiaries, Jointly Controlled Entities and Associates in Separate Financial Statements

In AS it states that in parents separate financial statements, investments in subsidiaries should be accounted for in accordance with AS 13.

Whereas

In IND AS it states that for preparing separate financial statements the entity shall account for investments in subsidiaries, jointly controlled entities and associates either:

(a) at cost, or

(b) in accordance with Ind AS 39 i.e. Financial Instruments: Recognition and Measurement

The entity shall apply the same accounting for each category of investments. Investments accounted for at cost shall be accounted for in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations when they are classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105. The measurement of investments accounted for in accordance with Ind AS 39 is not changed in such circumstances.

An entity shall recognise a dividend from a subsidiary, jointly controlled entity or associate in profit or loss in its separate financial statements when its right to receive the dividend is established.

When a parent reorganises the structure of its group by establishing a new entity as its parent in a manner that satisfies the following criteria:

(a) the new parent obtains control of the original parent by issuing equity instruments in exchange for existing equity instruments of the original parent;

(b) the assets and liabilities of the new group and the original group are the same immediately before and after the reorganisation; and

(c) the owners of the original parent before the reorganisation have the same absolute and relative interests in the net assets of the original group and the new group immediately before and after the reorganization and the new parent accounts for its investment in the original parent in accordance with paragraph 38(a) in its separate financial statements, the new parent shall measure cost at the carrying amount of its share of the equity items shown in the separate financial statements of the original parent at the date of the reorganisation.

38C Similarly, an entity that is not a parent might establish a new entity as its parent in a manner that satisfies the criteria in paragraph 38B. The requirements in paragraph 38B apply equally to such reorganisations. In such cases, references to ‘original parent’ and ‘original group’ are to the ‘original entity’.

39 This Standard does not mandate which entities produce separate financial statements available for public use. Paragraphs 38 and 40–43 are applied by an entity for preparing separate financial statements that comply with Indian Accounting Standards. The entity also produces consolidated financial statements available for public use as required by paragraph 9, unless exempted under law.

40 Investments in jointly controlled entities and associates that are accounted for in accordance with Ind AS 39 in the consolidated financial statements shall be accounted for in the same way in the investor’s separate financial statements.

DISCLOSURES

In IND AS it has been stated that

The following disclosures shall be made in consolidated financial statements:

(a) the nature of the relationship between the parent and a subsidiary when the parent does not own, directly or indirectly through subsidiaries, more than half of the voting power;

(b) the reasons why the ownership, directly or indirectly through subsidiaries, of more than half of the voting or potential voting power of an investee does not constitute control;

(c) the end of the reporting period of the financial statements of a subsidiary when such financial statements are used to prepare consolidated financial statements and are as of a date or for a period that is different from that of the parent’s financial statements, and the reason for using a different date or period;

(d) the nature and extent of any significant restrictions (e.g. resulting from borrowing arrangements or regulatory requirements) on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances;

(e) a schedule that shows the effects of any changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control on the equity attributable to owners of the parent; and

(f) if control of a subsidiary is lost, the parent shall disclose the gain or loss, if any recognised in accordance with paragraph 34, and:

(i) the portion of that gain or loss attributable to recognising any investment retained in the former subsidiary at its fair value at the date when control is lost; and

(ii) the line item(s) in the statement of profit and loss in which the gain or loss is recognised (if not presented separately in the statement of profit and loss).

Separate financial statements of a parent, venturer with an interest in a jointly controlled entity or an investor in an associate shall disclose:

(a) the fact that the statements are separate financial statements;

(b) a list of significant investments in subsidiaries, jointly controlled entities and associates, including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; and

and shall identify the financial statements prepared in accordance with paragraph 9 of this Standard (unless preparation of consolidated financial statements is exempt under law) or Ind AS 28 and Ind AS 31 to which they relate.

WHEREAS AS states that

Transitional provisions of AS are not included in IND AS.

10. INTERIM FINANCIAL REPORTING (IND AS 34 , AS 25 )

There is difference between para 2 and 3 of AS and IND AS

Para 2 and 3 of IND AS states that

Each financial report, annual or interim, is evaluated on its own for conformity to Indian Accounting Standards. The fact that an entity may not have provided interim financial reports during a particular financial year or may have provided interim financial reports that do not comply with this Standard does not prevent the entity’s annual financial statements from conforming to Indian Accounting Standards if they otherwise do so.

If an entity’s interim financial report is described as complying with Indian Accounting Standards, it must comply with all of the requirements of this Standard. Paragraph 19 requires certain disclosures in that regard.

WHEREAS para 2 and 3 of AS states that

A statue governing an enterprise or a regulatory may require an enterprise to prepare and present certain information at an interim date which may be different in form and/or content as required by this standard. In such a case, the recognition and measurement principles as laid down in this standard are applied in respect of such information unless otherwise specified in the statue or the regulator.

The requirement related to cash flow statement, complete or condensed, contained in this standard are applicable where an enterprise prepares and presents a cash flow statement for the purpose of its annual financial report.

Para 5 of AS which gives a clarification that during the 1^st year of operations of enterprise, its annual financial reporting period may be shorter than a financial year. In such a case, that shorter period is not considered as an interim period. This is not included in IND AS.

Para 15 B and 15 C of IND AS is a new insertion. Para 15 B gives a clarification about a list of events and transactions for which disclosures would be required if they are significant.

Para 15 C gives a clarification that Individual Indian Accounting Standards provide guidance regarding disclosure requirements for many of the items listed in paragraph 15B. When an event or transaction is significant to an understanding of the changes in an entity’s financial position or performance since the last annual reporting period, its interim financial report should provide an explanation of and an update to the relevant information included in the financial statements of the last annual reporting period.

In para 16 of IND AS which talks about segment information point (g) includes six new insertions of sub points which says

(i) revenues from external customers, if included in the measure of segment profit or loss reviewed by the chief operating decision maker or otherwise regularly provided to the chief operating decision maker.

(ii) intersegment revenues, if included in the measure of segment profit or loss reviewed by the chief operating decision maker or otherwise regularly provided to the chief operating decision maker.

(iii) a measure of segment profit or loss.

(iv) total assets for which there has been a material change from the amount disclosed in the last annual financial statements.

(v) a description of differences from the last annual financial statements in the basis of segmentation or in the basis of measurement of segment profit or loss.

(vi) a reconciliation of the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations. However, if an entity allocates to reportable segments items such as tax expense (tax income), the entity may reconcile the total of the segments’ measures of profit or loss to profit or loss after those items. Material reconciling items shall be separately identified and described in that reconciliation.

In para 44 of IND AS is equivalent to para 43 of AS except that a few lines are an insertion in IND AS which talks about the cumulative amount of adjustments.

Para 45 of IND AS is a new insertion which states to allow accounting changes to be reflected as of an interim date within the financial year would allow two differing accounting policies to be applied to a particular class of transactions within a single financial year. The result would be interim allocation difficulties, obscured operating results, and complicated analysis and understandability of interim period information.

Transitional provisions of AS are not included in IND AS.

11. INTEREST IN JOINT VENTURES

Para 4 and 5 of IND AS are new insertion which give clarification that

4 Financial statements in which proportionate consolidation or the equity method is applied are not separate financial statements, nor are the financial statements of an entity that does not have a subsidiary, associate or venture’s interest in a jointly controlled entity.

5 Separate financial statements are those presented in addition to consolidated financial statements, financial statements in which investments are accounted for using the equity method and financial statements in which venturers’ interests in joint ventures are proportionately consolidated. Separate financial statements need not be appended to, or accompany, those statements, unless required by law.

Joint control is a new heading in IND AS which is not included in AS. It states that joint control may be precluded when an investee is in legal reorganisation or in bankruptcy, or operates under severe long-term restrictions on its ability to transfer funds to the venturer. If joint control is continuing, these events are not enough in themselves to justify not accounting for joint ventures in accordance with this Standard.

Under financial statements of a venturer in IND AS para 34 is a new insertion and states that Different reporting formats may be used to give effect to proportionate consolidation. The venturer may combine its share of each of the assets, liabilities, income and expenses of the jointly controlled entity with the similar items, line by line, in its financial statements. For example, it may combine its share of the jointly controlled entity’s inventory with its inventory and its share of the jointly controlled entity’s property, plant and equipment with its property, plant and equipment. Alternatively, the venturer may include separate line items for its share of the assets, liabilities, income and expenses of the jointly controlled entity in its financial statements. For example, it may show its share of a current asset of the jointly controlled entity separately as part of its current assets; it may show its share of the property, plant and equipment of the jointly controlled entity separately as part of its property, plant and equipment. Both these reporting formats result in the reporting of identical amounts of profit or loss and of each major classification of assets, liabilities, income and expenses; both formats are acceptable for the purposes of this Standard.

Para 38 – 45B of IND AS deals with equity method and exceptions to proportionate consolidation and equity method.
Para 44 and 45 of AS gives a brief clarification about separate financial statements of a venturer which IND AS does not give.

12. Accounting Policies, Changes in Accounting Estimates and Errors (IND AS 8, AS -5)

Objective of IND AS

The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements and the comparability of those financial statements over time and with the financial statements of other entities.

Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in Ind AS 1 Presentation of Financial Statements.

Objective of AS

The objective of this statement is to prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis. This enhances the comparability of the financial statements of an enterprise over time and with the financial statements of other enterprise. Accordingly this statement requires the classification and disclosure of extraordinary and prior period items and the disclosure of certain items within profit or loss from ordinary activities. It also specifies he accounting treatment for changes in accounting estimates

and the disclosures o be made in the financial statements regarding changes in accounting policies.

Scope of IND AS

This Standard shall be applied in selecting and applying accounting policies, and accounting for changes in accounting policies, changes in accounting estimates and corrections of prior period errors.

The tax effects of corrections of prior period errors and of retrospective adjustments made to apply changes in accounting policies are accounted for and disclosed in accordance with Ind AS 12 Income Taxes.

Scope of AS

This Standard shall be applied by an enterprise in presenting profit or loss from ordinary activities, extraordinary items and prior period items in the statement of profit or loss, in accounting for changes in accounting estimates and disclosure of changes in accounting policies.

This statement deals with, among other matters, the disclosure of certain items of net profit or loss for the period. These disclosures are made in addition to any other disclosures required by other accounting standards.

This statement does not deal with tax implications of extraordinary items, prior period items, changes in accounting estimates and changes in accounting policies for which appropriate adjustments will have to be made depending on the circumstances.

KEY DIFFERENCES

I. Para 7- 12 of IND AS is a new insertion and deals with Selection and application of accounting policies

When an Ind AS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the Ind AS.

Ind ASs set out accounting policies that result in financial statements containing relevant and reliable information about the transactions, other events and conditions to which they apply. Those policies need not be applied when the effect of applying them is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from Ind ASs to achieve a particular presentation of an entity’s financial position, financial performance or cash flows.

Ind ASs are accompanied by guidance to assist entities in applying their requirements. All such guidance states whether it is an integral part of Ind ASs. Guidance that is an integral part of the Ind ASs is mandatory. Guidance that is not an integral part of the Ind ASs does not contain requirements for financial statements.

In the absence of an Ind AS that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is:relevant to the economic decision-making needs of users; andreliable, in that the financial statements:

(i)represent faithfully the financial position, financial performance and cash flows of the entity;

(ii)reflect the economic substance of transactions, other events and conditions, and not merely the legal form;

(iii)are neutral, ie free from bias;

(iv)are prudent; and

(v) are complete in all material respects.

In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:

(a) the requirements in Ind ASs dealing with similar and related issues; and

(b) the definitions, recognition criteria and measurement concepts for assets, liabilities, income and expenses in the Framework.

In making the judgement described in paragraph 10, management may also first consider the most recent pronouncements of International Accounting Standards Board and in absence thereof those of the other standard-setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the sources in paragraph 11.

II. Para 13 of IND AS is a new insertion and deals with consistencies of accounting policies and states that an entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions, unless an Ind AS specifically requires or permits categorisation of items for which different policies may be appropriate. If an Ind AS requires or permits such categorisation, an appropriate accounting policy shall be selected and applied consistently to each category.

III. Under changes in accounting policies para 14 and 17 of IND AS is a new insertion and deals with an entity shall change an accounting policy only if the change:

(a)is required by an Ind AS; or

(b)results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

The initial application of a policy to revalue assets in accordance with Ind AS 16 Property, Plant and Equipment or Ind AS 38 Intangible Assets is a change in an accounting policy to be dealt with as a revaluation in accordance with Ind AS 16 or Ind AS 38, rather than in accordance with this Standard.

IV. Under IND AS para 19 -21 is related to application of changes in accounting policies and gives a clarification that

a)an entity shall account for a change in accounting policy resulting from the initial application of an Ind AS in accordance with the specific transitional provisions, if any, in that Ind AS; and

b)when an entity changes an accounting policy upon initial application of an Ind AS that does not include specific transitional provisions applying to that change, or changes an accounting policy voluntarily, it shall apply the change retrospectively.

In the absence of an Ind AS that specifically applies to a transaction, other event or condition, management may, in accordance with paragraph 12, apply an accounting policy from the most recent pronouncements of International Accounting Standards Board and in absence thereof those of the other standard-setting bodies that use a similar conceptual framework to develop accounting standards. If, following an amendment of such a pronouncement, the entity chooses to change an accounting policy, that change is accounted for and disclosed as a voluntary change in accounting policy.

V. Para 22 – 27 of IND AS deals with retrospective application and its limitation and gives a clarification that when a change in accounting policy is applied retrospectively in accordance with paragraph 19(a) or (b), the entity shall adjust the opening balance of each affected component of equity for the earliest prior period presented and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied.

Limitations on retrospective application

When it is impracticable to determine the period-specific effects of changing an accounting policy on comparative information for one or more prior periods presented, the entity shall apply the new accounting policy to the carrying amounts of assets and liabilities as at the beginning of the earliest period for which retrospective application is practicable, which may be the current period, and shall make a corresponding adjustment to the opening balance of each affected component of equity for that period.

When it is impracticable to determine the cumulative effect, at the beginning of the current period, of applying a new accounting policy to all prior periods, the entity shall adjust the comparative information to apply the new accounting policy prospectively from the earliest date practicable.

When an entity applies a new accounting policy retrospectively, it applies the new accounting policy to comparative information for prior periods as far back as is practicable. Retrospective application to a prior period is not practicable unless it is practicable to determine the cumulative effect on the amounts in both the opening and closing balance sheets for that period. The amount of the resulting adjustment relating to periods before those presented in the financial statements is made to the opening balance of each affected component of equity of the earliest prior period presented.

Usually the adjustment is made to retained earnings. However, the adjustment may be made to another component of equity (for example, to comply with an Ind AS). Any other information about prior periods, such as historical summaries of financial data, is also adjusted as far back as is practicable.

When it is impracticable for an entity to apply a new accounting policy retrospectively, because it cannot determine the cumulative effect of applying the policy to all prior periods, the entity, in accordance with paragraph 25, applies the new policy prospectively from the start of the earliest period practicable. It therefore disregards the portion of the cumulative adjustment to assets, liabilities and equity arising before that date. Changing an accounting policy is permitted even if it is impracticable to apply the policy prospectively for any prior period.

VI. Para 28 – 31 provide disclosures which states

When initial application of an Ind AS has an effect on the current period or any prior period, would have such an effect except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:

a)the title of the Ind AS;

b)when applicable, that the change in accounting policy is made in accordance with its transitional provisions;

c)the nature of the change in accounting policy;

d)when applicable, a description of the transitional provisions;

(e)when applicable, the transitional provisions that might have an effect on future periods;

(f)for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

(i)for each financial statement line item affected; and

(ii) if Ind AS 33 Earnings per Share applies to the entity, for basic and diluted earnings per share;

(g)the amount of the adjustment relating to periods before those presented, to the extent practicable; and

(h) if retrospective application required by paragraph 19(a) or (b) is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

When a voluntary change in accounting policy has an effect on the current period or any prior period, would have an effect on that period except that it is impracticable to determine the amount of the adjustment, or might have an effect on future periods, an entity shall disclose:

a) the nature of the change in accounting policy

b) the reasons why applying the new accounting policy provides reliable and more relevant information;

c) for the current period and each prior period presented, to the extent practicable, the amount of the adjustment:

(i) for each financial statement line item affected; and

(ii) if Ind AS 33 applies to the entity, for basic and diluted earnings per share;

(d) the amount of the adjustment relating to periods before those presented, to the extent practicable; and

(e) if retrospective application is impracticable for a particular prior period, or for periods before those presented, the circumstances that led to the existence of that condition and a description of how and from when the change in accounting policy has been applied.

Financial statements of subsequent periods need not repeat these disclosures.

When an entity has not applied a new Ind AS that has been issued but is not yet effective, the entity shall disclose:

(a) this fact; and

(b)known or reasonably estimable information relevant to assessing the possible impact that application of the new Ind AS will have on the entity’s financial statements in the period of initial application.

In complying with paragraph 30, an entity considers disclosing:

(a)the title of the new Ind AS;

(b)the nature of the impending change or changes in accounting policy;

(c)the date by which application of the Ind AS is required;

(d)the date as at which it plans to apply the Ind AS initially; and

(e) either:

(i)a discussion of the impact that initial application of the Ind AS is expected to have on the entity’s financial statements;

if that impact is not known or reasonably estimable, a statement to that effect.

VII. Under changes in accounting estimates para 37 of IND AS is a new insertion and specifies that to the extent that a change in an accounting estimate gives rise to changes in assets and liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.

VIII. Para 41 and 42 deals with errors

Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements. Financial statements do not comply with Ind ASs if they contain either material errors or immaterial errors made intentionally to achieve a particular presentation of an entity’s financial position, financial performance or cash flows. Potential current period errors discovered in that period are corrected before the financial statements are approved for issue. However, material errors are sometimes not discovered until a subsequent period, and these prior period errors are corrected in the comparative information presented in the financial statements for that subsequent period (see paragraphs 42–47).

Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of financial statements approved for issue after their discovery by:

(a)restating the comparative amounts for the prior period(s) presented in which the error occurred; or

(b)if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

IX. Para 43 – 48 deals with Limitations on retrospective restatement

A prior period error shall be corrected by retrospective restatement except to the extent that it is impracticable to determine either the period-specific effects or the cumulative effect of the error.

When it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity shall restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable (which may be the current period).

When it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity shall restate the comparative information to correct the error prospectively from the earliest date practicable.

The correction of a prior period error is excluded from profit or loss for the period in which the error is discovered. Any information presented about prior periods, including any historical summaries of financial data, is restated as far back as is practicable.

When it is impracticable to determine the amount of an error (eg a mistake in applying an accounting policy) for all prior periods, the entity, in accordance with paragraph 45, restates the comparative information prospectively from the earliest date practicable. It therefore disregards the portion of the cumulative restatement of assets, liabilities and equity arising before that date. Paragraphs 50–53 provide guidance on when it is impracticable to correct an error for one or more prior periods.

Corrections of errors are distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. For example, the gain or loss recognised on the outcome of a contingency is not the correction of an error.

X. Para 49 deals with disclosure of prior periods

In applying paragraph 42, an entity shall disclose the following:

(a)the nature of the prior period error;

(b)for each prior period presented, to the extent practicable, the amount of the correction:

(i)for each financial statement line item affected; and

(ii) if Ind AS 33 applies to the entity, for basic and diluted earnings per share;

(c)the amount of the correction at the beginning of the earliest prior period presented; and

(d)if retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected.

Financial statements of subsequent periods need not repeat these disclosures.

XI. Para 50 – 53 deals with Impracticability in respect of retrospective application and retrospective restatement

In some circumstances, it is impracticable to adjust comparative information for one or more prior periods to achieve comparability with the current period. For example, data may not have been collected in the prior period(s) in a way that allows either retrospective application of a new accounting policy (including, for the purpose of paragraphs 51–53, its prospective application to prior periods) or retrospective restatement to correct a prior period error, and it may be impracticable to recreate the information.

It is frequently necessary to make estimates in applying an accounting policy to elements of financial statements recognised or disclosed in respect of transactions, other events or conditions. Estimation is inherently subjective, and estimates may be developed after the reporting period. Developing estimates is potentially more difficult when retrospectively applying an accounting policy or making a retrospective restatement to correct a prior period error, because of the longer period of time that might have passed since the affected transaction, other event or condition occurred. However, the objective of

estimates related to prior periods remains the same as for estimates made in the current period, namely, for the estimate to reflect the circumstances that existed when the transaction, other event or condition occurred.

Therefore, retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that

(a)provides evidence of circumstances that existed on the date(s) as at which the transaction, other event or condition occurred, and

(b)would have been available when the financial statements for that prior period were approved for issue from other information. For some types of estimates (eg an estimate of fair value not based on an observable price or observable inputs), it is impracticable to distinguish these types of information. When retrospective application or retrospective restatement would require making a significant estimate for which it is impossible to distinguish these two types of information, it is impracticable to apply the new accounting policy or correct the prior period error retrospectively.

Hindsight should not be used when applying a new accounting policy to, or correcting amounts for, a prior period, either in making assumptions about what management’s intentions would have been in a prior period or estimating the amounts recognised, measured or disclosed in a prior period. For example, when an entity corrects a prior period error in measuring financial assets previously classified as held-to-maturity investments in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement, it does not change their basis of measurement for that period if management decided later not to hold them to maturity. In addition, when an entity corrects a prior period error in calculating its liability for employees’ accumulated sick leave in accordance with Ind AS 19 Employee Benefits, it disregards information about an unusually severe influenza season during the next period that became available after the financial statements for the prior period were approved for issue. The fact that

significant estimates are frequently required when amending comparative information presented for prior periods does not prevent reliable adjustment or correction of the comparative information.

XII. Para 5-7 of AS deals with Net Profit or Loss for the Period and states that All items of income and expense which are recognised in a period should be included in the determination of net profit or loss for the period unless an Accounting Standard requires or permits otherwise. It also includes extraordinary items and the effects of changes in accounting estimates.

The net profit or loss for the period comprises the following components, each of which should be disclosed on the face of the statement of profit and loss:

(a) profit or loss from ordinary activities; and

(b) extraordinary items.

XIII. Para 8 -11 of AS deals with Extraordinary Items and clarifies that Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived.

Virtually all items of income and expense included in the determination of net profit or loss for the period arise in the course of the ordinary activities of the enterprise. Therefore, only on rare occasions does an event or transaction give rise to an extraordinary item.

Whether an event or transaction is clearly distinct from the ordinary activities of the enterprise is determined by the nature of the event or transaction in relation to the business ordinarily carried on by the enterprise rather than by the frequency with which such events are expected to occur. Therefore, an event or transaction may be extraordinary for one enterprise but not so for another enterprise because of the differences between their respective ordinary activities. For example, losses sustained as a result of an earthquake may qualify as an extraordinary item for many enterprises. However, claims from policyholders arising from an earthquake do not qualify as an extraordinary item for an insurance enterprise that insures against such risks.

Examples of events or transactions that generally give rise to extraordinary items for most enterprises are:

– attachment of property of the enterprise; or

– an earthquake.

XIV. Para 12- 14 deals with Profit or Loss from Ordinary Activities which specifies that

When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.

Although the items of income and expense described in paragraph 12 are not extraordinary items, the nature and amount of such items may be relevant to users of financial statements in understanding the financial position and performance of an enterprise and in making projections about financial position and performance.

Disclosure of such information is sometimes made in the notes to the financial statements.

Circumstances which may give rise to the separate disclosure of items of income and expense in accordance with paragraph 12 include:

a) the write-down of inventories to net realisable value as well as the reversal of such write-downs;

b) restructuring of the activities of an enterprise and the reversal of any provisions for the costs of restructuring; a

c) disposals of items of fixed assets;

d) disposals of long-term investments;

e) legislative changes having retrospective application;

f) litigation settlements; and

g) other reversals of provisions.

XIV. Para 15- 19 deals with prior period errors and states that

The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived.

The term ‘prior period items’, as defined in this Statement, refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. The term does not include other adjustments necessitated by circumstances, which though related to prior periods, are determined in the current period, e.g., arrears payable to workers as a result of revision of wages with retrospective effect during the current period.

Errors in the preparation of the financial statements of one or more prior periods may be discovered in the current period. Errors may occur as a result of mathematical mistakes, mistakes in applying accounting policies, misinterpretation of facts, or oversight.

Prior period items are generally infrequent in nature and can be distinguished from changes in accounting estimates. Accounting estimates by their nature are approximations that may need revision as additional information becomes known. For example, income or expense recognized on the outcome of a contingency which previously could not be estimated reliably does not constitute a prior period item.

Prior period items are normally included in the determination of net profit or loss for the current period. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss.

15. Investments in Associates (IND AS 28, AS 23)

Scope of AS

This Statement should be applied in accounting for investments in associates in the preparation and presentation of consolidated financial statements by an investor.

This Statement does not deal with accounting for investments in associates in the preparation and presentation of separate financial statements by an investor.

Scope of IND AS

This Standard shall be applied in accounting for investments in associates. However, it does not apply to investments in associates held by:

a. venture capital organizations that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement. Such investments shall be measured at fair value in accordance with Ind AS 39, with changes in fair value recognised in profit or loss in the period of the change. An entity holding such an investment shall make the disclosures required by paragraph 37(f).

Key Differences

Para 3 and 4 of IND AS is a new insertion and clarifies that

Financial statements in which the equity method is applied are not separate financial statements, nor are the financial statements of an entity that does not have a subsidiary, associate or venturer’s interest in a joint venture.

Separate financial statements are those presented in addition to consolidated financial statements, financial statements in which investments are accounted for using the equity method and financial statements in which venturers’ interests in joint ventures are proportionately consolidated. Separate financial statements may or may not be appended to, or accompany, those financial statements, unless required by law.

Para 8, 9 , 10 under significant influence are a new insertion in IND AS and states that

An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares1, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or reduce another party’s voting power over the financial and operating policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event.

In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intention of management and the financial ability to exercise or convert.

10An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual agreement.

Para 6 of AS and para 11 of IND AS are different in the manner that

· under AS under the equity method, the investment is initially recorded at cost, identifying any goodwill/capital reserve arising at the time of acquisition and the carrying amount is increased or decreased to recognise the investor’s share of the profits or losses of the investee after the date of acquisition

WHEREAS in IND AS Under the equity method, the investment in an associate is initially recognised at cost and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition.

· Also under AS adjustments to the carrying amount may also be necessary for alterations in the investor’s proportionate interest in the investee arising from changes in the investee’s equity that have not been included in the statement of profit and loss.

WHEREAS in IND AS Adjustments to the carrying amount may also be necessary for changes in the investor’s proportionate interest in the investee arising from changes in the investee’s other comprehensive income.

Para 12 of IND AS is a new insertion and states that when potential voting rights exist, the investor’s share of profit or loss of the investee and of changes in the investee’s equity is determined on the basis of present ownership interests and does not reflect the possible exercise or conversion of potential voting rights.

Para 13, 14 and 15 deals with application of equity method and clarifies that

An investment in an associate shall be accounted for using the equity method except when:

a.the investment is classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations; and such investments should be accounted for in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations.

It also clarifies that when an investment in an associate previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method as from the date of its classification as held for sale.

Under AS An investor should discontinue the use of the equity method from the date that:

(a) it ceases to have significant influence in an associate but retains, either in whole or in part, its investment; or

(b) the use of the equity method is no longer appropriate because the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.

From the date of discontinuing the use of the equity method, investments in such associates should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. For this purpose, the carrying amount of the investment at that date should be regarded as cost thereafter.

Whereas under IND AS an investor shall discontinue the use of the equity method from the date that it ceases to have significant influence over an associate and shall account for the investment in accordance with Ind AS 39 from that date, provided the associate does not become a subsidiary or a joint venture as defined in Ind AS 31. On the loss of significant influence, the investor shall measure at

fair value any investment the investor retains in the former associate. The investor shall recognise in profit or loss any difference between:

a.the fair value of any retained investment and any proceeds from disposing of the part interest in the associate; and

b.the carrying amount of the investment at the date when significant influence is lost.

When an investment ceases to be an associate and is accounted for in accordance with Ind AS 39, the fair value of the investment at the date when it ceases to be an associate shall be regarded as its fair value on initial recognition as a financial asset in accordance with Ind AS 39.

Para 21 and 22 of IND AS is a new insertion and mentions that

A group’s share in an associate is the aggregate of the holdings in that associate by the parent and its subsidiaries. The holdings of the group’s other associates or joint ventures are ignored for this purpose. When an associate has subsidiaries, associates, or joint ventures, the profits or losses and net assets taken into account in applying the equity method are those recognised in the associate’s financial statements (including the associate’s share of the profits or losses and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 26 and 27).

Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between an investor (including its consolidated subsidiaries) and an associate are recognised in the investor’s financial statements only to the extent of unrelated investors’ interests in the associate. ‘Upstream’ transactions are, for example, sales of assets from an associate to the investor. ‘Downstream’ transactions are,

for example, sales of assets from the investor to an associate. The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated.

WHEREAS under para 13 of AS it states that In using equity method for accounting for investment in an associate, unrealised profits and losses resulting from transactions between the investor (or its consolidated subsidiaries) and the associate should be eliminated to the extent of the investor ’s interest in the associate. Unrealised losses should not be eliminated if and to the extent the cost of the transferred asset cannot be recovered.

Changes in foreign exchange rates (IND AS 21, AS 11)

Objective

According to AS an enterprise may carry on activities involving foreign exchange in two ways. It may have transactions in foreign currencies or it may have foreign operations. In order to include foreign currency transactions and foreign operations in the financial statements of an enterprise, transactions must be expressed in the enterprise’s reporting currency and the financial statements of foreign operations must be translated into the enterprise’s reporting currency.

The principal issues in accounting for foreign currency transactions and foreign operations are to decide which exchange rate to use and how to recognise in the financial statements the financial effect of changes in exchange rates.

According to IND AS an entity may carry on foreign activities in two ways. It may have transactions in foreign currencies or it may have foreign operations. In addition, an entity may present its financial statements in a foreign currency. The objective of this Standard is to prescribe how to include foreign currency transactions and foreign operations in the financial statements of an entity and how to translate financial statements into a presentation currency.

The principal issues are which exchange rate(s) to use and how to report the effects of changes in exchange rates in the financial statements.

Scope

This Standard shall be applied (a)in accounting for transactions and balances in foreign currencies, except for those derivative transactions and balances that are within the scope of Ind AS 39 Financial Instruments: Recognition and Measurement;(b)in translating the results and financial position of foreign operations that are included in the financial statements of the entity by consolidation, proportionate consolidation or the equity method; and(c)in translating an entity’s results and financial position into a presentation currency.

Ind AS 39 applies to many foreign currency derivatives and, accordingly, these are excluded from the scope of this Standard. However, those foreign currency derivatives that are not within the scope of Ind AS 39 (eg some foreign currency derivatives that are embedded in other contracts) are within the scope of this Standard. In addition, this Standard applies when an entity translates amounts relating to derivatives from its functional currency to its presentation currency.

This Standard does not apply to hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation. Ind AS 39 applies to hedge accounting.

This Standard applies to the presentation of an entity’s financial statements in a foreign currency and sets out requirements for the resulting financial statements to be described as complying with Indian Accounting Standards. For translations of financial information into a foreign currency that do not meet these requirements, this Standard specifies information to be disclosed.

This Standard does not apply to the presentation in a statement of cash flows of the cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation (see Ind AS 7 Statement of Cash Flows).

Whereas in IND AS

Scope

I. This Statement should be applied:

(a) in accounting for transactions in foreign currencies; and

(b) in translating the financial statements of foreign operations.

II. This Statement also deals with accounting for foreign currency transactions in the nature of forward exchange contracts.

III. This Statement does not specify the currency in which an enterprise presents its financial statements. However, an enterprise normally uses the currency of the country in which it is domiciled. If it uses a different currency, this Statement requires disclosure of the reason for using that currency. This Statement also requires disclosure of the reason for any change in the reporting currency.

IV. This Statement does not deal with the restatement of an enterprise’s financial statements from its reporting currency into another currency for the convenience of users accustomed to that currency or for similar purposes.

V. This Statement does not deal with the presentation in a cash flow statement of cash flows arising from transactions in a foreign currency and the translation of cash flows of a foreign operation.

VI. This Statement does not deal with exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Under reporting at the end of subsequent reporting periods of IND AS para 25 and 26 is a new insertion and clarifies that

The carrying amount of some items is determined by comparing two or more amounts. For example, the carrying amount of inventories is the lower of cost and net realisable value in accordance with Ind AS 2 Inventories. Similarly, in accordance with Ind AS 36 Impairment of Assets, the carrying amount of an asset for which there is an indication of impairment is the lower of its carrying amount before considering possible impairment losses and its recoverable amount. When such an asset is non-monetary and is measured in a foreign currency, the carrying amount is determined by comparing:

(a)the cost or carrying amount, as appropriate, translated at the exchange rate at the date when that amount was determined (ie the rate at the date of the transaction for an item measured in terms of historical cost); and

(b)the net realisable value or recoverable amount, as appropriate, translated at the exchange rate at the date when that value was determined (e.g. the closing rate at the end of the reporting period).The effect of this comparison may be that an impairment loss is recognised in the functional currency but would not be recognised in the foreign currency, or vice versa.

When several exchange rates are available, the rate used is that at which the future cash flows represented by the transaction or balance could have been settled if those cash flows had occurred at the measurement date. If exchangeability between two currencies is temporarily lacking, the rate used is the first subsequent rate at which exchanges could be made.

Para 27 of IND AS is a new insertion and clarifies that As noted in paragraph 3 (a) and 5, Ind AS 39 applies to hedge accounting for foreign currency items. The application of hedge accounting requires an entity to account for some exchange differences differently from the treatment of exchange differences required by this

Standard. For example , Ind AS 39 requires that exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge are recognised initially in other comprehensive income to the extent that the hedge is effective.

Para 27- 38 of IND AS is a new insertion and gives a clarification that

As noted in paragraph 3 (a) and 5, Ind AS 39 applies to hedge accounting for foreign currency items. The application of hedge accounting requires an entity to account for some exchange differences differently from the treatment of exchange differences required by this Standard. For example , Ind AS 39 requires that exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge are recognised initially in other comprehensive income to the extent that the hedge is effective.

When monetary items arise from a foreign currency transaction and there is a change in the exchange rate between the transaction date and the date of settlement, an exchange difference results. When the transaction is settled within the same accounting period as that in which it occurred, all the exchange difference is recognised in that period. However, when the transaction is settle in a subsequent accounting period, the exchange difference recognised in each period up to the date of settlement is determined by the change in exchange rates during each period. Paragraph 29A provides an option to recognize unrealised exchange differences arising on translation of certain long –term monetary assets and long-term monetary liabilities from foreign currency to functional currency.

A An entity may exercise the option in respect of recognition of exchange differences arising on translation of long -term monetary items from foreign currency to functional currency as follows:

(i) Unrealised exchange differences arising on long -term monetary assets and long-term-term monetary liabilities denominated in a foreign currency shall be recognised directly in equity and accumulated in a separate component of equity.

The amount so accumulated shall be transferred to profit or loss over the period of maturity of such long -term monetary items in an appropriate manner. The separate

component of equity shall be distinguished from any other component of equity representing any other exchange difference recognised in other comprehensive income and accumulated in equity.

(ii) The option provided in paragraph 29A

(i) is not available for the long-term monetary assets and long-term monetary liabilities during the period they are classified as at fair value through profit or loss in accordance with Ind AS 39, either because they are held for trading or bec ause of their designation as at fair value through profit or loss.

(iii) The option provided in paragraph 29A(i) shall be exercised for the first time when the exchange difference arising on a long -term monetary asset or a long-term monetary liability mentioned in paragraph 29A(i) is recognised. The option, once exercised, shall be irrevocable and shall be exercised in respect of all the long-term monetary assets and long-term monetary liabilities mentioned in paragraph 29A(i).

(iv) The provisions of paragraphs 48, 48A, 48B, 48C, 48D and 49 shall, so far as relevant, apply in relation to accumulated exchange differences accounted for in accordance with paragraph 29A , except that reference to reclassification from equity to profit or loss wherever appear ing in those paragraphs shall be construed as transfer to profit or loss in respect of exchange differences mentioned in paragraph 29A(i).

(v) For the purpose of paragraph 29A, a monetary asset or a monetary liability shall be treated as long-term, if that asset or liability has a maturity period of twelve months or more from the date of the initial recognition of that asset or liability.

When a gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss shall be recognised in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss shall be recognised in profit or loss.

Other Indian Accounting Standards require some gains and losses to be recognised in other comprehensive income. For example , Ind AS 16 requires some gains and losses arising on a revaluation of property, plant and equipment to be recognised in other comprehensive income. Whe n such an asset is measured in a foreign currency, paragraph 23(c) of this Standard requires the revalued amount to be translated using the rate at the date the value is determined, resulting in an exchange difference that is also recognised in other comprehensive income.

Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation (see paragraph 15) shall be recognised in profit or loss in the separate financial statements of the reporting entity or the individual financial statements of the foreign operation, as appropriate. In the financial statements that include the foreign operation and the reporting entity (eg consolidated financial statements when the foreign operation is a subsidiary), such exchange differences shall be recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment in accordance with paragraph 48.

When a monetary item forms part of a reporting entity’s net investment in a foreign operation and is denominated in the functional currency of the reporting entity, an exchange difference arises in the foreign operation’s individual financial statements in accordance with paragraph 28. If such an item is den ominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements in accordance with paragraph

If such an item is denominated in a currency other than the functional currency of either the reporting entity or the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements and in the foreign operation’s individual financial statements in accordance with paragraph

Such exchange differences are recognised in other comprehensive income in the financial statements that include the foreign operation and the reporting entity (ie financial statements in which the foreign operation is consolidated, proportionately consolidated or accounted for using the equity method).

When an entity keeps its books and records in a currency other than its functional currency, at the time the entity prepares its financial statements all amounts are translated into the functional currency in accordance with paragraphs 20–26. This produces the same amounts in the functional currency as would have occurred had the items been recorded initially in the functional currency. For example, monetary items are translated into the functional currency using the closing rate, and non-monetary items that are measured on a historical cost basis are translated using the exchange rate at the date of the transaction that resulted in their recognition.

Change in functional currency

When there is a change in an entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change.

As noted in paragraph 13, the functional currency of an entity reflects the underlying transactions, events and conditions that are relevant to the entity. Accordingly, once the functional currency is determined, it can be changed only if there is a change to those underlying transactions, events and conditions. For example, a change in the currency that mainly influences the sales prices of goods and services may lead to a change in an entity’s functional currency.

The effect of a change in functional currency is accounted for prospectively. In other words, an entity translates all items into the new fu nctional currency using the exchange rate at the date of the change. The resulting translated amounts for non-monetary items are treated as their historical cost. Exchange differences arising from the translation of a foreign operation previously recognised in other comprehensive income in accordance with paragraphs 32 and 39(c) are not reclassified from equity to profit or loss until the disposal of the operation. When the option provided in paragraph 29A is exercised, exchange differences previously recognised directly in equity and accumulated in a separate component of equity in accordance with that paragraph are not transferred to profit or loss immediately on change of the entity's functional currency. They shall continue to be transferred to profit or loss in the manner stated in that paragraph.

Para 42 -48 of IND AS is a new insertion and states that

The results and financial position of an entity whose functional currency is the currency of a hyperinflationary economy shall be translated into a different presentation currency using the following procedures:

a) all amounts (ie assets, liabilities, equity items, income and expenses, including comparatives) shall be translated at the closing rate at the date of the most recent balance sheet, except that

b) when amounts are translated into the currency of a non - hyperinflationary economy, comparative amounts shall be those that were presented as current year amounts in the relevant prior year financial statements (ie not adjusted for subsequent changes in the price level or subsequent changes in exchange rates).

When an entity’s functional currency is the currency of a hyperinflationary economy, the entity shall restate its financial statements in accordance with Ind AS 29before applying the translation method set out in paragraph 42, except for comparative amounts that are translated into a currency of a non-hyperinflationary economy (see paragraph 42(b)). When the economy ceases to be hyperinflationary and the entity no longer restates its financial statements in accordance with Ind AS 29, it shall use as the historical costs for translation into the presentation currency the amounts restated to the price level at the date the entity ceased restating its financial statements.

Translation of a foreign operation

Paragraphs 45–47, in addition to paragraphs 38–43, apply when the results and financial position of a foreign operation are translated into a presentation currency so that the foreign operation can be included in the financial statements of the reporting entity by consolidation, proportionate consolidation or the equity method.

The incorporation of the results and financial position of a foreign operation with those of the reporting entity follows normal consolidation procedures, such as the elimination of intragroup balances and intragroup transactions of a subsidiary. However, an intragroup monetary asset (or liability), whether short -term or long-term, cannot be eliminated against the corresponding intragroup liability (or asset) without showing the results of currency fluctuations in the consolidated financial statements. This is because the monetary item represents a commitment to convert one currency into another and exposes the reporting entity to a gain or loss through currency fluctuations. Accordingly, in the consolidated financial statements of the reporting entity, such an exchange difference is recognised in profit or loss or, if it arises from the circumstances described in paragraph 32, it is recognised in other comprehensive income and accumulated in a separate component of equity until the disposal of the foreign operation. When the option provided in paragraph 29A is exercised, in the consolidated financial statements of the reporting entity, such an exchange difference is directly recognised in equity and disposed of in the manner prescribed in that paragraph.

When the financial statements of a foreign operation are as of a date different from that of the reporting entity, the foreign operation often prepares additional statements as of the same date as the reporting entity’s financial statements. When this is not done, Ind AS 27 allows the use of a different date provided that the difference is no greater than three months and adjustments are made for the effects of any significant transactions or other events that occur between the different dates. In such a case, the assets and liabilities of the foreign operation are translated at the exchange rate at the end of the reporting period of the foreign operation. Adjustments are made for significant changes in exchange rates up to the end of the reporting period of the reporting entity in accordance with Ind AS 27. The same approach is used in applying the equity method to associates and joint ventures and in applying proportionate consolidation to joint ventures in accordance with Ind AS 28 Investments in Associates and Ind AS 31.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation shall be treated as assets and liabilities of the foreign operation. Thus they shall be expressed in the functional currency of the foreign operation and shall be translated at the closing rate in accordance with paragraphs 39 and 42.

Para 36-39 of AS talka about forward exchange contracts.

DISCLOSURE

An entity shall disclose:

a) the amount of exchange differences recognised in profit or loss except for those arising on financial instrument s measured at fair value through profit or loss in accordance with Ind AS 39;

(b) net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, and a reconciliation of the amount of such exchange differ ences at the beginning and end of the period; and

(c) net exchange differences recognised directly in equity and accumulated in a separate component of equity in accordance with paragraph 29A, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

When the presentation currency is different from the functional currency, that fact shall be stated, together with disclosure of the functional currency and the reason for using a different presentation currency.

When there is a change in the functional currency of either the reporting entity or a significant foreign operation, that fact and the reason for the change in functional currency shall be disclosed.

When an entity presents its financial statements in a cur rency that is different from its functional currency, it shall describe the financial statements as complying with Indian Accounting Standards only if they comply with all the requirements of each applicable Standard including the translation method set out in paragraphs 39 and 42.

An entity sometimes presents its financial statements or other financial information in a currency that is not its functional currency without meeting the requirements of paragraph 55. For example, an entity may convert into another currency only selected items from its financial statements. Or, an entity whose functional currency is not the currency of a hyperinflationary economy may convert the financial statements into another currency by translating all items at the most recent closing rate. Such conversions are not in accordance with Indian Accounting Standards and the disclosures set out in paragraph 57 are required.

When an entity displays its financial statements or other financial information in a currency that is differ ent from either its functional currency or its presentation currency and the requirements of paragraph 55 are not met, it shall:

(a) clearly identify the information as supplementary information to distinguish it from the information that complies with Indian Accounting Standards;

(b) disclose the currency in which the supplementary information is displayed; and

(c) disclose the entity’s functional currency and the method of translation used to determine the supplementary information.

According to AS

An enterprise should disclose:

(a) the amount of exchange differences included in the net profit or loss for the period; and

(b) net exchange differences accumulated in foreign currency translation reserve as a separate component of shareholders’ funds, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

When the reporting currency is different from the currency of the country in which the enterprise is domiciled, the reason for using a different currency should be disclosed. The reason for any change in the reporting currency should also be disclosed.

When there is a change in the classification of a significant foreign operation, an enterprise should disclose:

(a) the nature of the change in classification;

(b) the reason for the change;

(d) the impact on net profit or loss for each prior period presented had the change in classification occurred at the beginning of the earliest period presented.

The effect on foreign currency monetary items or on the financial statements of a foreign operation of a change in exchange rates occurring after the balance sheet date is disclosed in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet Date.

Disclosure is also encouraged of an enterprise’s foreign currency risk management policy.

Transitional provisions of AS is not included in IND AS.

Earnings per share

Scope

According to IND AS this standard shall apply to companies that have issued ordinary shares to which Indian Accounting Standards notified under Part I of the Companies (Accounting Standards) Rules 2006- apply.

An entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this Standard.

When an entity presents both consolidated financial statements and separate financial statements prepared in accordance with Ind AS 27 Consolidated and Separate Financial Statements, the disclosures required by this Standard shall be presented both in the consolidated financial statements and separate financial statements. In consolidated financial statements such disclosures shall be based on consolidated information and in separate financial statements such disclosures shall be based on information given in separate financial statements. An entity shall not present in consolidated financial statements, earnings per share based on the information given in separate financial

statements and shall not present in separate financial statements, earnings per share based on the information given in consolidated financial statements.

According to AS this Statement should be applied by enterprises whose equity shares or potential equity shares are listed on a recognised stock exchange in India. An enterprise which has neither equity shares nor potential equity shares which are so listed but which discloses earnings per share should calculate and disclose earnings per share in accordance with this Statement.

In consolidated financial statements, the information required by this Statement should be presented on the basis of consolidated information.

This Statement applies to enterprises whose equity or potential equity shares are listed on a recognised stock exchange in India. An enterprisewhich has neither equity shares nor potential equity shares which are so listed is not required to disclose earnings per share. However, comparability in financial reporting among enterprises is enhanced if such an enterprise that is required to disclose by any statute or chooses to disclose earnings per share calculates earnings per share in accordance with the principles laid down in this Statement. In the case of a parent (holding enterprise), users of financial statements are usually concerned with, and need to be informed about, the results of operations of both the enterprise itself as well as of the group as a whole. Accordingly, in the case of such enterprises, this Statement requires the presentation of earnings per share information on the basis of consolidated financial statements as well as individual financial statements of the parent. In consolidated financial statements, such information is presented on the basis of consolidated information.

Para 6 of AS is not included in IND AS which states that 6. A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity shares of another enterprise. For this purpose, a financial asset is any asset that is

(a) cash;

(b) a contractual right to receive cash or another financial asset from another enterprise;

conditions that are potentially favourable; or

(d) an equity share of another enterprise.

A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable.

Para 8 and 9 of AS is not included in IND AS which gives a clarification that

An enterprise should present basic and diluted earnings per share on the face of the statement of profit and loss for each class of equity shares that has a different right to share in the net profit for the period. An enterprise should present basic and diluted earnings per share with equal prominence for all periods presented.

This Statement requires an enterprise to present basic and diluted earnings per share, even if the amounts disclosed are negative (a loss per share).

Para 9 of IND AS is a new insertion and states that an entity shall calculate basic earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

Para 15- 18 of IND AS is a new insertion and states that

Preference shares that provide for a low initial dividend to compensate an entity for selling the preference shares at a discount, or an above-market dividend in later periods to compensate investors for purchasing preference shares at a premium, are sometimes referred to as increasing rate preference shares. Any original issue discount or premium on increasing rate preference shares is amortised to retained earnings using the effective interest method and treated as a preference dividend for the purposes of calculating earnings per share (irrespective of whether such discount or premium is debited or credited to securities premium account).

Preference shares may be repurchased under an entity’s tender offer to the holders. The excess of the fair value of the consideration paid to the preference shareholders over the carrying amount of the preference shares represents a return to the holders of the preference shares and a charge to retained earnings for the entity. This amount is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.

Early conversion of convertible preference shares may be induced by an entity through favourable changes to the original conversion terms or the payment of additional consideration. The excess of the fair value of the ordinary shares or other consideration paid over the fair value of the ordinary shares issuable under the original conversion terms is a return to the preference shareholders, and is deducted in calculating profit or loss attributable to ordinary equity holders of the parent entity.

Any excess of the carrying amount of preference shares over the fair value of the consideration paid to settle them is added in calculating profit or loss attributable to ordinary equity holders of the parent entity.

Para 23 and 24 of IND AS is a new insertion and clarifies that Ordinary shares that will be issued upon the conversion of a mandatorily convertible instrument are included in the calculation of basic earnings per share from the date the contract is entered into.

Contingently issuable shares are treated as outstanding and are included in the calculation of basic earnings per share only from the date when all necessary conditions are satisfied (ie the events have occurred). Shares that are issuable solely after the passage of time are not contingently issuable shares, because the passage of time is a certainty. Outstanding ordinary shares that are contingently returnable (ie subject to recall) are not treated as outstanding and are excluded from the calculation of basic earnings per share until the date the shares are no longer subject to recall.

Para 29 of IND AS is a new insertion and gives a clarification that A consolidation of ordinary shares generally reduces the number of ordinary shares outstanding without a corresponding reduction in resources. However, when the overall effect is a share repurchase at fair value, the reduction in the number of ordinary shares outstanding is the result of a corresponding reduction in resources. An example is a share consolidation combined with a special dividend. The weighted average number of ordinary shares outstanding for the period in which the combined transaction takes place is adjusted for the reduction in the number of ordinary shares from the date the special dividend is recognised.

Para 30 of IND AS is a new insertion and gives a clarification that An entity shall calculate diluted earnings per share amounts for profit or loss attributable to ordinary equity holders of the parent entity and, if presented, profit or loss from continuing operations attributable to those equity holders.

Para 37 and 38 of IND AS is a new insertion and states that

Dilutive potential ordinary shares shall be determined independently for each period presented. The number of dilutive potential ordinary shares included in the year-to-date period is not a weighted average of the dilutive potential ordinary shares included in each interim computation.

Potential ordinary shares are weighted for the period they are outstanding. Potential ordinary shares that are cancelled or allowed to lapse during the period are included in the calculation of diluted earnings per share only for the portion of the period during which they are outstanding. Potential ordinary shares that are converted into ordinary

shares during the period are included in the calculation of diluted earnings per share from the beginning of the period to the date of conversion; from the date of conversion, the resulting ordinary shares are included in both basic and diluted earnings per share.

Para 40 of IND AS is a new insertion which gives a clarification that

A subsidiary, joint venture or associate may issue to parties other than the parent, venture or investor potential ordinary shares that are convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary shares of the parent, venturer or investor (the reporting entity). If these potential ordinary shares of the subsidiary, joint venture or associate have a dilutive effect on the basic earnings per share of the reporting entity, they are included in the calculation of diluted earnings per share.

Para 45 -63 of IND AS is a new insertion and gives clarification about options , warrants and their equivalents.

Para 70 of IND AS is a new insertion and states that an entity shall disclose the following:

(a) the amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period. The reconciliation shall include the individual effect of each class of instruments that affects earnings per share.

(b) the weighted average number of ordinary shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other. The reconciliation shall include the individual effect of each class of instruments that affects earnings per share.

(c) instruments (including contingently issuable shares) that could potentially dilute basic earnings per share in the future, but were not included in the calculation of diluted earnings per share because they are antidilutive for the period(s) presented.

(d) a description of ordinary share transactions or potential ordinary share transactions, other than those accounted for in accordance with paragraph 64, that occur after the reporting period and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period.

INTANGIBLE ASSESTS ( AS 26 , IND AS 38)

Scope

According to IND AS under scope

If another Standard prescribes the accounting for a specific type of intangible asset, an entity applies that Standard instead of this Standard. For example, this Standard does not apply to:

(a) intangible assets held by an entity for sale in the ordinary course of

business (see Ind AS 2 Inventories and Ind AS 11 Construction

Contracts).

(b) deferred tax assets

(d) assets arising from employee benefits

(e) financial assets as defined in Ind AS 32. The recognition and measurement of some financial assets are covered by Ind AS 27 and Separate Financial Statements , Ind AS 28 Investments in Associates Consolidated and Ind AS 31 Interests in Joint Ventures.

(f) goodwill acquired in a business combination

(g) deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurance contracts within the scope of Ind AS 104 Insurance Contracts. Ind AS 104 sets out specific disclosure requirements for those deferred acquisition costs but not for those intangible assets. Therefore, the disclosure requirements in this Standard apply to those intangible assets.

(h) non-current intangible assets classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 Non- current Assets Held for Sale and Discontinued Operations .

Whereas in AS it states that

If another Accounting Standard deals with a specific type of intangible asset, an enterprise applies that Accounting Standard instead of this Statement. For example, this Statement does not apply to:

(a) intangible assets held by an enterprise for sale in the ordinary course of business (seeAS 2, Valuation of Inventories, andAS 7, Accounting for Construction Contracts6);

(b) deferred tax assets (seeAS 22,Accounting for Taxes on Income);

(d) goodwill arising on an amalgamation (see AS 14, Accounting for Amalgamations) and goodwill arising on consolidation (see AS 21, Consolidated Financial Statements).

Para 12 of IND AS states that

An asset is identifiable if it 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.

Para 12 AND 13 of AS state that

An intangible asset can be clearly distinguished from goodwill if the asset is separable. An asset is separable if the enterprise could rent, sell, exchange or distribute the specific future economic benefits attributable to the asset without also disposing of future economic benefits that flow from other assets used in the same revenue earning activity.

Separability is not a necessary condition for identifiability since an enterprise may be able to identify an asset in some other way. For example, if an intangible asset is acquired with a group of assets, the transaction may involve the transfer of legal rights that enable an enterprise to identify the intangible asset. Similarly, if an internal project aims to create legal rights for the enterprise, the nature of these rights may assist the enterprise in identifying an underlying internally generated intangible asset. Also, even if an asset generates future economic benefits only in combination with other assets, the asset is identifiable if the enterprise can identify the future economic benefits that will flow from the asset.

Conclusion

Looking at the present scenario of the world economy and the position of India convergence with IFRS can be strongly recommended. But at the same time it can also be said that this transition to IFRS will not be a swift and painless process.. Implementing IFRS would rather require change in formats of accounts, change in different accounting policies and more extensive disclosure requirements. Therefore all parties concerned with financial reporting also need to share the responsibility of international harmonization and convergence. Keeping in mind the fact that IFRS is more a principle based approach with limited implementation and application guidance and moves away from prescribing specific accounting treatment all accountants whether practicing or non-practicing have to participate and contribute effectively to the convergence process. This would lead to subsequent revisions from time to time arising from its global implementation and would help in formulation of future international accounting standards. A continuous research is in fact needed to harmonize and converge with the international standards and this in fact can be achieved only through mutual international understanding both of corporate objectives and rankings attached to it.

BIBLIOGRAPHY

Books

Compedium of accounting standards

Websites

Projects

Pages

VIBRATION ANALYSIS OF CYLINDRICAL THIN SHELL

Tuesday 23 August 2011

Converged Indian Accounting Standards – Key Differences

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