IND-AS stands for Indian Accounting Standards that are basically came into existence to meet the requirements of IFRS (International Financial Reporting Standards). IND- AS was introduced with a view to enhance acceptability and promote transparency of the financial information communicated by the Indian corporates through their financial statements throughout the globe. This move towards IFRS was subsequently accepted by the Government of India and was announced by the Hon’ble Finance Minister of India, Arun Jaitley, in his Budget Speech in July 2014. These standards basically provide a basis on which items of financial statements are dealt with. Let’s look into major takeaways from these standards.
Top takeaways:
Ind AS 1 Presentation of Financial Statement:
- Components of financial statements
- True and fair presentation and compliance with Ind AS
- Statement of profit and loss having two parts viz. profit or loss and other comprehensive income
- Expense recognition on the basis of nature.
Ind AS 2 Inventories:
- Inventory for service provider to be included in the cost of personnel, wages and other attributable overheads.
- Deferred credit purchase i.e., bifurcation of finance cost from the part of inventory in case when credit period allowed is more than normal credit period
- Treatment of Machinery spares provided
- Standard cost method and retail method for measurement of inventories.
Ind AS 7 Statement of Cash Flow: This standard deals with the inflow and outflow of cash.
- Inclusion of Bank overdraft repayable on demand as part of Cash and cash equivalent
- Use of direct method
- No requirement for a cash flow relating to extraordinary items separately.
Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors:
- Change in Accounting policy is allowed for better presentation or if change is to implement an Ind AS requirement.
- Change in accounting policy to be retrospectively accounted for unless impracticable. Cumulative profit/loss to be adjusted with retained earnings by corresponding change in value of asset/liability and the effect to be provided in the statement of changes in equity and not profit and loss. Consistency in applying selected accounting policy
- Prior period items to be rectified retrospectively and effect of such change on asset and liability to be adjusted in retained earnings and not profit or loss account.
- Change in accounting estimates is based on a certain event, in the case of change in event estimates also changes.
Ind AS 16 Property, Plant and Equipment:
- PPE to be recognized in books if: Probability of future economic benefit to flow to the enterprise; and Respective cost can be measured reliably.
- Initial expenditure and subsequent expenditure to be treated in same manner.
- After initial recognition of a PPE, Ind AS 16 requires subsequent measurement at the Cost Model and the Revaluation Method
- Useful life, residual value and method of depreciation to be reviewed each year and the effect should be prospective and treated as change in accounting estimate
Ind AS 19 Employee Benefits:
- Actual gains and losses to be accounted for in other comprehensive income.
- Discount rate to be used for foreign subsidiary, associates, Joint Venture to be high quality corporate bond rate if available, or else government bond rate to be used
- Presentation of defined benefit costs such as service cost and net interest in profit or loss.
Ind AS 21 The Effects of Changes in Foreign Exchange Rates:
- Exclusion of Financial instruments from accounting as foreign exchange and provided in Ind AS 9 Financial Instruments
- No distinction between integral and non-integral foreign operations
- Concept of functional currency and presentation currency introduced
- Translation difference to be recorded and disclosed in other comprehensive income.
Ind AS 23 Borrowing Cost:
- Considering substantial period of time left at the discretion of the management
- No mention of amortization of other ancillary cost, discounts and premium related to borrowing since Ind AS uses Effective Interest Rate (EIR) Method and considers the loan to be a Held to maturity (HTM) Liability
- Capitalization rate of the borrowing to be disclosed in the notes to accounts.
Ind AS 24 Related Party Disclosures:
- Alteration in the definition of close members such as KMP of the parent to be included in Related party relationship, Two Joint Ventures (JV) of the same co-venture are related parties to each other, Associate and JV of the same party are related etc.
- Defined benefit Plans (enterprises managing retirement benefit plans of the employees) of an entity to be included in the list of related parties.
- Remuneration to Key Management Personnel to be disclosed section wise.
Ind AS 33 Earnings per Share:
- No requirement of reporting EPS including extraordinary items and EPS excluding extraordinary items separately.
- Presentation of separate EPS for continuing operations and discontinuing operations.
Ind AS 34 Interim Financial Reporting:
- Prescribed the minimum content of an interim financial report and to prescribe the principles for recognition and measurement in complete or condensed financial statements for an interim period
- Interim period – financial period shorter than full year
- Interim financial report – either a complete or condensed set of financial statements.
Ind AS 36 Impairment of Assets:
- Ind AS 36 also to apply to impairment of Investment in associate’s, subsidiaries and joint venture.
- Goodwill to be put to test of impairment every year, not amortized. Prohibition on reversal of impairment of Goodwill
- Goodwill to be allocated with particular Cash Generating Unit.
Ind AS 38 Intangible Assets:
- An intangible asset with infinite life must be put to test of impairment every year
- If the Legal life is longer than useful life, still useful life to be used for purpose of amortization
- Intangibles to be subsequently measured at either at Cost Model or Revaluation Model.
Ind AS 40 Investment Property:
- Provides detailed guidelines on the accounting of Investment Property.
- Initially to be valued at cost, subsequently to be valued using cost model.
- Revaluation model is not allowed but entity is required to estimate the fair value of the asset for disclosure purposes.
Ind AS 41 Agriculture:
- Ind AS 41 covers assets such as biological assets, Agricultural produce and Government grants
- No depreciation accounting required since the assets are already measured at fair value.
Ind AS 101 First-time Adoption of Indian Accounting Standards:
- Ind AS 101 applies to the following first set of financial statements that contain an explicit and unreserved statement of compliance and interim financial statements for a period covered by those first financial statements that are prepared under Ind AS
- Previous GAAP is defined as the basis of accounting that a first-time adopter used for its reporting requirements in India immediately before adopting IND AS
- Recognize all assets and liabilities whose recognition is required by Ind AS
- Derecognize assets and liabilities if Ind AS do not permit such recognition.
Ind AS 102 Share-based Payment:
- Detailed guidance available for accounting and disclosures of equity-settled and cash-settled transactions
- Ind AS 102 covers share-based payment transactions with non-employees as well.
Ind AS 103 Business Combination:
- Only one method of amalgamation i.e., acquisition method
- Contingent considerations to be considered in case of amalgamation
- Assets acquired in case of a business combination to be recorded at fair value only
- Concept of legal acquirer and accounting acquirer in cases of reverse merger
- Consideration of non-controlling interest in a business combination
Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations:
- Discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale and either represents a separate major line of business or geographical areas part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or a subsidiary acquired exclusively with a view to resale
- Applies to all recognized non-current assets and disposal groups of an entity that are either held for sale or held for distribution to owners.
Ind AS 109 Financial Instruments:
- Ind AS 109 introduces a single classification and measurement model for financial assets, dependent on both the entity’s business model objective for managing financial assets and the contractual cash flow characteristics of financial assets.
- Ind AS 109 removes the requirement to separate embedded derivatives from financial asset host contracts and requirement of separate embedded derivatives for financial liabilities only.
- Financial Assets are classified as either amortized cost fair value through profit or loss or fair Value through other comprehensive income.
Ind AS 115 Revenue Recognition:
- This standard deals with the basis for recognition of revenue in the statement of profit and loss of an enterprise.
- The standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from the sale of goods, the rendering of services and the use by others of enterprise resource yielding interest, royalties and dividends
- This standard does not deal with aspects of revenue recognition to which special consideration apply for example; revenue arising from construction contracts etc.
Ind AS 116 Leases:
- A Lease is an agreement whereby the Lessor conveys to the Lessee in return for a payment or series of periodic payments, the right to use an asset for an agreed period of time.
- The standard all types of leases other than lease agreements to explore for or use of natural resources; licensing agreement for items such as motion picture films, video recordings etc; lease agreement to use lands.
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