Union of India - Act
The Companies (Indian Accounting Standards) Rules, 2015
UNION OF INDIA
India
India
The Companies (Indian Accounting Standards) Rules, 2015
Rule THE-COMPANIES-INDIAN-ACCOUNTING-STANDARDS-RULES-2015 of 2015
- Published on 16 February 2015
- Commenced on 16 February 2015
- [This is the version of this document from 16 February 2015.]
- [Note: The original publication document is not available and this content could not be verified.]
1. Short title and commencement.
2. Definitions.
3. Applicability of Accounting Standards.
4. Obligation to comply with Indian Accounting Standards (Ind AS).
5. Exemptions.
- [The Banking Companies and Insurance Companies shall apply the Ind ASs as notified by the Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA) respectively. An insurer or insurance company shall however, provide Ind AS compliant financial statement data for the purposes of preparation of consolidated financial statements by its parent or investor or ventures, as required by the parent or investor or ventures to comply with the requirements of these rules.] [Substituted 'The insurance companies, banking companies and non-banking finance companies shall not be required to apply Indian Accounting Standards (Ind AS) for preparation of their financial statements either voluntarily or mandatorily as specified in sub-rule (1) of rule 4.' by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]Annexure[See rule 3]A. General Instruction. - (1) Indian Accounting Standards, which are specified, are intended to be in conformity with the provisions of applicable laws. However, if due to subsequent amendments in the law, a particular Indian Accounting Standard is found to be not in conformity with such law, the provisions of the said law shall prevail and the financial statements shall be prepared in conformity with such law.1. The objective of this Ind AS is to ensure that an entity's first Ind AS financial statements, and its interim financial reports for part of the period covered by those financial statements, contain high quality information that:
2. An entity shall apply this Ind AS in:
3. An entity's first Ind AS financial statements are the first annual financial statements in which the entity adopts Ind ASs, in accordance with Ind ASs notified under the Companies Act, 2013 and makes an explicit and unreserved statement in those financial statements of compliance with Ind ASs.
4. [Refer to Appendix 1]
4A. [Refer to Appendix 1]
4B. [Refer to Appendix 1]
5. This Ind AS does not apply to changes in accounting policies made by an entity that already applies Ind ASs. Such changes are the subject of:
6. An entity shall prepare and present an opening Ind AS Balance Sheet at the date of transition to Ind ASs. This is the starting point for its accounting in accordance with Ind ASs subject to the requirements of paragraphs D13AA and D22.
Accounting policies7. An entity shall use the same accounting policies in its opening Ind AS Balance Sheet and throughout all periods presented in its first Ind AS financial statements. Those accounting policies shall comply with each Ind AS effective at the end of its first Ind AS reporting period, except as specified in paragraphs 13-19 and Appendices B-D.
8. An entity shall not apply different versions of Ind ASs that were effective at earlier dates. An entity may apply a new Ind AS that is not yet mandatory if that Ind AS permits early application.
| Example: Consistent application of latest version of IndASs |
| Background |
| The end of entity A's first Ind AS reporting period is 31March 2017. Entity A decides to present comparative informationin those financial statements for one year only (see paragraph21). Therefore, its date of transition to Ind ASs is thebeginning of business on 1 April 2015 (or, equivalently, close ofbusiness on 31 March 2015). Entity A presented financialstatements in accordance with its previous GAAP annually to 31March each year up to, and including, 31 March 2016. |
| Application of requirements |
| Entity A is required to apply the Ind ASs effective forperiods ending on 31 March 2017 in: |
| a) preparing and presenting itsopening Ind AS balance sheet at 1 April 2015; and |
| b) preparing and presenting itsbalance sheet for 31 March 2017 (including comparative amountsfor the year ended 31 March 2016), statement of profit and loss,statement of changes in equity and statement of cash flows forthe year to 31 March 2017 (including comparative amounts for theyear ended 31 March 2016) and disclosures (including comparativeinformation for the year ended 31 March 2016). |
| If a new Ind AS is not yet mandatory but permits earlyapplication, entity A is permitted, but not required, to applythat Ind AS in its first Ind AS financial statements. |
9. The transitional provisions in other Ind ASs apply to changes in accounting policies made by an entity that already uses Ind ASs; they do not apply to a first-time adopter's transition to Ind ASs, except as specified in Appendices B-D.
10. Except as described in paragraphs 13-19 and Appendices B-D, an entity shall, in its opening Ind AS Balance Sheet:
11. The accounting policies that an entity uses in its opening Ind AS Balance Sheet may differ from those that it used for the same date using its previous GAAP. The resulting adjustments arise from events and transactions before the date of transition to Ind ASs. Therefore, an entity shall recognise those adjustments directly in retained earnings (or, if appropriate, another category of equity) at the date of transition to Ind ASs.
12. This Ind AS establishes two categories of exceptions to the principle that an entity's opening Ind AS Balance Sheet shall comply with each Ind AS:
13. This Ind AS prohibits retrospective application of some aspects of other Ind ASs. These exceptions are set out in paragraphs 14-17 and Appendix B.
Estimates14. An entity's estimates in accordance with Ind ASs at the date of transition to Ind ASs shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.
15. An entity may receive information after the date of transition to Ind ASs about estimates that it had made under previous GAAP. In accordance with paragraph 14, an entity shall treat the receipt of that information in the same way as non-adjusting events after the reporting period in accordance with Ind AS 10, Events after the Reporting Period. For example, assume that an entity's date of transition to Ind ASs is 1 April 2015 and new information on 15 July 2015 requires the revision of an estimate made in accordance with previous GAAP at 31 March 2015. The entity shall not reflect that new information in its opening Ind AS Balance Sheet (unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error). Instead, the entity shall reflect that new information in profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 March 2016.
16. An entity may need to make estimates in accordance with Ind ASs at the date of transition to Ind ASs that were not required at that date under previous GAAP. To achieve consistency with Ind AS 10, those estimates in accordance with Ind ASs shall reflect conditions that existed at the date of transition to Ind ASs. In particular, estimates at the date of transition to Ind ASs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date.
17. Paragraphs 14-16 apply to the opening Ind AS Balance Sheet. They also apply to a comparative period presented in an entity's first Ind AS financial statements, in which case the references to the date of transition to Ind ASs are replaced by references to the end of that comparative period.
Exemptions from other Ind ASs18. An entity may elect to use one or more of the exemptions contained in Appendices C-D. An entity shall not apply these exemptions by analogy to other items.
19. [Refer to Appendix 1]
Presentation and disclosure20. This Ind AS does not provide exemptions from the presentation and disclosure requirements in other Ind ASs.
Comparative information21. An entity's first Ind AS financial statements shall include at least three Balance Sheet, two Statements of profit and loss, two Statements of cash flows and two Statements of changes in equity and related notes, including comparative information for all statements presented.
Non-Ind AS comparative information and historical summaries22. Some entities present historical summaries of selected data for periods before the first period for which they present full comparative information in accordance with Ind ASs. This Ind AS does not require such summaries to comply with the recognition and measurement requirements of Ind ASs. Furthermore, some entities present comparative information in accordance with previous GAAP as well as the comparative information required by Ind AS 1. In any financial statements containing historical summaries or comparative information in accordance with previous GAAP, an entity shall:
23. An entity shall explain how the transition from previous GAAP to Ind ASs affected its reported Balance sheet, financial performance and cash flows.
23A. [Refer to Appendix 1]
23B. [Refer to Appendix 1]
Reconciliations24. To comply with paragraph 23, an entity's first Ind AS financial statements shall include:
25. The reconciliations required by paragraph 24(a) and (b) shall give sufficient detail to enable users to understand the material adjustments to the Balance Sheet and Statement of profit and loss. If an entity presented a Statement of cash flows under its previous GAAP, it shall also explain the material adjustments to the Statement of cash flows.
26. If an entity becomes aware of errors made under previous GAAP, the reconciliations required by paragraph 24(a) and (b) shall distinguish the correction of those errors from changes in accounting policies.
27. Ind AS 8 does not apply to the changes in accounting policies an entity makes when it adopts Ind ASs or to changes in those policies until after it presents its first Ind AS financial statements. Therefore, Ind AS 8's requirements about changes in accounting policies do not apply in an entity's first Ind AS financial statements.
27A. If during the period covered by its first Ind AS financial statements an entity changes its accounting policies or its use of the exemptions contained in this Ind AS, it shall explain the changes between its first Ind AS interim financial report and its first Ind AS financial statements, in accordance with paragraph 23, and it shall update the reconciliations required by paragraph 24(a) and (b).
27AA. If an entity adopts the first time exemption option provided in accordance with paragraph D7AA, the fact and the accounting policy shall be disclosed by the entity until such time that those items of Property, plant and equipment, investment properties or intangible assets, as the case may be, are significantly depreciated, impaired or derecognized from the entity's Balance Sheet.
28. If an entity did not present financial statements for previous periods, its first Ind AS financial statements shall disclose that fact.
Designation of financial assets or financial liabilities29. An entity is permitted to designate a previously recognized financial asset as a financial asset measured at fair value through profit or loss in accordance with paragraph D19A. The entity shall disclose the fair value of financial assets so designated at the date of designation and their classification and carrying amount in the previous financial statements.
29A. An entity is permitted to designate a previously recognized financial liability as a financial liability at fair value through profit or loss in accordance with paragraph D19. The entity shall disclose the fair value of financial liabilities so designated at the date of designation and their classification and carrying amount in the previous financial statements.
Use of fair value as deemed cost[30 If an entity uses fair value in its opening Ind AS Balance Sheet as deemed cost for an item of property, plant and equipment, an intangible asset or a right-of-use asset (see paragraphs D5 and D7), the entity's first Ind AS financial statements shall disclose, for each line item in the opening Ind AS Balance Sheet:31. Similarly, if an entity uses a deemed cost in its opening Ind AS Balance Sheet for an investment in a subsidiary, joint venture or associate in its separate financial statements (see paragraph D15), the entity's first Ind AS separate financial statements shall disclose:
31A. If an entity uses the exemption in paragraph D8A(b) for oil and gas assets, it shall disclose that fact and the basis on which carrying amounts determined under previous GAAP were allocated.
Use of deemed cost for operations subject to rate regulation31B. If an entity uses the exemption in paragraph D8B for operations subject to rate regulation, it shall disclose that fact and the basis on which carrying amounts were determined under previous GAAP.
Use of deemed cost after severe hyperinflation31C. If an entity elects to measure assets and liabilities at fair value and to use that fair value as the deemed cost in its opening Ind AS Balance Sheet because of severe hyperinflation (see paragraphs D26-D30), the entity's first Ind AS financial statements shall disclose an explanation of how, and why, the entity had, and then ceased to have, a functional currency that has both of the following characteristics:
32. To comply with paragraph 23, if an entity presents an interim financial report in accordance with Ind AS 34 for part of the period covered by its first Ind AS financial statements, the entity shall satisfy the following requirements in addition to the requirements of Ind AS 34:
33. Ind AS 34 requires minimum disclosures, which are based on the assumption that users of the interim financial report also have access to the most recent annual financial statements. However, Ind AS 34 also requires an entity to disclose 'any events or transactions that are material to an understanding of the current interim period'. Therefore, if a first-time adopter did not, in its most recent annual financial statements in accordance with previous GAAP, disclose information material to an understanding of the current interim period, its interim financial report shall disclose that information or include a cross-reference to another published document that includes it.
[Effective Date34. *
35. *
36. *
37. *
38. *
39. *
39A. *
39B. *
39C. *
39D. *
39E. *
39F. *
39G. *
39H. *
39I. *
39J. *
39K. *
39L. *
39M. *
39N. *
39O. *
39P. *
39Q. *
39R. *
39S. *
39T. *
39U. *
39V. *
39W. *
39X. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs D1(m),(u), D22 and heading after paragraph D33 are amended, paragraphs D34-D35 are added and earlier paragraph D36 in context of `Transfer of assets from customers' is deleted. An entity shall apply those amendments when it applies Ind AS 115.
39Y. *
39Z. *
39AA. *
[39AB Ind AS 116, Leases, amended paragraphs 30, C4, D1, D7, D8B, D9 and D9AA, deleted paragraph D9A and added paragraphs D9B-D9E. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]39AC. Appendix B, Foreign Currency Transactions and Advance Consideration of Ind AS 21 added paragraph D36 in context of foreign currency transactions and advance consideration and in paragraph D1, renumbered item (v) as (ua) and a new item (v) is added in its place. An entity shall apply that amendment when it applies Appendix B of Ind AS 21.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
[39AD *39AE. *
39AF. Appendix C,Uncertainty over Income Tax Treatments, to Ind AS 12 added paragraph E8. An entity shall apply that amendment when it applies Appendix C to Ind AS 12.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
* Refer Appendix 1Appendix A| Defined terms | |
| This appendix is an integral part of this Ind AS. | |
| date of transition to Ind ASs | The beginning of the earliest period for which an entitypresents full comparative information under Ind ASs infirstInd AS financial statements |
| deemed cost | An amount used as a surrogate for cost or depreciated cost ata given date. Subsequent depreciation or amortisation assumesthat the entity had initially recognized the asset or liabilityat the given date and that its cost was equal to the deemed cost. |
| fair value | Fair valueis the price that would be received to sellan asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date.(See Ind AS 113.) |
| first Ind AS financial statements | The first annual financial statements in which an entityadoptsIndian Accounting Standards(Ind ASs), by anexplicit and unreserved statement of compliance with Ind ASs. |
| first Ind AS reporting period | The latest reporting period covered by an entity'sfirstInd AS financial statements |
| first-time adopter | An entity that presents itsfirstInd AS financial statements. |
| Indian Accounting Standards (Ind ASs) | Ind ASs are Accounting Standards prescribed under Section 133of the Companies Act, 2013. |
| opening Ind AS Balance Sheet | An entity's Balance Sheet at thedate of transition to IndASs. |
| previous GAAP | The basis of accounting that afirst-time adopterusedfor its statutory reporting requirement in India immediatelybefore adopting Ind AS's. For instance, companies required toprepare their financial statements in accordance with Section 133of the Companies Act, 2013, shall consider those financialstatements as previous GAAP financial statements. |
1. Paragraph 3 of Ind AS 101 specifies that an entity's first Ind AS financial statements are the first annual financial statements in which the entity adopts Ind ASs in accordance with Ind ASs notified under the Companies Act, 2013 whereas IFRS 1 provides various examples of first IFRS financial statements.
2. Paragraph 4, 4A, 4B, 23A and 23B of IFRS 1 provide various examples of instances when an entity does not apply this IFRS. Ind AS 101 does not provide the same. In order to maintain consistency with paragraph numbers of IFRS 1, the paragraph number is retained in Ind AS 101.
3. IFRS 1 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting IFRS. However, Ind AS 101 defines previous GAAP as the basis of accounting that a first-time adopter used for its reporting requirement in India immediately before adopting Ind AS.
The change makes it mandatory for Indian entities to consider the financial statements prepared in accordance with existing notified Indian accounting standards as was applicable to them as previous GAAP when it transitions to Ind ASs.4. Under IFRS 1, para C4(c) requires, the first-time adopter shall exclude from its opening Ind AS Balance Sheet any item recognized in accordance with previous GAAP that does not qualify for recognition as an asset or liability under Ind ASs. The first-time adopter shall account for the resulting change in the retained earnings as at the transition date except in certain specific instances where it requires adjustment in the goodwill. In such specific instances where IFRS 1 allows adjustment in the goodwill, under Ind AS 101 it can be adjusted with the Capital reserve to the extent such adjustment amount does not exceed the balance available in Capital reserve.
5. Ind AS 101 in addition to exemptions provided under IFRS 1, also provides certain optional exemptions relating to the long-term foreign currency monetary items and service concession arrangements relating to toll roads. Accordingly, paragraphs 6 and D22 have been modified. Further a heading and paragraph D13AA have been added after paragraph D13.
6. Certain IFRS 1 exceptions to the retrospective application of other IFRS refer to transitional provisions of other IFRSs. However Ind ASs does not provide transitional provisions, accordingly transitional provisions in other IFRSs have been incorporated in the paragraphs B8A, B8B, B8D, B8E, B8EA and B8EB of Ind AS 101.
7. Certain exemptions in Appendix D of IFRS 1 refer to transitional provisions of other IFRSs. However Ind ASs do not provide transitional provisions, accordingly wherever considered an appropriate transitional provision in other IFRSs has been incorporated in the respective exemptions in Appendix D of Ind AS 101. The following paragraphs in IFRS 1 provide the transitional provisions of other IFRSs which are included in Ind AS 101:
8. IFRS 1 provides for various optional exemptions that an entity can seek while an entity transitions to IFRS from its previous GAAP. Similar provisions have been retained under Ind AS 101. However, there are few changes that have been made, which can be broadly categorized as follows:
1. Paragraph D7AA has been added to provide for transitional relief from the retrospective application of Ind AS 16: Property, Plant and Equipment. Paragraph D7AA, provides an entity option to use carrying values of all such assets as on the date of transition to Ind ASs, in accordance with previous GAAP as an acceptable starting point under Ind AS. Paragraph 27AA has been included in Ind AS 101. which requires the disclosure that if an entity adopts for first time exemption the option provided in accordance with paragraph D7AA, the fact and the accounting policy shall be disclosed by the entity until such time that those items of property, plant and equipment, investment properties or intangible assets, as the case maybe, are significantly depreciated, impaired or derecognized from the entity's Balance Sheet.
2. Paragraph D9AA has been added to provide for transitional relief while applying Ind AS 17: Leases. D9AA provides an entity to use the transition date facts and circumstances for lease arrangements which includes both land and building elements to assess the classification of each element as finance or an operating lease at the transition date to Ind ASs. Also, if there is any land lease newly classified as finance lease then the first time adopter may recognise assets and liability at fair value on that date; any difference between those fair values is recognized in retained earnings.
3. Paragraph D35AA has been added to provide for transitional relief while applying Ind AS 105 - Non-current Assets Held for Sale and Discontinued Operations. Paragraph D35AA provides an entity to use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell.
9. [ Paragraphs E1-E2 of Appendix E of IFRS 1 provides 'Short-term exemptions from IFRSs', however Ind AS 101 does not provide the aforesaid short-term exemptions. In order to maintain consistency with paragraph numbers of IFRS 1, the same have been retained in Ind AS 101.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
10. [ IFRS 9 Financial Instruments is effective from annual period beginning on or after January 1, 2018. As the above said standard is not yet effective consequential amendments due to this standard have not been incorporated in current version of IFRS 1. However, corresponding Ind AS 109, Financial Instruments has been issued with consequential amendments in other Ind ASs including Ind AS 101. Accordingly, its consequential amendments to Ind AS 109 have been incorporated in Ind AS 101.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
11. Different terminology is used in Ind AS 101, e.g., the term 'Balance Sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
12. [ Following paragraph numbers appear as 'deleted' in IFRS 1. In order to maintain consistency with paragraph numbers of IFRS 1, the paragraph numbers are retained in Ind AS 101:
13. [ IAS 40, Investment Property permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40, Investment Property, permits only the cost model. As a consequence, paragraph 30 is amended and paragraphs D7(a) and D9C are deleted.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
14. [ Paragraphs 34 to 39W and 39Y to 39AB and 39AD of IFRS 1 have not been included in Ind AS 101 as these paragraphs relate to effective date and are not relevant in Indian context. Paragraph 39AE has not been included since it refers to amendments due to issuance of IFRS 17, Insurance Contracts, for which corresponding Ind AS is under formulation. However, in order to maintain consistency with paragraph numbers of IFRS 1, these paragraph numbers have been retained in Ind AS 101.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 102Share-based Payment(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.).Objective1. The objective of this Standard is to specify the financial reporting by an entity when it undertakes a share based payment transaction. In particular, it requires an entity to reflect in its profit or loss and financial position the effects of share-based payment transactions, including expenses associated with transactions in which share options are granted to employees.
Scope2. An entity shall apply this Standard in accounting for all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including:
3. [Refer Appendix 1]
3A. A share-based payment transaction may be settled by another group entity (or a shareholder of any group entity) on behalf of the entity receiving or acquiring the goods or services. Paragraph 2 also applies to an entity that,
4. For the purposes of this Standard, a transaction with an employee (or other party) in his/her capacity as a holder of equity instruments of the entity is not a share-based payment transaction. For example, if an entity grants all holders of a particular class of its equity instruments the right to acquire additional equity instruments of the entity at a price that is less than the fair value of those equity instruments, and an employee receives such a right because he/she is a holder of equity instruments of that particular class, the granting or exercise of that right is not subject to the requirements of this Standard.
5. As noted in paragraph 2, this Standard applies to share-based payment transactions in which an entity acquires or receives goods or services. Goods includes inventories, consumables, property, plant and equipment, intangible assets and other non-financial assets. However, an entity shall not apply this Standard to transactions in which the entity acquires goods as part of the net assets acquired in a business combination as defined by Ind AS 103, Business Combinations, in a combination of entities or businesses under common control as described in Appendix C of Ind AS 103, or the contribution of a business on the formation of a joint venture as defined by Ind AS 111, Joint Arrangements. Hence, equity instruments issued in a business combination in exchange for control of the acquiree are not within the scope of this Standard. However, equity instruments granted to employees of the acquiree in their capacity as employees (eg in return for continued service) are within the scope of this Standard. Similarly, the cancellation, replacement or other modification of share-based payment arrangements because of a business combination or other equity restructuring shall be accounted for in accordance with this Standard. Ind AS 103 provides guidance on determining whether equity instruments issued in a business combination are part of the consideration transferred in exchange for control of the acquiree (and therefore within the scope of Ind AS 103) or are in return for continued service to be recognized in the post-combination period (and therefore within the scope of this Standard).
6. This Standard does not apply to share-based payment transactions in which the entity receives or acquires goods or services under a contract within the scope of paragraphs 8-10 of Ind AS 32, Financial Instruments: Presentation, or paragraphs 2.4-2.7 of Ind AS 109, Financial Instruments.
6A. This Standard uses the term 'fair value' in a way that differs in some respects from the definition of fair value in Ind AS 113, Fair Value Measurement. Therefore, when applying Ind AS 102 an entity measures fair value in accordance with this Standard, not Ind AS 113.
Recognition7. An entity shall recognise the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognise a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction, or a liability if the goods or services were acquired in a cash-settled share-based payment transaction.
8. When the goods or services received or acquired in a share-based payment transaction do not qualify for recognition as assets, they shall be recognized as expenses.
9. Typically, an expense arises from the consumption of goods or services. For example, services are typically consumed immediately, in which case an expense is recognized as the counter-party renders service. Goods might be consumed over a period of time or, in the case of inventories, sold at a later date, in which case an expense is recognized when the goods are consumed or sold. However, sometimes it is necessary to recognise an expense before the goods or services are consumed or sold, because they do not qualify for recognition as assets. For example, an entity might acquire goods as part of the research phase of a project to develop a new product. Although those goods have not been consumed, they might not qualify for recognition as assets under the applicable Ind AS.
Equity-settled share-based payment transactionsOverview10. For equity-settled share-based payment transactions, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, [by reference to] [This Standard uses the phrase 'by reference to' rather than 'at', because the transaction is ultimately measured by multiplying the fair value of the equity instruments granted, measured at the date specified in paragraph 11 or 13 (whichever is applicable), by the number of equity instruments that vest, as explained in paragraph 19.] the fair value of the equity instruments granted.
11. To apply the requirements of paragraph 10 to transactions with [employees and others providing similar services,] [In the remainder of this Standard, all references to employees also include others providing similar services.] the entity shall measure the fair value of the services received by reference to the fair value of the equity instruments granted, because typically it is not possible to estimate reliably the fair value of the services received, as explained in paragraph 12. The fair value of those equity instruments shall be measured at grant date.
12. Typically, shares, share options or other equity instruments are granted to employees as part of their remuneration package, in addition to a cash salary and other employment benefits. Usually, it is not possible to measure directly the services received for particular components of the employee's remuneration package. It might also not be possible to measure the fair value of the total remuneration package independently, without measuring directly the fair value of the equity instruments granted. Furthermore, shares or share options are sometimes granted as part of a bonus arrangement, rather than as a part of basic remuneration, e.g. as an incentive to the employees to remain in the entity's employment or to reward them for their efforts in improving the entity's performance. By granting shares or share options, in addition to other remuneration, the entity is paying additional remuneration to obtain additional benefits. Estimating the fair value of those additional benefits is likely to be difficult. Because of the difficulty of measuring directly the fair value of the services received, the entity shall measure the fair value of the employee services received by reference to the fair value of the equity instruments granted.
13. To apply the requirements of paragraph 10 to transactions with parties other than employees, there shall be a rebuttable presumption that the fair value of the goods or services received can be estimated reliably. That fair value shall be measured at the date the entity obtains the goods or the counter-party renders service. In rare cases, if the entity rebuts this presumption because it cannot estimate reliably the fair value of the goods or services received, the entity shall measure the goods or services received, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted, measured at the date the entity obtains the goods or the counter-party renders service.
13A. In particular, if the identifiable consideration received (if any) by the entity appears to be less than the fair value of the equity instruments granted or liability incurred, typically this situation indicates that other consideration (i.e. unidentifiable goods or services) has been (or will be) received by the entity. The entity shall measure the identifiable goods or services received in accordance with this Standard. The entity shall measure the unidentifiable goods or services received (or to be received) as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received (or to be received). The entity shall measure the unidentifiable goods or services received at the grant date. However, for cash-settled transactions, the liability shall be remeasured at the end of each reporting period until it is settled in accordance with paragraphs 30-33.
Transactions in which services are received14. If the equity instruments granted vest immediately, the counter-party is not required to complete a specified period of service before becoming unconditionally entitled to those equity instruments. In the absence of evidence to the contrary, the entity shall presume that services rendered by the counter-party as consideration for the equity instruments have been received. In this case, on grant date the entity shall recognise the services received in full, with a corresponding increase in equity.
15. If the equity instruments granted do not vest until the counter-party completes a specified period of service, the entity shall presume that the services to be rendered by the counter-party as consideration for those equity instruments will be received in the future, during the vesting period. The entity shall account for those services as they are rendered by the counter-party during the vesting period, with a corresponding increase in equity.
For example:16. For transactions measured by reference to the fair value of the equity instruments granted, an entity shall measure the fair value of equity instruments granted at the measurement date, based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted (subject to the requirements of paragraphs 19-22).
17. If market prices are not available, the entity shall estimate the fair value of the equity instruments granted using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an arm's length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price (subject to the requirements of paragraphs 19-22).
18. Appendix B contains further guidance on the measurement of the fair value of shares and share options, focusing on the specific terms and conditions that are common features of a grant of shares or share options to employees.
Treatment of vesting conditions19. [ A grant of equity instruments might be conditional upon satisfying specified vesting conditions. For example, a grant of shares or share options to an employee is typically conditional on the employee remaining in the entity's employment for a specified period of time. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity's share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date, Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognized for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition, other than a market condition, for example, the counterparty fails to complete a specified service period, or a performance condition is not satisfied, subject to the requirements of paragraph 21.] [Substituted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
20. To apply the requirements of paragraph 19, the entity shall recognise an amount for the goods or services received during the vesting period based on the best available estimate of the number of equity instruments expected to vest and shall revise that estimate, if necessary, if subsequent information indicates that the number of equity instruments expected to vest differs from previous estimates. On vesting date, the entity shall revise the estimate to equal the number of equity instruments that ultimately vested, subject to the requirements of paragraph 21.
21. Market conditions, such as a target share price upon which vesting (or exercise-ability) is conditioned, shall be taken into account when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with market conditions, the entity shall recognise the goods or services received from a counter-party who satisfies all other vesting conditions (e.g. services received from an employee who remains in service for the specified period of service), irrespective of whether that market condition is satisfied.
Treatment of non-vesting conditions21A. Similarly, an entity shall take into account all non-vesting conditions when estimating the fair value of the equity instruments granted. Therefore, for grants of equity instruments with non-vesting conditions, the entity shall recognise the goods or services received from a counter-party that satisfies all vesting conditions that are not market conditions (e.g. services received from an employee who remains in service for the specified period of service), irrespective of whether those non-vesting conditions are satisfied.
Treatment of a reload feature22. For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a reload option is subsequently granted.
After vesting date23. Having recognized the goods or services received in accordance with paragraphs 10-22, and a corresponding increase in equity, the entity shall make no subsequent adjustment to total equity after vesting date. For example, the entity shall not subsequently reverse the amount recognized for services received from an employee if the vested equity instruments are later forfeited or, in the case of share options, the options are not exercised. However, this requirement does not preclude the entity from recognising a transfer within equity, i.e. a transfer from one component of equity to another.
[If the fair value of the equity instruments cannot be estimated reliably] [For example, in case of share options granted to employees, the credit given to an appropriate equity account, say, 'share options outstanding account' (upon receiving the services) may be transferred to another appropriate equity account, say, 'General Reserves' when the options are not exercised.]24. The requirements in paragraphs 16-23 apply when the entity is required to measure a share-based payment transaction by reference to the fair value of the equity instruments granted. In rare cases, the entity may be unable to estimate reliably the fair value of the equity instruments granted at the measurement date, in accordance with the requirements in paragraphs 16-22. In these rare cases only, the entity shall instead:
25. If an entity applies paragraph 24, it is not necessary to apply paragraphs 26-29, because any modifications to the terms and conditions on which the equity instruments were granted will be taken into account when applying the intrinsic value method set out in paragraph 24. However, if an entity settles a grant of equity instruments to which paragraph 24 has been applied:
26. An entity might modify the terms and conditions on which the equity instruments were granted. For example, it might reduce the exercise price of options granted to employees (i.e. reprice the options), which increases the fair value of those options. The requirements in paragraphs 27-29 to account for the effects of modifications are expressed in the context of share-based payment transactions with employees. However, the requirements shall also be applied to share-based payment transactions with parties other than employees that are measured by reference to the fair value of the equity instruments granted. In the latter case, any references in paragraphs 27-29 to grant date shall instead refer to the date the entity obtains the goods or the counter-party renders service.
27. The entity shall recognise, as a minimum, the services received measured at the grant date fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. This applies irrespective of any modifications to the terms and conditions on which the equity instruments were granted, or a cancellation or settlement of that grant of equity instruments. In addition, the entity shall recognise the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee. Guidance on applying this requirement is given in Appendix B.
28. If a grant of equity instruments is canceled or settled during the vesting period (other than a grant canceled by forfeiture when the vesting conditions are not satisfied):
28A. If an entity or counter-party can choose whether to meet a non-vesting condition, the entity shall treat the entity's or counter-party's failure to meet that non-vesting condition during the vesting period as a cancellation.
29. If an entity repurchases vested equity instruments, the payment made to the employee shall be accounted for as a deduction from equity, except to the extent that the payment exceeds the fair value of the equity instruments repurchased, measured at the repurchase date. Any such excess shall be recognized as an expense.
Cash-settled share-based payment transactions30. [ For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability, subject to the requirements of paragraphs 31-33D. Until the liability is settled, the entity shall remeasure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.] [Substituted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
31. [ For example, an entity might grant share appreciation rights to employees as part of their remuneration package, whereby the employees will become entitled to a future cash payment (rather than an equity instrument), based on the increase in the entity's share price from a specified level over a specified period of time. Alternatively, an entity might grant to its employees a right to receive a future cash payment by granting to them a right to shares (including shares to be issued upon the exercise of share options) that are redeemable, either mandatorily (for example, upon cessation of employment) or at the employee's option. These arrangements are examples of cash-settled share-based payment transactions. Share appreciation rights are used to illustrate some of the requirements in paragraphs 32-33D; however, the requirements in those paragraphs apply to all cash-settled share-based payment transactions.] [Substituted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
32. The entity shall recognise the services received, and a liability to pay for those services, as the employees render service. For example, some share appreciation rights vest immediately, and the employees are therefore not required to complete a specified period of service to become entitled to the cash payment. In the absence of evidence to the contrary, the entity shall presume that the services rendered by the employees in exchange for the share appreciation rights have been received. Thus, the entity shall recognise immediately the services received and a liability to pay for them. If the share appreciation rights do not vest until the employees have completed a specified period of service, the entity shall recognise the services received, and a liability to pay for them, as the employees render service during that period.
33. [ The liability shall be measured, initially and at the end of each reporting period until settled, at the fair value of the share appreciation rights, by applying an option pricing model, taking into account the terms and conditions on which the share appreciation rights were granted, and the extent to which the employees have rendered service to date subject to the requirements of paragraphs 33A-33D. An entity might modify the terms and conditions on which a cash-settled share-based payment is granted. Guidance for a modification of a share-based payment transaction that changes its classification from cash-settled to equity-settled is given in paragraphs B44A-B44C in Appendix B.] [Substituted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
[Treatment of vesting and non-vesting conditions [Inserted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]33A. A cash-settled share-based payment transaction might be conditional upon satisfying specified vesting conditions. There might be performance conditions that must be satisfied, such as the entity achieving a specified growth in profit or a specified increase in the entity's share price. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the cash-settled share-based payment at the measurement date. Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction.
33B. To apply the requirements in paragraph 33A, the entity shall recognise an amount for the goods or services received during the vesting period. That amount shall be based on the best available estimate of the number of awards that are expected to vest. The entity shall revise that estimate, if necessary, if subsequent information indicates that the number of awards that are expected to vest differs from previous estimates. On the vesting date, the entity shall revise the estimate to equal the number of awards that ultimately vested.
33C. Market conditions, such as a target share price upon which vesting (or exercisability) is conditioned, as well as non-vesting conditions, shall be taken into account when estimating the fair value of the cashsettled share-based payment granted and when remeasuring the fair value at the end of each reporting period and at the date of settlement.
33D. As a result of applying paragraphs 30-33C, the cumulative amount ultimately recognized for goods or services received as consideration for the cash-settled share-based payment is equal to the cash that is paid.
Share-based payment transactions with a net settlement feature for withholding tax obligations33E. Tax laws or regulations may oblige an entity to withhold an amount for an employee's tax obligation associated with a share-based payment and transfer that amount, normally in cash, to the tax authority on the employee's behalf. To fulfil this obligation, the terms of the share-based payment arrangement may permit or require the entity to withhold the number of equity instruments equal to the monetary value of the employee's tax obligation from the total number of equity instruments that otherwise would have been issued to the employee upon exercise (or vesting) of the share-based payment (i.e. the share-based payment arrangement has a `net settlement feature').
33F. As an exception to the requirements in paragraph 34, the transaction described in paragraph 33E shall be classified in its entirety as an equity-settled share-based payment transaction if it would have been so classified in the absence of the net settlement feature.
33G. The entity applies paragraph 29 of this Standard to account for the withholding of shares to fund the payment to the tax authority in respect of the employee's tax obligation associated with the share-based payment. Therefore, the payment made shall be accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld.
33H. The exception in paragraph 33F does not apply to:
34. For share-based payment transactions in which the terms of the arrangement provide either the entity or the counter-party with the choice of whether the entity settles the transaction in cash (or other assets) or by issuing equity instruments, the entity shall account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the entity has incurred a liability to settle in cash or other assets, or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.
Share-based payment transactions in which the terms of the arrangement provide the counter-party with a choice of settlement35. If an entity has granted the counter-party the right to choose whether a share-based payment transaction is settled in [cash] [In paragraphs 35-43, all references to cash also include other assets of the entity.] or by issuing equity instruments, the entity has granted a compound financial instrument, which includes a debt component (i.e. the counter-party's right to demand payment in cash) and an equity component (i.e. the counter-party's right to demand settlement in equity instruments rather than in cash). For transactions with parties other than employees, in which the fair value of the goods or services received is measured directly, the entity shall measure the equity component of the compound financial instrument as the difference between the fair value of the goods or services received and the fair value of the debt component, at the date when the goods or services are received.
36. For other transactions, including transactions with employees, the entity shall measure the fair value of the compound financial instrument at the measurement date, taking into account the terms and conditions on which the rights to cash or equity instruments were granted.
37. To apply paragraph 36, the entity shall first measure the fair value of the debt component, and then measure the fair value of the equity component-taking into account that the counter-party must forfeit the right to receive cash in order to receive the equity instrument. The fair value of the compound financial instrument is the sum of the fair values of the two components. However, share-based payment transactions in which the counter-party has the choice of settlement are often structured so that the fair value of one settlement alternative is the same as the other. For example, the counter-party might have the choice of receiving share options or cash-settled share appreciation rights. In such cases, the fair value of the equity component is zero, and hence the fair value of the compound financial instrument is the same as the fair value of the debt component. Conversely, if the fair values of the settlement alternatives differ, the fair value of the equity component usually will be greater than zero, in which case the fair value of the compound financial instrument will be greater than the fair value of the debt component.
38. The entity shall account separately for the goods or services received or acquired in respect of each component of the compound financial instrument. For the debt component, the entity shall recognise the goods or services acquired, and a liability to pay for those goods or services, as the counter-party supplies goods or renders service, in accordance with the requirements applying to cash-settled share-based payment transactions (paragraphs 30-33). For the equity component (if any), the entity shall recognise the goods or services received, and an increase in equity, as the counter-party supplies goods or renders service, in accordance with the requirements applying to equity-settled share-based payment transactions (paragraphs 10-29).
39. At the date of settlement, the entity shall remeasure the liability to its fair value. If the entity issues equity instruments on settlement rather than paying cash, the liability shall be transferred direct to equity, as the consideration for the equity instruments issued.
40. If the entity pays in cash on settlement rather than issuing equity instruments, that payment shall be applied to settle the liability in full. Any equity component previously recognized shall remain within equity. By electing to receive cash on settlement, the counter-party forfeited the right to receive equity instruments. However, this requirement does not preclude the entity from recognising a transfer within equity, i.e. a transfer from one component of equity to another.
Share-based payment transactions in which the terms of the arrangement provide the entity with a choice of settlement41. For a share-based payment transaction in which the terms of the arrangement provide an entity with the choice of whether to settle in cash or by issuing equity instruments, the entity shall determine whether it has a present obligation to settle in cash and account for the share-based payment transaction accordingly. The entity has a present obligation to settle in cash if the choice of settlement in equity instruments has no commercial substance (e.g. because the entity is legally prohibited from issuing shares), or the entity has a past practice or a stated policy of settling in cash, or generally settles in cash whenever the counter-party asks for cash settlement.
42. If the entity has a present obligation to settle in cash, it shall account for the transaction in accordance with the requirements applying to cash-settled share-based payment transactions, in paragraphs 30-33.
43. If no such obligation exists, the entity shall account for the transaction in accordance with the requirements applying to equity-settled share-based payment transactions, in paragraphs 10-29. Upon settlement:
43A. For share-based payment transactions among group entities, in its separate or individual financial statements, the entity receiving the goods or services shall measure the goods or services received as either an equity settled or a cash-settled share-based payment transaction by assessing:
43B. The entity receiving the goods or services shall measure the goods or services received as an equity-settled share-based payment transaction when:
43C. The entity settling a share-based payment transaction when another entity in the group receives the goods or services shall recognise the transaction as an equity-settled share-based payment transaction only if it is settled in the entity's own equity instruments. Otherwise, the transaction shall be recognized as a cash-settled share-based payment transaction.
43D. Some group transactions involve repayment arrangements that require one group entity to pay another group entity for the provision of the share-based payments to the suppliers of goods or services. In such cases, the entity that receives the goods or services shall account for the share-based payment transaction in accordance with paragraph 43B regardless of intra-group repayment arrangements.
Disclosures44. An entity shall disclose information that enables users of the financial statements to understand the nature and extent of share-based payment arrangements that existed during the period.
45. To give effect to the principle in paragraph 44, the entity shall disclose at least the following:
46. An entity shall disclose information that enables users of the financial statements to understand how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined.
47. If the entity has measured the fair value of goods or services received as consideration for equity instruments of the entity indirectly, by reference to the fair value of the equity instruments granted, to give effect to the principle in paragraph 46, the entity shall disclose at least the following:
48. If the entity has measured directly the fair value of goods or services received during the period, the entity shall disclose how that fair value was determined, e.g. whether fair value was measured at a market price for those goods or services.
49. If the entity has rebutted the presumption in paragraph 13, it shall disclose that fact, and give an explanation of why the presumption was rebutted.
50. An entity shall disclose information that enables users of the financial statements to understand the effect of share-based payment transactions on the entity's profit or loss for the period and on its financial position.
51. To give effect to the principle in paragraph 50, the entity shall disclose at least the following:
52. [ If the information required to be disclosed by this Standard does not satisfy the principles in paragraphs 44, 46 and 50, the entity shall disclose such additional information as is necessary to satisfy them. For example, if an entity has classified any share-based payment transactions as equity-settled in accordance with paragraph 33F, the entity shall disclose an estimate of the amount that it expects to transfer to the tax authority to settle the employee's tax obligation when it is necessary to inform users about the future cash flow effects associated with the share-based payment arrangement.] [Substituted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
[Transitional provisions [Inserted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]53.
-59 [Refer Appendix 1]59A. An entity shall apply the amendments in paragraphs 30-31, 33-33H and B44A-B44C as set out below. Prior periods shall not be restated.
59B. Notwithstanding the requirements in paragraph 59A, an entity may apply the amendments in paragraph 63D retrospectively, in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, if and only if it is possible without hindsight. If an entity elects retrospective application, it must do so for all of the amendments made by Amendments to Classification and Measurement of Share-based Payment Transactions under Ind AS 102.
Effective date60.
-63C [Refer Appendix 1]63D. Amendments to Classification and Measurement of Share-based Payment Transactions under Ind AS 102 amended paragraphs 19, 30-31, 33 and 52 and added paragraphs 33A-33H, 59A-59B, 63D and B44A-B44C and their related headings. An entity shall apply those amendments for annual periods beginning on or after 1 April, 2017.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix A| Defined terms | |
| This appendix is anintegral part of the Ind AS. | |
| cash-settled share-based payment transaction | Ashare-based payment transactioninwhich the entity acquires goods or services by incurring aliability to transfer cash or other assets to the supplier ofthose goods or services for amounts that are based on the price(or value) ofequity instruments(including shares orshare options) of the entity or another group entity. |
| employees and others providing similar services | Individuals who render personal services to theentity and either (a) the individuals are regarded as employeesfor legal or tax purposes, (b) the individuals work for theentity under its direction in the same way as individuals who areregarded as employees for legal or tax purposes, or (c) theservices rendered are similar to those rendered by employees. Forexample, the term encompasses all management personnel, i.e.those persons having authority and responsibility for planning,directing and controlling the activities of the entity, includingnon-executive directors. |
| equity instrument | [A contract that evidences a residual interestin the assets of an entity after deducting all of itsliabilities.] [The Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the Institute of Chartered Accountants of India,defines a liability as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits (i.e. an outflow of cash or other assets of the entity).] |
| equity instrument granted | The right (conditional or unconditional) to anequity instrumentof the entity conferred by the entity onanother party, under ashare-based payment arrangement. |
| equity-settled share-based payment transaction | Ashare-based payment transactioninwhich the entity |
| (a) receives goods or services as considerationfor its ownequity instruments(including shares orshareoptions), or | |
| (b) receives goods or services but has noobligation to settle the transaction with the supplier. | |
| fair value | The amount for which an asset could beexchanged, a liability settled, or anequity instrumentgrantedcould be exchanged, between knowledgeable, willingparties in an arm's length transaction. |
| grant date | The date at which the entity and another party(including an employee) agree to ashare-based paymentarrangement, being when the entity and the counter-party havea shared understanding of the terms and conditions of thearrangement. At grant date the entity confers on thecounter-party the right to cash, other assets, orequityinstrumentsof the entity, provided the specifiedvestingconditions, if any, are met. If that agreement is subject toan approval process (for example, by shareholders), grant date isthe date when that approval is obtained. |
| intrinsic value | The difference between thefair valueofthe shares to which the counter-party has the (conditional orunconditional) right to subscribe or which it has the right toreceive, and the price (if any) the counter-party is (or will be)required to pay for those shares. For example, ashare optionwith an exercise price of Rs. 15, on a share with a fair value ofRs. 20, has an intrinsic value of Rs. 5. |
| market condition | Aperformance conditionupon which theexercise price, vesting or excise-ability of anequityinstrumentdepends that is related to the market price (orvalue) of the entity'sequity instruments(or the equityinstruments of another entity in the same group), such as: |
| (a) attaining a specified share price or aspecified amount ofintrinsic valueof ashare option;or | |
| (b) achieving a specified target that is basedon the market price (or value) of the entity'sequityinstruments(or the equity instruments of another entity inthe same group) relative to an index of market prices ofequityinstrumentsof other entities. | |
| A market condition requires the counter-party tocomplete a specified period of service (i.e. aservicecondition); the service requirement can be explicit orimplicit. | |
| measurement date | The date at which thefair valueof theequity instruments grantedis measured for the purposes ofthis Ind AS. For transactions withemployees and othersproviding similar services, the measurement date isgrantdate. For transactions with parties other than employees (andthose providing similar services), the measurement date is thedate the entity obtains the goods or the counter-party rendersservice. |
| performance condition | A vesting condition that requires: |
| (a) the counter-party to complete a specifiedperiod of service (i.e. a service condition); the servicerequirement can be explicit or implicit; and | |
| (b) specified performance target(s) to be metwhile the counter-party is rendering the service required in (a). | |
| The period of achieving the performancetarget(s): | |
| (a) shall not extend beyond the end of theservice period; and | |
| (b) may start before the service period on thecondition that the commencement date of the performance target isnot substantially before the commencement of the service period. | |
| A performance target is defined by reference to: | |
| (a) the entity's own operations (or activities)or the operations or activities of another entity in the samegroup (i.e. a non-market condition); or | |
| (b) the price (or value) of the entity'sequityinstrumentsor the equity instruments of another entity inthe same group (including shares andshare options) (i.e.amarket condition). | |
| A performance target might relate either to theperformance of the entity as a whole or to some part of theentity (or part of the group), such as a division or anindividual employee. | |
| reload feature | A feature that provides for an automatic grantof additional share options whenever the option holder exercisespreviously granted options using the entity's shares, rather thancash, to satisfy the exercise price. |
| reload option | A newshare optiongranted when a shareis used to satisfy the exercise price of a previous share option. |
| service condition | Avesting conditionthat requires thecounter-party to complete a specified period of service duringwhich services are provided to the entity. If the counter-party,regardless of the reason, ceases to provide service during thevesting period, it has failed to satisfy the condition. Aservice condition does not require a performance target to bemet. |
| share-based payment arrangement | An agreement between the entity (or another[group] [A 'group' is defined in Appendix A of Ind AS 110, Consolidated Financial Statements,as 'a parent and its subsidiaries' from the perspective of the reporting entity's ultimate parent.]entity or any shareholder of any group entity) andanother party (including an employee) that entitles the otherparty to receive |
| (a) cash or other assets of the entity foramounts that are based on the price (or value) ofequityinstruments(including shares orshare options) of theentity or another group entity, or | |
| (b)equityinstruments(including shares orshare options) of theentity or another group entity,provided the specifiedvesting conditions,if any, are met. | |
| share-based payment transaction | A transaction in which the entity |
| (a) receives goods or services from the supplierof those goods or services (including an employee) in ashare-based payment arrangement, or | |
| (b) incurs an obligation to settle thetransaction with the supplier in ashare-based paymentarrangementwhen another group entity receives those goods orservices. | |
| share option | A contract that gives the holder the right, butnot the obligation, to subscribe to the entity's shares at afixed or determinable price for a specified period of time. |
| vest | To become an entitlement. Under ashare-basedpayment arrangement, a counter-party's right to receive cash,other assets orequity instrumentsof the entity vestswhen the counter-party's entitlement is no longer conditional onthe satisfaction of any vesting conditionsvesting condition. |
| vesting condition | A condition that determine whether the entityreceives the services that entitle the counter-party to receivecash, other assets orequity instrumentsof the entity,under ashare-based payment arrangement.A vestingcondition is either aservice conditionor aperformancecondition. |
| vesting period | The period during which all the specifiedvesting conditionsof ashare-based payment arrangementare to be satisfied. |
1. The transitional provisions given in IFRS 2 and portions related thereto have not been given in Ind AS 102, since all transitional provisions related to Indian ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Cross-reference to paragraphs B1-B4 of IFRS 3 contained in paragraph 5 of IFRS 2 has been modified as cross-reference to Appendix C of Ind AS 103 in paragraph 5 of Ind AS 102. This is consequential to the insertion of Appendix C in Ind AS 103 to deal with business combination of entities under common control.
3. Different terminology is used in the Standard. e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
4. Paragraph number 3 appears as 'Deleted' in IFRS 2. In order to maintain consistency with paragraph numbers of IFRS 2, the paragraph number is retained in Ind AS 102.
5. [ Paragraphs 53-59 and 60-63C in IFRS 2 have not been included in Ind AS 102 as these paragraphs relate to Transitional Provisions and Effective date, respectively. However, in order to maintain consistency with paragraph numbers of IFRS 2, the paragraph numbers are retained in Ind AS 102.] [Inserted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 103Business Combinations(This Indian Accounting Standard includes paragraphs set out in bold type and plain type which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Indian Accounting Standard (Ind AS) is to improve the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. To accomplish that, this Ind AS establishes principles and requirements for how the acquirer:
2. This Ind AS applies to a transaction or other event that meets the definition of a business combination. This Ind AS does not apply to:
2A. The requirements of this Standard do not apply to the acquisition by an investment entity, as defined in Ind AS 110, Consolidated Financial Statements, of an investment in a subsidiary that is required to be measured at fair value through profit or loss.
2B. Appendix C deals with accounting for combination of entities or businesses under common control.
Identifying a business combination3. An entity shall determine whether a transaction or other event is a business combination by applying the definition in this Ind AS, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. Paragraphs B5-B12 provide guidance on identifying a business combination and the definition of a business.
The acquisition method4. An entity shall account for each business combination by applying the acquisition method.
5. Applying the acquisition method requires:
6. For each business combination, one of the combining entities shall be identified as the acquirer.
7. The guidance in Ind AS 110 shall be used to identify the acquirer-the entity that obtains control of another entity, i.e. the acquiree. If a business combination has occurred but applying the guidance in Ind AS 110 does not clearly indicate which of the combining entities is the acquirer, the factors in paragraphs B14-B18 shall be considered in making that determination.
Determining the acquisition date8. The acquirer shall identify the acquisition date, which is the date on which it obtains control of the acquiree.
9. The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree-the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. For example, the acquisition date precedes the closing date if a written agreement provides that the acquirer obtains control of the acquiree on a date before the closing date. An acquirer shall consider all pertinent facts and circumstances in identifying the acquisition date.
Recognising and measuring the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquireeRecognition principle10. As of the acquisition date, the acquirer shall recognise, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree. Recognition of identifiable assets acquired and liabilities assumed is subject to the conditions specified in paragraphs 11. and 12.
Recognition conditions11. To qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must meet the definitions of assets and liabilities in the Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the Institute of Chartered Accountants of India at the acquisition date. For example, costs the acquirer expects but is not obliged to incur in the future to effect its plan to exit an activity of an acquiree or to terminate the employment of or relocate an acquiree's employees are not liabilities at the acquisition date. Therefore, the acquirer does not recognise those costs as part of applying the acquisition method. Instead, the acquirer recognises those costs in its post-combination financial statements in accordance with other Ind AS.
12. In addition, to qualify for recognition as part of applying the acquisition method, the identifiable assets acquired and liabilities assumed must be part of what the acquirer and the acquiree (or its former owners) exchanged in the business combination transaction rather than the result of separate transactions. The acquirer shall apply the guidance in paragraphs 51-53 to determine which assets acquired or liabilities assumed are part of the exchange for the acquiree and which, if any, are the result of separate transactions to be accounted for in accordance with their nature and the applicable Ind AS.
13. The acquirer's application of the recognition principle and conditions may result in recognising some assets and liabilities that the acquiree had not previously recognized as assets and liabilities in its financial statements. For example, the acquirer recognises the acquired identifiable intangible assets, such as a brand name, a patent or a customer relationship, that the acquiree did not recognise as assets in its financial statements because it developed them internally and charged the related costs to expense.
14. [ Paragraphs B31-B40 provide guidance on recognising intangible assets. Paragraphs 22-28B specify the types of identifiable assets and liabilities that include items for which this Ind AS provides limited exceptions to the recognition principle and conditions.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Classifying or designating identifiable assets acquired and liabilities assumed in a business combination15. At the acquisition date, the acquirer shall classify or designate the identifiable assets acquired and liabilities assumed as necessary to apply other Ind ASs subsequently. The acquirer shall make those classifications or designations on the basis of the contractual terms, economic conditions, its operating or accounting policies and other pertinent conditions as they exist at the acquisition date.
16. In some situations, Ind ASs provide for different accounting depending on how an entity classifies or designates a particular asset or liability. Examples of classifications or designations that the acquirer shall make on the basis of the pertinent conditions as they exist at the acquisition date include but are not limited to:
17. This Ind AS provides two exceptions to the principle in paragraph 15:
18. The acquirer shall measure the identifiable assets acquired and the liabilities assumed at their acquisition-date fair values.
19. For each business combination, the acquirer shall measure at the acquisition date components of non-controlling interest in the acquiree that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation at either:
20. Paragraphs 24-31 specify the types of identifiable assets and liabilities that include items for which this Ind AS provides limited exceptions to the measurement principle.
Exceptions to the recognition or measurement principles21. This Ind AS provides limited exceptions to its recognition and measurement principles. Paragraphs 22-31 specify both the particular items for which exceptions are provided and the nature of those exceptions. The acquirer shall account for those items by applying the requirements in paragraphs 22-31, which will result in some items being:
22. Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, defines a contingent liability as:
23. The requirements in Ind AS 37 do not apply in determining which contingent liabilities to recognise as of the acquisition date. Instead, the acquirer shall recognise as of the acquisition date a contingent liability assumed in a business combination if it is a present obligation that arises from past events and its fair value can be measured reliably. Therefore, contrary to Ind AS 37, the acquirer recognises a contingent liability assumed in a business combination at the acquisition date even if it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Paragraph 56 provides guidance on the subsequent accounting for contingent liabilities.
Exceptions to both the recognition and measurement principlesIncome taxes24. The acquirer shall recognise and measure a deferred tax asset or liability arising from the assets acquired and liabilities assumed in a business combination in accordance with Ind AS 12, Income Taxes.
25. The acquirer shall account for the potential tax effects of temporary differences and carry forwards of an acquiree that exist at the acquisition date or arise as a result of the acquisition in accordance with Ind AS 12.
Employee benefits26. The acquirer shall recognise and measure a liability (or asset, if any) related to the acquiree's employee benefit arrangements in accordance with Ind AS 19, Employee Benefits.
Indemnification assets27. The seller in a business combination may contractually indemnify the acquirer for the outcome of a contingency or uncertainty related to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses above a specified amount on a liability arising from a particular contingency; in other words, the seller will guarantee that the acquirer's liability will not exceed a specified amount. As a result, the acquirer obtains an indemnification asset. The acquirer shall recognise an indemnification asset at the same time that it recognises the indemnified item measured on the same basis as the indemnified item, subject to the need for a valuation allowance for uncollectible amounts. Therefore, if the indemnification relates to an asset or a liability that is recognized at the acquisition date and measured at its acquisition-date fair value, the acquirer shall recognise the indemnification asset at the acquisition date measured at its acquisition-date fair value. For an indemnification asset measured at fair value, the effects of uncertainty about future cash flows because of collectibility considerations are included in the fair value measure and a separate valuation allowance is not necessary (paragraph B41 provides related application guidance).
28. In some circumstances, the indemnification may relate to an asset or a liability that is an exception to the recognition or measurement principles. For example, an indemnification may relate to a contingent liability that is not recognized at the acquisition date because its fair value is not reliably measurable at that date. Alternatively, an indemnification may relate to an asset or a liability, for example, one that results from an employee benefit, that is measured on a basis other than acquisition-date fair value. In those circumstances, the indemnification asset shall be recognized and measured using assumptions consistent with those used to measure the indemnified item, subject to management's assessment of the collectibility of the indemnification asset and any contractual limitations on the indemnified amount. Paragraph 57 provides guidance on the subsequent accounting for an indemnification asset.
[Leases in which the acquiree is the lessee28A. The acquirer shall recognise right-of-use assets and lease liabilities for leases identified in accordance with Ind AS 116 in which the acquiree is the lessee. The acquirer is not required to recognise right-of-use assets and lease liabilities for:
28B. The acquirer shall measure the lease liability at the present value of the remaining lease payments (as defined in Ind AS 116) as if the acquired lease were a new lease at the acquisition date. The acquirer shall measure the right-of-use asset at the same amount as the lease liability, adjusted to reflect favourable or unfavourable terms of the lease when compared with market terms.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Exceptions to the measurement principleReacquired rights29. The acquirer shall measure the value of a reacquired right recognized as an intangible asset on the basis of the remaining contractual term of the related contract regardless of whether market participants would consider potential contractual renewals when measuring its fair value. Paragraphs B35 and B36 provide related application guidance.
Share-based payment transactions30. The acquirer shall measure a liability or an equity instrument related to share-based payment transactions of the acquiree or the replacement of an acquiree's share-based payment transactions with share-based payment transactions of the acquirer in accordance with the method in Ind AS 102, Share-based Payment, at the acquisition date. (This Ind AS refers to the result of that method as the 'market-based measure' of the share-based payment transaction.)
Assets held for sale31. The acquirer shall measure an acquired non-current asset (or disposal group) that is classified as held for sale at the acquisition date in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, at fair value less costs to sell in accordance with paragraphs 15-18 of that Ind AS.
Recognising and measuring goodwill or a gain from a bargain purchase32. The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below:
33. In a business combination in which the acquirer and the acquiree (or its former owners) exchange only equity interests, the acquisition-date fair value of the acquiree's equity interests may be more reliably measurable than the acquisition-date fair value of the acquirer's equity interests. If so, the acquirer shall determine the amount of goodwill by using the acquisition-date fair value of the acquiree's equity interests instead of the acquisition-date fair value of the equity interests transferred. To determine the amount of goodwill in a business combination in which no consideration is transferred, the acquirer shall use the acquisition-date fair value of the acquirer's interest in the acquiree in place of the acquisition-date fair value of the consideration transferred (paragraph 32(a)(i)). Paragraphs B46-B49 provide related application guidance.
Bargain purchases34. In extremely rare circumstances, an acquirer will make a bargain purchase in a business combination in which the amount in paragraph 32(b) exceeds the aggregate of the amounts specified in paragraph 32(a). If that excess remains after applying the requirements in paragraph 36, the acquirer shall recognise the resulting gain in other comprehensive income on the acquisition date and accumulate the same in equity as capital reserve. The gain shall be attributed to the acquirer.
35. A bargain purchase might happen, for example, in a business combination that is a forced sale in which the seller is acting under compulsion. However, the recognition or measurement exceptions for particular items discussed in paragraphs 22-31 may also result in recognising a gain (or change the amount of a recognized gain) on a bargain purchase.
36. Before recognising a gain on a bargain purchase, the acquirer shall determine whether there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase. If such evidence exists, the acquirer shall reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and shall recognise any additional assets or liabilities that are identified in that review. The acquirer shall then review the procedures used to measure the amounts this Ind AS requires to be recognized at the acquisition date for all of the following:
36A. If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the acquirer shall apply the requirements of reassessment and review described in paragraph 36. The excess, if any, as determined in accordance with paragraph 32 after applying the said requirements of paragraph 36, shall be recognized directly in equity as capital reserve.
Consideration transferred37. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. (However, any portion of the acquirer's share-based payment awards exchanged for awards held by the acquiree's employees that is included in consideration transferred in the business combination shall be measured in accordance with paragraph 30 rather than at fair value.) Examples of potential forms of consideration include cash, other assets, a business or a subsidiary of the acquirer, contingent consideration, ordinary or preference equity instruments, options, warrants and member interests of mutual entities.
38. The consideration transferred may include assets or liabilities of the acquirer that have carrying amounts that differ from their fair values at the acquisition date (for example, non-monetary assets or a business of the acquirer). If so, the acquirer shall remeasure the transferred assets or liabilities to their fair values as of the acquisition date and recognise the resulting gains or losses, if any, in profit or loss. However, sometimes the transferred assets or liabilities remain within the combined entity after the business combination (for example, because the assets or liabilities were transferred to the acquiree rather than to its former owners), and the acquirer therefore retains control of them. In that situation, the acquirer shall measure those assets and liabilities at their carrying amounts immediately before the acquisition date and shall not recognise a gain or loss in profit or loss on assets or liabilities it controls both before and after the business combination.
Contingent consideration39. The consideration the acquirer transfers in exchange for the acquiree includes any asset or liability resulting from a contingent consideration arrangement (see paragraph 37). The acquirer shall recognise the acquisition date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree.
40. The acquirer shall classify an obligation to pay contingent consideration that meets the definition of a financial instrument as a financial liability or as equity on the basis of the definitions of an equity instrument and a financial liability in paragraph 11 of Ind AS 32, Financial Instruments: Presentation. The acquirer shall classify as an asset a right to the return of previously transferred consideration if specified conditions are met. Paragraph 58 provides guidance on the subsequent accounting for contingent consideration.
Additional guidance for applying the acquisition method to particular types of business combinationsA business combination achieved in stages41. An acquirer sometimes obtains control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on 31 December 20X1, Entity A holds a 35 per cent non-controlling equity interest in Entity B. On that date, Entity A purchases an additional 40 per cent interest in Entity B, which gives it control of Entity B. This Ind AS refers to such a transaction as a business combination achieved in stages, sometimes also referred to as a step acquisition.
42. In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognise the resulting gain or loss, if any, in profit or loss or other comprehensive income, as appropriate. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.
42A. [ When a party to a joint arrangement (as defined in Ind AS 111, Joint Arrangements) obtains control of a business that is a joint operation (as defined in Ind AS 111), and had rights to the assets and obligations for the liabilities relating to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. The acquirer shall therefore apply the requirements for a business combination achieved in stages, including remeasuring its previously held interest in the joint operation in the manner described in paragraph 42. In doing so, the acquirer shall remeasure its entire previously held interest in the joint operation.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
A business combination achieved without the transfer of consideration43. An acquirer sometimes obtains control of an acquiree without transferring consideration. The acquisition method of accounting for a business combination applies to those combinations. Such circumstances include:
44. In a business combination achieved by contract alone, the acquirer shall attribute to the owners of the acquiree the amount of the acquiree's net assets recognized in accordance with this Ind AS. In other words, the equity interests in the acquiree held by parties other than the acquirer are a non-controlling interest in the acquirer's post-combination financial statements even if the result is that all of the equity interests in the acquiree are attributed to the non-controlling interest.
Measurement period45. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date. During the measurement period, the acquirer shall also recognise additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date.
46. The measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period provides the acquirer with a reasonable time to obtain the information necessary to identify and measure the following as of the acquisition date in accordance with the requirements of this Ind AS:
47. The acquirer shall consider all pertinent factors in determining whether information obtained after the acquisition date should result in an adjustment to the provisional amounts recognized or whether that information results from events that occurred after the acquisition date. Pertinent factors include the date when additional information is obtained and whether the acquirer can identify a reason for a change to provisional amounts. Information that is obtained shortly after the acquisition date is more likely to reflect circumstances that existed at the acquisition date than is information obtained several months later. For example, unless an intervening event that changed its fair value can be identified, the sale of an asset to a third party shortly after the acquisition date for an amount that differs significantly from its provisional fair value measured at that date is likely to indicate an error in the provisional amount.
48. The acquirer recognises an increase (decrease) in the provisional amount recognized for an identifiable asset (liability) by means of a decrease (increase) in goodwill. However, new information obtained during the measurement period may sometimes result in an adjustment to the provisional amount of more than one asset or liability. For example, the acquirer might have assumed a liability to pay damages related to an accident in one of the acquiree's facilities, part or all of which are covered by the acquiree's liability insurance policy. If the acquirer obtains new information during the measurement period about the acquisition-date fair value of that liability, the adjustment to goodwill resulting from a change to the provisional amount recognized for the liability would be offset (in whole or in part) by a corresponding adjustment to goodwill resulting from a change to the provisional amount recognized for the claim receivable from the insurer. If the adjustment results in reduction of goodwill and if the amount of adjustment exceeds the amount previously recognized as goodwill that excess shall be accounted for in accordance with paragraph 34 or paragraph 36A as applicable.
49. During the measurement period, the acquirer shall recognise adjustments to the provisional amounts as if the accounting for the business combination had been completed at the acquisition date. Thus, the acquirer shall revise comparative information for prior periods presented in financial statements as needed, including making any change in depreciation, amortisation or other income effects recognized in completing the initial accounting.
50. After the measurement period ends, the acquirer shall revise the accounting for a business combination only to correct an error in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
Determining what is part of the business combination transaction51. The acquirer and the acquiree may have a pre-existing relationship or other arrangement before negotiations for the business combination began, or they may enter into an arrangement during the negotiations that is separate from the business combination. In either situation, the acquirer shall identify any amounts that are not part of what the acquirer and the acquiree (or its former owners) exchanged in the business combination, i.e. amounts that are not part of the exchange for the acquiree. The acquirer shall recognise as part of applying the acquisition method only the consideration transferred for the acquiree and the assets acquired and liabilities assumed in the exchange for the acquiree. Separate transactions shall be accounted for in accordance with the relevant Ind AS.
52. A transaction entered into by or on behalf of the acquirer or primarily for the benefit of the acquirer or the combined entity, rather than primarily for the benefit of the acquiree (or its former owners) before the combination, is likely to be a separate transaction. The following are examples of separate transactions that are not to be included in applying the acquisition method:
53. Acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder's fees; advisory, legal, accounting, valuation and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with Ind AS 32 and Ind AS 109.
Subsequent measurement and accounting54. In general, an acquirer shall subsequently measure and account for assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination in accordance with other applicable Ind ASs for those items, depending on their nature. However, this Ind AS provides guidance on subsequently measuring and accounting for the following assets acquired, liabilities assumed or incurred and equity instruments issued in a business combination:
55. A reacquired right recognized as an intangible asset shall be amortised over the remaining contractual period of the contract in which the right was granted. An acquirer that subsequently sells a reacquired right to a third party shall include the carrying amount of the intangible asset in determining the gain or loss on the sale.
Contingent liabilities56. [ After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of :
57. At the end of each subsequent reporting period, the acquirer shall measure an indemnification asset that was recognized at the acquisition date on the same basis as the indemnified liability or asset, subject to any contractual limitations on its amount and, for an indemnification asset that is not subsequently measured at its fair value, management's assessment of the collectibility of the indemnification asset. The acquirer shall de-recognise the indemnification asset only when it collects the asset, sells it or otherwise loses the right to it.
Contingent consideration58. Some changes in the fair value of contingent consideration that the acquirer recognises after the acquisition date may be the result of additional information that the acquirer obtained after that date about facts and circumstances that existed at the acquisition date. Such changes are measurement period adjustments in accordance with paragraphs 45-49. However, changes resulting from events after the acquisition date, such as meeting an earnings target, reaching a specified share price or reaching a milestone on a research and development project, are not measurement period adjustments. The acquirer shall account for changes in the fair value of contingent consideration that are not measurement period adjustments as follows:
59. The acquirer shall disclose information that enables users of its financial statements to evaluate the nature and financial effect of a business combination that occurs either:
60. To meet the objective in paragraph 59, the acquirer shall disclose the information specified in paragraphs B64-B66.
61. The acquirer shall disclose information that enables users of its financial statements to evaluate the financial effects of adjustments recognized in the current reporting period that relate to business combinations that occurred in the period or previous reporting periods.
62. To meet the objective in paragraph 61, the acquirer shall disclose the information specified in paragraph B67.
63. If the specific disclosures required by this and other Ind ASs do not meet the objectives set out in paragraphs 59. and 61, the acquirer shall disclose whatever additional information is necessary to meet those objectives.
[Effective Date64. *
64A. *
64B. *
64C. *
64D. *
64E. *
64F. *
64G. *
64H. *
64I. *
64J. *
64K. As a consequence of issuance of Ind AS 115, paragraph 56 has been amended. An entity shall follow the amendment when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[64L Omitted *64M. Ind AS 116 amended paragraphs 14, 17, B32 and B42, deleted paragraphs B28-B30 and their related heading and added paragraphs 28A-28B and their related heading. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
[64 N*64O. Annual Improvements to Ind AS (2018) added paragraph 42A. An entity shall apply those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 April, 2019.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix A| Defined terms | |
| This appendix is an integral part of the Ind AS. | |
| acquiree | The business or businesses that theacquirerobtains control of in abusiness combination. |
| acquirer | The entity that obtains control of theacquiree. |
| acquisition date | The date on which theacquirerobtainscontrol of theacquiree. |
| business | An integrated set of activities and assets thatis capable of being conducted and managed for the purpose ofproviding a return in the form of dividends, lower costs or othereconomic benefits directly to investors or other owners, membersor participants. |
| business combination | A transaction or other event in which anacquirerobtains control of one or morebusinesses.Transactions sometimes referred to as 'true mergers' or 'mergersof equals' are alsobusiness combinationsas that term isused in this Ind AS. |
| contingent consideration | Usually, an obligation of theacquirertotransfer additional assets orequity intereststo theformer owners of anacquireeas part of the exchange forcontrol of the acquiree if specified future events occur orconditions are met. However,contingent considerationalsomay give the acquirer the right to the return of previouslytransferred consideration if specified conditions are met. |
| equity interests | For the purposes of this Ind AS,equityinterestsis used broadly to mean ownership interests ofinvestor-owned entities and owner, member or participantinterests ofmutual entities. |
| fair value | Fair valueis the price that would bereceived to sell an asset or paid to transfer a liability in anorderly transaction between market participants at themeasurement date. (See Ind AS 113.) |
| goodwill | An asset representing the future economicbenefits arising from other assets acquired in abusinesscombinationthat are not individually identified andseparately recognized. |
| identifiable | An asset isidentifiableif it either: |
| (a) is separable, i.e. capable of being separated or divided fromthe entity and sold, transferred, licensed, rented or exchanged,either individually or together with a related contract,identifiable asset or liability, regardless of whether the entityintends to do so; or | |
| (b) arises from contractual or other legal rights, regardless ofwhether those rights are transferable or separable from theentity or from other rights and obligations. | |
| intangible asset | Anidentifiablenon-monetary assetwithout physical substance. |
| mutual entity | An entity, other than an investor-owned entity,that provides dividends, lower costs or other economic benefitsdirectly to itsowners, members or participants. Forexample, a mutual insurance company, a credit union and aco-operative entity are all mutual entities. |
| non-controlling interest | The equity in a subsidiary not attributable,directly or indirectly, to a parent. |
| owners | For the purposes of this Ind AS, owners is usedbroadly to include holders ofequity interestsofinvestor-owned entities and owners or members of, or participantsin,mutual entities. |
1. This appendix deals with accounting for business combinations of entities or businesses under common control.
Definitions2. The following terms are used in this Appendix with the meaning specified:
Transferor means an entity or business which is combined into another entity as a result of a business combination.Transferee means an entity in which the transferor entity is combined.Reserve means the portion of earnings, receipts or other surplus of an entity (whether capital or revenue) appropriated by the management for a general or a specific purpose other than provision for depreciation.Common control business combination means a business combination involving entities or businesses in which all the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory.Common control business combinations3. Common control business combinations will include transactions, such as transfer of subsidiaries or businesses, between entities within a group.
4. The extent of non-controlling interests in each of the combining entities before and after the business combination is not relevant to determining whether the combination involves entities under common control. This is because a partially-owned subsidiary is nevertheless under the control of the parent entity.
5. The fact that one of the combining entities is a subsidiary that has been excluded from the consolidated financial statements of the group in accordance with Ind AS 27 is not relevant to determining whether a combination involves entities under common control.
6. An entity can be controlled by an individual, or by a group of individuals acting together under a contractual arrangement, and that individual or group of individuals may not be subject to the financial reporting requirements of Ind ASs. Therefore, it is not necessary for combining entities to be included as part of the same consolidated financial statements for a business combination to be regarded as one having entities under common control.
7. A group of individuals are regarded as controlling an entity when, as a result of contractual arrangements, they collectively have the power to govern its financial and operating policies so as to obtain benefits from its activities, and that ultimate collective power is not transitory.
Method of accounting for common control business combinations8. Business combinations involving entities or businesses under common control shall be accounted for using the pooling of interests method.
9. The pooling of interest method is considered to involve the following:
10. The consideration for the business combination may consist of securities, cash or other assets. Securities shall be recorded at nominal value. In determining the value of the consideration, assets other than cash shall be considered at their fair values.
11. The balance of the retained earnings appearing in the financial statements of the transferor is aggregated with the corresponding balance appearing in the financial statements of the transferee. Alternatively, it is transferred to General Reserve, if any.
12. The identity of the reserves shall be preserved and shall appear in the financial statements of the transferee in the same form in which they appeared in the financial statements of the transferor. Thus, for example, the General Reserve of the transferor entity becomes the General Reserve of the transferee, the Capital Reserve of the transferor becomes the Capital Reserve of the transferee and the Revaluation Reserve of the transferor becomes the Revaluation Reserve of the transferee. As a result of preserving the identity, reserves which are available for distribution as dividend before the business combination would also be available for distribution as dividend after the business combination. The difference, if any, between the amount recorded as share capital issued plus any additional consideration in the form of cash or other assets and the amount of share capital of the transferor shall be transferred to capital reserve and should be presented separately from other capital reserves with disclosure of its nature and purpose in the notes.
Disclosure13. The following disclosures shall be made in the first financial statements following the business combination:
14. When a business combination is effected after the balance sheet but before the approval of the financial statements for issue by either party to the business combination, disclosure is made in accordance with Ind AS 10 Events after the Reporting Period, but the business combination is not incorporated in the financial statements. In certain circumstances, the business combination may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained.
Appendix DReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and makes reference to Ind AS 103, Business Combinations.1. Appendix A, Distributions of Non-cash Assets to Owners, contained in Ind AS 10, Events After the Reporting Period
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 103 and the corresponding International Financial Reporting Standard (IFRS) 3, Business Combinations, issued by the International Accounting Standards Board.Comparison with IFRS 3, Business Combinations1. IFRS 3 excludes from its scope business combinations of entities under common control. Ind AS 103 (Appendix C) gives the guidance in this regard. Consequently, paragraph 2 has been modified and paragraph 2B. has been added in Ind AS 103. Further, paragraphs B1-B4 of IFRS 3 have been deleted in Ind AS 103. In order to maintain consistency with paragraph numbers of IFRS 3, the paragraph numbers are retained in Ind AS 103.
2. The transitional provisions given in IFRS 3 have not been given in Ind AS 103, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards, will deal with the same.
3. IFRS 3 requires bargain purchase gain arising on business combination to be recognized in profit or loss. Ind AS 103 requires the same to be recognized in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognized directly in equity as capital reserve. This has some consequential changes such as change in wording of paragraphs 34, 36 and 48, additional disclosure in paragraph B64(n) and addition of new paragraph 36A. Cross-reference to the new paragraph 36A. has been added in paragraphs B46, B64(n).
4. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position', 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. The words 'approved the financial statements for issue' have been used instead of 'authorised the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period.
5. [ Paragraphs 64-64J and 64L of IFRS 3 related to effective date have not been included in Ind AS 103 as these are not relevant in Indian context. Paragraph 64N has not been included since it refers to amendments due to issuance of IFRS 17, Insurance Contracts, for which corresponding Ind AS is under formulation. However, in order to maintain consistency with paragraph numbers of IFRS 3, these paragraph numbers are retained in Ind AS 103.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
6. [ The following paragraph numbers appear as 'Deleted' in IFRS 3. In order to maintain consistency with paragraph numbers of Ind AS 103, the paragraph numbers are retained in Ind AS 103:
1. The objective of this Indian Accounting Standard (Ind AS) is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this Ind AS as an insurer). In particular, this Ind AS requires:
2. An entity shall apply this Ind AS to:
3. This Ind AS does not address other aspects of accounting by insurers, such as accounting for financial assets held by insurers and financial liabilities issued by insurers (see Ind AS 32, Financial Instruments: Presentation, Ind AS 107 and Ind AS 109, Financial Instruments).
4. An entity shall not apply this Ind AS to:
5. For ease of reference, this Ind AS describes any entity that issues an insurance contract as an insurer, whether or not the issuer is regarded as an insurer for legal or supervisory purposes.
6. A reinsurance contract is a type of insurance contract. Accordingly, all references in this Ind AS to insurance contracts also apply to reinsurance contracts.
Embedded derivatives7. Ind AS 109 requires an entity to separate some embedded derivatives from their host contract, measure them at fair value and include changes in their fair value in profit or loss. Ind AS 109 applies to derivatives embedded in an insurance contract unless the embedded derivative is itself an insurance contract.
8. As an exception to the requirements in Ind AS 109, an insurer need not separate, and measure at fair value, a policyholder's option to surrender an insurance contract for a fixed amount (or for an amount based on a fixed amount and an interest rate), even if the exercise price differs from the carrying amount of the host insurance liability. However, the requirements in Ind AS 109 do apply to a put option or cash surrender option embedded in an insurance contract if the surrender value varies in response to the change in a financial variable (such as an equity or commodity price or index), or a non-financial variable that is not specific to a party to the contract. Furthermore, those requirements also apply if the holder's ability to exercise a put option or cash surrender option is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index reaches a specified level).
9. Paragraph 8 applies equally to options to surrender a financial instrument containing a discretionary participation feature.
Unbundling of deposit components10. Some insurance contracts contain both an insurance component and a deposit component. In some cases, an insurer is required or permitted to unbundle those components:
11. The following is an example of a case when an insurer's accounting policies do not require it to recognise all obligations arising from a deposit component. A cedant receives compensation for losses from a reinsurer, but the contract obliges the cedant to repay the compensation in future years. That obligation arises from a deposit component. If the cedant's accounting policies would otherwise permit it to recognise the compensation as income without recognising the resulting obligation, unbundling is required.
12. To unbundle a contract, an insurer shall:
13. Paragraphs 10-12 of Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, specify criteria for an entity to use in developing an accounting policy if no Ind AS applies specifically to an item. However, this Ind AS exempts an insurer from applying those criteria to its accounting policies for:
14. Nevertheless, this Ind AS does not exempt an insurer from some implications of the criteria in paragraphs 10-12. of Ind AS 8. Specifically, an insurer:
15. An insurer shall assess at the end of each reporting period whether its recognized insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. If that assessment shows that the carrying amount of its insurance liabilities (less related deferred acquisition costs and related intangible assets, such as those discussed in paragraphs 31 and 32) is inadequate in the light of the estimated future cash flows, the entire deficiency shall be recognized in profit or loss.
16. If an insurer applies a liability adequacy test that meets specified minimum requirements, this Ind AS imposes no further requirements. The minimum requirements are the following:
17. If an insurer's accounting policies do not require a liability adequacy test that meets the minimum requirements of paragraph 16, the insurer shall:
18. If an insurer's liability adequacy test meets the minimum requirements of paragraph 16, the test is applied at the level of aggregation specified in that test. If its liability adequacy test does not meet those minimum requirements, the comparison described in paragraph 17 shall be made at the level of a portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio.
19. The amount described in paragraph 17(b) (i.e. the result of applying Ind AS 37) shall reflect future investment margins (see paragraphs 27-29) if, and only if, the amount described in paragraph 17(a) also reflects those margins.
Impairment of reinsurance assets20. If a cedant's reinsurance asset is impaired, the cedant shall reduce its carrying amount accordingly and recognise that impairment loss in profit or loss. A reinsurance asset is impaired if, and only if:
21. Paragraphs 22-30 apply both to changes made by an insurer that already applies Ind ASs and to changes made by an insurer adopting Ind ASs for the first time.
22. An insurer may change its accounting policies for insurance contracts if, and only if, the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An insurer shall judge relevance and reliability by the criteria in Ind AS 8.
23. To justify changing its accounting policies for insurance contracts, an insurer shall show that the change brings its financial statements closer to meeting the criteria in Ind AS 8, but the change need not achieve full compliance with those criteria. The following specific issues are discussed below:
24. An insurer is permitted, but not required, to change its accounting policies so that it remeasures designated [insurance liabilities] [In this paragraph, insurance liabilities include related deferred acquisition costs and related intangible assets, such as those discussed in paragraphs 31 and 32.] to reflect current market interest rates and recognises changes in those liabilities in profit or loss. At that time, it may also introduce accounting policies that require other current estimates and assumptions for the designated liabilities. The election in this paragraph permits an insurer to change its accounting policies for designated liabilities, without applying those policies consistently to all similar liabilities as Ind AS 8 would otherwise require. If an insurer designates liabilities for this election, it shall continue to apply current market interest rates (and, if applicable, the other current estimates and assumptions) consistently in all periods to all these liabilities until they are extinguished.
Continuation of existing practices25. An insurer may continue the following practices, but the introduction of any of them does not satisfy paragraph 22:
26. An insurer need not change its accounting policies for insurance contracts to eliminate excessive prudence. However, if an insurer already measures its insurance contracts with sufficient prudence, it shall not introduce additional prudence.
Future investment margins27. An insurer need not change its accounting policies for insurance contracts to eliminate future investment margins. However, there is a rebuttable presumption that an insurer's financial statements will become less relevant and reliable if it introduces an accounting policy that reflects future investment margins in the measurement of insurance contracts, unless those margins affect the contractual payments. Two examples of accounting policies that reflect those margins are:
28. An insurer may overcome the rebuttable presumption described in paragraph 27 if, and only if, the other components of a change in accounting policies increase the relevance and reliability of its financial statements sufficiently to outweigh the decrease in relevance and reliability caused by the inclusion of future investment margins. For example, suppose that an insurer's existing accounting policies for insurance contracts involve excessively prudent assumptions set at inception and a discount rate prescribed by a regulator without direct reference to market conditions, and ignore some embedded options and guarantees. The insurer might make its financial statements more relevant and no less reliable by switching to a comprehensive investor-oriented basis of accounting that is widely used and involves:
29. In some measurement approaches, the discount rate is used to determine the present value of a future profit margin. That profit margin is then attributed to different periods using a formula. In those approaches, the discount rate affects the measurement of the liability only indirectly. In particular, the use of a less appropriate discount rate has a limited or no effect on the measurement of the liability at inception. However, in other approaches, the discount rate determines the measurement of the liability directly. In the latter case, because the introduction of an asset-based discount rate has a more significant effect, it is highly unlikely that an insurer could overcome the rebuttable presumption described in paragraph 27.
Shadow accounting30. In some accounting models, realised gains or losses on an insurer's assets have a direct effect on the measurement of some or all of (a) its insurance liabilities, (b) related deferred acquisition costs and (c) related intangible assets, such as those described in paragraphs 31 and 32. An insurer is permitted, but not required, to change its accounting policies so that a recognized but unrealised gain or loss on an asset affects those measurements in the same way that a realised gain or loss does. The related adjustment to the insurance liability (or deferred acquisition costs or intangible assets) shall be recognized in other comprehensive income if, and only if, the unrealised gains or losses are recognized in other comprehensive income. This practice is sometimes described as 'shadow accounting'.
Insurance contracts acquired in a business combination or portfolio transfer31. To comply with Ind AS 103, an insurer shall, at the acquisition date, measure at fair value the insurance liabilities assumed and insurance assets acquired in a business combination. However, an insurer is permitted, but not required, to use an expanded presentation that splits the fair value of acquired insurance contracts into two components:
32. An insurer acquiring a portfolio of insurance contracts may use the expanded presentation described in paragraph 31.
33. The intangible assets described in paragraphs 31 and 32 are excluded from the scope of Ind AS 38 and Ind AS 36, Impairment of Assets. However, Ind AS 38 and Ind AS 36 apply to customer lists and customer relationships reflecting the expectation of future contracts that are not part of the contractual insurance rights and contractual insurance obligations that existed at the date of a business combination or portfolio transfer.
Discretionary participation featuresDiscretionary participation features in insurance contracts34. Some insurance contracts contain a discretionary participation feature as well as a guaranteed element. The issuer of such a contract:
35. The requirements in paragraph 34 also apply to a financial instrument that contains a discretionary participation feature. In addition:
36. An insurer shall disclose information that identifies and explains the amounts in its financial statements arising from insurance contracts.
37. To comply with paragraph 36, an insurer shall disclose:
38. An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts.
39. To comply with paragraph 38, an insurer shall disclose:
39A. To comply with paragraph 39(c)(i), an insurer shall disclose either (a) or (b) as follows:
40. *
41. *
41A. *
41B. *
41C. *
41D. *
41E. *
41F. *
41G. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 4(a) and (c), B7(b), B18(h) and B21 are amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[41H Omitted *41. I Ind AS 116 amended paragraph 4. An entity shall apply that amendment when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix A| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| Cedant | Thepolicyholderunder areinsurancecontract. |
| deposit component | A contractual component that is not accountedfor as a derivative under Ind AS 109 and would be within thescope of Ind AS 109 if it were a separate instrument. |
| direct insurance contract | Aninsurance contractthat is not areinsurance contract. |
| discretionary participation feature | A contractual right to receive, as a supplementtoguaranteed benefits, additional benefits: |
| (a) that are likelyto be a significant portion of the total contractual benefits; | |
| (b) whose amount ortiming is contractually at the discretion of the issuer; and | |
| (c) that arecontractually based on: | |
| (i) the performanceof a specified pool of contracts or a specified type of contract; | |
| (ii) realised and/orunrealised investment returns on a specified pool of assets heldby the issuer; or | |
| (iii) the profit orloss of the company, fund or other entity that issues thecontract. | |
| fair value | Fair valueis the price that would bereceived to sell an asset or paid to transfer a liability in anorderly transaction between market participants at themeasurement date. (See Ind AS 113.) |
| financial guarantee contract | A contract that requires the issuer to makespecified payments to reimburse the holder for a loss it incursbecause a specified debtor fails to make payment when due inaccordance with the original or modified terms of a debtinstrument. |
| financial risk | The risk of a possible future change in one ormore of a specified interest rate, financial instrument price,commodity price, foreign exchange rate, index of prices or rates,credit rating or credit index or other variable, provided in thecase of a non-financial variable that the variable is notspecific to a party to the contract. |
| guaranteed benefits | Payments or other benefits to which a particularpolicyholderor investor has an unconditional right thatis not subject to the contractual discretion of the issuer. |
| guaranteed element | An obligation to payguaranteed benefits,included in a contract that contains adiscretionaryparticipation feature. |
| insurance asset | Aninsurer'snet contractual rights underaninsurance contract. |
| insurance contract | A contract under which one party (theinsurer)accepts significantinsurance riskfrom another party (thepolicyholder) by agreeing to compensate the policyholderif a specified uncertain future event (theinsured event)adversely affects the policyholder. (See Appendix B for guidanceon this definition.) |
| insurance liability | Aninsurer'snet contractual obligationsunder aninsurance contract. |
| insurance risk | Risk, other thanfinancial risk,transferred from the holder of a contract to the issuer. |
| insured event | An uncertain future event that is covered by aninsurance contractand createsinsurance risk. |
| insurer | The party that has an obligation under aninsurance contractto compensate apolicyholderifaninsured eventoccurs. |
| liability adequacy test | An assessment of whether the carrying amount ofaninsurance liabilityneeds to be increased (or thecarrying amount of related deferred acquisition costs or relatedintangible assets decreased), based on a review of future cashflows. |
| policyholder | A party that has a right to compensation underaninsurance contractif aninsured eventoccurs. |
| reinsurance assets | Acedant'snet contractual rights under areinsurance contract. |
| reinsurance contract | Aninsurance contractissued by oneinsurer (thereinsurer) to compensate another insurer (thecedant) for losses on one or more contracts issued by thecedant. |
| reinsurer | The party that has an obligation under areinsurance contractto compensate acedantif aninsured eventoccurs. |
| unbundle | Account for the components of a contract as ifthey were separate contracts. |
1. Different terminology is used, to make it consistent with existing laws e.g., term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
2. The transitional provisions given in IFRS 4 have not been given in Ind AS 104, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
3. Paragraph 39(b) has been deleted in IFRS 4 by IASB. However, paragraph number has been retained in Ind AS 104 to maintain consistency with IFRS 4.
4. [ Paragraphs 40-41F and 41H related to effective date have not been included in Ind AS 104 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 4, these paragraph numbers are retained in Ind AS 104.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 105Non-current Assets Held for Sale and Discontinued Operations(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Indian Accounting Standard (Ind AS) is to specify the accounting for assets held for sale, and the presentation and disclosure of discontinued operations. In particular, this Ind AS requires:
2. The classification and presentation requirements of this Ind AS apply to all recognized [non-current assets] [For assets classified according to a liquidity presentation, non-current assets are assets that include amounts expected to be recovered more than twelve months after the reporting period. Paragraph 3 applies to the classification of such assets.] and to all disposal groups of an entity. The measurement requirements of this Ind AS apply to all recognized non-current assets and disposal groups (as set out in paragraph 4), except for those assets listed in paragraph 5 which shall continue to be measured in accordance with the Standard noted.
3. Assets classified as non-current in accordance with Ind AS 1, Presentation of Financial Statements, shall not be reclassified as current assets until they meet the criteria to be classified as held for sale in accordance with this Ind AS. Assets of a class that an entity would normally regard as non-current that are acquired exclusively with a view to resale shall not be classified as current unless they meet the criteria to be classified as held for sale in accordance with this Ind AS.
4. Sometimes an entity disposes of a group of assets, possibly with some directly associated liabilities, together in a single transaction. [Such a disposal group may be a group of cash-generating units, a single cash generating unit, or part of a cash-generating unit.] [However, once the cash flows from an asset or group of assets are expected to arise principally from sale rather than continuing use, they become less dependent on cash flows arising from other assets, and a disposal group that was part of a cash-generating unit becomes a separate cash generating unit.] The group may include any assets and any liabilities of the entity, including current assets, current liabilities and assets excluded by paragraph 5 from the measurement requirements of this Ind AS. If a non-current asset within the scope of the measurement requirements of this Ind AS is part of a disposal group, the measurement requirements of this Ind AS apply to the group as a whole, so that the group is measured at the lower of its carrying amount and fair value less costs to sell. The requirements for measuring the individual assets and liabilities within the disposal group are set out in paragraphs 18, 19 and 23.
5. The measurement provisions of this [Ind AS] [Other than paragraphs 18 and 19, which require the assets in question to be measured in accordance with other applicable Accounting Standards.] do not apply to the following assets, which are covered by the Ind ASs listed, either as individual assets or as part of a disposal group:
5A. The classification, presentation and measurement requirements in this Ind AS applicable to a non-current asset (or disposal group) that is classified as held for sale apply also to a non-current asset (or disposal group) that is classified as held for distribution to owners acting in their capacity as owners (held for distribution to owners).
5B. This Ind AS specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. Disclosures in other Ind ASs do not apply to such assets (or disposal groups) unless those Ind ASs require:
6. An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use.
7. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. Thus, an asset (or disposal group) cannot be classified as a non-current asset (or disposal group) held for sale, if the entity intends to sell it in a distant future.
8. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification, except as permitted by paragraph 9, and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The probability of shareholders' approval (if required in the jurisdiction) should be considered as part of the assessment of whether the sale is highly probable.
8A. An entity that is committed to a sale plan involving loss of control of a subsidiary shall classify all the assets and liabilities of that subsidiary as held for sale when the criteria set out in paragraphs 6-8 are met, regardless of whether the entity will retain a non-controlling interest in its former subsidiary after the sale.
9. Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale does not preclude an asset (or disposal group) from being classified as held for sale if the delay is caused by events or circumstances beyond the entity's control and there is sufficient evidence that the entity remains committed to its plan to sell the asset (or disposal group). This will be the case when the criteria in Appendix B are met.
10. Sale transactions include exchanges of non-current assets for other non-current assets when the exchange has commercial substance in accordance with Ind AS 16, Property, Plant and Equipment.
11. When an entity acquires a non-current asset (or disposal group) exclusively with a view to its subsequent disposal, it shall classify the non-current asset (or disposal group) as held for sale at the acquisition date only if the one-year requirement in paragraph 8 is met (except as permitted by paragraph 9) and it is highly probable that any other criteria in paragraphs 7 and 8 that are not met at that date will be met within a short period following the acquisition (usually within three months).
12. If the criteria in paragraphs 7 and 8 are met after the reporting period, an entity shall not classify a non-current asset (or disposal group) as held for sale in those financial statements when issued. However, when those criteria are met after the reporting period but before the approval of the financial statements for issue, the entity shall disclose the information specified in paragraph 41(a), (b) and (d) in the notes.
12A. A non-current asset (or disposal group) is classified as held for distribution to owners when the entity is committed to distribute the asset (or disposal group) to the owners. For this to be the case, the assets must be available for immediate distribution in their present condition and the distribution must be highly probable. For the distribution to be highly probable, actions to complete the distribution must have been initiated and should be expected to be completed within one year from the date of classification. Actions required to complete the distribution should indicate that it is unlikely that significant changes to the distribution will be made or that the distribution will be withdrawn. The probability of shareholders' approval (if required in the jurisdiction) should be considered as part of the assessment of whether the distribution is highly probable.
Non-current assets that are to be abandoned13. An entity shall not classify as held for sale a non-current asset (or disposal group) that is to be abandoned. This is because its carrying amount will be recovered principally through continuing use. However, if the disposal group to be abandoned meets the criteria in paragraph 32(a)-(c), the entity shall present the results and cash flows of the disposal group as discontinued operations in accordance with paragraphs 33 and 34 at the date on which it ceases to be used. Non-current assets (or disposal groups) to be abandoned include noncurrent assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold.
14. An entity shall not account for a non-current asset that has been temporarily taken out of use as if it had been abandoned.
Measurement of non-current assets (or disposal groups) classified as held for saleMeasurement of a non-current asset (or disposal group)15. An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell.
15A. An entity shall measure a non-current asset (or disposal group) classified as held for distribution to owners at the lower of its carrying amount and fair value less [costs to distribute] [Costs to distribute are the incremental costs directly attributable to the distribution, excluding finance costs and income tax expense.].
16. If a newly acquired asset (or disposal group) meets the criteria to be classified as held for sale (see paragraph 11), applying paragraph 15 will result in the asset (or disposal group) being measured on initial recognition at the lower of its carrying amount had it not been so classified (for example, cost) and fair value less costs to sell. Hence, if the asset (or disposal group) is acquired as part of a business combination, it shall be measured at fair value less costs to sell.
17. When the sale is expected to occur beyond one year, the entity shall measure the costs to sell at their present value. Any increase in the present value of the costs to sell that arises from the passage of time shall be presented in profit or loss as a financing cost.
18. Immediately before the initial classification of the asset (or disposal group) as held for sale, the carrying amounts of the asset (or all the assets and liabilities in the group) shall be measured in accordance with applicable Ind ASs.
19. On subsequent re-measurement of a disposal group, the carrying amounts of any assets and liabilities that are not within the scope of the measurement requirements of this Ind AS, but are included in a disposal group classified as held for sale, shall be remeasured in accordance with applicable Ind ASs before the fair value less costs to sell of the disposal group is remeasured.
Recognition of impairment losses and reversals20. An entity shall recognise an impairment loss for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell, to the extent that it has not been recognized in accordance with paragraph 19.
21. An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of an asset, but not in excess of the cumulative impairment loss that has been recognized either in accordance with this Ind AS or previously in accordance with Ind AS 36, Impairment of Assets.
22. An entity shall recognise a gain for any subsequent increase in fair value less costs to sell of a disposal group:
23. The impairment loss (or any subsequent gain) recognized for a disposal group shall reduce (or increase) the carrying amount of the non-current assets in the group that are within the scope of the measurement requirements of this Ind AS, in the order of allocation set out in paragraphs 104(a) and (b) and 122 of Ind AS 36.
24. A gain or loss not previously recognized by the date of the sale of a non-current asset (or disposal group) shall be recognized at the date of derecognition. Requirements relating to derecognition are set out in:
25. An entity shall not depreciate (or amortise) a non-current asset while it is classified as held for sale or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale shall continue to be recognized.
[Changes to a plan of sale or to a plan of distribution to owners26. If an entity has classified an asset (or disposal group) as held for sale or as held for distribution to owners, but the criteria in paragraphs 7-9 (for held for sale) or in paragraph 12A (for held for distribution to owners) are no longer met, the entity shall cease to classify the asset (or disposal group) as held for sale or held for distribution to owners (respectively). In such cases an entity shall follow the guidance in paragraphs 27-29 to account for this change except when paragraph 26A applies.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
26A. [ If an entity reclassifies an asset (or disposal group) directly from being held for sale to being held for distribution to owners, or directly from being held for distribution to owners to being held for sale, then the change in classification is considered a continuation of the original plan of disposal. The entity:
27. [ The entity shall measure a non-current asset (or disposal group) that ceases to be classified as held for sale or as held for distribution to owners (or ceases to be included in a disposal group classified as held for sale or as held for distribution to owners) at the lower of:
5. If the non-current asset is part of a cash-generating unit, its recoverable amount is the carrying amount that would have been recognized after the allocation of any impairment loss arising on that cash-generating unit in accordance with Ind AS 36.
28. The entity shall include any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale or as held for distribution to owners in profit or loss6 from continuing operations in the period in which the criteria in paragraphs 7-9 or 12A, respectively, are no longer met. Financial statements for the periods since classification as held for sale or as held for distribution to owners shall be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale or as held for distribution to owners is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The entity shall present that adjustment in the same caption in the statement of profit and loss used to present a gain or loss, if any, recognized in accordance with paragraph 37.
6. Unless the asset is property, plant and equipment or an intangible asset that had been revalued in accordance with Ind AS 16 or Ind AS 38 before classification as held for sale, in which case the adjustment shall be treated as a revaluation increase or decrease.
29. If an entity removes an individual asset or liability from a disposal group classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the group meets the criteria in paragraphs 7-9. If an entity removes an individual asset or liability from a disposal group classified as held for distribution to owners, the remaining assets and liabilities of the disposal group to be distributed shall continue to be measured as a group only if the group meets the criteria in paragraph 12A. Otherwise, the remaining non-current assets of the group that individually meet the criteria to be classified as held for sale (or as held for distribution to owners) shall be measured individually at the lower of their carrying amounts and fair values less costs to sell (or costs to distribute) at that date. Any non-current assets that do not meet the criteria for held for sale shall cease to be classified as held for sale in accordance with paragraph 26. Any non-current assets that do not meet the criteria for held for distribution to owners shall cease to be classified as held for distribution to owners in accordance with paragraph 26.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Presentation and disclosure30. An entity shall present and disclose information that enables users of the financial statements to evaluate the financial effects of discontinued operations and disposals of non-current assets (or disposal groups).
Presenting discontinued operations31. A component of an entity comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the entity. In other words, a component of an entity will have been a cash-generating unit or a group of cash-generating units while being held for use.
32. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and
33. An entity shall disclose:
33A. [Refer Appendix 1]
34. An entity shall re-present the disclosures in paragraph 33 for prior periods presented in the financial statements so that the disclosures relate to all operations that have been discontinued by the end of the reporting period for the latest period presented.
35. Adjustments in the current period to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operation in a prior period shall be classified separately in discontinued operations. The nature and amount of such adjustments shall be disclosed. Examples of circumstances in which these adjustments may arise include the following:
36. If an entity ceases to classify a component of an entity as held for sale, the results of operations of the component previously presented in discontinued operations in accordance with paragraphs 33-35 shall be reclassified and included in income from continuing operations for all periods presented. The amounts for prior periods shall be described as having been re-presented.
36A. An entity that is committed to a sale plan involving loss of control of a subsidiary shall disclose the information required in paragraphs 33-36 when the subsidiary is a disposal group that meets the definition of a discontinued operation in accordance with paragraph 32.
Gains or losses relating to continuing operations37. Any gain or loss on the re-measurement of a non-current asset (or disposal group) classified as held for sale that does not meet the definition of a discontinued operation shall be included in profit or loss from continuing operations.
Presentation of a non-current asset or disposal group classified as held for sale38. An entity shall present a non-current asset classified as held for sale and the assets of a disposal group classified as held for sale separately from other assets in the balance sheet. The liabilities of a disposal group classified as held for sale shall be presented separately from other liabilities in the balance sheet. Those assets and liabilities shall not be offset and presented as a single amount. The major classes of assets and liabilities classified as held for sale shall be separately disclosed either in the balance sheet or in the notes, except as permitted by paragraph 39. An entity shall present separately any cumulative income or expense recognized in other comprehensive income relating to a non-current asset (or disposal group) classified as held for sale.
39. If the disposal group is a newly acquired subsidiary that meets the criteria to be classified as held for sale on acquisition (see paragraph 11), disclosure of the major classes of assets and liabilities is not required.
40. An entity shall not reclassify or re-present amounts presented for non-current assets or for the assets and liabilities of disposal groups classified as held for sale in the balance sheets for prior periods to reflect the classification in the balance sheet for the latest period presented.
Additional disclosures41. An entity shall disclose the following information in the notes in the period in which a non-current asset (or disposal group) has been either classified as held for sale or sold:
42. If either paragraph 26 or paragraph 29 applies, an entity shall disclose, in the period of the decision to change the plan to sell the non-current asset (or disposal group), a description of the facts and circumstances leading to the decision and the effect of the decision on the results of operations for the period and any prior periods presented.
Appendix A| Defined terms | |
| This appendix is anintegral part of the Ind AS. | |
| cash-generating unit | The smallest identifiable group of assets thatgenerates cash inflows that are largely independent of the cashinflows from other assets or groups of assets. |
| component of an entity | Operations and cash flows that can be clearlydistinguished, operationally and for financial reportingpurposes, from the rest of the entity. |
| costs to sell | The incremental costs directly attributable tothe disposal of an asset (ordisposal group), excludingfinance costs and income tax expense. |
| current asset | An entity shall classify an asset as currentwhen: |
| (a) it expects torealise the asset, or intends to sell or consume it, in itsnormal operating cycle; | |
| (b) it holds theasset primarily for the purpose of trading; | |
| (c) it expects torealise the asset within twelve months after the reportingperiod; or | |
| (d) the asset iscash or a cash equivalent (as defined in Ind AS 7) unless theasset is restricted from being exchanged or used to settle aliability for at least twelve months after the reporting period. | |
| discontinued operation | Acomponent of an entitythat either hasbeen disposed of or is classified as held for sale and: |
| (a) represents aseparate major line of business or geographical area ofoperations, | |
| (b) is part of asingle co-ordinated plan to dispose of a separate major line ofbusiness or geographical area of operations or | |
| (c) is a subsidiaryacquired exclusively with a view to resale. | |
| disposal group | A group of assets to be disposed of, by sale orotherwise, together as a group in a single transaction, andliabilities directly associated with those assets that will betransferred in the transaction. The group includes goodwillacquired in a business combination if the group is acash-generating unitto which goodwill has been allocatedin accordance with the requirements of paragraphs 80-87 of Ind AS36,Impairment of Assets, or if it is an operation withinsuch a cash-generating unit. |
| fair value | Fair valueis the price that would bereceived to sell an asset or paid to transfer a liability in anorderly transaction between market participants at themeasurement date. (See Ind AS 113.) |
| firm purchase commitment | An agreement with an unrelated party, binding onboth parties and usually legally enforceable, that (a) specifiesall significant terms, including the price and timing of thetransactions, and (b) includes a disincentive for non-performancethat is sufficiently large to make performancehighlyprobable. |
| highly probable | Significantly more likely thanprobable. |
| non-current asset | An asset that does not meet the definition of acurrent asset. |
| probable | More likely than not. |
| recoverable amount | The higher of an asset'sfair valuelesscosts to selland itsvalue in use. |
| value in use | The present value of estimated future cash flowsexpected to arise from the continuing use of an asset and fromits disposal at the end of its useful life. |
1. The transitional provisions given in IFRS 5 have not been given in Ind AS 105, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. Words 'approval of the financial statements for issue' have been used instead of 'authorisation of the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period.
3. Requirements regarding presentation of discontinued operations in the separate income statement, where separate income statement is presented under paragraph 33A of IFRS 5 have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss. However, paragraph number 33A has been retained in Ind AS 105 to maintain consistency with paragraph numbers of IFRS 5.
4. Paragraph 5(d) of IFRS 5 deals with non-current assets that are accounted for in accordance with the fair value model in IAS 40, Investment Property. Since Ind AS 40 prohibits the use of fair value model, this paragraph is deleted in Ind AS 105.
Paragraph 7 prescribes the conditions for classification of a non-current asset (or disposal group) as held for sale. A clarification has been added in Paragraph 7 that the non-current asset (or disposal group) cannot be classified as held for sale, if the entity intends to sell it in a distant future.Indian Accounting Standard (Ind AS) 106Exploration for and Evaluation of Mineral Resources(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Indian Accounting Standard (Ind AS) is to specify the financial reporting for the exploration for and evaluation of mineral resources.
2. In particular, the Ind AS requires:
3. An entity shall apply this Ind AS to exploration and evaluation expenditures that it incurs.
4. This Ind AS does not address other aspects of accounting by entities engaged in the exploration for and evaluation of mineral resources.
5. An entity shall not apply this Ind AS to expenditures incurred:
6. When developing its accounting policies, an entity recognising exploration and evaluation assets shall apply paragraph 10 of Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
7. Paragraphs 11 and 12 of Ind AS 8 specify sources of authoritative requirements and guidance that management is required to consider in developing an accounting policy for an item if no Accounting Standard applies specifically to that item. Subject to paragraphs 9 and 10 below, this Accounting Standard exempts an entity from applying those paragraphs to its accounting policies for the recognition and measurement of exploration and evaluation assets.
Measurement of Exploration and Evaluation AssetsMeasurement at recognition8. Exploration and evaluation assets shall be measured at cost.
Elements of cost of exploration and evaluation assets9. An entity shall determine an accounting policy specifying which expenditures are recognized as exploration and evaluation assets and apply the policy consistently. In making this determination, an entity considers the degree to which the expenditure can be associated with finding specific mineral resources. The following are examples of expenditures that might be included in the initial measurement of exploration and evaluation assets (the list is not exhaustive):
10. Expenditures related to the development of mineral resources shall not be recognized as exploration and evaluation assets. The Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the Institute of Chartered Accountants of India and Ind AS 38, Intangible Assets, provide guidance on the recognition of assets arising from development.
11. In accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, an entity recognises any obligations for removal and restoration that are incurred during a particular period as a consequence of having undertaken the exploration for and evaluation of mineral resources.
Measurement after recognition12. After recognition, an entity shall apply either the cost model or the revaluation model to the exploration and evaluation assets. If the revaluation model is applied (either the model in Ind AS 16, Property, Plant and Equipment, or the model in Ind AS 38) it shall be consistent with the classification of the assets (see paragraph 15).
Changes in accounting policies13. An entity may change its accounting policies for exploration and evaluation expenditures if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An entity shall judge relevance and reliability using the criteria in Ind AS 8.
14. To justify changing its accounting policies for exploration and evaluation expenditures, an entity shall demonstrate that the change brings its financial statements closer to meeting the criteria in Ind AS 8, but the change need not achieve full compliance with those criteria.
PresentationClassification of exploration and evaluation assets15. An entity shall classify exploration and evaluation assets as tangible or intangible according to the nature of the assets acquired and apply the classification consistently.
16. Some exploration and evaluation assets are treated as intangible (e.g. drilling rights), whereas others are tangible (e.g. vehicles and drilling rigs). To the extent that a tangible asset is consumed in developing an intangible asset, the amount reflecting that consumption is part of the cost of the intangible asset. However, using a tangible asset to develop an intangible asset does not change a tangible asset into an intangible asset.
Reclassification of exploration and evaluation assets17. An exploration and evaluation asset shall no longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration and evaluation assets shall be assessed for impairment, and any impairment loss recognized, before reclassification.
ImpairmentRecognition and measurement18. Exploration and evaluation assets shall be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When facts and circumstances suggest that the carrying amount exceeds the recoverable amount, an entity shall measure, present and disclose any resulting impairment loss in accordance with Ind AS 36, except as provided by paragraph 21 below.
19. For the purposes of exploration and evaluation assets only, paragraph 20 of this Accounting Standard shall be applied rather than paragraphs 8-17 of Ind AS 36 when identifying an exploration and evaluation asset that may be impaired. Paragraph 20 uses the term 'assets' but applies equally to separate exploration and evaluation assets or a cash-generating unit.
20. One or more of the following facts and circumstances indicate that an entity should test exploration and evaluation assets for impairment (the list is not exhaustive):
21. An entity shall determine an accounting policy for allocating exploration and evaluation assets to cash generating units or groups of cash-generating units for the purpose of assessing such assets for impairment. Each cash-generating unit or group of units to which an exploration and evaluation asset is allocated shall not be larger than an operating segment determined in accordance with Ind AS 108,
Operating Segments.22. The level identified by the entity for the purposes of testing exploration and evaluation assets for impairment may comprise one or more cash-generating units.
Disclosure23. An entity shall disclose information that identifies and explains the amounts recognized in its financial statements arising from the exploration for and evaluation of mineral resources.
24. To comply with paragraph 23, an entity shall disclose:
25. An entity shall treat exploration and evaluation assets as a separate class of assets and make the disclosures required by either Ind AS 16 or Ind AS 38 consistent with how the assets are classified.
Appendix A| Defined Terms | |
| This Appendix is an integral part of the Ind AS. | |
| exploration and evaluation assets | Exploration and evaluation expendituresrecognized as assets in accordance with the entity's accountingpolicy. |
| exploration and evaluation expenditures | Expenditures incurred by an entity in connectionwith theexploration for and evaluation of mineral resourcesbefore the technical feasibility and commercial viability ofextracting a mineral resource are demonstrable. |
| exploration for and evaluation of mineral resources | The search for mineral resources, includingminerals, oil, natural gas and similar non-regenerative resourcesafter the entity has obtained legal rights to explore in aspecific area, as well as the determination of the technicalfeasibility and commercial viability of extracting the mineralresource. |
1. The transitional provisions given in IFRS 6 have not been given in Ind AS 106, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
Indian Accounting Standard (Ind AS) 107Financial Instruments: Disclosures(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Indian Accounting Standard (Ind AS) is to require entities to provide disclosures in their financial statements that enable users to evaluate:
2. The principles in this Ind AS complement the principles for recognising, measuring and presenting financial assets and financial liabilities in Ind AS 32, Financial Instruments: Presentation, and Ind AS 109, Financial Instruments.
Scope3. This Ind AS shall be applied by all entities to all types of financial instruments, except:
4. This Ind AS applies to recognized and unrecognized financial instruments. Recognised financial instruments include financial assets and financial liabilities that are within the scope of Ind AS 109. Unrecognized financial instruments include some financial instruments that, although outside the scope of Ind AS 109, are within the scope of this Ind AS.
5. This Ind AS applies to contracts to buy or sell a non-financial item that are within the scope of Ind AS 109.
5A. [ The credit risk disclosure requirements in paragraphs 35A to 35N apply to those rights that Ind AS 115, Revenue from Contracts with Customers specifies are accounted for in accordance with Ind AS 109 for the purposes of recognising impairment gains or losses. Any reference to financial assets or financial instruments in these paragraphs shall include those rights unless otherwise specified.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Classes of financial instruments and level of disclosure6. When this Ind AS requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the balance sheet.
Significance of financial instruments for financial position and performance7. An entity shall disclose information that enables users of its financial statements to evaluate the significance of financial instruments for its financial position and performance.
Balance sheetCategories of financial assets and financial liabilities8. The carrying amounts of each of the following categories, as specified in Ind AS 109, shall be disclosed either in the balance sheet or in the notes:
9. If the entity has designated as measured at fair value through profit or loss a financial asset (or group of financial assets) that would otherwise be measured at fair value through other comprehensive income or amortised cost, it shall disclose:
10. If the entity has designated a financial liability as at fair value through profit or loss in accordance with paragraph 4.2.2 of Ind AS 109 and is required to present the effects of changes in that liability's credit risk in other comprehensive income (see paragraph 5.7.7 of Ind AS 109), it shall disclose:
10A. If an entity has designated a financial liability as at fair value through profit or loss in accordance with paragraph 4.2.2 of Ind AS 109 and is required to present all changes in the fair value of that liability (including the effects of changes in the credit risk of the liability) in profit or loss (see paragraphs 5.7.7 and 5.7.8 of Ind AS 109), it shall disclose:
11. The entity shall also disclose:
11A. If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income, as permitted by paragraph 5.7.5 of Ind AS 109, it shall disclose:
11B. If an entity derecognized investments in equity instruments measured at fair value through other comprehensive income during the reporting period, it shall disclose:
12. [Refer Appendix 1]
12A.
12B. An entity shall disclose if, in the current or previous reporting periods, it has reclassified any financial assets in accordance with paragraph 4.4.1 of Ind AS 109. For each such event, an entity shall disclose:
12C. For each reporting period following reclassification until derecognition, an entity shall disclose for assets reclassified out of the fair value through profit or loss category so that they are measured at amortised cost or fair value through other comprehensive income in accordance with paragraph 4.4.1 of Ind AS 109:
12D. If, since its last annual reporting date, an entity has reclassified financial assets out of the fair value through other comprehensive income category so that they are measured at amortised cost or out of the fair value through profit or loss category so that they are measured at amortised cost or fair value through other comprehensive income it shall disclose:
13. [Refer Appendix 1]
Offsetting financial assets and financial liabilities13A. The disclosures in paragraphs 13B-13E supplement the other disclosure requirements of this Ind AS and are required for all recognized financial instruments that are set off in accordance with paragraph 42 of Ind AS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with paragraph 42 of Ind AS 32.
13B. An entity shall disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on the entity's financial position. This includes the effect or potential effect of rights of set-off associated with the entity's recognized financial assets and recognized financial liabilities that are within the scope of paragraph 13A.
13C. To meet the objective in paragraph 13B, an entity shall disclose, at the end of the reporting period, the following quantitative information separately for recognized financial assets and recognized financial liabilities that are within the scope of paragraph 13A:
13D. The total amount disclosed in accordance with paragraph 13C(d) for an instrument shall be limited to the amount in paragraph 13C(c) for that instrument.
13E. An entity shall include a description in the disclosures of the rights of set-off associated with the entity's recognized financial assets and recognized financial liabilities subject to enforceable master netting arrangements and similar agreements that are disclosed in accordance with paragraph 13C(d), including the nature of those rights.
13F. If the information required by paragraphs 13B-13E is disclosed in more than one note to the financial statements, an entity shall cross-refer between those notes.
Collateral14. An entity shall disclose:
15. When an entity holds collateral (of financial or non-financial assets) and is permitted to sell or repledge the collateral in the absence of default by the owner of the collateral, it shall disclose:
16. [Refer Appendix 1]
16A. The carrying amount of financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of Ind AS 109 is not reduced by a loss allowance and an entity shall not present the loss allowance separately in the balance sheet as a reduction of the carrying amount of the financial asset. However, an entity shall disclose the loss allowance in the notes to the financial statements.
Compound financial instruments with multiple embedded derivatives17. If an entity has issued an instrument that contains both a liability and an equity component (see paragraph 28 of Ind AS 32) and the instrument has multiple embedded derivatives whose values are interdependent (such as a callable convertible debt instrument), it shall disclose the existence of those features.
Defaults and breaches18. For loans payable recognized at the end of the reporting period, an entity shall disclose:
19. If, during the period, there were breaches of loan agreement terms other than those described in paragraph 18, an entity shall disclose the same information as required by paragraph 18 if those breaches permitted the lender to demand accelerated repayment (unless the breaches were remedied, or the terms of the loan were renegotiated, on or before the end of the reporting period).
Statement of profit and lossItems of income, expense, gains or losses20. An entity shall disclose the following items of income, expense, gains or losses either in the statement of profit and loss or in the notes:
20A. An entity shall disclose an analysis of the gain or loss recognized in the statement of profit and loss arising from the derecognition of financial assets measured at amortised cost, showing separately gains and losses arising from derecognition of those financial assets. This disclosure shall include the reasons for derecognising those financial assets.
Other disclosuresAccounting policies21. [ In accordance with paragraph 117 of Ind AS 1, Presentation of Financial Statements, an entity discloses its significant accounting policies, comprising the measurement basis (or bases) used in preparing the financial statements and the other accounting policies used that are relevant to an understanding of the financial statements.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Hedge accounting21A. An entity shall apply the disclosure requirements in paragraphs 21B-24F for those risk exposures that an entity hedges and for which it elects to apply hedge accounting. Hedge accounting disclosures shall provide information about:
21B. An entity shall present the required disclosures in a single note or separate section in its financial statements. However, an entity need not duplicate information that is already presented elsewhere, provided that the information is incorporated by cross-reference from the financial statements to some other statement, such as a management commentary or risk report, that is available to users of the financial statements on the same terms as the financial statements and at the same time. Without the information incorporated by cross-reference, the financial statements are incomplete.
21C. When paragraphs 22A-24F require the entity to separate by risk category the information disclosed, the entity shall determine each risk category on the basis of the risk exposures an entity decides to hedge and for which hedge accounting is applied. An entity shall determine risk categories consistently for all hedge accounting disclosures.
21D. To meet the objectives in paragraph 21A, an entity shall (except as otherwise specified below) determine how much detail to disclose, how much emphasis to place on different aspects of the disclosure requirements, the appropriate level of aggregation or disaggregation, and whether users of financial statements need additional explanations to evaluate the quantitative information disclosed. However, an entity shall use the same level of aggregation or disaggregation it uses for disclosure requirements of related information in this Ind AS and Ind AS 113, Fair Value Measurement.
The risk management strategy22. [Refer Appendix 1]
22A. An entity shall explain its risk management strategy for each risk category of risk exposures that it decides to hedge and for which hedge accounting is applied. This explanation should enable users of financial statements to evaluate (for example):
22B. To meet the requirements in paragraph 22A, the information should include (but is not limited to) a description of:
22C. When an entity designates a specific risk component as a hedged item (see paragraph 6.3.7 of Ind AS 109) it shall provide, in addition to the disclosures required by paragraphs 22A and 22B, qualitative or quantitative information about:
23. [Refer Appendix 1]
23A. Unless exempted by paragraph 23C, an entity shall disclose by risk category quantitative information to allow users of its financial statements to evaluate the terms and conditions of hedging instruments and how they affect the amount, timing and uncertainty of future cash flows of the entity.
23B. To meet the requirement in paragraph 23A, an entity shall provide a breakdown that discloses:
23C. In situations in which an entity frequently resets (i.e. discontinues and restarts) hedging relationships because both the hedging instrument and the hedged item frequently change (i.e. the entity uses a dynamic process in which both the exposure and the hedging instruments used to manage that exposure do not remain the same for long-such as in the example in paragraph B6.5.24(b) of Ind AS 109) the entity:
23D. An entity shall disclose by risk category a description of the sources of hedge ineffectiveness that are expected to affect the hedging relationship during its term.
23E. If other sources of hedge ineffectiveness emerge in a hedging relationship, an entity shall disclose those sources by risk category and explain the resulting hedge ineffectiveness.
23F. For cash flow hedges, an entity shall disclose a description of any forecast transaction for which hedge accounting had been used in the previous period, but which is no longer expected to occur.
The effects of hedge accounting on financial position and performance24. [Refer Appendix 1]
24A. An entity shall disclose, in a tabular format, the following amounts related to items designated as hedging instruments separately by risk category for each type of hedge (fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation):
24B. An entity shall disclose, in a tabular format, the following amounts related to hedged items separately by risk category for the types of hedges as follows:
24C. An entity shall disclose, in a tabular format, the following amounts separately by risk category for the types of hedges as follows:
24D. When the volume of hedging relationships to which the exemption in paragraph 23C applies is unrepresentative of normal volumes during the period (i.e. the volume at the reporting date does not reflect the volumes during the period) an entity shall disclose that fact and the reason it believes the volumes are unrepresentative.
24E. An entity shall provide a reconciliation of each component of equity and an analysis of other comprehensive income in accordance with Ind AS 1 that, taken together:
24F. An entity shall disclose the information required in paragraph 24E separately by risk category. This disaggregation by risk may be provided in the notes to the financial statements.
Option to designate a credit exposure as measured at fair value through profit or loss24G. If an entity designated a financial instrument, or a proportion of it, as measured at fair value through profit or loss because it uses a credit derivative to manage the credit risk of that financial instrument it shall disclose:
25. Except as set out in paragraph 29, for each class of financial assets and financial liabilities (see paragraph 6), an entity shall disclose the fair value of that class of assets and liabilities in a way that permits it to be compared with its carrying amount.
26. In disclosing fair values, an entity shall group financial assets and financial liabilities into classes, but shall offset them only to the extent that their carrying amounts are offset in the balance sheet.
27. [Refer Appendix 1]
27B.
28. In some cases, an entity does not recognise a gain or loss on initial recognition of a financial asset or financial liability because the fair value is neither evidenced by a quoted price in an active market for an identical asset or liability (i.e. a Level 1 input) nor based on a valuation technique that uses only data from observable markets (see paragraph B5.1.2A of Ind AS 109). In such cases, the entity shall disclose by class of financial asset or financial liability:
29. Disclosures of fair value are not required:
30. In the case described in paragraph 29(c), an entity shall disclose information to help users of the financial statements make their own judgements about the extent of possible differences between the carrying amount of those contracts and their fair value, including:
31. An entity shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period.
32. The disclosures required by paragraphs 33-42 focus on the risks that arise from financial instruments and how they have been managed. These risks typically include, but are not limited to, credit risk, liquidity risk and market risk.
32A. Providing qualitative disclosures in the context of quantitative disclosures enables users to link related disclosures and hence form an overall picture of the nature and extent of risks arising from financial instruments. The interaction between qualitative and quantitative disclosures contributes to disclosure of information in a way that better enables users to evaluate an entity's exposure to risks.
Qualitative disclosures33. For each type of risk arising from financial instruments, an entity shall disclose:
34. For each type of risk arising from financial instruments, an entity shall disclose:
35. If the quantitative data disclosed as at the end of the reporting period are unrepresentative of an entity's exposure to risk during the period, an entity shall provide further information that is representative.
Credit riskScope and objectives35A. An entity shall apply the disclosure requirements in paragraphs 35F-35N to financial instruments to which the impairment requirements in Ind AS 109 are applied. However:
35B. The credit risk disclosures made in accordance with paragraphs 35F-35N shall enable users of financial statements to understand the effect of credit risk on the amount, timing and uncertainty of future cash flows. To achieve this objective, credit risk disclosures shall provide:
35C. An entity need not duplicate information that is already presented elsewhere, provided that the information is incorporated by cross-reference from the financial statements to other statements, such as a management commentary or risk report that is available to users of the financial statements on the same terms as the financial statements and at the same time. Without the information incorporated by cross-reference, the financial statements are incomplete.
35D. To meet the objectives in paragraph 35B, an entity shall (except as otherwise specified) consider how much detail to disclose, how much emphasis to place on different aspects of the disclosure requirements, the appropriate level of aggregation or disaggregation, and whether users of financial statements need additional explanations to evaluate the quantitative information disclosed.
35E. If the disclosures provided in accordance with paragraphs 35F-35N are insufficient to meet the objectives in paragraph 35B, an entity shall disclose additional information that is necessary to meet those objectives.
The credit risk management practices.35F. An entity shall explain its credit risk management practices and how they relate to the recognition and measurement of expected credit losses. To meet this objective an entity shall disclose information that enables users of financial statements to understand and evaluate:
35G. An entity shall explain the inputs, assumptions and estimation techniques used to apply the requirements in Section 5.5 of Ind AS 109. For this purpose an entity shall disclose:
35H. To explain the changes in the loss allowance and the reasons for those changes, an entity shall provide, by class of financial instrument, a reconciliation from the opening balance to the closing balance of the loss allowance, in a table, showing separately the changes during the period for:
35I. To enable users of financial statements to understand the changes in the loss allowance disclosed in accordance with paragraph 35H, an entity shall provide an explanation of how significant changes in the gross carrying amount of financial instruments during the period contributed to changes in the loss allowance. The information shall be provided separately for financial instruments that represent the loss allowance as listed in paragraph 35H(a)-(c) and shall include relevant qualitative and quantitative information. Examples of changes in the gross carrying amount of financial instruments that contributed to the changes in the loss allowance may include:
35J. To enable users of financial statements to understand the nature and effect of modifications of contractual cash flows on financial assets that have not resulted in derecognition and the effect of such modifications on the measurement of expected credit losses, an entity shall disclose:
35K. To enable users of financial statements to understand the effect of collateral and other credit enhancements on the amounts arising from expected credit losses, an entity shall disclose by class of financial instrument:
35L. An entity shall disclose the contractual amount outstanding on financial assets that were written off during the reporting period and are still subject to enforcement activity.
Credit risk exposure35M. To enable users of financial statements to assess an entity's credit risk exposure and understand its significant credit risk concentrations, an entity shall disclose, by credit risk rating grades, the gross carrying amount of financial assets and the exposure to credit risk on loan commitments and financial guarantee contracts. This information shall be provided separately for financial instruments:
35N. For trade receivables, contract assets and lease receivables to which an entity applies paragraph 5.5.15 of Ind AS 109, the information provided in accordance with paragraph 35M may be based on a provision matrix (see paragraph B5.5.35 of Ind AS 109).
36. For all financial instruments within the scope of this Ind AS, but to which the impairment requirements in Ind AS 109 are not applied, an entity shall disclose by class of financial instrument:
38. When an entity obtains financial or non-financial assets during the period by taking possession of collateral it holds as security or calling on other credit enhancements (e.g. guarantees), and such assets meet the recognition criteria in other Ind AS, an entity shall disclose for such assets held at the reporting date:
39. An entity shall disclose:
40. Unless an entity complies with paragraph 41, it shall disclose:
41. If an entity prepares a sensitivity analysis, such as value-at-risk, that reflects inter-dependencies between risk variables (e.g. interest rates and exchange rates) and uses it to manage financial risks, it may use that sensitivity analysis in place of the analysis specified in paragraph 40. The entity shall also disclose:
42. When the sensitivity analyses disclosed in accordance with paragraph 40 or 41 are unrepresentative of a risk inherent in a financial instrument (for example because the year-end exposure does not reflect the exposure during the year), the entity shall disclose that fact and the reason it believes the sensitivity analyses are unrepresentative.
Transfers of financial assets42A. The disclosure requirements in paragraphs 42B-42H relating to transfers of financial assets supplement the other disclosure requirements of this Ind AS. An entity shall present the disclosures required by paragraphs 42B-42H in a single note in its financial statements. An entity shall provide the required disclosures for all transferred financial assets that are not derecognized and for any continuing involvement in a transferred asset, existing at the reporting date, irrespective of when the related transfer transaction occurred. For the purposes of applying the disclosure requirements in those paragraphs, an entity transfers all or a part of a financial asset (the transferred financial asset) if, and only if, it either:
42B. An entity shall disclose information that enables users of its financial statements:
42C. For the purposes of applying the disclosure requirements in paragraphs 42E-42H, an entity has continuing involvement in a transferred financial asset if, as part of the transfer, the entity retains any of the contractual rights or obligations inherent in the transferred financial asset or obtains any new contractual rights or obligations relating to the transferred financial asset. For the purposes of applying the disclosure requirements in paragraphs 42E-42H, the following do not constitute continuing involvement:
42D. An entity may have transferred financial assets in such a way that part or all of the transferred financial assets do not qualify for derecognition. To meet the objectives set out in paragraph 42B(a), the entity shall disclose at each reporting date for each class of transferred financial assets that are not derecognized in their entirety:
42E. To meet the objectives set out in paragraph 42B(b), when an entity derecognizes transferred financial assets in their entirety (see paragraph 3.2.6(a) and (c)(i) of Ind AS 109) but has continuing involvement in them, the entity shall disclose, as a minimum, for each type of continuing involvement at each reporting date:
42F. An entity may aggregate the information required by paragraph 42E in respect of a particular asset if the entity has more than one type of continuing involvement in that derecognized financial asset, and report it under one type of continuing involvement.
42G. In addition, an entity shall disclose for each type of continuing involvement:
42H. An entity shall disclose any additional information that it considers necessary to meet the disclosure objectives in paragraph 42B.
[42 I-42S Omitted *Effective date and transition43.
-44BB Omitted*44CC. Ind AS 116 amended paragraphs 29 and B11D. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
* Refer Appendix 1Appendix A| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| credit risk | The risk that one party to a financialinstrument will cause a financial loss for the other party byfailing to discharge an obligation. |
| credit risk rating grades | credit riskRating of credit risk basedon the risk of a default occurringrating gradeson thefinancial instrument. |
| currency risk | The risk that the fair value or future cashflows of a financial instrument will fluctuate because of changesin foreign exchange rates. |
| interest rate risk | The risk that the fair value or future cashflows of a financial instrument will fluctuate because of changesin market interest rates. |
| liquidity risk | The risk that an entity will encounterdifficulty in meeting obligations associated with financialliabilities that are settled by delivering cash or anotherfinancial asset. |
| loans payable | Loans payable are financial liabilities, otherthan short-term trade payables on normal credit terms. |
| market risk | The risk that the fair value or future cashflows of a financial instrument will fluctuate because of changesin market prices. Market risk comprises three types of risk:currency risk, interest rate riskandother price risk. |
| other price risk | The risk that the fair value or future cashflows of a financial instrument will fluctuate because of changesin market prices (other than those arising frominterest rateriskorcurrencyrisk), whether those changes are caused by factors specificto the individual financial instrument or its issuer or byfactors affecting all similar financial instruments traded in themarket. |
1. Appendix A, Distributions of Non-cash Assets to Owners, contained in Ind AS 10, Events After the Reporting Period
2. [ Appendix D, Service Concession Arrangements, contained in Ind AS 115, Revenue from Contracts with Customers.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 107 and the corresponding International Accounting Standard (IFRS) 7, Financial Instruments: Disclosures, issued by the International Accounting Standards Board.Comparison with IFRS 7, Financial Instruments: Disclosures1. The transitional provisions given in IAS 107 have not been given in Ind AS 107, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. Words 'approved for issue' have been used instead of 'authorised for issue' in the context of financial statements considered for the purpose of events after the reporting period.
3. Requirements regarding disclosure of description of gains and losses presented in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1 as compared to IAS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.
4. The following paragraph numbers appear as 'Deleted' in IFRS 7. In order to maintain consistency with paragraph numbers of Ind 107, the paragraph numbers are retained in Ind AS 107 :
5. [ Paragraphs 42I-42S of IFRS 7 have not been included in Ind AS 107 as these paragraphs relate to Initial application of IFRS 9 which are not relevant in Indian context. Paragraphs 43-44BB related to effective date and transition given in IFRS 7 have not been given in Ind AS 107 since it is not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 7, these paragraph numbers are retained in Ind AS 107.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 108Operating Segments(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Core principle1. An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.
Scope2. This Accounting Standard shall apply to companies to which Indian Accounting Standards (Ind ASs) notified under the Companies Act apply.
[Refer Appendix 1]3. If an entity that is not required to apply this Ind AS chooses to disclose information about segments that does not comply with this Ind AS, it shall not describe the information as segment information.
4. If a financial report contains both the consolidated financial statements of a parent that is within the scope of this Ind AS as well as the parent's separate financial statements, segment information is required only in the consolidated financial statements.
Operating segments5. An operating segment is a component of an entity:
6. Not every part of an entity is necessarily an operating segment or part of an operating segment. For example, a corporate headquarters or some functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the entity and would not be operating segments. For the purposes of this Ind AS, an entity's post-employment benefit plans are not operating segments.
7. The term 'chief operating decision maker' identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others.
8. For many entities, the three characteristics of operating segments described in paragraph 5 clearly identify its operating segments. However, an entity may produce reports in which its business activities are presented in a variety of ways. If the chief operating decision maker uses more than one set of segment information, other factors may identify a single set of components as constituting an entity's operating segments, including the nature of the business activities of each component, the existence of managers responsible for them, and information presented to the board of directors.
9. Generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment. The term 'segment manager' identifies a function, not necessarily a manager with a specific title. The chief operating decision maker also may be the segment manager for some operating segments. A single manager may be the segment manager for more than one operating segment. If the characteristics in paragraph 5 apply to more than one set of components of an organisation but there is only one set for which segment managers are held responsible, that set of components constitutes the operating segments.
10. The characteristics in paragraph 5 may apply to two or more overlapping sets of components for which managers are held responsible. That structure is sometimes referred to as a matrix form of organisation. For example, in some entities, some managers are responsible for different product and service lines worldwide, whereas other managers are responsible for specific geographical areas. The chief operating decision maker regularly reviews the operating results of both sets of components, and financial information is available for both. In that situation, the entity shall determine which set of components constitutes the operating segments by reference to the core principle.
Reportable segments11. An entity shall report separately information about each operating segment that:
12. Operating segments often exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average gross margins for two operating segments would be expected if their economic characteristics were similar. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of this Ind AS, the segments have similar economic characteristics, and the segments are similar in each of the following respects:
13. An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:
14. An entity may combine information about operating segments that do not meet the quantitative thresholds with information about other operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the operating segments have similar economic characteristics and share a majority of the aggregation criteria listed in paragraph 12.
15. If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments shall be identified as reportable segments (even if they do not meet the criteria in paragraph 13) until at least 75 per cent of the entity's revenue is included in reportable segments.
16. Information about other business activities and operating segments that are not reportable shall be combined and disclosed in an 'all other segments' category separately from other reconciling items in the reconciliations required by paragraph 28. The sources of the revenue included in the 'all other segments' category shall be described.
17. If management judges that an operating segment identified as a reportable segment in the immediately preceding period is of continuing significance, information about that segment shall continue to be reported separately in the current period even if it no longer meets the criteria for reportability in paragraph 13.
18. If an operating segment is identified as a reportable segment in the current period in accordance with the quantitative thresholds, segment data for a prior period presented for comparative purposes shall be restated to reflect the newly reportable segment as a separate segment, even if that segment did not satisfy the criteria for reportability in paragraph 13 in the prior period, unless the necessary information is not available and the cost to develop it would be excessive.
19. There may be a practical limit to the number of reportable segments that an entity separately discloses beyond which segment information may become too detailed. Although no precise limit has been determined, as the number of segments that are reportable in accordance with paragraphs 13-18 increases above ten, the entity should consider whether a practical limit has been reached.
Disclosure20. An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.
21. To give effect to the principle in paragraph 20, an entity shall disclose the following for each period for which a statement of profit and loss is presented:
22. An entity shall disclose the following general information:
23. An entity shall report a measure of profit or loss for each reportable segment. An entity shall report a measure of total assets and liabilities for each reportable segment if such amounts are regularly provided to the chief operating decision maker. An entity shall also disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker, or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss:
24. An entity shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the measure of segment assets:
25. The amount of each segment item reported shall be the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an entity's financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment's profit or loss that is used by the chief operating decision maker. Similarly, only those assets and liabilities that are included in the measures of the segment's assets and segment's liabilities that are used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss, assets or liabilities, those amounts shall be allocated on a reasonable basis.
26. If the chief operating decision maker uses only one measure of an operating segment's profit or loss, the segment's assets or the segment's liabilities in assessing segment performance and deciding how to allocate resources, segment profit or loss, assets and liabilities shall be reported at those measures. If the chief operating decision maker uses more than one measure of an operating segment's profit or loss, the segment's assets or the segment's liabilities, the reported measures shall be those that management believes are determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the entity's financial statements.
27. An entity shall provide an explanation of the measurements of segment profit or loss, segment assets and segment liabilities for each reportable segment. At a minimum, an entity shall disclose the following:
28. An entity shall provide reconciliations of all of the following:
29. If an entity changes the structure of its internal organisation in a manner that causes the composition of its reportable segments to change, the corresponding information for earlier periods, including interim periods, shall be restated unless the information is not available and the cost to develop it would be excessive. The determination of whether the information is not available and the cost to develop it would be excessive shall be made for each individual item of disclosure. Following a change in the composition of its reportable segments, an entity shall disclose whether it has restated the corresponding items of segment information for earlier periods.
30. If an entity has changed the structure of its internal organisation in a manner that causes the composition of its reportable segments to change and if segment information for earlier periods, including interim periods, is not restated to reflect the change, the entity shall disclose in the year in which the change occurs segment information for the current period on both the old basis and the new basis of segmentation, unless the necessary information is not available and the cost to develop it would be excessive.
Entity-wide disclosures31. Paragraphs 32-34 apply to all entities subject to this Ind AS including those entities that have a single reportable segment. Some entities' business activities are not organised on the basis of differences in related products and services or differences in geographical areas of operations. Such an entity's reportable segments may report revenues from a broad range of essentially different products and services, or more than one of its reportable segments may provide essentially the same products and services. Similarly, an entity's reportable segments may hold assets in different geographical areas and report revenues from customers in different geographical areas, or more than one of its reportable segments may operate in the same geographical area. Information required by paragraphs 32-34 shall be provided only if it is not provided as part of the reportable segment information required by this Ind AS.
Information about products and services32. An entity shall report the revenues from external customers for each product and service, or each group of similar products and services, unless the necessary information is not available and the cost to develop it would be excessive, in which case that fact shall be disclosed. The amounts of revenues reported shall be based on the financial information used to produce the entity's financial statements.
Information about geographical areas33. An entity shall report the following geographical information, unless the necessary information is not available and the cost to develop it would be excessive:
34. An entity shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 per cent or more of an entity's revenues, the entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer. For the purposes of this Ind AS, a group of entities known to a reporting entity to be under common control shall be considered a single customer. However, judgement is required to assess whether a government (including government agencies and similar bodies whether local, national or international) and entities known to the reporting entity to be under the control of that government are considered a single customer. In assessing this, the reporting entity shall consider the extent of economic integration between those entities.
Appendix A| Defined term | |
| This Appendix is an integralpart of the Ind AS. | |
| operating segment | An operating segment is a component of anentity: |
| (a) that engages in business activities fromwhich it may earn revenues and incur expenses (including revenuesand expenses relating to transactions with other components ofthe same entity), | |
| (b) whose operating results are regularlyreviewed by the entity's chief operating decision maker to makedecisions about resources to be allocated to the segment andassess its performance, and | |
| (c) for which discrete financial information isavailable. |
1. The transitional provisions given in IFRS 108 has not been given in Ind AS 108, since all transitional provisions related to Ind ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
3. Paragraph 2 of IFRS 8 requires that the standard shall apply to :
Chapter 1
Objective
1.
1. The objective of this Standard is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity's future cash flows.
Chapter 2
Scope
2.
1. This Standard shall be applied by all entities to all types of financial instruments except:
2. [2 The impairment requirements of this Standard shall be applied to those rights that Ind AS 115 specifies are accounted for in accordance with this Standard for the purposes of recognising impairment gains or losses.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Chapter 3
Recognition and derecognition
3.
1. Initial recognition
3.1.1An entity shall recognise a financial asset or a financial liability in its balance sheet when, and only when, the entity becomes party to the contractual provisions of the instrument (see paragraphs B3.1.1 and B3.1.2). When an entity first recognises a financial asset, it shall classify it in accordance with paragraphs 4.1.1-4.1.5 and measure it in accordance with paragraphs 5.1.1-5.1.3. When an entity first recognises a financial liability, it shall classify it in accordance with paragraphs 4.2.1 and 4.2.2 and measure it in accordance with paragraph 5.1.1.Regular way purchase or sale of financial assets3.1.2A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting or settlement date accounting (see paragraphs B3.1.3-B3.1.6).Chapter 4
Classification
4.
1. Classification of financial assets
4.1.1Unless paragraph 4.1.5 applies, an entity shall classify financial assets as subsequently measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss on the basis of both:(a)the entity's business model for managing the financial assets and(b)the contractual cash flow characteristics of the financial asset.4.1.2A financial asset shall be measured at amortised cost if both of the following conditions are met:(a)the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and(b)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.Paragraphs B4.1.1-B4.1.26 provide guidance on how to apply these conditions.4.1.2A A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met:(a)the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and(b)the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.Paragraphs B4.1.1-B4.1.26 provide guidance on how to apply these conditions.4.1.3For the purpose of applying paragraphs 4.1.2(b) and 4.1.2A(b):(a)principal is the fair value of the financial asset at initial recognition. Paragraph B4.1.7B provides additional guidance on the meaning of principal.(b)interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin. Paragraphs B4.1.7A and B4.1.9A-B4.1.9E provide additional guidance on the meaning of interest, including the meaning of the time value of money.4.1.4A financial asset shall be measured at fair value through profit or loss unless it is measured at amortised cost in accordance with paragraph 4.1.2 or at fair value through other comprehensive income in accordance with paragraph 4.1.2A. However an entity may make an irrevocable election at initial recognition for particular investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income (see paragraphs 5.7.5-5.7.6).Option to designate a financial asset at fair value through profit or loss4.1.5Despite paragraphs 4.1.1-4.1.4, an entity may, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see paragraphs B4.1.29-B4.1.32).Chapter 5
Measurement
5.
1. Initial measurement
5. [1.1. Except for trade receivables within the scope of paragraph 5.1.3, at initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
5. [1.3 Despite the requirement in paragraph 5.1.1, at initial recognition, an entity shall measure trade receivables at their transaction price (as defined in Ind AS 115) if the trade receivables do not contain a significant financing component in accordance with Ind AS 115 (or when the entity applies the practical expedient in accordance with paragraph 63 of Ind AS 115).] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
5. [5.1 An entity shall recognise a loss allowance for expected credit losses on a financial asset that is measured in accordance with paragraphs 4.1.2 or 4.1.2A, a lease receivable, a contract asset or a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
5. [5.15. Despite paragraphs 5.5.3 and 5.5.5, an entity shall always measure the loss allowance at an amount equal to lifetime expected credit losses for:
(a)trade receivables or contract asset that result from transactions that are within the scope of Ind AS 115, and that:(i)do not contain a significant financing component in accordance with Ind AS 115 (or when the entity applies the practical expedient in accordance with paragraph 63 of Ind AS 115); or(ii)contain a significant financing component in accordance with Ind AS 115, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all such trade receivables or contract assets but may be applied separately to trade receivables and contract assets.][Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).](b) [ lease receivables that result from transactions that are within the scope of Ind AS 116, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]5.5.16An entity may select its accounting policy for trade receivables, lease receivables and contract assets independently of each other.Measurement of expected credit losses5.5.17An entity shall measure expected credit losses of a financial instrument in a way that reflects:(a)an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;(b)the time value of money; and(c)reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.5.5.18When measuring expected credit losses, an entity need not necessarily identify every possible scenario. However, it shall consider the risk or probability that a credit loss occurs by reflecting the possibility that a credit loss occurs and the possibility that no credit loss occurs, even if the possibility of a credit loss occurring is very low.5.5.19The maximum period to consider when measuring expected credit losses is the maximum contractual period (including extension options) over which the entity is exposed to credit risk and not a longer period, even if that longer period is consistent with business practice.5.5.20However, some financial instruments include both a loan and an undrawn commitment component and the entity's contractual ability to demand repayment and cancel the undrawn commitment does not limit the entity's exposure to credit losses to the contractual notice period. For such financial instruments, and only those financial instruments, the entity shall measure expected credit losses over the period that the entity is exposed to credit risk and expected credit losses would not be mitigated by credit risk management actions, even if that period extends beyond the maximum contractual period.Chapter 6
Hedge accounting
6.
1. Objective and scope of hedge accounting
6.1.1The objective of hedge accounting is to represent, in the financial statements, the effect of an entity's risk management activities that use financial instruments to manage exposures arising from particular risks that could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which an entity has elected to present changes in fair value in other comprehensive income in accordance with paragraph 5.7.5). This approach aims to convey the context of hedging instruments for which hedge accounting is applied in order to allow insight into their purpose and effect.6.1.2An entity may choose to designate a hedging relationship between a hedging instrument and a hedged item in accordance with paragraphs 6.2.1-6.3.7 and B6.2.1-B6.3.25. For hedging relationships that meet the qualifying criteria, an entity shall account for the gain or loss on the hedging instrument and the hedged item in accordance with paragraphs 6.5.1-6.5.14 and B6.5.1-B6.5.28. When the hedged item is a group of items, an entity shall comply with the additional requirements in paragraphs 6.6.1-6.6.6 and B6.6.1-B6.6.16.6.1.3[Refer Appendix 1].7. [1.5 Ind AS 116 amended paragraphs 2.1, 5.5.15, B4.3.8, B5.5.34 and B5.5.46. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
7. [1.6 *
7.1.7Prepayment Features with Negative Compensation (Amendments to Ind AS 109), added paragraphs 7.2.1-7.2.34 and B4.1.12A and amended paragraphs B4.1.11(b) and B4.1.12(b). An entity shall apply these amendments for annual periods beginning on or after 1 April, 2019.| Defined terms | |
| This appendix is an integralpart of the Standard. | |
| 12-month expected credit losses | The portion oflifetime expected creditlossesthat represent theexpected credit lossesthatresult from default events on a financial instrument that arepossible within the 12 months after the reporting date. |
| amortised cost of a financial asset or financial liability | The amount at which the financial asset orfinancial liability is measured at initial recognition minus theprincipal repayments, plus or minus the cumulative amortisationusing theeffective interest methodof any differencebetween that initial amount and the maturity amount and, forfinancial assets, adjusted for anyloss allowance. |
| [contract assets [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).] | Those rights that Ind AS 115,Revenue from Contracts with Customers, specifies are accounted for in accordance with this Standard for the purposes of recognising and measuring impairment gains or losses.] |
| credit impaired financial asset | A financial asset is credit-impaired when one ormore events that have a detrimental impact on the estimatedfuture cash flows of that financial asset have occurred. Evidencethat a financial asset is credit-impaired include observable dataabout the following events: |
| (a) significant financial difficulty of theissuer or the borrower; | |
| (b) a breach of contract, such as a default orpast dueevent; | |
| (c) the lender(s) of the borrower, for economicor contractual reasons relating to the borrower's financialdifficulty,having granted to the borrower a concession(s) thatthe lender(s) would not otherwise consider; | |
| (d) it is becoming probable that the borrowerwill enter bankruptcy or other financial reorganisation; | |
| (e) the disappearance of an active market forthat financial asset because of financial difficulties; or | |
| (f) the purchase or origination of a financialasset at a deep discount that reflects the incurredcreditlosses. | |
| It may not be possible to identify a singlediscrete event-instead, the combined effect of several events mayhave caused financial assets to become credit impaired. | |
| credit loss | The difference between all contractual cashflows that are due to an entity in accordance with the contractand all the cash flows that the entity expects to receive (i.e.all cash shortfalls), discounted at the originaleffectiveinterest rate(orcredit-adjusted effective interest rate(orpurchased ororiginated credit-impaired financial assets). An entity shallestimate cash flows by considering all contractual terms of thefinancial instrument (for example, prepayment, extension, calland similar options) through the expected life of that financialinstrument. The cash flows that are considered shall include cashflows from the sale of collateral held or other creditenhancements that are integral to the contractual terms. There isa presumption that the expected life of a financial instrumentcan be estimated reliably. However, in those rare cases when itis not possible to reliably estimate the expected life of afinancial instrument, the entity shall use the remainingcontractual term of the financial instrument. |
| credit-adjusted effective interest rate | The rate that exactly discounts the estimatedfuture cash payments or receipts through the expected life of thefinancial asset to theamortised cost of a financial assetthat is apurchased or originated credit-impaired financial asset. Whencalculating the credit-adjusted effective interest rate, anentity shall estimate the expected cash flows by considering allcontractual terms of the financial asset (for example,prepayment, extension, call and similar options) andexpectedcredit losses.The calculation includes all fees and pointspaid or received between parties to the contract that are anintegral part of the effective interest rate (see paragraphsB5.4.1?B5.4.3),transaction costs, and all other premiumsor discounts. There is a presumption that the cash flows and theexpected life of a group of similar financial instruments can beestimated reliably. However, in those rare cases when it is notpossible to reliably estimate the cash flows or the remaininglife of a financial instrument (or group of financialinstruments), the entity shall use the contractual cash flowsover the full contractual term of the financial instrument (orgroup of financial instruments). |
| Derecognition | The removal of a previously recognized financialasset or financial liability from an entity's balance sheet. |
| Derivative | A financial instrument or other contract withinthe scope of this Standard with all three of the followingcharacteristics. |
| (a) its value changes in response to the changein a specified interest rate, financial instrument price,commodity price, foreign exchange rate, index of prices or rates,credit rating or credit index, or other variable, provided in thecase of a non-financial variable that the variable is notspecific to a party to the contract (sometimes called the'underlying'). | |
| (b) it requires no initial net investment or aninitial net investment that is smaller than would be required forother types of contracts that would be expected to have a similarresponse to changes in market factors. | |
| (c) it is settled at a future date. | |
| Dividends | Distributions of profits to holders of equityinstruments in proportion to their holdings of a particular classof capital. |
| effective interest method | The rate that exactly discounts estimated futurecash payments or receipts through the expected life of thefinancial asset or financial liability to thegross carryingamount of a financial assetor to theamortised cost of afinancial liability.When calculating the effective interestrate, an entity shall estimate the expected cash flows byconsidering all the contractual terms of the financial instrument(for example, prepayment, extension, call and similar options)but shall not consider theexpected credit losses.Thecalculation includes all fees and points paid or received betweenparties to the contract that are an integral part of theeffective interest rate (see paragraphs B5.4.1-B5.4.3),transaction costs,and all other premiums or discounts.There is a presumption that the cash flows and the expected lifeof a group of similar financial instruments can be estimatedreliably. However, in those rare cases when it is not possible toreliably estimate the cash flows or the expected life of afinancial instrument (or group of financial instruments), theentity shall use the contractual cash flows over the fullcontractual term of the financial instrument (or group offinancial instruments). |
| expected credit losses | The weighted average ofcredit losseswith the respective risks of a default occurring as the weights. |
| financial guarantee contract | A contract that requires the issuer to makespecified payments to reimburse the holder for a loss it incursbecause a specified debtor fails to make payment when due inaccordance with the original or modified terms of a debtinstrument. |
| financial liability at fair value through profit or loss | A financial liability that meets one of thefollowing conditions: |
| (a) it meets the definition ofheld fortrading. | |
| (b) upon initial recognition it is designated bythe entity as at fair value through profit or loss in accordancewith paragraph 4.2.2 or 4.3.5. | |
| (c) it is designated either upon initialrecognition or subsequently as at fair value through profit orloss in accordance with paragraph 6.7.1. | |
| firm commitment | A binding agreement for the exchange of aspecified quantity of resources at a specified price on aspecified future date or dates. |
| forecast transaction | An uncommitted but anticipated futuretransaction. |
| gross carrying amount of a financial asset | Theamortised cost of a financial asset,before adjusting for anyloss allowance. |
| hedging instrument | A designated derivative or (for a hedge of therisk of changes in foreign currency exchange rates only) adesignated non-derivative financial asset or non-derivativefinancial liability whose fair value or cash flows are expectedto offset changes in the fair value or cash flows of a designatedhedged item. |
| hedge ratio | The relationship between the quantity of thehedging instrument and the quantity of the hedged item in termsof their relative weighting. |
| held for trading | A financial asset or financial liability that: |
| (a) is acquired or incurred principally for thepurpose of selling or repurchasing it in the near term; | |
| (b) on initial recognition is part of aportfolio of identified financial instruments that are managedtogether and for which there is evidence of a recent actualpattern of short-term profit-taking; or | |
| (c) is aderivative(except for aderivative that is a financial guarantee contract or a designatedand effective hedging instrument). | |
| impairment gain or loss | Gains or losses that are recognized in profit orloss in accordance with paragraph 5.5.8 and that arise fromapplying the impairment requirements in Section 5.5. |
| lifetime expected credit losses | Theexpected credit lossesthat resultfrom all possible default events over the expected life of afinancial instrument. |
| loss allowance | The allowance forexpected credit losseson financial assets measured in accordance with paragraph 4.1.2,lease receivables andcontract assets, the accumulatedimpairment amount for financial assets measured in accordancewith paragraph 4.1.2A and the provision for expected creditlosses on loan commitments andfinancial guarantee contracts. |
| modification gain or loss | The amount arising from adjusting thegrosscarrying amount of a financial assetto reflect therenegotiated or modified contractual cash flows. The entityrecalculates the gross carrying amount of a financial asset asthe present value of the estimated future cash payments orreceipts through the expected life of there negotiated ormodified financial asset that are discounted at the financialasset's originaleffective interest rate(or the Originalcredit-adjusted effective interest rateforpurchasedor originated credit-impaired financial assets) or, whenapplicable, the revised effective interest rate calculated inaccordance with paragraph 6.5.10.When estimating the expectedcash flows of a financial asset, an entity shall consider allcontractual terms of the financial asset (for example,prepayment, call and similar options) but shall not consider theexpected credit losses, unless the financial asset is apurchased or originated credit-impaired financial asset,in which case an entity shall also consider the initial expectedcredit losses that were considered when calculating the originalcredit-adjusted effective interest rate. |
| past due | A financial asset is past due when acounter-party has failed to make a payment when that payment wascontractually due. |
| purchased or originated credit-impaired financial asset | Purchased or originated financial asset(s) thatarecredit-impairedon initial recognition. |
| reclassification date | The first day of the first reporting periodfollowing the change in business model that results in an entityreclassifying financial assets. |
| regular way purchase or sale | A purchase or sale of a financial asset under acontract who seterms require delivery of the asset within thetime frame established generally by regulation or convention inthe market place concerned. |
| transaction costs | Incremental costs that are directly attributableto the acquisition, issue or disposal of a financial asset orfinancial liability (see paragraph B5.4.8). An incremental costis one that would not have been incurred if the entity had notacquired, issued or disposed of the financial instrument. |
3. This term (as defined in Ind AS 107) is used in the requirements for presenting the effects of changes in credit risk on liabilities designated as at fair value through profit or loss (see paragraph 5.7.7).
Appendix BApplication guidanceThis appendix is an integral part of the Standard.Scope (Chapter 2)B2.1 Some contracts require a payment based on climatic, geological or other physical variables. (Those based on climatic variables are sometimes referred to as 'weather derivatives'.) If those contracts are not within the scope of Ind AS 104 Insurance Contracts, they are within the scope of this Standard.[B2.2. This Standard does not change the requirements relating to royalty agreements based on the volume of sales or service revenues that are accounted for under Ind AS 115, Revenue from Contracts with Customers.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]B2.3 Sometimes, an entity makes what it views as a 'strategic investment' in equity instruments issued by another entity, with the intention of establishing or maintaining a long-term operating relationship with the entity in which the investment is made. The investor or joint venturer entity uses Ind AS 28 Investments in Associates and Joint Ventures to determine whether the equity method of accounting shall be applied to such an investment.B2.4 This Standard applies to the financial assets and financial liabilities of insurers, other than rights and obligations that paragraph 2.1(e) excludes because they arise under contracts within the scope of Ind AS104.B2.5 Financial guarantee contracts may have various legal forms, such as a guarantee, some types of letter of credit, a credit default contract or an insurance contract. Their accounting treatment does not depend on their legal form. The following are examples of the appropriate treatment (see paragraph 2.1(e)):| Assume an entity has a portfolio of pre-payableloans whose coupon and effective interest rate is 10 per cent andwhose principal amount and amortised cost is Rs.10,000. It entersinto a transaction in which, in return for a payment of Rs.9,115,the transferee obtains the right to Rs.9,000 of any collectionsof principal plus interest thereon at 9.5 per cent. The entityretains rights to Rs.1,000 of any collections of principal plusinterest thereon at 10 per cent, plus the excess spread of 0.5per cent on the remaining Rs.9,000 of principal. Collections fromprepayments are allocated between the entity and the transfereeproportionately in the ratio of 1:9, but any defaults arededucted from the entity's interest of Rs.1,000 until thatinterest is exhausted. The fair value of the loans at the date ofthe transaction is Rs.10,100 and the fair value of the excessspread of 0.5 per cent is Rs.40. | |||
| The entity determines that it has transferredsome significant risks and rewards of ownership (for example,significant prepayment risk) but has also retained somesignificant risks and rewards of ownership (because of itssubordinated retained interest) and has retained control. Ittherefore applies the continuing involvement approach. | |||
| To apply this Standard, the entity analyses thetransaction as (a) a retention of a fully proportionate retainedinterest of Rs.1,000, plus (b) the subordination of that retainedinterest to provide credit enhancement to the transferee forcredit losses. | |||
| The entity calculates that Rs.9,090 (90% ×Rs.10,100) of the consideration received of Rs.9,115 representsthe consideration for a fully proportionate 90 per cent share.The remainder of the consideration received (Rs.25) representsconsideration received for subordinating its retained interest toprovide credit enhancement to the transferee for credit losses.In addition, the excess spread of 0.5 per cent representsconsideration received for the credit enhancement. Accordingly,the total consideration received for the credit enhancement isRs.65 (Rs.25 + Rs.40). | |||
| The entity calculates the gain or loss on thesale of the 90 per cent share of cash flows. Assuming thatseparate fair values of the 90 per cent part transferred and the10 per cent part retained are not available at the date of thetransfer, the entity allocates the carrying amount of the assetin accordance with paragraph 3.2.14 of Ind AS109 as follows: | |||
| {| | |||
| Fair value | Percentage | Allocated carrying amount | |
| Portion transferred | 9,090 | 90% | 9,000 |
| Portion retained | 1,010 | 10% | 1,000 |
| Total | 10,100 | 10,000 |
| Debit | Credit | |
| Original asset | 9,000 | |
| Asset recognized for subordination or the residual interest | 1,000 | |
| Asset for the consideration received in the form of excessspread | 40 | |
| Profit or loss (gain on transfer) | 90 | |
| Liability | 1,065 | |
| Cash received | 9,115 | |
| Total | 10,155 | 10,155 |
| Example | Analysis |
| An entity holdsinvestments to collect their contractual cash flows. The fundingneeds of the entity are predictable and the maturity of itsfinancial assets is matched to the entity's estimated fundingneeds.The entity performscredit risk management activities with the objective ofminimising credit losses. In the past, sales have typicallyoccurred when the financial assets' credit risk has increasedsuch that the assets no longer meet the credit criteria specifiedin the entity's documented investment policy. In addition,infrequent sales have occurred as a result of unanticipatedfunding needs.Reports to key management personnel focus on thecredit quality of the financial assets and the contractualreturn. The entity also monitors fair values of the financialassets, among other information. | Although the entity considers, among otherinformation, the financial assets' fair values from a liquidityperspective (i.e. the cash amount that would be realised if theentity needs to sell assets), the entity's objective is to holdthe financial assets in order to collect the contractual cashflows. Sales would not contradict that objective if they were inresponse to an increase in the assets' credit risk, for exampleif the assets no longer meet the credit criteria specified in theentity's documented investment policy. Infrequent sales resultingfrom unanticipated funding needs (e.g. in a stress case scenario)also would not contradict that objective, even if such sales aresignificant in value. |
| Example 2 | Analysis |
| An entity's businessmodel is to purchase portfolios of financial assets, such asloans. Those portfolios may or may not include financial assetsthat are credit impaired.If payment on theloans is not made on a timely basis, the entity attempts torealise the contractual cash flows through various means-forexample, by contacting the debtor by mail, telephone or othermethods. The entity's objective is to collect the contractualcash flows and the entity does not manage any of the loans inthis portfolio with an objective of realising cash flows byselling them.In some cases, the entity enters into interestrate swaps to change the interest rate on particular financialassets in a portfolio from a floating interest rate to a fixedinterest rate. | The objective of theentity's business model is to hold the financial assets in orderto collect the contractual cash flows.The same analysiswould apply even if the entity does not expect to receive all ofthe contractual cash flows (e.g. some of the financial assets arecredit impaired at initial recognition).Moreover, the fact that the entity enters intoderivatives to modify the cash flows of the portfolio does not initself change the entity's business model. |
| Example 3 | Analysis |
| An entity has abusiness model with the objective of originating loans tocustomers and subsequently selling those loans to asecuritisation vehicle.The securitisationvehicle issues instruments to investors.The originatingentity controls the securitisation vehicle and thus consolidatesit.The securitisationvehicle collects the contractual cash flows from the loans andpasses them on to its investors.It is assumed for the purposes of this examplethat the loans continue to be recognized in the consolidatedbalance sheet because they are not derecognized by thesecuritisation vehicle. | The consolidatedgroup originated the loans with the objective of holding them tocollect the contractual cash flows.However, the originating entity has an objectiveof realising cash flows on the loan portfolio by selling theloans to the securitisation vehicle, so for the purposes of itsseparate financial statements it would not be considered to bemanaging this portfolio in order to collect the contractual cashflows. |
| Example 4 | Analysis |
| A financialinstitution holds financial assets to meet liquidity needs in a'stress case' scenario (e.g., a run on the bank's deposits). Theentity does not anticipate selling these assets except in suchscenarios.The entity monitorsthe credit quality of the financial assets and its objective inmanaging the financial assets is to collect the contractual cashflows. The entity evaluates the performance of the assets on thebasis of interest revenue earned and credit losses realised.However, the entity also monitors the fair valueof the financial assets from a liquidity perspective to ensurethat the cash amount that would be realised if the entity neededto sell the assets in a stress case scenario would be sufficientto meet the entity's liquidity needs. Periodically, the entitymakes sales that are insignificant in value to demonstrateliquidity. | The objective of theentity's business model is to hold the financial assets tocollect contractual cash flows.The analysis wouldnot change even if during a previous stress case scenario theentity had sales that were significant in value in order to meetits liquidity needs. Similarly, recurring sales activity that isinsignificant in value is not inconsistent with holding financialassets to collect contractual cash flows.In contrast, if anentity holds financial assets to meet its everyday liquidityneeds and meeting that objective involves frequent sales that aresignificant in value, the objective of the entity's businessmodel is not to hold the financial assets to collect contractualcash flows.Similarly, if the entity is required by itsregulator to routinely sell financial assets to demonstrate thatthe assets are liquid, and the value of the assets sold issignificant, the entity's business model is not to hold financialassets to collect contractual cash flows. Whether a third partyimposes the requirement to sell the financial assets, or thatactivity is at the entity's discretion, is not relevant to theanalysis. |
| Example 5 | Analysis |
| An entity anticipatescapital expenditure in a few years. The entity invests its excesscash in short and long-term financial assets so that it can fundthe expenditure when the need arises. Many of the financialassets have contractual lives that exceed the entity'santicipated investment period.The entity will holdfinancial assets to collect the contractual cash flows and, whenan opportunity arises, it will sell financial assets to re-investthe cash in financial assets with a higher return.The managers responsible for the portfolio areremunerated based on the overall return generated by theportfolio. | The objective of thebusiness model is achieved by both collecting contractual cashflows and selling financial assets. The entity will makedecisions on an ongoing basis about whether collectingcontractual cash flows or selling financial assets will maximisethe return on the portfolio until the need arises for theinvested cash.In contrast, consider an entity that anticipatesa cash outflow in five years to fund capital expenditure andinvests excess cash in short-term financial assets. When theinvestments mature, the entity reinvests the cash in newshort-term financial assets. The entity maintains this strategyuntil the funds are needed, at which time the entity uses theproceeds from the maturing financial assets to fund the capitalexpenditure. Only sales that are insignificant in value occurbefore maturity (unless there is an increase in credit risk). Theobjective of this contrasting business model is to hold financialassets to collect contractual cash flows. |
| Example 6 | Analysis |
| A financialinstitution holds financial assets to meet its everyday liquidityneeds. The entity seeks to minimize the costs of managing thoseliquidity needs and therefore actively manages the return on theportfolio. That return consists of collecting contractualpayments as well as gains and losses from the sale of financialassets.As a result, the entity holds financial assetsto collect contractual cash flows and sells financial assets toreinvest in higher yielding financial assets or to better matchthe duration of its liabilities. In the past, this strategy hasresulted in frequent sales activity and such sales have beensignificant in value. This activity is expected to continue inthe future. | The objective of the business model is tomaximise the return on the portfolio to meet everyday liquidityneeds and the entity achieves that objective by both collectingcontractual cash flows and selling financial assets. In otherwords, both collecting contractual cash flows and sellingfinancial assets are integral to achieving the business model'sobjective. |
| Example 7 | Analysis |
| An insurer holds financial assets in order tofund insurance contract liabilities. The insurer uses theproceeds from the contractual cash flows on the financial assetsto settle insurance contract liabilities as they come due. Toensure that the contractual cash flows from the financial assetsare sufficient to settle those liabilities, the insurerundertakes significant buying and selling activity on a regularbasis to re-balance its portfolio of assets and to meet cash flowneeds as they arise. | The objective of the business model is to fundthe insurance contract liabilities. To achieve this objective,the entity collects contractual cash flows as they come due andsells financial assets to maintain the desired profile of theasset portfolio. Thus both collecting contractual cash flows andselling financial assets are integral to achieving the businessmodel's objective. |
| Instrument AInstrument A is a bond with a stated maturitydate. Payments of principal and interest on the principal amountoutstanding are linked to an inflation index of the currency inwhich the instrument is issued. The inflation link is notleveraged and the principal is protected. | AnalysisThe contractual cashflows are solely payments of principal and interest on theprincipal amount outstanding. Linking payments of principal andinterest on the principal amount outstanding to annul ever agedinflation index resets the time value of money to a currentlevel. In other words, the interest rate on the instrumentreflects 'real' interest. Thus, the interest amounts areconsideration for the time value of money on the principal amountoutstanding.However, if the interest payments were indexedto another variable such as the debtor's performance (e.g. thedebtor's net income) or an equity index, the contractual cashflows are not payments of principal and interest on the principalamount outstanding (unless the indexing to the debtor'sperformance results in an adjustment that only compensates theholder for changes in the credit risk of the instrument, suchthat contractual cash flows are solely payments of principal andinterest). That is because the contractual cash flows reflect areturn that is inconsistent with a basic lending arrangement (seeparagraph B4.1.7A). |
| Instrument BInstrument B is a variable interest rateinstrument with a stated maturity date that permits the borrowerto choose the market interest rate on an ongoing basis. Forexample, at each interest rate reset date, the borrower canchoose to pay three-month LIBOR for a three-month term orone-month LIBOR for a one-month term. | AnalysisThe contractual cashflows are solely payments of principal and interest on theprincipal amount outstanding as long as the interest paid overthe life of the instrument reflects consideration for the timevalue of money, for the credit risk associated with theinstrument and for other basic lending risks and costs, as wellas a profit margin (see paragraph B4.1.7A). The fact that theLIBOR interest rate is reset during the life of the instrumentdoes not in itself disqualify the instrument.However, if theborrower is able to choose to pay a one-month interest rate thatis reset every three months, the interest rate is reset with afrequency that does not match the tenor of the interest rate.Consequently, the time value of money element is modified.Similarly, if an instrument has a contractual interest rate thatis based on a term that can exceed the instrument's remaininglife (for example, if an instrument with a five-year maturitypays a variable rate that is reset periodically but alwaysreflects a five-year maturity), the time value of money elementis modified. That is because the interest payable in each periodis disconnected from the interest period.In such cases, theentity must qualitatively or quantitatively assess thecontractual cash flows against those on an instrument that isidentical in all respects except the tenor of the interest ratematches the interest period to determine if the cash flows aresolely payments of principal and interest on the principal amountoutstanding. (Butseeparagraph B4.1.9E for guidance on regulatedinterest rates.)For example, inassessing a bond with a five-year term that pays a variable ratethat is reset every six months but always reflects a five-yearmaturity, an entity considers the contractual cash flow son aninstrument that resets every six months to a six-month interestrate but is otherwise identical.The same analysis would apply if the borrower isable to choose between the lender's various published interestrates (e.g. the borrower can choose between the lender'spublished one month variable interest rate and the lender'spublished three-month variable interest rate). |
| Instrument CInstrument C is a bond with a stated maturitydate and pays a variable market interest rate. That variableinterest rate is capped. | AnalysisThe contractual cashflows of both:(a) an instrumentthat has a fixed interest rate and(b) an instrumentthat has a variable interest rateare payments ofprincipal and interest on the principal amount outstanding aslong as the interest reflects consideration for the time value ofmoney, for the credit risk associated with the instrument duringthe term of the instrument and for other basic lending risks andcosts, as well as a profit margin. (See paragraph B4.1.7A)Consequently, an instrument that is acombination of (a) and (b) (e.g. a bond with an interest ratecap) can have cash flows that are solely payments of principaland interest on the principal amount outstanding. Such acontractual term may reduce cash flow variability by setting alimit on a variable interest rate (e.g an interest rate cap orfloor) or increase the cash flow variability because a fixed ratebecomes variable. |
| Instrument DInstrument D is a full recourse loan and issecured by collateral. | AnalysisThe fact that a full recourse loan iscollateralised does not in itself affect the analysis of whetherthe contractual cash flows are solely payments of principal andinterest on the principal amount outstanding. |
| Instrument EInstrument E isissued by a regulated bank and has a stated maturity date. Theinstrument pays a fixed interest rate and all contractual cashflows are non-discretionary.However, the issuer is subject to legislationthat permits or requires a national resolving authority to imposelosses on holders of particular instruments, including InstrumentE, in particular circumstances. For example, the nationalresolving authority has the power to write down the par amount ofInstrument E or to convert it into a fixed number of the issuer'sordinary shares if the national resolving authority determinesthat the issuer is having severe financial difficulties, needsadditional regulatory capital or is 'failing'. | AnalysisThe holder wouldanalyse the contractual terms of the financial instrument todetermine whether they give rise to cash flows that are solelypayments of principal and interest on the principal amountoutstanding and thus are consistent with a basic lendingarrangement.That analysis wouldnot consider the payments that arise only as a result of thenational resolving authority's power to impose losses on theholders of Instrument E. That is because that power, and theresulting payments, are not contractual terms of the financialinstrument.In contrast, the contractual cash flows wouldnot be solely payments of principal and interest on the principalamount outstanding if the contractual terms of the financialinstrument permit or require the issuer or another entity toimpose losses on the holder (e.g. by writing down the par amountor by converting the instrument into a fixed number of theissuer's ordinary shares) as long as those contractual terms aregenuine, even if the probability is remote that such a loss willbe imposed. |
| Instrument FInstrument F is a bond that is convertible intoa fixed number of equity instruments of the issuer. | AnalysisThe holder wouldanalyse the convertible bond in its entirety.The contractual cash flows are not payments ofprincipal and interest on the principal amount outstandingbecause they reflect a return that is inconsistent with a basiclending arrangement (see paragraph B4.1.7A); i.e. the return islinked to the value of the equity of the issuer. |
| Instrument GInstrument G is a loan that pays an inversefloating interest rate (i.e. the interest rate has an inverserelationship to market interest rates). | AnalysisThe contractual cashflows are not solely payments of principal and interest on theprincipal amount outstanding.The interest amounts are not consideration forthe time value of money on the principal amount outstanding. |
| Instrument HInstrument H is aperpetual instrument but the issuer may call the instrument atany point and pay the holder the par amount plus accrued interestdue.Instrument H pays amarket interest rate but payment of interest cannot be madeunless the issuer is able to remain solvent immediatelyafterwards.Deferred interest does not accrue additionalinterest. | AnalysisThe contractual cashflows are not payments of principal and interest on the principalamount outstanding. That is because the issuer may be required todefer interest payments and additional interest does not accrueon those deferred interest amounts. As a result, interest amountsare not consideration for the time value of money on theprincipal amount outstanding.If interest accruedon the deferred amounts, the contractual cash flows could bepayments of principal and interest on the principal amountoutstanding.The fact thatInstrument H is perpetual does not in itself mean that thecontractual cash flows are not payments of principal and intereston the principal amount outstanding. In effect, a perpetualinstrument has continuous (multiple) extension options. Suchoptions may result in contractual cash flows that are payments ofprincipal and interest on the principal amount outstanding ifinterest payments are mandatory and must be paid in perpetuity.Also, the fact that Instrument H is callabledoes not mean that the contractual cash flows are not payments ofprincipal and interest on the principal amount outstanding unlessit is callable at an amount that does not substantially reflectpayment of outstanding principal and interest on that principalamount outstanding. Even if the callable amount includes anamount that reasonably compensates the holder for the earlytermination of the instrument, the contractual cash flows couldbe payments of principal and interest on the principal amountoutstanding. (See also Paragraph B4.1.12.) |
1. Many reporting entities have investments in foreign operations (as defined in Ind AS 21 paragraph 8). Such foreign operations may be subsidiaries, associates, joint ventures or branches. Ind AS 21 requires an entity to determine the functional currency of each of its foreign operations as the currency of the primary economic environment of that operation. When translating the results and financial position of a foreign operation into a presentation currency, the entity is required to recognise foreign exchange differences in other comprehensive income until it disposes of the foreign operation.
2. Hedge accounting of the foreign currency risk arising from a net investment in a foreign operation will apply only when the net assets of that foreign operation are included in the [financial statements] [This will be the case for consolidated financial statements, financial statements in which investments such as associates & joint ventures are accounted for using the equity method, and financial statements that include a branch or a joint operation as defined in Ind AS 111, Joint Arrangements.]. The item being hedged with respect to the foreign currency risk arising from the net investment in a foreign operation may be an amount of net assets equal to or less than the carrying amount of the net assets of the foreign operation.
3. Ind AS 109 requires the designation of an eligible hedged item and eligible hedging instruments in a hedge accounting relationship. If there is a designated hedging relationship, in the case of a net investment hedge, the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment is recognized in other comprehensive income and is included with the foreign exchange differences arising on translation of the results and financial position of the foreign operation.
4. An entity with many foreign operations may be exposed to a number of foreign currency risks. This Appendix provides guidance on identifying the foreign currency risks that qualify as a hedged risk in the hedge of a net investment in a foreign operation.
5. Ind AS 109 allows an entity to designate either a derivative or a non-derivative financial instrument (or a combination of derivative and non-derivative financial instruments) as hedging instruments for foreign currency risk. This Appendix provides guidance on where, within a group, hedging instruments that are hedges of a net investment in a foreign operation can be held to qualify for hedge accounting.
6. Ind AS 21 and Ind AS 109 require cumulative amounts recognized in other comprehensive income relating to both the foreign exchange differences arising on translation of the results and financial position of the foreign operation and the gain or loss on the hedging instrument that is determined to be an effective hedge of the net investment to be reclassified from equity to profit or loss as a reclassification adjustment when the parent disposes of the foreign operation. This Appendix provides guidance on how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item.
Scope7. This Appendix applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with Ind AS 109. For convenience this Appendix refers to such an entity as a parent entity and to the financial statements in which the net assets of foreign operations are included as consolidated financial statements. All references to a parent entity apply equally to an entity that has a net investment in a foreign operation that is a joint venture, an associate or a branch.
8. This Appendix applies only to hedges of net investments in foreign operations; it should not be applied by analogy to other types of hedge accounting.
Issues9. Investments in foreign operations may be held directly by a parent entity or indirectly by its subsidiary or subsidiaries. The issues addressed in this Appendix are:
10. Hedge accounting may be applied only to the foreign exchange differences arising between the functional currency of the foreign operation and the parent entity's functional currency.
11. In a hedge of the foreign currency risks arising from a net investment in a foreign operation, the hedged item can be an amount of net assets equal to or less than the carrying amount of the net assets of the foreign operation in the consolidated financial statements of the parent entity. The carrying amount of the net assets of a foreign operation that may be designated as the hedged item in the consolidated financial statements of a parent depends on whether any lower level parent of the foreign operation has applied hedge accounting for all or part of the net assets of that foreign operation and that accounting has been maintained in the parent's consolidated financial statements.
12. The hedged risk may be designated as the foreign currency exposure arising between the functional currency of the foreign operation and the functional currency of any parent entity (the immediate, intermediate or ultimate parent entity) of that foreign operation. The fact that the net investment is held through an intermediate parent does not affect the nature of the economic risk arising from the foreign currency exposure to the ultimate parent entity.
13. An exposure to foreign currency risk arising from a net investment in a foreign operation may qualify for hedge accounting only once in the consolidated financial statements. Therefore, if the same net assets of a foreign operation are hedged by more than one parent entity within the group (for example, both a direct and an indirect parent entity) for the same risk, only one hedging relationship will qualify for hedge accounting in the consolidated financial statements of the ultimate parent. A hedging relationship designated by one parent entity in its consolidated financial statements need not be maintained by another higher level parent entity. However, if it is not maintained by the higher level parent entity, the hedge accounting applied by the lower level parent must be reversed before the higher level parent's hedge accounting is recognized.
Where the hedging instrument can be held14. A derivative or a non-derivative instrument (or a combination of derivative and non-derivative instruments) may be designated as a hedging instrument in a hedge of a net investment in a foreign operation. The hedging instrument(s) may be held by any entity or entities within the group, as long as the designation, documentation and effectiveness requirements of Ind AS 109 paragraph 6.4.1 that relate to a net investment hedge are satisfied. In particular, the hedging strategy of the group should be clearly documented because of the possibility of different designations at different levels of the group.
15. For the purpose of assessing effectiveness, the change in value of the hedging instrument in respect of foreign exchange risk is computed by reference to the functional currency of the parent entity against whose functional currency the hedged risk is measured, in accordance with the hedge accounting documentation. Depending on where the hedging instrument is held, in the absence of hedge accounting the total change in value might be recognized in profit or loss, in other comprehensive income, or both. However, the assessment of effectiveness is not affected by whether the change in value of the hedging instrument is recognized in profit or loss or in other comprehensive income. As part of the application of hedge accounting, the total effective portion of the change is included in other comprehensive income. The assessment of effectiveness is not affected by whether the hedging instrument is a derivative or a non-derivative instrument or by the method of consolidation.
Disposal of a hedged foreign operation16. When a foreign operation that was hedged is disposed of, the amount reclassified to profit or loss as a reclassification adjustment from the foreign currency translation reserve in the consolidated financial statements of the parent in respect of the hedging instrument is the amount that Ind AS 109 paragraph 6.5.14 requires to be identified. That amount is the cumulative gain or loss on the hedging instrument that was determined to be an effective hedge.
17. The amount reclassified to profit or loss from the foreign currency translation reserve in the consolidated financial statements of a parent in respect of the net investment in that foreign operation in accordance with Ind AS 21 paragraph 48 is the amount included in that parent's foreign currency translation reserve in respect of that foreign operation. In the ultimate parent's consolidated financial statements, the aggregate net amount recognized in the foreign currency translation reserve in respect of all foreign operations is not affected by the consolidation method. However, whether the ultimate parent uses the direct or the step-by-step [method of consolidation] [The direct method is the method of consolidation in which the financial statements of the foreign operation are translated directly into the functional currency of the ultimate parent. The step-by-step method is the method of consolidation in which the financial statements of the foreign operation are first translated into the functional currency of any intermediate parent(s) and then translated into the functional currency of the ultimate parent (or the presentation currency if different).] may affect the amount included in its foreign currency translation reserve in respect of an individual foreign operation. The use of the step-by-step method of consolidation may result in the reclassification to profit or loss of an amount different from that used to determine hedge effectiveness. This difference may be eliminated by determining the amount relating to that foreign operation that would have arisen if the direct method of consolidation had been used. Making this adjustment is not required by Ind AS 21. However, it is an accounting policy choice that should be followed consistently for all net investments.
Application guidance to Appendix CThis application guidance is an integral part of the Appendix C.AG1. This application guidance illustrates the application of the Appendix C using the corporate structure illustrated below. In all cases the hedging relationships described would be tested for effectiveness in accordance with Ind AS 109, although this testing is not discussed in this appendix. Parent, being the ultimate parent entity, presents its consolidated financial statements in its functional currency of euro (EUR). Each of the subsidiaries is wholly owned. Parent's £500 million net investment in Subsidiary B (functional currency pounds sterling (GBP)) includes the £159 million equivalent of Subsidiary B's US$300 million net investment in Subsidiary C (functional currency US dollars (USD)). In other words, Subsidiary B's net assets other than its investment in Subsidiary C are £341 million.Nature of hedged risk for which a hedging relationship may be designated (paragraphs 10-13)AG2. Parent can hedge its net investment in each of Subsidiaries A, B and C for the foreign exchange risk between their respective functional currencies (Japanese yen (JPY), pounds sterling and US dollars) and euro. In addition, Parent can hedge the USD/GBP foreign exchange risk between the functional currencies of Subsidiary B and Subsidiary C. In its consolidated financial statements, Subsidiary B can hedge its net investment in Subsidiary C for the foreign exchange risk between their functional currencies of US dollars and pounds sterling. In the following examples the designated risk is the spot foreign exchange risk because the hedging instruments are not derivatives. If the hedging instruments were forward contracts, Parent could designate the forward foreign exchange risk.Amount of hedged item for which a hedging relationship may be designated (paragraphs 10-13)AG3. Parent wishes to hedge the foreign exchange risk from its net investment in Subsidiary C. Assume that Subsidiary A has an external borrowing of US$300 million. The net assets of Subsidiary A at the start of the reporting period are ¥400,000 million including the proceeds of the external borrowing of US$300 million.AG4. The hedged item can be an amount of net assets equal to or less than the carrying amount of Parent's net investment in Subsidiary C (US$300 million) in its consolidated financial statements. In its consolidated financial statements Parent can designate the US$300 million external borrowing in Subsidiary A as a hedge of the EUR/USD spot foreign exchange risk associated with its net investment in the US$300 million net assets of Subsidiary C. In this case, both the EUR/USD foreign exchange difference on the US$300 million external borrowing in Subsidiary A and the EUR/USD foreign exchange difference on the US$300 million net investment in Subsidiary C are included in the foreign currency translation reserve in Parent's consolidated financial statements after the application of hedge accounting.AG5. In the absence of hedge accounting, the total USD/EUR foreign exchange difference on the US$300 million external borrowing in Subsidiary A would be recognized in Parent's consolidated financial statements as follows:• USD/JPY spot foreign exchange rate change, translated to euro, in profit or loss, and• JPY/EUR spot foreign exchange rate change in other comprehensive income.Instead of the designation in paragraph AG4, in its consolidated financial statements Parent can designate the US$300 million external borrowing in Subsidiary A as a hedge of the GBP/USD spot foreign exchange risk between Subsidiary C and Subsidiary B. In this case, the total USD/EUR foreign exchange difference on the US$300 million external borrowing in Subsidiary A would instead be recognized in Parent's consolidated financial statements as follows:• the GBP/USD spot foreign exchange rate change in the foreign currency translation reserve relating to Subsidiary C,• GBP/JPY spot foreign exchange rate change, translated to euro, in profit or loss, and• JPY/EUR spot foreign exchange rate change in other comprehensive income.AG6. Parent cannot designate the US$300 million external borrowing in Subsidiary A as a hedge of both the EUR/USD spot foreign exchange risk and the GBP/USD spot foreign exchange risk in its consolidated financial statements. A single hedging instrument can hedge the same designated risk only once. Subsidiary B cannot apply hedge accounting in its consolidated financial statements because the hedging instrument is held outside the group comprising Subsidiary B and Subsidiary C.Where in a group can the hedging instrument be held (paragraphs 14 and 15)?AG7. As noted in paragraph AG5, the total change in value in respect of foreign exchange risk of the US$300 million external borrowing in Subsidiary A would be recorded in both profit or loss (USD/JPY spot risk) and other comprehensive income (EUR/JPY spot risk) in Parent's consolidated financial statements in the absence of hedge accounting. Both amounts are included for the purpose of assessing the effectiveness of the hedge designated in paragraph AG4 because the change in value of both the hedging instrument and the hedged item are computed by reference to the euro functional currency of Parent against the US dollar functional currency of Subsidiary C, in accordance with the hedge documentation. The method of consolidation (i.e. direct method or step-by-step method) does not affect the assessment of the effectiveness of the hedge.Amounts reclassified to profit or loss on disposal of a foreign operation (paragraphs 16 and 17)AG8. When Subsidiary C is disposed of, the amounts reclassified to profit or loss in Parent's consolidated financial statements from its foreign currency translation reserve (FCTR) are:1. A debtor and creditor might renegotiate the terms of a financial liability with the result that the debtor extinguishes the liability fully or partially by issuing equity instruments to the creditor. These transactions are sometimes referred to as 'debt for equity swaps'.
Scope2. This Appendix addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. It does not address the accounting by the creditor.
3. An entity shall not apply this Appendix to transactions in situations where:
4. This Appendix addresses the following issues:
5. The issue of an entity's equity instruments to a creditor to extinguish all or part of a financial liability is consideration paid in accordance with paragraph 3.3.3 of Ind AS 109. An entity shall remove a financial liability (or part of a financial liability) from its balance sheet when, and only when, it is extinguished in accordance with paragraph 3.3.1 of Ind AS 109.
6. When equity instruments issued to a creditor to extinguish all or part of a financial liability are recognized initially, an entity shall measure them at the fair value of the equity instruments issued, unless that fair value cannot be reliably measured.
7. If the fair value of the equity instruments issued cannot be reliably measured then the equity instruments shall be measured to reflect the fair value of the financial liability extinguished. In measuring the fair value of a financial liability extinguished that includes a demand feature (e.g. a demand deposit), paragraph 47 of Ind AS 113 is not applied.
8. If only part of the financial liability is extinguished, the entity shall assess whether some of the consideration paid relates to a modification of the terms of the liability that remains outstanding. If part of the consideration paid does relate to a modification of the terms of the remaining part of the liability, the entity shall allocate the consideration paid between the part of the liability extinguished and the part of the liability that remains outstanding. The entity shall consider all relevant facts and circumstances relating to the transaction in making this allocation.
9. The difference between the carrying amount of the financial liability (or part of a financial liability) extinguished, and the consideration paid, shall be recognized in profit or loss, in accordance with paragraph 3.3.3 of Ind AS 109. The equity instruments issued shall be recognized initially and measured at the date the financial liability (or part of that liability) is extinguished.
10. When only part of the financial liability is extinguished, consideration shall be allocated in accordance with paragraph 8. The consideration allocated to the remaining liability shall form part of the assessment of whether the terms of that remaining liability have been substantially modified. If the remaining liability has been substantially modified, the entity shall account for the modification as the extinguishment of the original liability and the recognition of a new liability as required by paragraph 3.3.2 of Ind AS 109.
11. An entity shall disclose a gain or loss recognized in accordance with paragraphs 9 and 10 as a separate line item in profit or loss or in the notes.
Appendix EReferences to matters contained in other Indian Accounting StandardsThis appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 109, Financial Instruments.1. Appendix A, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
2. [ Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
3.
[***] [Omitted 'Appendix B, 3. Evaluating the Substance of Transactions Involving the Legal Form of Lease contained in Ind AS 17, Leases.' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Appendix 1Note : This Appendix is not a part of this Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 109 and the corresponding International Financial reporting Standard (IFRS) 9, Financial Instruments, IFRIC16, Hedges of Net Investment in a Foreign Operation and IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments.Comparison with IFRS 9, Financial Instruments, IFRIC 16 and IFRIC 191. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position', and 'Statement of profit and loss' is used instead of 'Statement of Profit and Loss and comprehensive income'.
2. Option to apply requirements of IAS 39 for fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities as provided in IFRS 9 has been removed in Ind AS 109. Accordingly, paragraph 6.1.3 has been deleted and following paragraphs have been modified:
3. [ Paragraphs 7.1.1 to 7.1.3 of IFRS 9 related to effective date have not been included in Ind AS 109 as these paragraphs are not relevant in Indian context. Paragraph 7.1.6 has not been included as it refers to amendments due to issuance of IFRS 17, Insurance Contracts, for which corresponding Ind AS is under formulation. However, in order to maintain consistency with paragraph numbers of IFRS 9, these paragraph numbers are retained in Ind AS 109.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
4. [ Following paragraphs related to transition have not been included as these paragraphs are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 9, the paragraph numbers are retained in Ind AS 109.
1. The objective of this Indian Accounting Standard (Ind AS) is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.
Meeting the objective2. To meet the objective in paragraph 1, this Ind AS:
3. This Ind AS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (see Ind AS 103, Business Combinations).
Scope4. An entity that is a parent shall present consolidated financial statements. This Ind AS applies to all entities, except as follows:
4A. [ This Ind AS does not apply to post-employment benefit plans or other long-term employee benefit plans to which Ind AS 19, Employee Benefits, applies.
4B. A parent that is an investment entity shall not present consolidated financial statements if it is required, in accordance with paragraph 31 of this Ind AS, to measure all of its subsidiaries at fair value through profit or loss.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Control5. An investor, regardless of the nature of its involvement with an entity (the investee), shall determine whether it is a parent by assessing whether it controls the investee.
6. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
7. Thus, an investor controls an investee if and only if the investor has all the following:
8. An investor shall consider all facts and circumstances when assessing whether it controls an investee. The investor shall reassess whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in paragraph 7 (see paragraphs B80-B85).
9. Two or more investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant Ind ASs, such as Ind AS 111, Joint Arrangements, Ind AS 28, Investments in Associates and Joint Ventures, or Ind AS 109, Financial Instruments.
Power10. An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee's returns.
11. Power arises from rights. Sometimes assessing power is straightforward, such as when power over an investee is obtained directly and solely from the voting rights granted by equity instruments such as shares, and can be assessed by considering the voting rights from those shareholdings. In other cases, the assessment will be more complex and require more than one factor to be considered, for example when power results from one or more contractual arrangements.
12. An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee.
13. If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over the investee.
14. An investor can have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, for example when another entity has significant influence. However, an investor that holds only protective rights does not have power over an investee (see paragraphs B26-B28), and consequently does not control the investee.
Returns15. An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor's returns from its involvement have the potential to vary as a result of the investee's performance. The investor's returns can be only positive, only negative or both positive and negative.
16. Although only one investor can control an investee, more than one party can share in the returns of an investee. For example, holders of non-controlling interests can share in the profits or distributions of an investee.
Link between power and returns17. An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor's returns from its involvement with the investee.
18. Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58-B72 does not control an investee when it exercises decision-making rights delegated to it.
Accounting requirements19. A parent shall prepare consolidated financial statements using uniform accounting policies for like transactions and other events in similar circumstances.
20. Consolidation of an investee shall begin from the date the investor obtains control of the investee and cease when the investor loses control of the investee.
21. Paragraphs B86-B93 set out guidance for the preparation of consolidated financial statements.
Non-controlling interests22. A parent shall present non-controlling interests in the consolidated balance sheet within equity, separately from the equity of the owners of the parent.
23. Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (i.e. transactions with owners in their capacity as owners).
24. Paragraphs B94-B96 set out guidance for the accounting for non-controlling interests in consolidated financial statements.
Loss of control25. If a parent loses control of a subsidiary, the parent:
26. Paragraphs B97-B99 set out guidance for the accounting for the loss of control.
Determining whether an entity is an investment entity27. A parent shall determine whether it is an investment entity. An investment entity is an entity that:
28. In assessing whether it meets the definition described in paragraph 27, an entity shall consider whether it has the following typical characteristics of an investment entity:
29. If facts and circumstances indicate that there are changes to one or more of the three elements that make up the definition of an investment entity, as described in paragraph 27, or the typical characteristics of an investment entity, as described in paragraph 28, a parent shall reassess whether it is an investment entity.
30. A parent that either ceases to be an investment entity or becomes an investment entity shall account for the change in its status prospectively from the date at which the change in status occurred (see paragraphs B100-B101).
Investment entities: exception to consolidation31. Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply Ind AS 103 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with Ind AS 109.
32. [ Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity's investment activities (see paragraphs B85C-B85E), it shall consolidate that subsidiary in accordance with paragraphs 19-26 of this Ind AS and apply the requirements of Ind AS 103 to the acquisition of any such subsidiary.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
33. A parent of an investment entity shall consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the parent itself is an investment entity.
Appendix A| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| Consolidated financial statements | The financial statements of agroupinwhich the assets, liabilities, equity, income, expenses and cashflows of theparentand itssubsidiariesarepresented as those of a single economic entity. |
| control of an investee | An investor controls an investee when theinvestor is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect thosereturns through its power over the investee. |
| decision maker | An entity with decision-making rights that iseither a principal or an agent for other parties. |
| group | Aparentand itssubsidiaries. |
| investment entity | An entity that: |
| (a) obtains funds from one or more investors forthe purpose of providing those investor(s) with investmentmanagement services; | |
| (b) commits to its investor(s) that its businesspurpose is to invest funds solely for returns from capitalappreciation, investment income, or both; and | |
| (c) measures and evaluates the performance ofsubstantially all of its investments on a fair value basis. | |
| non-controlling interest | Equity in asubsidiarynot attributable,directly or indirectly, to aparent. |
| parent | An entity thatcontrolsone or moreentities. |
| power | Existing rights that give the current ability todirect therelevant activities. |
| protective rights | Rights designed to protect the interest of theparty holding those rights without giving that party power overthe entity to which those rights relate. |
| relevant activities | For the purpose of this Ind AS, relevantactivities are activities of the investee that significantlyaffect the investee's returns. |
| removal rights | Rights to deprive the decision maker of itsdecision-making authority. |
| subsidiary | An entity that is controlled by another entity. |
| Application examples |
| Example 1Two investors form aninvestee to develop and market a medical product. One investor isresponsible for developing and obtaining regulatory approval ofthe medical product-that responsibility includes having theunilateral ability to make all decisions relating to thedevelopment of the product and to obtaining regulatory approval.Once the regulator has approved the product, the other investorwill manufacture and market it-this investor has the unilateralability to make all decisions about the manufacture and marketingof the project. If all the activities-developing and obtainingregulatory approval as well as manufacturing and marketing of themedical product-are relevant activities, each investor needs todetermine whether it is able to direct the activities that mostsignificantly affect the investee's returns. Accordingly, eachinvestor needs to consider whether developing and obtainingregulatory approval or the manufacturing and marketing of themedical product is the activity that most significantly affectsthe investee's returns and whether it is able to direct thatactivity. In determining which investor has power, the investorswould consider:(a)the purpose and design of the investee;(b)the factors that determine the profit margin, revenue and valueof the investee as well as the value of the medical product;(c)the effect on the investee's returns resulting from eachinvestor's decision-making authority with respect to the factorsin (b); and(d)the investors' exposure to variability of returns.Inthis particular example, the investors would also consider:(e)the uncertainty of, and effort required in, obtaining regulatoryapproval (considering the investor's record of successfullydeveloping and obtaining regulatory approval of medicalproducts); and(f)which investor controls the medical product once the developmentphase is successful.Example 2An investment vehicle (the investee) is createdand financed with a debt instrument held by an investor (the debtinvestor) and equity instruments held by a number of otherinvestors. The equity tranche is designed to absorb the firstlosses and to receive any residual return from the investee. Oneof the equity investors who holds 30 per cent of the equity isalso the asset manager. The investee uses its proceeds topurchase a portfolio of financial assets, exposing the investeeto the credit risk associated with the possible default ofprincipal and interest payments of the assets. The transaction ismarketed to the debt investor as an investment with minimalexposure to the credit risk associated with the possible defaultof the assets in the portfolio because of the nature of theseassets and because the equity tranche is designed to absorb thefirst losses of the investee. The returns of the investee aresignificantly affected by the management of the investee's assetportfolio, which includes decisions about the selection,acquisition and disposal of the assets within portfolioguidelines and the management upon default of any portfolioassets. All those activities are managed by the asset manageruntil defaults reach a specified proportion of the portfoliovalue (i.e. when the value of the portfolio is such that theequity tranche of the investee has been consumed). From thattime, a third-party trustee manages the assets according to theinstructions of the debt investor. Managing the investee's assetportfolio is the relevant activity of the investee. The assetmanager has the ability to direct the relevant activities untildefaulted assets reach the specified proportion of the portfoliovalue; the debt investor has the ability to direct the relevantactivities when the value of defaulted assets surpasses thatspecified proportion of the portfolio value. The asset managerand the debt investor each need to determine whether they areable to direct the activities that most significantly affect theinvestee's returns, including considering the purpose and designof the investee as well as each party's exposure to variabilityof returns. |
| Application examples |
| Example 3The investee hasannual shareholder meetings at which decisions to direct therelevant activities are made. The next scheduled shareholders'meeting is in eight months. However, shareholders thatindividually or collectively hold at least 5 per cent of thevoting rights can call a special meeting to change the existingpolicies over the relevant activities, but a requirement to givenotice to the other shareholders means that such a meeting cannotbe held for at least 30 days. Policies over the relevantactivities can be changed only at special or scheduledshareholders' meetings. This includes the approval of materialsales of assets as well as the making or disposing of significantinvestments.The above factpattern applies to examples 3A-3D described below. Each exampleis considered in isolation.Example 3AAn investor holds amajority of the voting rights in the investee. The investor'svoting rights are substantive because the investor is able tomake decisions about the direction of the relevant activitieswhen they need to be made. The fact that it takes 30 days beforethe investor can exercise its voting rights does not stop theinvestor from having the current ability to direct the relevantactivities from the moment the investor acquires theshareholding.Example 3BAn investor is partyto a forward contract to acquire the majority of shares in theinvestee. The forward contract's settlement date is in 25 days.The existing shareholders are unable to change the existingpolicies over the relevant activities because a special meetingcannot be held for at least 30 days, at which point the forwardcontract will have been settled. Thus, the investor has rightsthat are essentially equivalent to the majority shareholder inexample 3A above (i.e. the investor holding the forward contractcan make decisions about the direction of the relevant activitieswhen they need to be made). The investor's forward contract is asubstantive right that gives the investor the current ability todirect the relevant activities even before the forward contractis settled.Example 3CAn investor holds asubstantive option to acquire the majority of shares in theinvestee that is exercisable in 25 days and is deeply in themoney. The same conclusion would be reached as in example 3B.Example 3DAn investor is party to a forward contract toacquire the majority of shares in the investee, with no otherrelated rights over the investee. The forward contract'ssettlement date is in six months. In contrast to the examplesabove, the investor does not have the current ability to directthe relevant activities. The existing shareholders have thecurrent ability to direct the relevant activities because theycan change the existing policies over the relevant activitiesbefore the forward contract is settled. |
| Application examples |
| Example 4An investor acquires48 per cent of the voting rights of an investee. The remainingvoting rights are held by thousands of shareholders, noneindividually holding more than 1 per cent of the voting rights.None of the shareholders has any arrangements to consult any ofthe others or make collective decisions. When assessing theproportion of voting rights to acquire, on the basis of therelative size of the other shareholdings, the investor determinedthat a 48 per cent interest would be sufficient to give itcontrol. In this case, on the basis of the absolute size of itsholding and the relative size of the other shareholdings, theinvestor concludes that it has a sufficiently dominant votinginterest to meet the power criterion without the need to considerany other evidence of power.Example 5Investor A holds 40 per cent of the votingrights of an investee and twelve other investors each hold 5 percent of the voting rights of the investee. A shareholderagreement grants investor A the right to appoint, remove and setthe remuneration of management responsible for directing therelevant activities. To change the agreement, a two-thirdsmajority vote of the shareholders is required. In this case,investor A concludes that the absolute size of the investor'sholding and the relative size of the other shareholdings aloneare not conclusive in determining whether the investor has rightssufficient to give it power. However, investor A determines thatits contractual right to appoint, remove and set the remunerationof management is sufficient to conclude that it has power overthe investee. The fact that investor. A might not have exercisedthis right or the likelihood of investor A exercising its rightto select, appoint or remove management shall not be consideredwhen assessing whether investor A has power. |
| Application example |
| Example 6Investor A holds 45 per cent of the votingrights of an investee. Two other investors each hold 26 per centof the voting rights of the investee. The remaining voting rightsare held by three other shareholders, each holding 1 per cent.There are no other arrangements that affect decision-making. Inthis case, the size of investor A's voting interest and its sizerelative to the other shareholdings are sufficient to concludethat investor A does not have power. Only two other investorswould need to co-operate to be able to prevent investor A fromdirecting the relevant activities of the investee. |
| Application examples |
| Example 7An investor holds 45per cent of the voting rights of an investee. Eleven othershareholders each hold 5 per cent of the voting rights of theinvestee. None of the shareholders has contractual arrangementsto consult any of the others or make collective decisions. Inthis case, the absolute size of the investor's holding and therelative size of the other shareholdings alone are not conclusivein determining whether the investor has rights sufficient to giveit power over the investee. Additional facts and circumstancesthat may provide evidence that the investor has, or does nothave, power shall be considered.Example 8An investor holds 35 per cent of the votingrights of an investee. Three other shareholders each hold 5 percent of the voting rights of the investee. The remaining votingrights are held by numerous other shareholders, none individuallyholding more than 1 per cent of the voting rights. None of theshareholders has arrangements to consult any of the others ormake collective decisions. Decisions about the relevantactivities of the investee require the approval of a majority ofvotes cast at relevant shareholders' meetings-75 per cent of thevoting rights of the investee have been cast at recent relevantshareholders' meetings. In this case, the active participation ofthe other shareholders at recent shareholders' meetings indicatesthat the investor would not have the practical ability to directthe relevant activities unilaterally, regardless of whether theinvestor has directed the relevant activities because asufficient number of other shareholders voted in the same way asthe investor. |
| Application examples |
| Example 9Investor A holds 70per cent of the voting rights of an investee. Investor B has 30per cent of the voting rights of the investee as well as anoption to acquire half of investor A's voting rights. The optionis exercisable for the next two years at a fixed price that isdeeply out of the money (and is expected to remain so for thattwo-year period). Investor A has been exercising its votes and isactively directing the relevant activities of the investee. Insuch a case, investor A is likely to meet the power criterionbecause it appears to have the current ability to direct therelevant activities. Although investor B has currentlyexercisable options to purchase additional voting rights (that,if exercised, would give it a majority of the voting rights inthe investee), the terms and conditions associated with thoseoptions are such that the options are not considered substantive.Example 10Investor A and two other investors each hold athird of the voting rights of an investee. The investee'sbusiness activity is closely related to investor A. In additionto its equity instruments, investor A also holds debt instrumentsthat are convertible into ordinary shares of the investee at anytime for a fixed price that is out of the money (but not deeplyout of the money). If the debt were converted, investor A wouldhold 60 per cent of the voting rights of the investee. Investor Awould benefit from realising synergies if the debt instrumentswere converted into ordinary shares. Investor A has power overthe investee because it holds voting rights of the investeetogether with substantive potential voting rights that give itthe current ability to direct the relevant activities. |
| Application examples |
| Example 11An investee's onlybusiness activity, as specified in its founding documents, is topurchase receivables and service them on a day-to-day basis forits investors. The servicing on a day-to-day basis includes thecollection and passing on of principal and interest payments asthey fall due. Upon default of a receivable the investeeautomatically puts the receivable to an investor as agreedseparately in a put agreement between the investor and theinvestee. The only relevant activity is managing the receivablesupon default because it is the only activity that cansignificantly affect the investee's returns. Managing thereceivables before default is not a relevant activity because itdoes not require substantive decisions to be made that couldsignificantly affect the investee's returns-the activities beforedefault are predetermined and amount only to collecting cashflows as they fall due and passing them on to investors.Therefore, only the investor's right to manage the assets upondefault should be considered when assessing the overallactivities of the investee that significantly affect theinvestee's returns.In this example, thedesign of the investee ensures that the investor hasdecision-making authority over the activities that significantlyaffect the returns at the only time that such decision-makingauthority is required. The terms of the put agreement areintegral to the overall transaction and the establishment of theinvestee. Therefore, the terms of the put agreement together withthe founding documents of the investee lead to the conclusionthat the investor has power over the investee even though theinvestor takes ownership of the receivables only upon default andmanages the defaulted receivables outside the legal boundaries ofthe investee.Example 12The only assets of an investee are receivables.When the purpose and design of the investee are considered, it isdetermined that the only relevant activity is managing thereceivables upon default. The party that has the ability tomanage the defaulting receivables has power over the investee,irrespective of whether any of the borrowers have defaulted. |
| Application examples |
| Example 13A decision maker(fund manager) establishes, markets and manages a publiclytraded, regulated fund according to narrowly defined parametersset out in the investment mandate as required by its local lawsand regulations. The fund was marketed to investors as aninvestment in a diversified portfolio of equity securities ofpublicly traded entities. Within the defined parameters, the fundmanager has discretion about the assets in which to invest. Thefund manager has made a 10 per cent pro rata investment in thefund and receives a market-based fee for its services equal to 1per cent of the net asset value of the fund. The fees arecommensurate with the services provided. The fund manager doesnot have any obligation to fund losses beyond its 10 per centinvestment. The fund is not required to establish, and has notestablished, an independent board of directors. The investors donot hold any substantive rights that would affect thedecision-making authority of the fund manager, but can redeemtheir interests within particular limits set by the fund.Although operatingwithin the parameters set out in the investment mandate and inaccordance with the regulatory requirements, the fund manager hasdecision-making rights that give it the current ability to directthe relevant activities of the fund-the investors do not holdsubstantive rights that could affect the fund manager'sdecision-making authority. The fund manager receives amarket-based fee for its services that is commensurate with theservices provided and has also made a pro rata investment in thefund. The remuneration and its investment expose the fund managerto variability of returns from the activities of the fund withoutcreating exposure that is of such significance that it indicatesthat the fund manager is a principal.In this example,consideration of the fund manager's exposure to variability ofreturns from the fund together with its decision-making authoritywithin restricted parameters indicates that the fund manager isan agent. Thus, the fund manager concludes that it does notcontrol the fund.Example 14A decision makerestablishes, markets and manages a fund that provides investmentopportunities to a number of investors. The decision maker (fundmanager) must make decisions in the best interests of allinvestors and in accordance with the fund's governing agreements.Nonetheless, the fund manager has wide decision-makingdiscretion. The fund manager receives a market-based fee for itsservices equal to 1 per cent of assets under management and 20per cent of all the fund's profits if a specified profit level isachieved. The fees are commensurate with the services provided.Although it must makedecisions in the best interests of all investors, the fundmanager has extensive decision-making authority to direct therelevant activities of the fund. The fund manager is paid fixedand performance-related fees that are commensurate with theservices provided. In addition, the remuneration aligns theinterests of the fund manager with those of the other investorsto increase the value of the fund, without creating exposure tovariability of returns from the activities of the fund that is ofsuch significance that the remuneration, when considered inisolation, indicates that the fund manager is a principal.The above factpattern and analysis applies to examples 14A-14C described below.Each example is considered in isolation.Example 14AThe fund manager alsohas a 2 per cent investment in the fund that aligns its interestswith those of the other investors. The fund manager does not haveany obligation to fund losses beyond its 2 per cent investment.The investors can remove the fund manager by a simple majorityvote, but only for breach of contract.The fund manager's 2per cent investment increases its exposure to variability ofreturns from the activities of the fund without creating exposurethat is of such significance that it indicates that the fundmanager is a principal. The other investors' rights to remove thefund manager are considered to be protective rights because theyare exercisable only for breach of contract. In this example,although the fund manager has extensive decision-making authorityand is exposed to variability of returns from its interest andremuneration, the fund manager's exposure indicates that the fundmanager is an agent. Thus, the fund manager concludes that itdoes not control the fund.Example 14BThe fund manager hasa more substantial pro rata investment in the fund, but does nothave any obligation to fund losses beyond that investment. Theinvestors can remove the fund manager by a simple majority vote,but only for breach of contract.In this example, theother investors' rights to remove the fund manager are consideredto be protective rights because they are exercisable only forbreach of contract. Although the fund manager is paid fixed andperformance-related fees that are commensurate with the servicesprovided, the combination of the fund manager's investmenttogether with its remuneration could create exposure tovariability of returns from the activities of the fund that is ofsuch significance that it indicates that the fund manager is aprincipal. The greater the magnitude of, and variabilityassociated with, the fund manager's economic interests(considering its remuneration and other interests in aggregate),the more emphasis the fund manager would place on those economicinterests in the analysis, and the more likely the fund manageris a principal.For example, havingconsidered its remuneration and the other factors, the fundmanager might consider a 20 per cent investment to be sufficientto conclude that it controls the fund. However, in differentcircumstances (i.e. if the remuneration or other factors aredifferent), control may arise when the level of investment isdifferent.Example 14CThe fund manager hasa 20 per cent pro rata investment in the fund, but does not haveany obligation to fund losses beyond its 20 per cent investment.The fund has a board of directors, all of whose members areindependent of the fund manager and are appointed by the otherinvestors. The board appoints the fund manager annually. If theboard decided not to renew the fund manager's contract, theservices performed by the fund manager could be performed byother managers in the industry.Although the fundmanager is paid fixed and performance-related fees that arecommensurate with the services provided, the combination of thefund manager's 20 per cent investment together with itsremuneration creates exposure to variability of returns from theactivities of the fund that is of such significance that itindicates that the fund manager is a principal. However, theinvestors have substantive rights to remove the fund manager-theboard of directors provides a mechanism to ensure that theinvestors can remove the fund manager if they decide to do so.In this example, thefund manager places greater emphasis on the substantive removalrights in the analysis. Thus, although the fund manager hasextensive decision-making authority and is exposed to variabilityof returns of the fund from its remuneration and investment, thesubstantive rights held by the other investors indicate that thefund manager is an agent. Thus, the fund manager concludes thatit does not control the fund.Example 15An investee iscreated to purchase a portfolio of fixed rate asset-backedsecurities, funded by fixed rate debt instruments and equityinstruments. The equity instruments are designed to provide firstloss protection to the debt investors and receive any residualreturns of the investee. The transaction was marketed topotential debt investors as an investment in a portfolio ofasset-backed securities with exposure to the credit riskassociated with the possible default of the issuers of theasset-backed securities in the portfolio and to the interest raterisk associated with the management of the portfolio. Onformation, the equity instruments represent 10 per cent of thevalue of the assets purchased. A decision maker (the assetmanager) manages the active asset portfolio by making investmentdecisions within the parameters set out in the investee'sprospectus. For those services, the asset manager receives amarket based fixed fee (i.e. 1 per cent of assets undermanagement) and performance-related fees (i.e. 10 per cent ofprofits) if the investee's profits exceed a specified level. Thefees are commensurate with the services provided. The assetmanager holds 35 per cent of the equity in the investee. Theremaining 65 per cent of the equity, and all the debtinstruments, are held by a large number of widely dispersedunrelated third party investors. The asset manager can beremoved, without cause, by a simple majority decision of theother investors.The asset manager ispaid fixed and performance-related fees that are commensuratewith the services provided. The remuneration aligns the interestsof the fund manager with those of the other investors to increasethe value of the fund. The asset manager has exposure tovariability of returns from the activities of the fund because itholds 35 per cent of the equity and from its remuneration.Although operatingwithin the parameters set out in the investee's prospectus, theasset manager has the current ability to make investmentdecisions that significantly affect the investee's returns-theremoval rights held by the other investors receive littleweighting in the analysis because those rights are held by alarge number of widely dispersed investors. In this example, theasset manager places greater emphasis on its exposure tovariability of returns of the fund from its equity interest,which is subordinate to the debt instruments. Holding 35 per centof the equity creates subordinated exposure to losses and rightsto returns of the investee, which are of such significance thatit indicates that the asset manager is a principal. Thus, theasset manager concludes that it controls the investee.Example 16A decision maker (thesponsor) sponsors a multi-seller conduit, which issues short-termdebt instruments to unrelated third party investors. Thetransaction was marketed to potential investors as an investmentin a portfolio of highly rated medium-term assets with minimalexposure to the credit risk associated with the possible defaultby the issuers of the assets in the portfolio. Varioustransferors sell high quality medium-term asset portfolios to theconduit. Each transferor services the portfolio of assets that itsells to the conduit and manages receivables on default for amarket based servicing fee. Each transferor also provides firstloss protection against credit losses from its asset portfoliothrough over-collateralisation of the assets transferred to theconduit. The sponsor establishes the terms of the conduit andmanages the operations of the conduit for a market-based fee. Thefee is commensurate with the services provided. The sponsorapproves the sellers permitted to sell to the conduit, approvesthe assets to be purchased by the conduit and makes decisionsabout the funding of the conduit. The sponsor must act in thebest interests of all investors.The sponsor isentitled to any residual return of the conduit and also providescredit enhancement and liquidity facilities to the conduit. Thecredit enhancement provided by the sponsor absorbs losses of upto 5 per cent of all of the conduit's assets, after losses areabsorbed by the transferors. The liquidity facilities are notadvanced against defaulted assets. The investors do not holdsubstantive rights that could affect the decision-makingauthority of the sponsor.Even though the sponsor is paid a market-basedfee for its services that is commensurate with the servicesprovided, the sponsor has exposure to variability of returns fromthe activities of the conduit because of its rights to anyresidual returns of the conduit and the provision of creditenhancement and liquidity facilities (i.e. the conduit is exposedto liquidity risk by using short-term debt instruments to fundmedium-term assets). Even though each of the transferors hasdecision-making rights that affect the value of the assets of theconduit, the sponsor has extensive decision-making authority thatgives it the current ability to direct the activities that mostsignificantly affect the conduit's returns (i.e. the sponsorestablished the terms of the conduit, has the right to makedecisions about the assets (approving the assets purchased andthe transferors of those assets) and the funding of the conduit(for which new investment must be found on a regular basis). Theright to residual returns of the conduit and the provision ofcredit enhancement and liquidity facilities expose the sponsor tovariability of returns from the activities of the conduit that isdifferent from that of the other investors. Accordingly, thatexposure indicates that the sponsor is a principal and thus thesponsor concludes that it controls the conduit. The sponsor'sobligation to act in the best interest of all investors does notprevent the sponsor from being a principal. |
1. Appendix A, Distribution of Non-cash Assets to Owners contained, in Ind AS 10, Events after the Reporting Period, makes reference to this Standard also.
2. Appendix A, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, makes reference to this Standard also.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 110 and the corresponding International Financial Reporting Standard (IFRS) 10, Consolidated Financial Statements, issued by the International Accounting Standards Board.Comparison with IFRS 10, Consolidated Financial Statements1. IFRS 10 requires all investments to be measured at fair value to qualify for the exemption from consolidation available to an investment entity. Since, Ind AS 40, Investment Properties requires all investment properties to be measured at cost initially and cost less depreciation subsequently, sub-paragraph (a) of B85L have been deleted as this deal with investment property measured at fair value which is not relevant in the Indian context.
2. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
3. Appendix C of IFRS 10 dealing with effective date, transition and withdrawal of other IFRSs has not been included in Ind AS 10, due to the following reasons:
4. [ Following paragraph numbers appear as 'Deleted' in IFRS 10. In order to maintain consistency with paragraph numbers of IFRS 10, the paragraph numbers are retained in Ind AS 110:
1. The objective of this Indian Accounting Standard (Ind AS) is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (i.e. joint arrangements).
Meeting the objective2. To meet the objective in paragraph 1, this Ind AS defines joint control and requires an entity that is a party to a joint arrangement to determine the type of joint arrangement in which it is involved by assessing its rights and obligations and to account for those rights and obligations in accordance with that type of joint arrangement.
Scope3. This Ind AS shall be applied by all entities that are a party to a joint arrangement.
Joint arrangements4. A joint arrangement is an arrangement of which two or more parties have joint control.
5. A joint arrangement has the following characteristics:
6. A joint arrangement is either a joint operation or a joint venture.
Joint control7. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
8. An entity that is a party to an arrangement shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively. All the parties, or a group of the parties, control the arrangement collectively when they must act together to direct the activities that significantly affect the returns of the arrangement (.e. the relevant activities).
9. Once it has been determined that all the parties, or a group of the parties, control the arrangement collectively, joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively.
10. In a joint arrangement, no single party controls the arrangement on its own. A party with joint control of an arrangement can prevent any of the other parties, or a group of the parties, from controlling the arrangement.
11. An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. This Ind AS distinguishes between parties that have joint control of a joint arrangement (joint operators or joint venturers) and parties that participate in, but do not have joint control of, a joint arrangement.
12. An entity will need to apply judgement when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. An entity shall make this assessment by considering all facts and circumstances (see paragraphs B5-B11).
13. If facts and circumstances change, an entity shall reassess whether it still has joint control of the arrangement.
Types of joint arrangement14. An entity shall determine the type of joint arrangement in which it is involved. The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement.
15. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.
16. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
17. An entity applies judgement when assessing whether a joint arrangement is a joint operation or a joint venture. An entity shall determine the type of joint arrangement in which it is involved by considering its rights and obligations arising from the arrangement. An entity assesses its rights and obligations by considering the structure and legal form of the arrangement, the terms agreed by the parties in the contractual arrangement and, when relevant, other facts and circumstances (see paragraphs B12-B33).
18. Sometimes the parties are bound by a framework agreement that sets up the general contractual terms for undertaking one or more activities. The framework agreement might set out that the parties establish different joint arrangements to deal with specific activities that form part of the agreement. Even though those joint arrangements are related to the same framework agreement, their type might be different if the parties' rights and obligations differ when undertaking the different activities dealt with in the framework agreement. Consequently, joint operations and joint ventures can coexist when the parties undertake different activities that form part of the same framework agreement.
19. If facts and circumstances change, an entity shall reassess whether the type of joint arrangement in which it is involved has changed.
Financial statements of parties to a joint arrangementJoint operations20. A joint operator shall recognise in relation to its interest in a joint operation:
21. A joint operator shall account for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the Ind ASs applicable to the particular assets, liabilities, revenues and expenses.
21A. When an entity acquires an interest in a joint operation in which the activity of the joint operation constitutes a business, as defined in Ind AS 103, it shall apply, to the extent of its share in accordance with paragraph 20, all of the principles on business combinations accounting in Ind AS 103, and other Ind ASs, that do not conflict with the guidance in this Ind AS and disclose the information that is required in those Ind ASs in relation to business combinations. This applies to the acquisition of both the initial interest and additional interests in a joint operation in which the activity of the joint operation constitutes a business. The accounting for the acquisition of an interest in such a joint operation is specified in paragraphs B33A-B33D.
22. The accounting for transactions such as the sale, contribution or purchase of assets between an entity and a joint operation in which it is a joint operator is specified in paragraphs B34-B37.
23. A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with paragraphs 20-22 if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. If a party that participates in, but does not have joint control of, a joint operation does not have rights to the assets, and obligations for the liabilities, relating to that joint operation, it shall account for its interest in the joint operation in accordance with the Ind ASs applicable to that interest.
Joint ventures24. A joint venturer shall recognise its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with Ind AS 28, Investments in Associates and Joint Ventures, unless the entity is exempted from applying the equity method as specified in that standard.
25. A party that participates in, but does not have joint control of, a joint venture shall account for its interest in the arrangement in accordance with Ind AS 109, Financial Instruments, unless it has significant influence over the joint venture, in which case it shall account for it in accordance with Ind AS 28.
Separate financial statements26. In its separate financial statements, a joint operator or joint venturer shall account for its interest in:
27. In its separate financial statements, a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in:
| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| joint arrangement | An arrangement of which two or more parties havejointcontrol. |
| joint control | The contractually agreed sharing of control of an arrangement,which exists only when decisions about the relevant activitiesrequire the unanimous consent of the parties sharing control. |
| joint operation | Ajoint arrangementwhereby the parties that havejointcontrolof the arrangement have rights to the assets, andobligations for the liabilities, relating to the arrangement. |
| joint operator | A party to ajoint operationthat hasjoint controlof thatjoint operation. |
| joint venture | Ajoint arrangementwhereby the parties that havejointcontrolof the arrangement have rights to the net assets of thearrangement. |
| joint venturer | A party to ajoint venturethat hasjoint controlof thatjoint venture. |
| party to a joint arrangement | An entity that participates in ajoint arrangement, regardlessof whether that entity hasjoint controlof the arrangement. |
| separate vehicle | A separately identifiable financial structure, including separate legal entities or entities recognized by statute, regardless of whether those entities have a legal personality. |
| Application examples |
| Example 1Assume that threeparties establish an arrangement: A has 50 per cent of the votingrights in the arrangement, B has 30 per cent and C has 20 percent. The contractual arrangement between A, B and C specifiesthat at least 75 per cent of the voting rights are required tomake decisions about the relevant activities of the arrangement.Even though A can block any decision, it does not control thearrangement because it needs the agreement of B. The terms oftheir contractual arrangement requiring at least 75 per cent ofthe voting rights to make decisions about the relevant activitiesimply that A and B have joint control of the arrangement becausedecisions about the relevant activities of the arrangement cannotbe made without both A and B agreeing.Example 2Assume an arrangementhas three parties: A has 50 per cent of the voting rights in thearrangement and B and C each have 25 per cent. The contractualarrangement between A, B and C specifies that at least 75 percent of the voting rights are required to make decisions aboutthe relevant activities of the arrangement. Even though A canblock any decision, it does not control the arrangement becauseit needs the agreement of either B or C. In this example, A, Band C collectively control the arrangement. However, there ismore than one combination of parties that can agree to reach 75per cent of the voting rights (i.e. either A and B or A and C).In such a situation, to be a joint arrangement the contractualarrangement between the parties would need to specify whichcombination of the parties is required to agree unanimously todecisions about the relevant activities of the arrangement.Example 3Assume an arrangement in which A and B each have35 per cent of the voting rights in the arrangement with theremaining 30 per cent being widely dispersed. Decisions about therelevant activities require approval by a majority of the votingrights. A and B have joint control of the arrangement only if thecontractual arrangement specifies that decisions about therelevant activities of the arrangement require both A and Bagreeing. |
| Application example |
| Example 4Assume that twoparties structure a joint arrangement in an incorporated entity.Each party has a 50 per cent ownership interest in theincorporated entity. The incorporation enables the separation ofthe entity from its owners and as a consequence the assets andliabilities held in the entity are the assets and liabilities ofthe incorporated entity. In such a case, the assessment of therights and obligations conferred upon the parties by the legalform of the separate vehicle indicates that the parties haverights to the net assets of the arrangement.However, the parties modify the features of thecorporation through their contractual arrangement so that eachhas an interest in the assets of the incorporated entity and eachis liable for the liabilities of the incorporated entity in aspecified proportion. Such contractual modifications to thefeatures of a corporation can cause an arrangement to be a jointoperation. |
| Assessing the terms of the contractualarrangement | ||
| Joint operation | Joint venture | |
| The terms of the contractual arrangement | The contractual arrangement provides the partiesto the joint arrangement with rights to the assets, andobligations for the liabilities, relating to the arrangement. | The contractual arrangement provides the partiesto the joint arrangement with rights to the net assets of thearrangement (i.e. it is the separate vehicle, not the parties,that has rights to the assets, and obligations for theliabilities, relating to the arrangement). |
| Rights to assets | The contractual arrangement establishes that theparties to the joint arrangement share all interests (e.g.rights, title or ownership) in the assets relating to thearrangement in a specified proportion (e.g. in proportion to theparties' ownership interest in the arrangement or in proportionto the activity carried out through the arrangement that isdirectly attributed to them). | The contractual arrangement establishes that theassets brought into the arrangement or subsequently acquired bythe joint arrangement are the arrangement's assets. The partieshave no interests (i.e. no rights, title or ownership) in theassets of the arrangement. |
| Obligations for liabilities | The contractualarrangement establishes that the parties to the joint arrangementshare all liabilities, obligations, costs and expenses in aspecified proportion (e.g. in proportion to the parties'ownership interest in the arrangement or in proportion to theactivity carried out through the arrangement that is directlyattributed to them).The contractualarrangement establishes that the parties to the joint arrangementare liable for claims raised by third parties. | The contractualarrangement establishes that the joint arrangement is liable forthe debts and obligations of the arrangement.The contractualarrangement establishes that the parties to the joint arrangementare liable to the arrangement only to the extent of theirrespective investments in the arrangement or to their respectiveobligations to contribute any unpaid or additional capital to thearrangement, or both.The contractual arrangement states thatcreditors of the joint arrangement do not have rights of recourseagainst any party with respect to debts or obligations of thearrangement. |
| Revenues, expenses, profit or loss | The contractual arrangement establishes theallocation of revenues and expenses on the basis of the relativeperformance of each party to the joint arrangement. For example,the contractual arrangement might establish that revenues andexpenses are allocated on the basis of the capacity that eachparty uses in a plant operated jointly, which could differ fromtheir ownership interest in the joint arrangement. In otherinstances, the parties might have agreed to share the profit orloss relating to the arrangement on the basis of a specifiedproportion such as the parties' ownership interest in thearrangement. This would not prevent the arrangement from being ajoint operation if the parties have rights to the assets, andobligations for the liabilities, relating to the arrangement. | The contractual arrangement establishes eachparty's share in the profit or loss relating to the activities ofthe arrangement. |
| Guarantees | The parties to joint arrangements are oftenrequired to provide guarantees to third parties that, forexample, receive a service from, or provide financing to, thejoint arrangement. The provision of such guarantees, or thecommitment by the parties to provide them, does not, by itself,determine that the joint arrangement is a joint operation. Thefeature that determines whether the joint arrangement is a jointoperation or a joint venture is whether the parties haveobligations for the liabilities relating to the arrangement (forsome of which the parties might or might not have provided aguarantee). |
| Application example |
| Example 5Assume that twoparties structure a joint arrangement in an incorporated entity(entity C) in which each party has a 50 per cent ownershipinterest. The purpose of the arrangement is to manufacturematerials required by the parties for their own, individualmanufacturing processes. The arrangement ensures that the partiesoperate the facility that produces the materials to the quantityand quality specifications of the parties. The legal form ofentity C (an incorporated entity) through which the activitiesare conducted initially indicates that the assets and liabilitiesheld in entity C are the assets and liabilities of entity C. Thecontractual arrangement between the parties does not specify thatthe parties have rights to the assets or obligations for theliabilities of entity C. Accordingly, the legal form of entity Cand the terms of the contractual arrangement indicate that thearrangement is a joint venture.However, the partiesalso consider the following aspects of the arrangement:The partiesagreed to purchase all the output produced by entity C in aratio of 50:50. Entity C cannot sell any of the output to thirdparties, unless this is approved by the two parties to thearrangement. Because the purpose of the arrangement is toprovide the parties with output they require, such sales tothird parties are expected to be uncommon and not material.The price of theoutput sold to the parties is set by both parties at a levelthat is designed to cover the costs of production andadministrative expenses incurred by entity C. On the basis ofthis operating model, the arrangement is intended to operate ata break-even level.From the fact patternabove, the following facts and circumstances are relevant:The obligationof the parties to purchase all the output produced by entity Creflects the exclusive dependence of entity C upon the partiesfor the generation of cash flows and, thus, the parties have anobligation to fund the settlement of the liabilities of entityC.The fact thatthe parties have rights to all the output produced by entity Cmeans that the parties are consuming, and therefore have rightsto, all the economic benefits of the assets of entity C.These facts andcircumstances indicate that the arrangement is a joint operation.The conclusion about the classification of the joint arrangementin these circumstances would not change if, instead of theparties using their share of the output themselves in asubsequent manufacturing process, the parties sold their share ofthe output to third parties.If the parties changed the terms of thecontractual arrangement so that the arrangement was able to selloutput to third parties, this would result in entity C assumingdemand, inventory and credit risks. In that scenario, such achange in the facts and circumstances would require reassessmentof the classification of the joint arrangement. Such facts andcircumstances would indicate that the arrangement is a jointventure. |
1. [ Paragraph C1 of Appendix C of IFRS 11 refers to Effective date that has not been included since the same is not relevant as the date of application is notified under the Companies Act.Paragraphs C1A and C1AA related to transitional provisions have not been included since, transitional provisions wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. However, in order to maintain consistency with paragraph numbers of IFRS 11, the paragraph numbers are retained in Ind AS 111.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
2. Paragraph B33D refers to the accounting specified in Appendix C 'Business Combinations under Common Control' of Ind AS 103 for the acquisition of an interest in a joint operation when the parties sharing joint control, including the entity acquiring the interest in the joint operation, are under the common control of the same ultimate controlling party or parties both before and after the acquisition, and that control is not transitory. IFRS 11 scopes out the same as IFRS 3, Business Combinations, does not deal with business combinations under common control.
Indian Accounting Standard (Ind AS) 112Disclosure of Interests in Other Entities(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Indian Accounting Standard (Ind AS) is to require an entity to disclose information that enables users of its financial statements to evaluate :
2. To meet the objective in paragraph 1, an entity shall disclose :
3. If the disclosures required by this Ind AS, together with disclosures required by other Ind ASs, do not meet the objective in paragraph 1, an entity shall disclose whatever additional information is necessary to meet that objective.
4. An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the requirements in this Ind AS. It shall aggregate or dis-aggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have different characteristics (see paragraphs B2-B6).
Scope5. This Ind AS shall be applied by an entity that has an interest in any of the following :
6. This Ind AS does not apply to :
7. An entity shall disclose information about significant judgements and assumptions it has made (and changes to those judgements and assumptions) in determining:
8. The significant judgements and assumptions disclosed in accordance with paragraph 7 include those made by the entity when changes in facts and circumstances are such that the conclusion about whether it has control, joint control or significant influence changes during the reporting period.
9. To comply with paragraph 7, an entity shall disclose, for example, significant judgements and assumptions made in determining that :
9A. When a parent determines that it is an investment entity in accordance with paragraph 27 of Ind AS 110, the investment entity shall disclose information about significant judgements and assumptions it has made in determining that it is an investment entity. If the investment entity does not have one or more of the typical characteristics of an investment entity (see paragraph 28 of Ind AS 110), it shall disclose its reasons for concluding that it is nevertheless an investment entity.
9B. When an entity becomes, or ceases to be, an investment entity, it shall disclose the change of investment entity status and the reasons for the change. In addition, an entity that becomes an investment entity shall disclose the effect of the change of status on the financial statements for the period presented, including :
10. An entity shall disclose information that enables users of its consolidated financial statements
11. When the financial statements of a subsidiary used in the preparation of consolidated financial statements are as of a date or for a period that is different from that of the consolidated financial statements (see paragraphs B92. and B93 of Ind AS 110), an entity shall disclose:
12. An entity shall disclose for each of its subsidiaries that have non-controlling interests that are material to the reporting entity:
13. An entity shall disclose:
14. An entity shall disclose the terms of any contractual arrangements that could require the parent or its subsidiaries to provide financial support to a consolidated structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g. liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or provide financial support).
15. If during the reporting period a parent or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to a consolidated structured entity (e.g. purchasing assets of or instruments issued by the structured entity), the entity shall disclose:
16. If during the reporting period a parent or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to a previously unconsolidated structured entity and that provision of support resulted in the entity controlling the structured entity, the entity shall disclose an explanation of the relevant factors in reaching that decision.
17. An entity shall disclose any current intentions to provide financial or other support to a consolidated structured entity, including intentions to assist the structured entity in obtaining financial support.
Consequences of changes in a parent's ownership interest in a subsidiary that do not result in a loss of control18. An entity shall present a schedule that shows the effects on the equity attributable to owners of the parent of any changes in its ownership interest in a subsidiary that do not result in a loss of control.
Consequences of losing control of a subsidiary during the reporting period19. An entity shall disclose the gain or loss, if any, calculated in accordance with paragraph 25 of Ind AS 110, and:
19A. An investment entity that, in accordance with Ind AS 110, is required to apply the exception to consolidation and instead account for its investment in a subsidiary at fair value through profit or loss shall disclose that fact.
19B. For each unconsolidated subsidiary, an investment entity shall disclose:
19C. If an investment entity is the parent of another investment entity, the parent shall also provide the disclosures in 19B(a)-(c) for investments that are controlled by its investment entity subsidiary. The disclosure may be provided by including, in the financial statements of the parent, the financial statements of the subsidiary (or subsidiaries) that contain the above information.
19D. An investment entity shall disclose:
19E. If, during the reporting period, an investment entity or any of its subsidiaries has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated subsidiary (e.g. purchasing assets of, or instruments issued by, the subsidiary or assisting the subsidiary in obtaining financial support), the entity shall disclose:
19F. An investment entity shall disclose the terms of any contractual arrangements that could require the entity or its unconsolidated subsidiaries to provide financial support to an unconsolidated, controlled, structured entity, including events or circumstances that could expose the reporting entity to a loss (e.g. liquidity arrangements or credit rating triggers associated with obligations to purchase assets of the structured entity or to provide financial support).
19G. If during the reporting period an investment entity or any of its unconsolidated subsidiaries has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated, structured entity that the investment entity did not control, and if that provision of support resulted in the investment entity controlling the structured entity, the investment entity shall disclose an explanation of the relevant factors in reaching the decision to provide that support.
Interests in joint arrangements and associates20. An entity shall disclose information that enables users of its financial statements to evaluate:
21. An entity shall disclose:
21A. An investment entity need not provide the disclosures required by paragraphs 21(b)-21(c).
22. An entity shall also disclose:
23. An entity shall disclose:
24. An entity shall disclose information that enables users of its financial statements:
25. The information required by paragraph 24(b) includes information about an entity's exposure to risk from involvement that it had with unconsolidated structured entities in previous periods (e.g. sponsoring the structured entity), even if the entity no longer has any contractual involvement with the structured entity at the reporting date.
25A. An investment entity need not provide the disclosures required by paragraph 24 for an unconsolidated structured entity that it controls and for which it presents the disclosures required by paragraphs 19A-19G.
Nature of interests26. An entity shall disclose qualitative and quantitative information about its interests in unconsolidated structured entities, including, but not limited to, the nature, purpose, size and activities of the structured entity and how the structured entity is financed.
27. If an entity has sponsored an unconsolidated structured entity for which it does not provide information required by paragraph 29 (e.g. because it does not have an interest in the entity at the reporting date), the entity shall disclose:
28. An entity shall present the information in paragraph 27(b) and (c) in tabular format, unless another format is more appropriate, and classify its sponsoring activities into relevant categories (see paragraphs B2-B6).
Nature of risks29. An entity shall disclose in tabular format, unless another format is more appropriate, a summary of:
30. If during the reporting period an entity has, without having a contractual obligation to do so, provided financial or other support to an unconsolidated structured entity in which it previously had or currently has an interest (for example, purchasing assets of or instruments issued by the structured entity), the entity shall disclose:
31. An entity shall disclose any current intentions to provide financial or other support to an unconsolidated structured entity, including intentions to assist the structured entity in obtaining financial support.
Appendix A| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| income from a structured entity | For the purpose of this Ind AS, income from astructured entityincludes, but is not limited to, recurring andnon-recurring fees, interest, dividends, gains or losses on theremeasurement or derecognition of interests in structuredentities and gains or losses from the transfer of assets andliabilities to the structured entity. |
| interest in another entity | For the purpose of this Ind AS, an interest inanother entity refers to contractual and non-contractualinvolvement that exposes an entity to variability of returns fromthe performance of the other entity. An interest in anotherentity can be evidenced by, but is not limited to, the holding ofequity or debt instruments as well as other forms of involvementsuch as the provision of funding, liquidity support, creditenhancement and guarantees. It includes the means by which anentity has control or joint control of, or significant influenceover, another entity. An entity does not necessarily have aninterest in another entity solely because of a typical customersupplier relationship. |
| Paragraphs B7-B9 provide further informationabout interests in other entities. | |
| Paragraphs B55-B57 of Ind AS 110 explainvariability of returns. | |
| structured entity | An entity that has been designed so that votingor similar rights are not the dominant factor in deciding whocontrols the entity, such as when any voting rights relate toadministrative tasks only and the relevant activities aredirected by means of contractual arrangements. |
| Paragraphs B22-B24 provide further informationabout structured entities. |
1. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
2. [ Paragraphs C1 to C1C of Appendix C, have not been included as these paragraphs relate to effective date and transition that are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 12, the paragraph numbers are retained in Ind AS 112.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 113Fair Value Measurement(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. This Ind AS:
2. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same-to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
3. When a price for an identical asset or liability is not observable, an entity measures fair value using another valuation technique that maximises the use of relevant observable inputs and minimises the use of unobservable inputs. Because fair value is a market-based measurement, it is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. As a result, an entity's intention to hold an asset or to settle or otherwise fulfil a liability is not relevant when measuring fair value.
4. The definition of fair value focuses on assets and liabilities because they are a primary subject of accounting measurement. In addition, this Ind AS shall be applied to an entity's own equity instruments measured at fair value.
Scope5. This Ind AS applies when another Ind AS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except as specified in paragraphs 6 and 7.
6. The measurement and disclosure requirements of this Ind AS do not apply to the following:
7. The disclosures required by this Ind AS are not required for the following:
8. The fair value measurement framework described in this Ind AS applies to both initial and subsequent measurement if fair value is required or permitted by other Ind ASs.
MeasurementDefinition of fair value9. This Ind AS defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
10. Paragraph B2 describes the overall fair value measurement approach.
The asset or liability11. A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Such characteristics include, for example, the following:
12. The effect on the measurement arising from a particular characteristic will differ depending on how that characteristic would be taken into account by market participants.
13. The asset or liability measured at fair value might be either of the following:
14. Whether the asset or liability is a stand-alone asset or liability, a group of assets, a group of liabilities or a group of assets and liabilities for recognition or disclosure purposes depends on its unit of account. The unit of account for the asset or liability shall be determined in accordance with the Ind AS that requires or permits the fair value measurement, except as provided in this Ind AS.
The transaction15. A fair value measurement assumes that the asset or liability is exchanged in an orderly transaction between market participants to sell the asset or transfer the liability at the measurement date under current market conditions.
16. A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:
17. An entity need not undertake an exhaustive search of all possible markets to identify the principal market or, in the absence of a principal market, the most advantageous market, but it shall take into account all information that is reasonably available. In the absence of evidence to the contrary, the market in which the entity would normally enter into a transaction to sell the asset or to transfer the liability is presumed to be the principal market or, in the absence of a principal market, the most advantageous market.
18. If there is a principal market for the asset or liability, the fair value measurement shall represent the price in that market (whether that price is directly observable or estimated using another valuation technique), even if the price in a different market is potentially more advantageous at the measurement date.
19. The entity must have access to the principal (or most advantageous) market at the measurement date. Because different entities (and businesses within those entities) with different activities may have access to different markets, the principal (or most advantageous) market for the same asset or liability might be different for different entities (and businesses within those entities). Therefore, the principal (or most advantageous) market (and thus, market participants) shall be considered from the perspective of the entity, thereby allowing for differences between and among entities with different activities.
20. Although an entity must be able to access the market, the entity does not need to be able to sell the particular asset or transfer the particular liability on the measurement date to be able to measure fair value on the basis of the price in that market.
21. Even when there is no observable market to provide pricing information about the sale of an asset or the transfer of a liability at the measurement date, a fair value measurement shall assume that a transaction takes place at that date, considered from the perspective of a market participant that holds the asset or owes the liability. That assumed transaction establishes a basis for estimating the price to sell the asset or to transfer the liability.
Market participants22. An entity shall measure the fair value of an asset or a liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
23. In developing those assumptions, an entity need not identify specific market participants. Rather, the entity shall identify characteristics that distinguish market participants generally, considering factors specific to all the following:
24. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.
25. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. Transaction costs shall be accounted for in accordance with other Ind ASs. Transaction costs are not a characteristic of an asset or a liability; rather, they are specific to a transaction and will differ depending on how an entity enters into a transaction for the asset or liability.
26. Transaction costs do not include transport costs. If location is a characteristic of the asset (as might be the case, for example, for a commodity), the price in the principal (or most advantageous) market shall be adjusted for the costs, if any, that would be incurred to transport the asset from its current location to that market.
Application to non-financial assetsHighest and best use for non-financial assets27. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
28. The highest and best use of a non-financial asset takes into account the use of the asset that is physically possible, legally permissible and financially feasible, as follows:
29. Highest and best use is determined from the perspective of market participants, even if the entity intends a different use. However, an entity's current use of a non-financial asset is presumed to be its highest and best use unless market or other factors suggest that a different use by market participants would maximise the value of the asset.
30. To protect its competitive position, or for other reasons, an entity may intend not to use an acquired non-financial asset actively or it may intend not to use the asset according to its highest and best use. For example, that might be the case for an acquired intangible asset that the entity plans to use defensively by preventing others from using it. Nevertheless, the entity shall measure the fair value of a non-financial asset assuming its highest and best use by market participants.
Valuation premise for non-financial assets31. The highest and best use of a non-financial asset establishes the valuation premise used to measure the fair value of the asset, as follows:
32. The fair value measurement of a non-financial asset assumes that the asset is sold consistently with the unit of account specified in other Ind ASs (which may be an individual asset). That is the case even when that fair value measurement assumes that the highest and best use of the asset is to use it in combination with other assets or with other assets and liabilities because a fair value measurement assumes that the market participant already holds the complementary assets and the associated liabilities.
33. Paragraph B3 describes the application of the valuation premise concept for non-financial assets.
Application to liabilities and an entity's own equity instrumentsGeneral principles34. A fair value measurement assumes that a financial or non-financial liability or an entity's own equity instrument (e.g. equity interests issued as consideration in a business combination) is transferred to a market participant at the measurement date. The transfer of a liability or an entity's own equity instrument assumes the following:
35. Even when there is no observable market to provide pricing information about the transfer of a liability or an entity's own equity instrument (e.g. because contractual or other legal restrictions prevent the transfer of such items), there might be an observable market for such items if they are held by other parties as assets (e.g. a corporate bond or a call option on an entity's shares).
36. In all cases, an entity shall maximise the use of relevant observable inputs and minimise the use of unobservable inputs to meet the objective of a fair value measurement, which is to estimate the price at which an orderly transaction to transfer the liability or equity instrument would take place between market participants at the measurement date under current market conditions.
Liabilities and equity instruments held by other parties as assets37. When a quoted price for the transfer of an identical or a similar liability or entity's own equity instrument is not available and the identical item is held by another party as an asset, an entity shall measure the fair value of the liability or equity instrument from the perspective of a market participant that holds the identical item as an asset at the measurement date.
38. In such cases, an entity shall measure the fair value of the liability or equity instrument as follows:
39. An entity shall adjust the quoted price of a liability or an entity's own equity instrument held by another party as an asset only if there are factors specific to the asset that are not applicable to the fair value measurement of the liability or equity instrument. An entity shall ensure that the price of the asset does not reflect the effect of a restriction preventing the sale of that asset. Some factors that may indicate that the quoted price of the asset should be adjusted include the following:
40. When a quoted price for the transfer of an identical or a similar liability or entity's own equity instrument is not available and the identical item is not held by another party as an asset, an entity shall measure the fair value of the liability or equity instrument using a valuation technique from the perspective of a market participant that owes the liability or has issued the claim on equity.
41. For example, when applying a present value technique an entity might take into account either of the following:
42. The fair value of a liability reflects the effect of non-performance risk. Non-performance risk includes, but may not be limited to, an entity's own credit risk (as defined in Ind AS 107, Financial Instruments: Disclosures). Non-performance risk is assumed to be the same before and after the transfer of the liability.
43. When measuring the fair value of a liability, an entity shall take into account the effect of its credit risk (credit standing) and any other factors that might influence the likelihood that the obligation will or will not be fulfilled. That effect may differ depending on the liability, for example:
44. The fair value of a liability reflects the effect of non-performance risk on the basis of its unit of account. The issuer of a liability issued with an inseparable third-party credit enhancement that is accounted for separately from the liability shall not include the effect of the credit enhancement (e.g. a third-party guarantee of debt) in the fair value measurement of the liability. If the credit enhancement is accounted for separately from the liability, the issuer would take into account its own credit standing and not that of the third party guarantor when measuring the fair value of the liability.
Restriction preventing the transfer of a liability or an entity's own equity instrument45. When measuring the fair value of a liability or an entity's own equity instrument, an entity shall not include a separate input or an adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the item. The effect of a restriction that prevents the transfer of a liability or an entity's own equity instrument is either implicitly or explicitly included in the other inputs to the fair value measurement.
46. For example, at the transaction date, both the creditor and the obligor accepted the transaction price for the liability with full knowledge that the obligation includes a restriction that prevents its transfer. As a result of the restriction being included in the transaction price, a separate input or an adjustment to an existing input is not required at the transaction date to reflect the effect of the restriction on transfer. Similarly, a separate input or an adjustment to an existing input is not required at subsequent measurement dates to reflect the effect of the restriction on transfer.
Financial liability with a demand feature47. The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid.
Application to financial assets and financial liabilities with offsetting positions in market risks or counter-party credit risk48. An entity that holds a group of financial assets and financial liabilities is exposed to market risks (as defined in Ind AS 107) and to the credit risk (as defined in Ind AS 107) of each of the counter-parties. If the entity manages that group of financial assets and financial liabilities on the basis of its net exposure to either market risks or credit risk, the entity is permitted to apply an exception to this Ind AS for measuring fair value. That exception permits an entity to measure the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date under current market conditions. Accordingly, an entity shall measure the fair value of the group of financial assets and financial liabilities consistently with how market participants would price the net risk exposure at the measurement date.
49. An entity is permitted to use the exception in paragraph 48 only if the entity does all the following:
50. The exception in paragraph 48 does not pertain to financial statement presentation. In some cases the basis for the presentation of financial instruments in the balance sheet differs from the basis for the measurement of financial instruments, for example, if an Ind AS does not require or permit financial instruments to be presented on a net basis. In such cases an entity may need to allocate the portfolio-level adjustments (see paragraphs 53-56) to the individual assets or liabilities that make up the group of financial assets and financial liabilities managed on the basis of the entity's net risk exposure. An entity shall perform such allocations on a reasonable and consistent basis using a methodology appropriate in the circumstances.
51. An entity shall make an accounting policy decision in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, to use the exception in paragraph 48. An entity that uses the exception shall apply that accounting policy, including its policy for allocating bid-ask adjustments (see paragraphs 53-55) and credit adjustments (see paragraph 56), if applicable, consistently from period to period for a particular portfolio.
52. The exception in paragraph 48 applies only to financial assets, financial liabilities and other contracts within the scope of Ind AS 109, Financial Instruments. The references to financial assets and financial liabilities in paragraphs 48-51 and 53-56 should be read as applying to all contracts within the scope of, and accounted for in accordance with, Ind AS 109, regardless of whether they meet the definitions of financial assets or financial liabilities in Ind AS 32, Financial Instruments: Presentation.
Exposure to market risks53. When using the exception in paragraph 48 to measure the fair value of a group of financial assets and financial liabilities managed on the basis of the entity's net exposure to a particular market risk (or risks), the entity shall apply the price within the bid-ask spread that is most representative of fair value in the circumstances to the entity's net exposure to those market risks (see paragraphs 70 and 71).
54. When using the exception in paragraph 48, an entity shall ensure that the market risk (or risks) to which the entity is exposed within that group of financial assets and financial liabilities is substantially the same. For example, an entity would not combine the interest rate risk associated with a financial asset with the commodity price risk associated with a financial liability because doing so would not mitigate the entity's exposure to interest rate risk or commodity price risk. When using the exception in paragraph 48, any basis risk resulting from the market risk parameters not being identical shall be taken into account in the fair value measurement of the financial assets and financial liabilities within the group.
55. Similarly, the duration of the entity's exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities shall be substantially the same. For example, an entity that uses a 12-month futures contract against the cash flows associated with 12 months' worth of interest rate risk exposure on a five-year financial instrument within a group made up of only those financial assets and financial liabilities measures the fair value of the exposure to 12-month interest rate risk on a net basis and the remaining interest rate risk exposure (i.e. years 2-5) on a gross basis.
Exposure to the credit risk of a particular counter-party56. When using the exception in paragraph 48 to measure the fair value of a group of financial assets and financial liabilities entered into with a particular counter-party, the entity shall include the effect of the entity's net exposure to the credit risk of that counter-party or the counter-party's net exposure to the credit risk of the entity in the fair value measurement when market participants would take into account any existing arrangements that mitigate credit risk exposure in the event of default (e.g. a master netting agreement with the counter-party or an agreement that requires the exchange of collateral on the basis of each party's net exposure to the credit risk of the other party). The fair value measurement shall reflect market participants' expectations about the likelihood that such an arrangement would be legally enforceable in the event of default.
Fair value at initial recognition57. When an asset is acquired or a liability is assumed in an exchange transaction for that asset or liability, the transaction price is the price paid to acquire the asset or received to assume the liability (an entry price). In contrast, the fair value of the asset or liability is the price that would be received to sell the asset or paid to transfer the liability (an exit price). Entities do not necessarily sell assets at the prices paid to acquire them. Similarly, entities do not necessarily transfer liabilities at the prices received to assume them.
58. In many cases the transaction price will equal the fair value (e.g. that might be the case when on the transaction date the transaction to buy an asset takes place in the market in which the asset would be sold).
59. When determining whether fair value at initial recognition equals the transaction price, an entity shall take into account factors specific to the transaction and to the asset or liability. Paragraph B4 describes situations in which the transaction price might not represent the fair value of an asset or a liability at initial recognition.
60. If another Ind AS requires or permits an entity to measure an asset or a liability initially at fair value and the transaction price differs from fair value, the entity shall recognise the resulting gain or loss in profit or loss unless that Ind AS specifies otherwise.
Valuation techniques61. An entity shall use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
62. The objective of using a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Three widely used valuation techniques are the market approach, the cost approach and the income approach. The main aspects of those approaches are summarised in paragraphs B5-B11. An entity shall use valuation techniques consistent with one or more of those approaches to measure fair value.
63. In some cases a single valuation technique will be appropriate (e.g. when valuing an asset or a liability using quoted prices in an active market for identical assets or liabilities). In other cases, multiple valuation techniques will be appropriate (e.g. that might be the case when valuing a cash-generating unit). If multiple valuation techniques are used to measure fair value, the results (i.e. respective indications of fair value) shall be evaluated considering the reasonableness of the range of values indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.
64. If the transaction price is fair value at initial recognition and a valuation technique that uses unobservable inputs will be used to measure fair value in subsequent periods, the valuation technique shall be calibrated so that at initial recognition the result of the valuation technique equals the transaction price. Calibration ensures that the valuation technique reflects current market conditions, and it helps an entity to determine whether an adjustment to the valuation technique is necessary (e.g. there might be a characteristic of the asset or liability that is not captured by the valuation technique). After initial recognition, when measuring fair value using a valuation technique or techniques that use unobservable inputs, an entity shall ensure that those valuation techniques reflect observable market data (e.g. the price for a similar asset or liability) at the measurement date.
65. Valuation techniques used to measure fair value shall be applied consistently. However, a change in a valuation technique or its application (e.g. a change in its weightage when multiple valuation techniques are used or a change in an adjustment applied to a valuation technique) is appropriate if the change results in a measurement that is equally or more representative of fair value in the circumstances. That might be the case if, for example, any of the following events take place:
66. Revisions resulting from a change in the valuation technique or its application shall be accounted for as a change in accounting estimate in accordance with Ind AS 8. However, the disclosures in Ind AS 8 for a change in accounting estimate are not required for revisions resulting from a change in a valuation technique or its application.
Inputs to valuation techniquesGeneral principles67. Valuation techniques used to measure fair value shall maximise the use of relevant observable inputs and minimise the use of unobservable inputs.
68. Examples of markets in which inputs might be observable for some assets and liabilities (e.g. financial instruments) include exchange markets, dealer markets, brokered markets and principal-to-principal markets (see paragraph B34).
69. An entity shall select inputs that are consistent with the characteristics of the asset or liability that market participants would take into account in a transaction for the asset or liability (see paragraphs 11 and 12). In some cases those characteristics result in the application of an adjustment, such as a premium or discount (e.g. a control premium or non-controlling interest discount). However, a fair value measurement shall not incorporate a premium or discount that is inconsistent with the unit of account in the Ind AS that requires or permits the fair value measurement (see paragraphs 13 and 14). Premiums or discounts that reflect size as a characteristic of the entity's holding (specifically, a blockage factor that adjusts the quoted price of an asset or a liability because the market's normal daily trading volume is not sufficient to absorb the quantity held by the entity, as described in paragraph 80) rather than as a characteristic of the asset or liability (e.g. a control premium when measuring the fair value of a controlling interest) are not permitted in a fair value measurement. In all cases, if there is a quoted price in an active market (i.e. a Level 1 input) for an asset or a liability, an entity shall use that price without adjustment when measuring fair value, except as specified in paragraph 79.
Inputs based on bid and ask prices70. If an asset or a liability measured at fair value has a bid price and an ask price (eg. an input from a dealer market), the price within the bid-ask spread that is most representative of fair value in the circumstances shall be used to measure fair value regardless of where the input is categorised within the fair value hierarchy (i.e. Level 1, 2 or 3; see paragraphs 72-90). The use of bid prices for asset positions and ask prices for liability positions is permitted, but is not required.
71. This Ind AS does not preclude the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurements within a bid-ask spread.
Fair value hierarchy72. To increase consistency and comparability in fair value measurements and related disclosures, this Ind AS establishes a fair value hierarchy that categorises into three levels (see paragraphs 76-90), the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
73. In some cases, the inputs used to measure the fair value of an asset or a liability might be categorised within different levels of the fair value hierarchy. In those cases, the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Assessing the significance of a particular input to the entire measurement requires judgement, taking into account factors specific to the asset or liability. Adjustments to arrive at measurements based on fair value, such as costs to sell when measuring fair value less costs to sell, shall not be taken into account when determining the level of the fair value hierarchy within which a fair value measurement is categorised.
74. The availability of relevant inputs and their relative subjectivity might affect the selection of appropriate valuation techniques (see paragraph 61). However, the fair value hierarchy prioritises the inputs to valuation techniques, not the valuation techniques used to measure fair value. For example, a fair value measurement developed using a present value technique might be categorised within Level 2 or Level 3, depending on the inputs that are significant to the entire measurement and the level of the fair value hierarchy within which those inputs are categorised.
75. If an observable input requires an adjustment using an unobservable input and that adjustment results in a significantly higher or lower fair value measurement, the resulting measurement would be categorised within Level 3 of the fair value hierarchy. For example, if a market participant would take into account the effect of a restriction on the sale of an asset when estimating the price for the asset, an entity would adjust the quoted price to reflect the effect of that restriction. If that quoted price is a Level 2 input and the adjustment is an unobservable input that is significant to the entire measurement, the measurement would be categorised within Level 3 of the fair value hierarchy.
Level 1 inputs76. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
77. A quoted price in an active market provides the most reliable evidence of fair value and shall be used without adjustment to measure fair value whenever available, except as specified in paragraph 79.
78. A Level 1 input will be available for many financial assets and financial liabilities, some of which might be exchanged in multiple active markets (e.g. on different exchanges). Therefore, the emphasis within Level 1 is on determining both of the following:
79. An entity shall not make an adjustment to a Level 1 input except in the following circumstances:
80. If an entity holds a position in a single asset or liability (including a position comprising a large number of identical assets or liabilities, such as a holding of financial instruments) and the asset or liability is traded in an active market, the fair value of the asset or liability shall be measured within Level 1 as the product of the quoted price for the individual asset or liability and the quantity held by the entity. That is the case even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
Level 2 inputs81. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
82. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following:
83. Adjustments to Level 2 inputs will vary depending on factors specific to the asset or liability. Those factors include the following:
84. An adjustment to a Level 2 input that is significant to the entire measurement might result in a fair value measurement categorised within Level 3 of the fair value hierarchy if the adjustment uses significant unobservable inputs.
85. Paragraph B35 describes the use of Level 2 inputs for particular assets and liabilities.
Level 3 inputs86. Level 3 inputs are unobservable inputs for the asset or liability.
87. Unobservable inputs shall be used to measure fair value to the extent that relevant observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs shall reflect the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk.
88. Assumptions about risk include the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model) and the risk inherent in the inputs to the valuation technique. A measurement that does not include an adjustment for risk would not represent a fair value measurement if market participants would include one when pricing the asset or liability. For example, it might be necessary to include a risk adjustment when there is significant measurement uncertainty (e.g. when there has been a significant decrease in the volume or level of activity when compared with normal market activity for the asset or liability, or similar assets or liabilities, and the entity has determined that the transaction price or quoted price does not represent fair value, as described in paragraphs B37-B47).
89. An entity shall develop unobservable inputs using the best information available in the circumstances, which might include the entity's own data. In developing unobservable inputs, an entity may begin with its own data, but it shall adjust those data if reasonably available information indicates that other market participants would use different data or there is something particular to the entity that is not available to other market participants (e.g. an entity-specific synergy). An entity need not undertake exhaustive efforts to obtain information about market participant assumptions. However, an entity shall take into account all information about market participant assumptions that is reasonably available. Unobservable inputs developed in the manner described above are considered market participant assumptions and meet the objective of a fair value measurement.
90. Paragraph B36 describes the use of Level 3 inputs for particular assets and liabilities.
Disclosure91. An entity shall disclose information that helps users of its financial statements assess both of the following:
92. To meet the objectives in paragraph 91, an entity shall consider all the following:
93. To meet the objectives in paragraph 91, an entity shall disclose, at a minimum, the following information for each class of assets and liabilities (see paragraph 94 for information on determining appropriate classes of assets and liabilities) measured at fair value (including measurements based on fair value within the scope of this Ind AS) in the balance sheet after initial recognition:
94. An entity shall determine appropriate classes of assets and liabilities on the basis of the following:
95. An entity shall disclose and consistently follow its policy for determining when transfers between levels of the fair value hierarchy are deemed to have occurred in accordance with paragraph 93(c) and (e)(iv). The policy about the timing of recognising transfers shall be the same for transfers into the levels as for transfers out of the levels. Examples of policies for determining the timing of transfers include the following:
96. If an entity makes an accounting policy decision to use the exception in paragraph 48, it shall disclose that fact.
97. For each class of assets and liabilities not measured at fair value in the balance sheet but for which the fair value is disclosed, an entity shall disclose the information required by paragraph 93(b), (d) and (i). However, an entity is not required to provide the quantitative disclosures about significant unobservable inputs used in fair value measurements categorised within Level 3 of the fair value hierarchy required by paragraph 93(d). For such assets and liabilities, an entity does not need to provide the other disclosures required by this Ind AS.
98. For a liability measured at fair value and issued with an inseparable third-party credit enhancement, an issuer shall disclose the existence of that credit enhancement and whether it is reflected in the fair value measurement of the liability.
99. An entity shall present the quantitative disclosures required by this Ind AS in a tabular format unless another format is more appropriate.
Appendix A| Defined terms | |
| This appendix is an integralpart of the Ind AS. | |
| active market | A market in which transactions for the asset orliability take place with sufficient frequency and volume toprovide pricing information on an ongoing basis. |
| cost approach | A valuation technique that reflects the amountthat would be required currently to replace the service capacityof an asset (often referred to as current replacement cost). |
| entry price | The price paid to acquire an asset or receivedto assume a liability in an exchange transaction. |
| exit price | The price that would be received to sell anasset or paid to transfer a liability. |
| expected cash flow | The probability-weighted average (i.e. mean ofthe distribution) of possible future cash flows. |
| fair value | The price that would be received to sell anasset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. |
| highest and best use | The use of a non-financial asset by marketparticipants that would maximise the value of the asset or thegroup of assets and liabilities (e.g. a business) within whichthe asset would be used. |
| income approach | Valuation techniques that convert future amounts(e.g. cash flows or income and expenses) to a single current(i.e. discounted) amount. The fair value measurement isdetermined on the basis of the value indicated by current marketexpectations about those future amounts. |
| inputs | The assumptions that market participants woulduse when pricing the asset or liability, including assumptionsabout risk, such as the following: |
| (a) the risk inherent in a particular valuationtechnique used to measure fair value (such as a pricing model);and | |
| (b) the risk inherent in the inputs to thevaluation technique. | |
| Inputs may be observable or unobservable. | |
| Level 1 inputs | Quoted prices (unadjusted) in active markets foridentical assets or liabilities that the entity can access at themeasurement date. |
| Level 2 inputs | Inputs other than quoted prices included withinLevel 1 that are observable for the asset or liability, eitherdirectly or indirectly. |
| Level 3 inputs | Unobservable inputs for the asset or liability. |
| market approach | A valuation technique that uses prices and otherrelevant information generated by market transactions involvingidentical or comparable (i.e. similar) assets, liabilities or agroup of assets and liabilities, such as a business. |
| market-corroborated inputs | Inputs that are derived principally from orcorroborated by observable market data by correlation or othermeans. |
| market participants | Buyers and sellers in the principal (or mostadvantageous) market for the asset or liability that have all ofthe following characteristics: |
| (a) They are independent of each other, i.e.they are not related parties as defined in Ind AS 24, althoughthe price in a related party transaction may be used as an inputto a fair value measurement if the entity has evidence that thetransaction was entered into at market terms. | |
| (b) They are knowledgeable, having a reasonableunderstanding about the asset or liability and the transactionusing all available information, including information that mightbe obtained through due diligence efforts that are usual andcustomary. | |
| (c) They are able to enter into a transactionfor the asset or liability. | |
| (d) They are willing to enter into a transactionfor the asset or liability, i.e. they are motivated but notforced or otherwise compelled to do so. | |
| most advantageous market | The market that maximises the amount that wouldbe received to sell the asset or minimises the amount that wouldbe paid to transfer the liability, after taking into accounttransaction costs and transport costs. |
| non-performance risk | The risk that an entity will not fulfill anobligation. Non-performance risk includes, but may not be limitedto, the entity's own credit risk. |
| observable inputs | Inputs that are developed using market data,such as publicly available information about actual events ortransactions, and that reflect the assumptions that marketparticipants would use when pricing the asset or liability. |
| orderly transaction | A transaction that assumes exposure to themarket for a period before the measurement date to allow formarketing activities that are usual and customary fortransactions involving such assets or liabilities; it is not aforced transaction (eg. a forced liquidation or distress sale). |
| principal market | The market with the greatest volume and level ofactivity for the asset or liability. |
| risk premium | Compensation sought by risk-averse marketparticipants for bearing the uncertainty inherent in the cashflows of an asset or a liability. Also referred to as a 'riskadjustment'. |
| transaction costs | The costs to sell an asset or transfer aliability in the principal (or most advantageous) market for theasset or liability that are directly attributable to the disposalof the asset or the transfer of the liability and meet both ofthe following criteria: |
| (a) They result directly from and are essentialto that transaction. | |
| (b) They would not have been incurred by theentity had the decision to sell the asset or transfer theliability not been made (similar to costs to sell, as defined inInd AS 105). | |
| transport costs | The costs that would be incurred to transport anasset from its current location to its principal (or mostadvantageous) market. |
| unit of account | The level at which an asset or a liability isaggregated or disaggregated in an IndASfor recognition purposes. |
| unobservable inputs | Inputs for which market data are not availableand that are developed using the best information available aboutthe assumptions that market participants would use when pricingthe asset or liability. |
| Possible cash flows | Probability | Probability-weighted cash flows |
| Rs. 500 | 15% | Rs. 75 |
| Rs. 800 | 60% | Rs. 480 |
| Rs. 900 | 25% | Rs. 225 |
| Expected cash flows | Rs. 780 |
1. Appendix A, Distributions of Non-cash Assets to Owners contained in Ind AS 10, Events after the Reporting Period.
2. Appendix D, Extinguishing Financial Liabilities with Equity Instruments contained in Ind AS 109, Financial Instruments.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 113 and the corresponding International Financial Reporting Standard (IFRS) 13, Fair Value Measurement, issued by the International Accounting Standards Board.Comparison with IFRS 13, Fair Value Measurement1. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
2. Paragraph 7(b) refers to IAS 26, Accounting and Reporting by Retirement Benefit Plans, which is not relevant for the companies. Hence the paragraph is deleted. In order to maintain consistency with the paragraph numbers of IFRS 13, the paragraph number is retained in Ind AS 113.
3. [ Paragraphs C1-C5 of IFRS 13 have not been included in Ind AS 113 as these paragraphs relate to effective date and transition which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IFRS 13, these paragraph numbers are retained in Ind AS 113.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 114, Regulatory Deferral Accounts(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.
2. In meeting this objective, the Standard requires:
3. The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts Ind ASs, subject to the limited changes referred to in paragraph 2 above.
4. In addition, this Standard provides some exceptions to, or exemptions from, the requirements of other Standards. All specified requirements for reporting regulatory deferral account balances, and any exceptions to, or exemptions from, the requirements of other Standards that are related to those balances, are contained within this Standard instead of within those other Standards.
Scope5. An entity is permitted to apply the requirements of this Standard in its first Ind AS financial statements if and only if it:
6. An entity shall apply the requirements of this Standard in its financial statements for subsequent periods if and only if, in its first [Ind AS financial statements] [An entity subject to rate regulation coming into existence after Ind AS coming into force or an entity whose activities become subject to rate regulation as defined in this Ind AS subsequent to preparation and presentation of its first Ind AS financial statements shall be entitled to apply the requirements of the previous GAAP in respect of its such rate regulated activities.], it recognized regulatory deferral account balances by electing to apply the requirements of this Standard.
7. This Standard does not address other aspects of accounting by entities that are engaged in rate-regulated activities. By applying the requirements in this Standard, any amounts that are permitted or required to be recognized as assets or liabilities in accordance with other Standards shall not be included within the amounts classified as regulatory deferral account balances.
8. An entity that is within the scope of, and that elects to apply, this Standard shall apply all of its requirements to all regulatory deferral account balances that arise from all of the entity's rate regulated activities.
Recognition, measurement, impairment and derecognitionTemporary exemption from paragraph 11 of Ind AS 8Accounting Policies, Changes in Accounting Estimates and Errors9. An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of Ind AS 8 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
10. Paragraphs 11-12 of Ind AS 8 specify sources of requirements and guidance that management is required or permitted to consider in developing an accounting policy for an item, if no relevant Standard applies specifically to that item. This Standard exempts an entity from applying paragraph 11 of Ind AS 8 to its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, entities that recognise regulatory deferral account balances, either as separate items or as part of the carrying value of other assets and liabilities, in accordance with previous GAAP, are permitted to continue to recognise those balances in accordance with this Standard through the exemption from paragraph 11 of Ind AS 8, subject to any presentation changes required by paragraphs 18-19. of this Standard.
Continuation of existing accounting policies11. On initial application of this Standard, an entity shall continue to apply previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances, except for any changes permitted by paragraphs 13-15. However, the presentation of such amounts shall comply with the presentation requirements of this Standard, which may require changes to the entity's previous GAAP presentation policies (see paragraphs 18-19).
12. An entity shall apply the policies established in accordance with paragraph 11 consistently in subsequent periods, except for any changes permitted by paragraphs 13-15.
Changes in accounting policies13. An entity shall not change its accounting policies in order to start to recognise regulatory deferral account balances. An entity may only change its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-making needs of users and no less reliable, or more reliable and no less relevant to those needs. An entity shall judge relevance and reliability using the criteria in paragraph 10 of Ind AS 8.
14. This Standard does not exempt entities from applying paragraphs 10 or 14-15 of Ind AS 8 to changes in accounting policy. To justify changing its accounting policies for regulatory deferral account balances, an entity shall demonstrate that the change brings its financial statements closer to meeting the criteria in paragraph 10 of Ind AS 8. However, the change does not need to achieve full compliance with those criteria for the recognition, measurement, impairment and derecognition of regulatory deferral account balances.
15. Paragraphs 13-14 apply both to changes made on initial application of this Standard and to changes made in subsequent reporting periods.
Interaction with other Standards16. Any specific exception, exemption or additional requirements related to the interaction of this Standard with other Standards are contained within this Standard (see paragraphs B7-B28). In the absence of any such exception, exemption or additional requirements, other Standards shall apply to regulatory deferral account balances in the same way as they apply to assets, liabilities, income and expenses that are recognized in accordance with other Standards.
17. In some situations, another Standard might need to be applied to a regulatory deferral account balance that has been measured in accordance with an entity's accounting policies that are established in accordance with paragraphs 11-12 in order to reflect that balance appropriately in the financial statements. For example, the entity might have rate-regulated activities in a foreign country for which the transactions and regulatory deferral account balances are denominated in a currency that is not the functional currency of the reporting entity. The regulatory deferral account balances and the movements in those balances are translated by applying Ind AS 21 The Effects of Changes in Foreign Exchange Rates.
PresentationChanges in presentation18. This Standard introduces presentation requirements, outlined in paragraphs 20-26, for regulatory deferral account balances that are recognized in accordance with paragraphs 11-12. When this Standard is applied, the regulatory deferral account balances are recognized in the balance sheet in addition to the assets and liabilities that are recognized in accordance with other Standards. These presentation requirements separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards.
19. In addition to the items that are required to be presented in the balance sheet and in the statement of profit and loss in accordance with Ind AS 1 Presentation of Financial Statements, an entity applying this Standard shall present all regulatory deferral account balances and the movements in those balances in accordance with paragraphs 20-26.
Classification of regulatory deferral account balances20. An entity shall present separate line items in the balance sheet for:
21. When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet, it shall not classify the totals of regulatory deferral account balances as current or non-current. Instead, the separate line items required by paragraph 20 shall be distinguished from the assets and liabilities that are presented in accordance with other Standards by the use of sub-totals, which are drawn before the regulatory deferral account balances are presented.
Classification of movements in regulatory deferral account balances22. An entity shall present, in the other comprehensive income section of the statement of profit and loss , the net movement in all regulatory deferral account balances for the reporting period that relate to items recognized in other comprehensive income. Separate line items shall be used for the net movement related to items that, in accordance with other Standards:
23. An entity shall present a separate line item in the profit or loss section of the statement of profit and loss, for the remaining net movement in all regulatory deferral account balances for the reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the income and expenses that are presented in accordance with other Standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances.
24. When an entity recognises a deferred tax asset or a deferred tax liability as a result of recognising regulatory deferral account balances, the entity shall present the resulting deferred tax asset (liability) and the related movement in that deferred tax asset (liability) with the related regulatory deferral account balances and movements in those balances, instead of within the total presented in accordance with Ind AS 12 Income Taxes for deferred tax assets (liabilities) and the tax expense (income) (see paragraphs B9-B12).
25. When an entity presents a discontinued operation or a disposal group in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations, the entity shall present any related regulatory deferral account balances and the net movement in those balances, as applicable, with the regulatory deferral account balances and movements in those balances, instead of within the disposal groups or discontinued operations (see paragraphs B19-B22).
26. When an entity presents earnings per share in accordance with Ind AS 33 Earnings per Share, the entity shall present additional basic and diluted earnings per share, which are calculated using the earnings amounts required by Ind AS 33 but excluding the movements in regulatory deferral account balances (see paragraphs B13-B14).
DisclosureObjective27. An entity that elects to apply this Standard shall disclose information that enables users to assess:
28. If any of the disclosures set out in paragraphs 30-36 are not considered relevant to meet the objective in paragraph 27, they may be omitted from the financial statements. If the disclosures provided in accordance with paragraphs 30-36 are insufficient to meet the objective in paragraph 27, an entity shall disclose additional information that is necessary to meet that objective.
29. To meet the disclosure objective in paragraph 27, an entity shall consider all of the following:
30. To help a user of the financial statements assess the nature of, and the risks associated with, the entity's rate regulated activities, an entity shall, for each type of rate-regulated activity, disclose:
31. The disclosures required by paragraph 30 shall be given in the financial statements either directly in the notes or incorporated by cross-reference from the financial statements to some other statement, such as a management commentary or risk report, that is available to users of the financial statements on the same terms as the financial statements and at the same time. If the information is not included in the financial statements directly or incorporated by cross-reference, the financial statements are incomplete.
Explanation of recognized amounts32. An entity shall disclose the basis on which regulatory deferral account balances are recognized and derecognized, and how they are measured initially and subsequently, including how regulatory deferral account balances are assessed for recoverability and how any impairment loss is allocated.
33. For each type of rate-regulated activity, an entity shall disclose the following information for each class of regulatory deferral account balance:
34. When rate regulation affects the amount and timing of an entity's income tax expense (income), the entity shall disclose the impact of the rate regulation on the amounts of current and deferred tax recognized. In addition, the entity shall separately disclose any regulatory deferral account balance that relates to taxation and the related movement in that balance.
35. When an entity provides disclosures in accordance with Ind AS 112 Disclosure of Interests in Other Entities for an interest in a subsidiary, associate or joint venture that has rate-regulated activities and for which regulatory deferral account balances are recognized in accordance with this Standard, the entity shall disclose the amounts that are included for the regulatory deferral account debit and credit balances and the net movement in those balances for the interests disclosed (see paragraphs B25-B28).
36. When an entity concludes that a regulatory deferral account balance is no longer fully recoverable or reversible, it shall disclose that fact, the reason why it is not recoverable or reversible and the amount by which the regulatory deferral account balance has been reduced.
Appendix A| Defined terms | |
| This appendix is anintegral part of the Standard. | |
| First Ind AS financial statements | The first annual financial statements in whichan entity adopts Indian Accounting Standards (Ind AS), by anexplicit and unreserved statement of compliance with Ind AS. |
| First-time adopter | An entity that presents itsfirst Ind ASfinancial statements. |
| Previous GAAP | The basis of accounting that afirst-timeadopterused immediately before adopting Ind ASs for itsreporting requirements in India. For instance, for companiespreparing their financial statements in accordance with theexisting Accounting Standards notified under the Companies(Accounting Standards) Rules, 2006 shall consider those financialstatements as previous GAAP financial statements. |
| Explanation: | |
| Guidance Note on Accounting for the RateRegulated Activities, issued by the Institute of CharteredAccountants of India (ICAI) shall be considered to be theprevious GAAP. | |
| Rate-regulated activities | An entity's activities that are subject torateregulation. |
| Rate regulation | 'Cost of Service Regulation'as definedin the Guidance Note onAccounting for Rate RegulatedActivities. |
| Rate regulator | 'Regulator'as defined in the GuidanceNote onAccounting for Rate Regulated Activities. |
| Regulatory deferral account balance | A'Regulatory Asset'or a'RegulatoryLiability'as defined in the Guidance Note onAccountingfor Rate Regulated Activities. |
1. Appendix A, Defined terms have been modified to clarify that Guidance Note of Accounting for Rate Regulated Activities would be considered as the previous GAAP for the purpose of Ind AS 114.
2. Under paragraph 6 of Ind AS 114, a footnote has been added to clarify the application of requirements of previous GAAP in the case of an entity subject to rate regulation coming into existence after Ind AS coming into force or an entity whose activities become subject to rate regulation as defined in this Ind AS subsequent to preparation and presentation of its first Ind AS financial statements.
3. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position', and 'Statement of profit and loss' is used instead of 'Statement of Profit and Loss and comprehensive income'.
[Indian Accounting Standard (Ind AS) 115] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]Revenue from Contracts with Customers(The Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.Objective1. The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. Meeting the objective
2. To meet the objective in paragraph 1, the core principle of this Standard is that an entity shall recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
3. An entity shall consider the terms of the contract and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.
4. This Standard specifies the accounting for an individual contract with a customer. However, as a practical expedient, an entity may apply this Standard to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying this Standard to the portfolio would not differ materially from applying this Standard to the individual contracts (or performance obligations) within that portfolio. When accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.
Scope5. An entity shall apply this Standard to all contracts with customers, except the following:
6. An entity shall apply this Standard to a contract (other than a contract listed in paragraph 5) only if the counterparty to the contract is a customer. A customer is a party that has contracted with an entity to obtain goods or services that are an output of the entity's ordinary activities in exchange for consideration. A counterparty to the contract would not be a customer if, for example, the counterparty has contracted with the entity to participate in an activity or process in which the parties to the contract share in the risks and benefits that result from the activity or process (such as developing an asset in a collaboration arrangement) rather than to obtain the output of the entity's ordinary activities.
* Refer Appendix 17. A contract with a customer may be partially within the scope of this Standard and partially within the scope of other Standards listed in paragraph 5.
8. This Standard specifies the accounting for the incremental costs of obtaining a contract with a customer and for the costs incurred to fulfil a contract with a customer if those costs are not within the scope of another Standard (see paragraphs 91-104). An entity shall apply those paragraphs only to the costs incurred that relate to a contract with a customer (or part of that contract) that is within the scope of this Standard.
RecognitionIdentifying the contract9. An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met:
10. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity's customary business practices. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services). An entity shall consider those practices and processes in determining whether and when an agreement with a customer creates enforceable rights and obligations.
11. Some contracts with customers may have no fixed duration and can be terminated or modified by either party at any time. Other contracts may automatically renew on a periodic basis that is specified in the contract. An entity shall apply this Standard to the duration of the contract (ie the contractual period) in which the parties to the contract have present enforceable rights and obligations.
12. For the purpose of applying this Standard, a contract does not exist if each party to the contract has the unilateral enforceable right to terminate a wholly unperformed contract without compensating the other party (or parties). A contract is wholly unperformed if both of the following criteria are met:
13. If a contract with a customer meets the criteria in paragraph 9 at contract inception, an entity shall not reassess those criteria unless there is an indication of a significant change in facts and circumstances. For example, if a customer's ability to pay the consideration deteriorates significantly, an entity would reassess whether it is probable that the entity will collect the consideration to which the entity will be entitled in exchange for the remaining goods or services that will be transferred to the customer.
14. If a contract with a customer does not meet the criteria in paragraph 9, an entity shall continue to assess the contract to determine whether the criteria in paragraph 9 are subsequently met.
15. When a contract with a customer does not meet the criteria in paragraph 9 and an entity receives consideration from the customer, the entity shall recognise the consideration received as revenue only when either of the following events has occurred:
16. An entity shall recognise the consideration received from a customer as a liability until one of the events in paragraph 15 occurs or until the criteria in paragraph 9 are subsequently met (see paragraph 14). Depending on the facts and circumstances relating to the contract, the liability recognised represents the entity's obligation to either transfer goods or services in the future or refund the consideration received. In either case, the liability shall be measured at the amount of consideration received from the customer. Combination of contracts
17. An entity shall combine two or more contracts entered into at or near the same time with the same customer (or related parties of the customer) and account for the contracts as a single contract if one or more of the following criteria are met:
18. A contract modification is a change in the scope or price (or both) of a contract that is approved by the parties to the contract. In some industries and jurisdictions, a contract modification may be described as a change order, a variation or an amendment. A contract modification exists when the parties to a contract approve a modification that either creates new or changes existing enforceable rights and obligations of the parties to the contract. A contract modification could be approved in writing, by oral agreement or implied by customary business practices. If the parties to the contract have not approved a contract modification, an entity shall continue to apply this Standard to the existing contract until the contract modification is approved.
19. A contract modification may exist even though the parties to the contract have a dispute about the scope or price (or both) of the modification or the parties have approved a change in the scope of the contract but have not yet determined the corresponding change in price. In determining whether the rights and obligations that are created or changed by a modification are enforceable, an entity shall consider all relevant facts and circumstances including the terms of the contract and other evidence. If the parties to a contract have approved a change in the scope of the contract but have not yet determined the corresponding change in price, an entity shall estimate the change to the transaction price arising from the modification in accordance with paragraphs 50-54 on estimating variable consideration and paragraphs 56-58 on constraining estimates of variable consideration.
20. An entity shall account for a contract modification as a separate contract if both of the following conditions are present:
21. If a contract modification is not accounted for as a separate contract in accordance with paragraph 20, an entity shall account for the promised goods or services not yet transferred at the date of the contract modification (ie the remaining promised goods or services) in whichever of the following ways is applicable:
22. At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:
23. A series of distinct goods or services has the same pattern of transfer to the customer if both of the following criteria are met:
24. A contract with a customer generally explicitly states the goods or services that an entity promises to transfer to a customer. However, the performance obligations identified in a contract with a customer may not be limited to the goods or services that are explicitly stated in that contract. This is because a contract with a customer may also include promises that are implied by an entity's customary business practices, published policies or specific statements if, at the time of entering into the contract, those promises create a valid expectation of the customer that the entity will transfer a good or service to the customer.
25. Performance obligations do not include activities that an entity must undertake to fulfil a contract unless those activities transfer a good or service to a customer. For example, a services provider may need to perform various administrative tasks to set up a contract. The performance of those tasks does not transfer a service to the customer as the tasks are performed. Therefore, those setup activities are not a performance obligation.
Distinct goods or services26. Depending on the contract, promised goods or services may include, but are not limited to, the following:
27. A good or service that is promised to a customer is distinct if both of the following criteria are met:
28. A customer can benefit from a good or service in accordance with paragraph 27(a) if the good or service could be used, consumed, sold for an amount that is greater than scrap value or otherwise held in a way that generates economic benefits. For some goods or services, a customer may be able to benefit from a good or service on its own. For other goods or services, a customer may be able to benefit from the good or service only in conjunction with other readily available resources. A readily available resource is a good or service that is sold separately (by the entity or another entity) or a resource that the customer has already obtained from the entity (including goods or services that the entity will have already transferred to the customer under the contract) or from other transactions or events. Various factors may provide evidence that the customer can benefit from a good or service either on its own or in conjunction with other readily available resources. For example, the fact that the entity regularly sells a good or service separately would indicate that a customer can benefit from the good or service on its own or with other readily available resources.
29. In assessing whether an entity's promises to transfer goods or services to the customer are separately identifiable in accordance with paragraph 27(b), the objective is to determine whether the nature of the promise, within the context of the contract, is to transfer each of those goods or services individually or, instead, to transfer a combined item or items to which the promised goods or services are inputs. Factors that indicate that two or more promises to transfer goods or services to a customer are not separately identifiable include, but are not limited to, the following:
30. If a promised good or service is not distinct, an entity shall combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct. In some cases, that would result in the entity accounting for all the goods or services promised in a contract as a single performance obligation.
Satisfaction of performance obligations31. An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.
32. For each performance obligation identified in accordance with paragraphs 22-30, an entity shall determine at contract inception whether it satisfies the performance obligation over time (in accordance with paragraphs 35- 37) or satisfies the performance obligation at a point in time (in accordance with paragraph 38). If an entity does not satisfy a performance obligation over time, the performance obligation is satisfied at a point in time.
33. Goods and services are assets, even if only momentarily, when they are received and used (as in the case of many services). Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. Control includes the ability to prevent other entities from directing the use of, and obtaining the benefits from, an asset. The benefits of an asset are the potential cash flows (inflows or savings in outflows) that can be obtained directly or indirectly in many ways, such as by:
34. When evaluating whether a customer obtains control of an asset, an entity shall consider any agreement to repurchase the asset (see paragraphs B64-B76).
Performance obligations satisfied over time35. An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:
36. An asset created by an entity's performance does not have an alternative use to an entity if the entity is either restricted contractually from readily directing the asset for another use during the creation or enhancement of that asset or limited practically from readily directing the asset in its completed state for another use. The assessment of whether an asset has an alternative use to the entity is made at contract inception. After contract inception, an entity shall not update the assessment of the alternative use of an asset unless the parties to the contract approve a contract modification that substantively changes the performance obligation. Paragraphs B6- B8 provide guidance for assessing whether an asset has an alternative use to an entity.
37. An entity shall consider the terms of the contract, as well as any laws that apply to the contract, when evaluating whether it has an enforceable right to payment for performance completed to date in accordance with paragraph 35(c). The right to payment for performance completed to date does not need to be for a fixed amount. However, at all times throughout the duration of the contract, the entity must be entitled to an amount that at least compensates the entity for performance completed to date if the contract is terminated by the customer or another party for reasons other than the entity's failure to perform as promised. Paragraphs B9-B13 provide guidance for assessing the existence and enforceability of a right to payment and whether an entity's right to payment would entitle the entity to be paid for its performance completed to date.
Performance obligations satisfied at a point in time38. If a performance obligation is not satisfied over time in accordance with paragraphs 35-37, an entity satisfies the performance obligation at a point in time. To determine the point in time at which a customer obtains control of a promised asset and the entity satisfies a performance obligation, the entity shall consider the requirements for control in paragraphs 31-34. In addition, an entity shall consider indicators of the transfer of control, which include, but are not limited to, the following:
39. For each performance obligation satisfied over time in accordance with paragraphs 35-37, an entity shall recognise revenue over time by measuring the progress towards complete satisfaction of that performance obligation. The objective when measuring progress is to depict an entity's performance in transferring control of goods or services promised to a customer (ie the satisfaction of an entity's performance obligation).
40. An entity shall apply a single method of measuring progress for each performance obligation satisfied over time and the entity shall apply that method consistently to similar performance obligations and in similar circumstances. At the end of each reporting period, an entity shall remeasure its progress towards complete satisfaction of a performance obligation satisfied over time.
Methods for measuring progress41. Appropriate methods of measuring progress include output methods and input methods. Paragraphs B14-B19 provide guidance for using output methods and input methods to measure an entity's progress towards complete satisfaction of a performance obligation. In determining the appropriate method for measuring progress, an entity shall consider the nature of the good or service that the entity promised to transfer to the customer.
42. When applying a method for measuring progress, an entity shall exclude from the measure of progress any goods or services for which the entity does not transfer control to a customer. Conversely, an entity shall include in the measure of progress any goods or services for which the entity does transfer control to a customer when satisfying that performance obligation.
43. As circumstances change over time, an entity shall update its measure of progress to reflect any changes in the outcome of the performance obligation. Such changes to an entity's measure of progress shall be accounted for as a change in accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
Reasonable measures of progress44. An entity shall recognise revenue for a performance obligation satisfied over time only if the entity can reasonably measure its progress towards complete satisfaction of the performance obligation. An entity would not be able to reasonably measure its progress towards complete satisfaction of a performance obligation if it lacks reliable information that would be required to apply an appropriate method of measuring progress.
45. In some circumstances (for example, in the early stages of a contract), an entity may not be able to reasonably measure the outcome of a performance obligation, but the entity expects to recover the costs incurred in satisfying the performance obligation. In those circumstances, the entity shall recognise revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation.
Measurement46. When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 56-58) that is allocated to that performance obligation.
Determining the transaction price47. An entity shall consider the terms of the contract and its customary business practices to determine the transaction price. The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.
48. The nature, timing and amount of consideration promised by a customer affect the estimate of the transaction price. When determining the transaction price, an entity shall consider the effects of all of the following:
49. For the purpose of determining the transaction price, an entity shall assume that the goods or services will be transferred to the customer as promised in accordance with the existing contract and that the contract will not be cancelled, renewed or modified.
Variable consideration50. If the consideration promised in a contract includes a variable amount, an entity shall estimate the amount of consideration to which the entity will be entitled in exchange for transferring the promised goods or services to a customer.
51. An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. The promised consideration can also vary if an entity's entitlement to the consideration is contingent on the occurrence or non-occurrence of a future event. For example, an amount of consideration would be variable if either a product was sold with a right of return or a fixed amount is promised as a performance bonus on achievement of a specified milestone.
51AA. In some contracts, penalties are specified. In such cases, penalties shall be accounted for as per the substance of the contract. Where the penalty is inherent in determination of transaction price, it shall form part of variable consideration. For example, where an entity agrees to transfer control of a good or service in a contact with customer at the end of 30 days for Rs. 1,00,000 and if it exceeds 30 days, the entity is entitled to receive only Rs. 95,000, the reduction of Rs. 5,000 shall be regarded as variable consideration. In other cases, the transaction price shall be considered as fixed.
52. The variability relating to the consideration promised by a customer may be explicitly stated in the contract. In addition to the terms of the contract, the promised consideration is variable if either of the following circumstances exists:
53. An entity shall estimate an amount of variable consideration by using either of the following methods, depending on which method the entity expects to better predict the amount of consideration to which it will be entitled:
54. An entity shall apply one method consistently throughout the contract when estimating the effect of an uncertainty on an amount of variable consideration to which the entity will be entitled. In addition, an entity shall consider all the information (historical, current and forecast) that is reasonably available to the entity and shall identify a reasonable number of possible consideration amounts. The information that an entity uses to estimate the amount of variable consideration would typically be similar to the information that the entity's management uses during the bid-and-proposal process and in establishing prices for promised goods or services.
Refund liabilities55. An entity shall recognise a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer. A refund liability is measured at the amount of consideration received (or receivable) for which the entity does not expect to be entitled (ie amounts not included in the transaction price). The refund liability (and corresponding change in the transaction price and, therefore, the contract liability) shall be updated at the end of each reporting period for changes in circumstances. To account for a refund liability relating to a sale with a right of return, an entity shall apply the guidance in paragraphs B20-B27.
Constraining estimates of variable consideration56. An entity shall include in the transaction price some or all of an amount of variable consideration estimated in accordance with paragraph 53 only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
57. In assessing whether it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur once the uncertainty related to the variable consideration is subsequently resolved, an entity shall consider both the likelihood and the magnitude of the revenue reversal. Factors that could increase the likelihood or the magnitude of a revenue reversal include, but are not limited to, any of the following:
58. An entity shall apply paragraph B63 to account for consideration in the form of a sales-based or usage-based royalty that is promised in exchange for a licence of intellectual property.
Reassessment of variable consideration59. At the end of each reporting period, an entity shall update the estimated transaction price (including updating its assessment of whether an estimate of variable consideration is constrained) to represent faithfully the circumstances present at the end of the reporting period and the changes in circumstances during the reporting period. The entity shall account for changes in the transaction price in accordance with paragraphs 87-90.
The existence of a significant financing component in the contract60. In determining the transaction price, an entity shall adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provides the customer or the entity with a significant benefit of financing the transfer of goods or services to the customer. In those circumstances, the contract contains a significant financing component. A significant financing component may exist regardless of whether the promise of financing is explicitly stated in the contract or implied by the payment terms agreed to by the parties to the contract.
61. The objective when adjusting the promised amount of consideration for a significant financing component is for an entity to recognise revenue at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer (ie the cash selling price). An entity shall consider all relevant facts and circumstances in assessing whether a contract contains a financing component and whether that financing component is significant to the contract, including both of the following:
62. Notwithstanding the assessment in paragraph 61, a contract with a customer would not have a significant financing component if any of the following factors exist:
63. As a practical expedient, an entity need not adjust the promised amount of consideration for the effects of a significant financing component if the entity expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
64. To meet the objective in paragraph 61 when adjusting the promised amount of consideration for a significant financing component, an entity shall use the discount rate that would be reflected in a separate financing transaction between the entity and its customer at contract inception. That rate would reflect the credit characteristics of the party receiving financing in the contract, as well as any collateral or security provided by the customer or the entity, including assets transferred in the contract. An entity may be able to determine that rate by identifying the rate that discounts the nominal amount of the promised consideration to the price that the customer would pay in cash for the goods or services when (or as) they transfer to the customer. After contract inception, an entity shall not update the discount rate for changes in interest rates or other circumstances (such as a change in the assessment of the customer's credit risk).
65. An entity shall present the effects of financing (interest revenue or interest expense) separately from revenue from contracts with customers in the statement of profit and loss. Interest revenue or interest expense is recognised only to the extent that a contract asset (or receivable) or a contract liability is recognised in accounting for a contract with a customer.
Non-cash consideration66. To determine the transaction price for contracts in which a customer promises consideration in a form other than cash, an entity shall measure the non-cash consideration (or promise of non-cash consideration) at fair value.
67. If an entity cannot reasonably estimate the fair value of the non-cash consideration, the entity shall measure the consideration indirectly by reference to the stand-alone selling price of the goods or services promised to the customer (or class of customer) in exchange for the consideration.
68. The fair value of the non-cash consideration may vary because of the form of the consideration (for example, a change in the price of a share to which an entity is entitled to receive from a customer). If the fair value of the non-cash consideration promised by a customer varies for reasons other than only the form of the consideration (for example, the fair value could vary because of the entity's performance), an entity shall apply the requirements in paragraphs 56-58.
69. If a customer contributes goods or services (for example, materials, equipment or labour) to facilitate an entity's fulfilment of the contract, the entity shall assess whether it obtains control of those contributed goods or services. If so, the entity shall account for the contributed goods or services as non-cash consideration received from the customer.
Consideration payable to a customer70. Consideration payable to a customer includes cash amounts that an entity pays, or expects to pay, to the customer (or to other parties that purchase the entity's goods or services from the customer). Consideration payable to a customer also includes credit or other items (for example, a coupon or voucher) that can be applied against amounts owed to the entity (or to other parties that purchase the entity's goods or services from the customer). An entity shall account for consideration payable to a customer as a reduction of the transaction price and, therefore, of revenue unless the payment to the customer is in exchange for a distinct good or service (as described in paragraphs 26-30) that the customer transfers to the entity. If the consideration payable to a customer includes a variable amount, an entity shall estimate the transaction price (including assessing whether the estimate of variable consideration is constrained) in accordance with paragraphs 50-58.
71. If consideration payable to a customer is a payment for a distinct good or service from the customer, then an entity shall account for the purchase of the good or service in the same way that it accounts for other purchases from suppliers. If the amount of consideration payable to the customer exceeds the fair value of the distinct good or service that the entity receives from the customer, then the entity shall account for such an excess as a reduction of the transaction price. If the entity cannot reasonably estimate the fair value of the good or service received from the customer, it shall account for all of the consideration payable to the customer as a reduction of the transaction price.
72. Accordingly, if consideration payable to a customer is accounted for as a reduction of the transaction price, an entity shall recognise the reduction of revenue when (or as) the later of either of the following events occurs:
73. The objective when allocating the transaction price is for an entity to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.
74. To meet the allocation objective, an entity shall allocate the transaction price to each performance obligation identified in the contract on a relative stand-alone selling price basis in accordance with paragraphs 76-80, except as specified in paragraphs 81-83 (for allocating discounts) and paragraphs 84-86 (for allocating consideration that includes variable amounts).
75. Paragraphs 76-86 do not apply if a contract has only one performance obligation. However, paragraphs 84-86 may apply if an entity promises to transfer a series of distinct goods or services identified as a single performance obligation in accordance with paragraph 22(b) and the promised consideration includes variable amounts.
Allocation based on stand-alone selling prices76. To allocate the transaction price to each performance obligation on a relative stand-alone selling price basis, an entity shall determine the stand-alone selling price at contract inception of the distinct good or service underlying each performance obligation in the contract and allocate the transaction price in proportion to those stand-alone selling prices.
77. The stand-alone selling price is the price at which an entity would sell a promised good or service separately to a customer. The best evidence of a stand-alone selling price is the observable price of a good or service when the entity sells that good or service separately in similar circumstances and to similar customers. A contractually stated price or a list price for a good or service may be (but shall not be presumed to be) the stand-alone selling price of that good or service.
78. If a stand-alone selling price is not directly observable, an entity shall estimate the stand-alone selling price at an amount that would result in the allocation of the transaction price meeting the allocation objective in paragraph 73. When estimating a stand-alone selling price, an entity shall consider all information (including market conditions, entity-specific factors and information about the customer or class of customer) that is reasonably available to the entity. In doing so, an entity shall maximise the use of observable inputs and apply estimation methods consistently in similar circumstances.
79. Suitable methods for estimating the stand-alone selling price of a good or service include, but are not limited to, the following:
80. A combination of methods may need to be used to estimate the stand-alone selling prices of the goods or services promised in the contract if two or more of those goods or services have highly variable or uncertain stand-alone selling prices. For example, an entity may use a residual approach to estimate the aggregate standalone selling price for those promised goods or services with highly variable or uncertain stand-alone selling prices and then use another method to estimate the stand-alone selling prices of the individual goods or services relative to that estimated aggregate stand-alone selling price determined by the residual approach. When an entity uses a combination of methods to estimate the stand-alone selling price of each promised good or service in the contract, the entity shall evaluate whether allocating the transaction price at those estimated stand-alone selling prices would be consistent with the allocation objective in paragraph 73 and the requirements for estimating stand-alone selling prices in paragraph 78.
Allocation of a discount81. A customer receives a discount for purchasing a bundle of goods or services if the sum of the stand-alone selling prices of those promised goods or services in the contract exceeds the promised consideration in a contract. Except when an entity has observable evidence in accordance with paragraph 82 that the entire discount relates to only one or more, but not all, performance obligations in a contract, the entity shall allocate a discount proportionately to all performance obligations in the contract. The proportionate allocation of the discount in those circumstances is a consequence of the entity allocating the transaction price to each performance obligation on the basis of the relative stand-alone selling prices of the underlying distinct goods or services.
82. An entity shall allocate a discount entirely to one or more, but not all, performance obligations in the contract if all of the following criteria are met:
83. If a discount is allocated entirely to one or more performance obligations in the contract in accordance with paragraph 82, an entity shall allocate the discount before using the residual approach to estimate the stand-alone selling price of a good or service in accordance with paragraph 79(c).
Allocation of variable consideration84. Variable consideration that is promised in a contract may be attributable to the entire contract or to a specific part of the contract, such as either of the following:
85. An entity shall allocate a variable amount (and subsequent changes to that amount) entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation in accordance with paragraph 22(b) if both of the following criteria are met:
86. The allocation requirements in paragraphs 73-83 shall be applied to allocate the remaining amount of the transaction price that does not meet the criteria in paragraph 85.
Changes in the transaction price87. After contract inception, the transaction price can change for various reasons, including the resolution of uncertain events or other changes in circumstances that change the amount of consideration to which an entity expects to be entitled in exchange for the promised goods or services.
88. An entity shall allocate to the performance obligations in the contract any subsequent changes in the transaction price on the same basis as at contract inception. Consequently, an entity shall not reallocate the transaction price to reflect changes in stand-alone selling prices after contract inception. Amounts allocated to a satisfied performance obligation shall be recognised as revenue, or as a reduction of revenue, in the period in which the transaction price changes.
89. An entity shall allocate a change in the transaction price entirely to one or more, but not all, performance obligations or distinct goods or services promised in a series that forms part of a single performance obligation in accordance with paragraph 22(b) only if the criteria in paragraph 85 on allocating variable consideration are met.
90. An entity shall account for a change in the transaction price that arises as a result of a contract modification in accordance with paragraphs 18-21. However, for a change in the transaction price that occurs after a contract modification, an entity shall apply paragraphs 87-89 to allocate the change in the transaction price in whichever of the following ways is applicable:
91. An entity shall recognise as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.
92. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).
93. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained shall be recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer regardless of whether the contract is obtained.
94. As a practical expedient, an entity may recognise the incremental costs of obtaining a contract as an expense when incurred if the amortisation period of the asset that the entity otherwise would have recognised is one year or less.
Costs to fulfil a contract95. If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, Ind AS 2, Inventories, Ind AS 16, Property, Plant and Equipment or Ind AS 38, Intangible Assets), an entity shall recognise an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:
96. For costs incurred in fulfilling a contract with a customer that are within the scope of another Standard, an entity shall account for those costs in accordance with those other Standards.
97. Costs that relate directly to a contract (or a specific anticipated contract) include any of the following:
98. An entity shall recognise the following costs as expenses when incurred:
99. An asset recognised in accordance with paragraph 91 or 95 shall be amortised on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. The asset may relate to goods or services to be transferred under a specific anticipated contract (as described in paragraph 95(a)).
100. An entity shall update the amortisation to reflect a significant change in the entity's expected timing of transfer to the customer of the goods or services to which the asset relates. Such a change shall be accounted for as a change in accounting estimate in accordance with Ind AS 8.
101. An entity shall recognise an impairment loss in profit or loss to the extent that the carrying amount of an asset recognised in accordance with paragraph 91 or 95 exceeds:
102. For the purposes of applying paragraph 101 to determine the amount of consideration that an entity expects to receive, an entity shall use the principles for determining the transaction price (except for the requirements in paragraphs 56-58 on constraining estimates of variable consideration) and adjust that amount to reflect the effects of the customer's credit risk.
103. Before an entity recognises an impairment loss for an asset recognised in accordance with paragraph 91 or 95, the entity shall recognise any impairment loss for assets related to the contract that are recognised in accordance with another Standard (for example, Ind AS 2, Ind AS 16 and Ind AS 38). After applying the impairment test in paragraph 101, an entity shall include the resulting carrying amount of the asset recognised in accordance with paragraph 91 or 95 in the carrying amount of the cash-generating unit to which it belongs for the purpose of applying Ind AS 36, Impairment of Assets, to that cash-generating unit.
104. An entity shall recognise in profit or loss a reversal of some or all of an impairment loss previously recognised in accordance with paragraph 101 when the impairment conditions no longer exist or have improved. The increased carrying amount of the asset shall not exceed the amount that would have been determined (net of amortisation) if no impairment loss had been recognised previously.
Presentation105. When either party to a contract has performed, an entity shall present the contract in the balance sheet as a contract asset or a contract liability, depending on the relationship between the entity's performance and the customer's payment. An entity shall present any unconditional rights to consideration separately as a receivable.
106. If a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier). A contract liability is an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer.
107. If an entity performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, the entity shall present the contract as a contract asset, excluding any amounts presented as a receivable. A contract asset is an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer. An entity shall assess a contract asset for impairment in accordance with Ind AS 109. An impairment of a contract asset shall be measured, presented and disclosed on the same basis as a financial asset that is within the scope of Ind AS 109 (see also paragraph 113(b)).
108. A receivable is an entity's right to consideration that is unconditional. A right to consideration is unconditional if only the passage of time is required before payment of that consideration is due. For example, an entity would recognise a receivable if it has a present right to payment even though that amount may be subject to refund in the future. An entity shall account for a receivable in accordance with Ind AS 109. Upon initial recognition of a receivable from a contract with a customer, any difference between the measurement of the receivable in accordance with Ind AS 109 and the corresponding amount of revenue recognised shall be presented as an expense (for example, as an impairment loss).
109. This Standard uses the terms `contract asset' and `contract liability' but does not prohibit an entity from using alternative descriptions in the balance sheet for those items. If an entity uses an alternative description for a contract asset, the entity shall provide sufficient information for a user of the financial statements to distinguish between receivables and contract assets.
109AA. An entity shall present separately the amount of excise duty included in the revenue recognised in the statement of profit and loss.
Disclosure110. The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about all of the following:
111. An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. An entity shall aggregate or dis-aggregate disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have substantially different characteristics.
112. An entity need not disclose information in accordance with this Standard if it has provided the information in accordance with another Standard.
Contracts with customers113. An entity shall disclose all of the following amounts for the reporting period unless those amounts are presented separately in the statement of profit and loss in accordance with other Standards:
114. An entity shall disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. An entity shall apply the guidance in paragraphs B87-B89 when selecting the categories to use to disaggregate revenue.
115. In addition, an entity shall disclose sufficient information to enable users of financial statements to understand the relationship between the disclosure of disaggregated revenue (in accordance with paragraph 114) and revenue information that is disclosed for each reportable segment, if the entity applies Ind AS 108, Operating Segments.
Contract balances116. An entity shall disclose all of the following:
117. An entity shall explain how the timing of satisfaction of its performance obligations (see paragraph 119(a)) relates to the typical timing of payment (see paragraph 119(b)) and the effect that those factors have on the contract asset and the contract liability balances. The explanation provided may use qualitative information.
118. An entity shall provide an explanation of the significant changes in the contract asset and the contract liability balances during the reporting period. The explanation shall include qualitative and quantitative information. Examples of changes in the entity's balances of contract assets and contract liabilities include any of the following:
119. An entity shall disclose information about its performance obligations in contracts with customers, including a description of all of the following:
120. An entity shall disclose the following information about its remaining performance obligations:
121. As a practical expedient, an entity need not disclose the information in paragraph 120 for a performance obligation if either of the following conditions is met:
122. An entity shall explain qualitatively whether it is applying the practical expedient in paragraph 121 and whether any consideration from contracts with customers is not included in the transaction price and, therefore, not included in the information disclosed in accordance with paragraph
120. For example, an estimate of the transaction price would not include any estimated amounts of variable consideration that are constrained (see paragraphs 56-58).
Significant judgements in the application of this Standard123. An entity shall disclose the judgements, and changes in the judgements, made in applying this Standard that significantly affect the determination of the amount and timing of revenue from contracts with customers. In particular, an entity shall explain the judgements, and changes in the judgements, used in determining both of the following:
124. For performance obligations that an entity satisfies over time, an entity shall disclose both of the following:
125. For performance obligations satisfied at a point in time, an entity shall disclose the significant judgements made in evaluating when a customer obtains control of promised goods or services.
Determining the transaction price and the amounts allocated to performance obligations126. An entity shall disclose information about the methods, inputs and assumptions used for all of the following:
126AA. An entity shall reconcile the amount of revenue recognised in the statement of profit and loss with the contracted price showing separately each of the adjustments made to the contract price, for example, on account of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, etc., specifying the nature and amount of each such adjustment separately.
Assets recognised from the costs to obtain or fulfil a contract with a customer127. An entity shall describe both of the following:
128. An entity shall disclose all of the following:
129. If an entity elects to use the practical expedient in either paragraph 63 (about the existence of a significant financing component) or paragraph 94 (about the incremental costs of obtaining a contract), the entity shall disclose that fact.
Appendix ADefined termsThis appendix is an integral part of the Standard.| contract | An agreement between two or more parties thatcreates enforceable rights and obligations. |
| contract asset | An entity's right to consideration in exchangefor goods or services that the entity has transferred to acustomer when that right is conditioned on something other thanthe passage of time (for example, the entity's futureperformance). |
| contract liability | An entity's obligation to transfer goods orservices to a customer for which the entity has receivedconsideration (or the amount is due) from the customer. |
| customer | A party that has contracted with an entity toobtain goods or services that are an output of the entity'sordinary activities in exchange for consideration. |
| income | Increases in economic benefits during theaccounting period in the form of inflows or enhancements ofassets or decreases of liabilities that result in an increase inequity, other than those relating to contributions from equityparticipants. |
| performance obligation | A promise in a contract with a customer totransfer to the customer either: |
| (a) a good or service (or a bundle of goods orservices) that is distinct; or | |
| (b) a series of distinct goods or services thatare substantially the same and that have the same pattern oftransfer to the customer. | |
| revenue | Incomearising in the course of anentity's ordinary activities. |
| stand-alone selling price(ofa good or service) | The price at which an entity would sell apromised good or service separately to acustomer. |
| transaction price(for a contract with a customer) | The amount of consideration to which an entityexpects to be entitled in exchange for transferring promisedgoods or services to acustomer, excluding amountscollected on behalf of third parties. |
1. Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy supply and telecommunication networks-has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation.
2. In recent times, governments have introduced contractual service arrangements to attract private sector participation in the development, financing, operation and maintenance of such infrastructure. The infrastructure may already exist, or may be constructed during the period of the service arrangement. An arrangement within the scope of this Appendix typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining that infrastructure for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes. Such an arrangement is often described as a `build-operate-transfer', a `rehabilitate-operate-transfer' or a `public-to-private' service concession arrangement.
3. A feature of these service arrangements is the public service nature of the obligation undertaken by the operator. Public policy is for the services related to the infrastructure to be provided to the public, irrespective of the identity of the party that operates the services. The service arrangement contractually obliges the operator to provide the services to the public on behalf of the public sector entity. Other common features are:
4. This Appendix gives guidance on the accounting by operators for public-to-private service concession arrangements.
5. This Appendix applies to public-to-private service concession arrangements if:
6. Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this Appendix if the conditions in paragraph 5(a) of this Appendix are met. Paragraphs AG1-AG8 of the Application Guidance of this Appendix provide guidance on determining whether, and to what extent, public-to-private service concession arrangements are within the scope of this Appendix.
7. This Appendix applies to both:
8. This Appendix does not specify the accounting for infrastructure that was held and recognised as property, plant and equipment by the operator before entering the service arrangement. The derecognition requirements of Ind ASs (as set out in Ind AS 16) apply to such infrastructure.
9. This Appendix does not specify the accounting by grantors.
Issues10. This Appendix sets out general principles on recognising and measuring the obligations and related rights in service concession arrangements. Requirements for disclosing information about service concession arrangements are in Appendix E to this Indian Accounting Standard. The issues addressed in this Appendix are:
11. Infrastructure within the scope of this Appendix shall not be recognised as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract.
Recognition and measurement of arrangement consideration12. Under the terms of contractual arrangements within the scope of this Appendix, the operator acts as a service provider. The operator constructs or upgrades infrastructure (construction or upgrade services) used to provide a public service and operates and maintains that infrastructure (operation services) for a specified period of time.
13. The operator shall recognise and measure revenue in accordance with Ind AS 115 for the services it performs. The nature of the consideration determines its subsequent accounting treatment. The subsequent accounting for consideration received as a financial asset and as an intangible asset is detailed in paragraphs 23-26 of this Appendix.
Construction or upgrade services14. The operator shall account for construction or upgrade services in accordance with Ind AS 115.
Consideration given by the grantor to the operator15. If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognised in accordance with Ind AS 115. The consideration may be rights to:
16. The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.
17. The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.
18. If the operator is paid for the construction services partly by a financial asset and partly by an intangible asset it is necessary to account separately for each component of the operator's consideration. The consideration received or receivable for both components shall be recognised initially in accordance with Ind AS 115.
19. The nature of the consideration given by the grantor to the operator shall be determined by reference to the contract terms and, when it exists, relevant contract law. The nature of the consideration determines the subsequent accounting as described in paragraphs 23-26 of this Appendix. However, both types of consideration are classified as a contract asset during the construction or upgrade period in accordance with Ind AS 115.
Operation services20. The operator shall account for operation services in accordance with Ind AS 115.
Contractual obligations to restore the infrastructure to a specified level of serviceability21. The operator may have contractual obligations it must fulfil as a condition of its licence (a) to maintain the infrastructure to a specified level of serviceability or (b) to restore the infrastructure to a specified condition before it is handed over to the grantor at the end of the service arrangement. These contractual obligations to maintain or restore infrastructure, except for any upgrade element (see paragraph 14 of this Appendix), shall be recognised and measured in accordance with Ind AS 37, ie at the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period.
Borrowing costs incurred by the operator22. In accordance with Ind AS 23, borrowing costs attributable to the arrangement shall be recognised as an expense in the period in which they are incurred unless the operator has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case borrowing costs attributable to the arrangement shall be capitalised during the construction phase of the arrangement in accordance with that Standard.
Financial asset23. Ind ASs 32,107 and 109 apply to the financial asset recognised under paragraphs 16 and 18 of this Appendix.
24. The amount due from or at the direction of the grantor is accounted for in accordance with Ind AS 109 as measured at:
25. If the amount due from the grantor is measured at amortised cost or fair value through other comprehensive income, Ind AS 109 requires interest calculated using the effective interest method to be recognised in profit or loss.
Intangible asset26. Ind AS 38 applies to the intangible asset recognised in accordance with paragraphs 17 and 18 of this Appendix. Paragraphs 45-47 of Ind AS 38 provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets.
Items provided to the operator by the grantor27. In accordance with paragraph 11 of this Appendix, infrastructure items to which the operator is given access by the grantor for the purposes of the service arrangement are not recognised as property, plant and equipment of the operator. The grantor may also provide other items to the operator that the operator can keep or deal with as it wishes. If such assets form part of the consideration payable by the grantor for the services, they are not government grants as defined in Ind AS 20.Instead, they are accounted for as part of the transaction price as defined in Ind AS 115.
Application Guidance on Appendix DThis Application Guidance is an integral part of Appendix DScope (paragraph 5 of Appendix D)AG1 Paragraph 5 of Appendix D specifies that infrastructure is within the scope of the Appendix when the following conditions apply:| Category | Lessee | Service provider | Owner | |||
| Typical arrangement types | Lease (eg Operator leases asset from grantor) | Service and/or maintenance contract (specifictasks eg debt collection) | Rehabilitate - operate - transfer | Build -operate transfer | Build -own - operate | 100% Divestment/Privatisation/Corporation |
| Asset ownership | Grantor | Operator | ||||
| Capital investment | Grantor | Operator | ||||
| Demand risk | Shared | Grantor | Operator and/or Grantor | Operator | ||
| Typical duration | 8-20 years | 1-5 years | 25-30 years | Indefinite (or may be limited by licence) | ||
| Residual interest | Grantor | Operator | ||||
| Relevant Indian Accounting Standards | Ind AS 17 | Ind AS 18 | This Appendix A | Ind AS 16 |
1. An entity (the operator) may enter into an arrangement with another entity (the grantor) to provide services that give the public access to major economic and social facilities. The grantor may be a public or private sector entity, including a governmental body. Examples of service concession arrangements involve water treatment and supply facilities, motorways, car parks, tunnels, bridges, airports and telecommunication networks. Examples of arrangements that are not service concession arrangements include an entity outsourcing the operation of its internal services (eg employee cafeteria, building maintenance, and accounting or information technology functions).
2. A service concession arrangement generally involves the grantor conveying for the period of the concession to the operator:
3. The common characteristic of all service concession arrangements is that the operator both receives a right and incurs an obligation to provide public services.
4. The issue is what information should be disclosed in the notes in the financial statements of an operator and a grantor.
5. [ Certain aspects and disclosures relating to some service concession arrangements are addressed by Indian Accounting Standards (eg Ind AS 16 applies to acquisitions of items of property, plant and equipment, Ind AS 116 applies to leases of assets, and Ind AS 38 applies to acquisitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Accounting Principles6. All aspects of a service concession arrangement shall be considered in determining the appropriate disclosures in the notes. An operator and a grantor shall disclose the following in each period:
6A. An operator shall disclose the amount of revenue and profits or losses recognized in the period on exchanging construction services for a financial asset or an intangible asset.
7. The disclosures required in accordance with paragraph 6 of this Appendix shall be provided individually for each service concession arrangement or in aggregate for each class of service concession arrangements. A class is a grouping of service concession arrangements involving services of a similar nature (eg toll collections, telecommunications and water treatment services).
Appendix FReferences to matters contained in other Indian Accounting StandardsThis appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 115, Revenue from Contracts with Customers.[***] [Omitted '1. Appendix B, Evaluating the Substance of Transactions involving the Legal Form of a Lease contained in Ind AS 17, Leases.' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]2. Appendix A, Intangible Assets - Web Site Costs contained in Ind AS 38, Intangible Assets.
Appendix 1Note: This appendix is not a part of the Indian Accounting Standard. The purpose of this appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 115 and the corresponding International Financial Reporting Standard (IFRS) 15, Revenue from Contracts with Customers, IFRIC 12, Service Concession Arrangements and SIC 29 Service Concession Arrangements: Disclosures, issued by the International Accounting Standards Board.Comparison with IFRS 15, Revenue from Contracts with Customers, IFRIC 12 and SIC 291. Different terminology is used in Ind AS 115 eg the term `balance sheet' is used instead of `statement of financial position' and `statement of profit and loss' is used instead of `statement of comprehensive income'.
2. As per paragraph of 15 of IFRS 15, an amount of consideration, among other things, can vary because of penalties. However, paragraph 51 of Ind AS 115 has been amended to exclude `penalties' from the list of examples given in the paragraph 51 due to which an amount of consideration can vary. However, paragraph 51AA has been inserted to explain the accounting treatment of `penalties'.
3. Paragraph 109AA has been inserted to require an entity to present separately the amount of excise duty included in the revenue recognised in the statement of profit and loss.
4. Paragraph 126AA has been inserted to present reconciliation of the amount of revenue recognised in the statement of profit and loss with the contracted price showing separately each of the adjustments made to the contract price specifying the nature and amount of each such adjustment separately.
5. In Appendix D - Application Guidance, paragraph B20AA has been inserted to explain the accounting treatment in case of transfers of control of a product to a customer with an unconditional right of return.
6. [ Paragraphs C1B, C8A and C9 related to effective date and transition have been deleted due to following reasons:
1. This Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.
2. An entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this Standard. An entity shall apply this Standard consistently to contracts with similar characteristics and in similar circumstances.
Scope3. An entity shall apply this Standard to all leases, including leases of right-of-use assets in a sublease, except for:
4. A lessee may, but is not required to, apply this Standard to leases of intangible assets other than those described in paragraph 3(e).
Recognition exemptions (paragraphs B3-B8)5. A lessee may elect not to apply the requirements in paragraphs 22-49 to:
6. If a lessee elects not to apply the requirements in paragraphs 22-49 to either short-term leases or leases for which the underlying asset is of low value, the lessee shall recognise the lease payments associated with those leases as an expense on either a straight-line basis over the lease term or another systematic basis. The lessee shall apply another systematic basis if that basis is more representative of the pattern of the lessee's benefit.
7. If a lessee accounts for short-term leases applying paragraph 6, the lessee shall consider the lease to be a new lease for the purposes of this Standard if:
8. The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in an entity's operations. The election for leases for which the underlying asset is of low value can be made on a lease-by-lease basis.
Identifying a lease (paragraphs B9-B33)9. At inception of a contract, an entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Paragraphs B9-B31 set out guidance on the assessment of whether a contract is, or contains, a lease.
10. A period of time may be described in terms of the amount of use of an identified asset (for example, the number of production units that an item of equipment will be used to produce).
11. An entity shall reassess whether a contract is, or contains, a lease only if the terms and conditions of the contract are changed.
Separating components of a contract12. For a contract that is, or contains, a lease, an entity shall account for each lease component within the contract as a lease separately from non-lease components of the contract, unless the entity applies the practical expedient in paragraph 15. Paragraphs B32-B33 set out guidance on separating components of a contract.
Lessee13. For a contract that contains a lease component and one or more additional lease or non-lease components, a lessee shall allocate the consideration in the contract to each lease component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
14. The relative stand-alone price of lease and non-lease components shall be determined on the basis of the price the lessor, or a similar supplier, would charge an entity for that component, or a similar component, separately. If an observable stand-alone price is not readily available, the lessee shall estimate the stand-alone price, maximising the use of observable information.
15. As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. A lessee shall not apply this practical expedient to embedded derivatives that meet the criteria in paragraph 4.3.3 of Ind AS 109, Financial Instruments.
16. Unless the practical expedient in paragraph 15 is applied, a lessee shall account for non-lease components applying other applicable Standards.
Lessor17. For a contract that contains a lease component and one or more additional lease or non-lease components, a lessor shall allocate the consideration in the contract applying paragraphs 73-90 of Ind AS 115.
Lease term (paragraphs B34-B41)__________________________________________________________________________________18. An entity shall determine the lease term as the non-cancellable period of a lease, together with both:
19. In assessing whether a lessee is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, an entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease, or not to exercise the option to terminate the lease, as described in paragraphs B37- B40.
20. A lessee shall reassess whether it is reasonably certain to exercise an extension option, or not to exercise a termination option, upon the occurrence of either a significant event or a significant change in circumstances that:
21. An entity shall revise the lease term if there is a change in the non-cancellable period of a lease. For example, the non-cancellable period of a lease will change if:
22. At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability.
MeasurementInitial measurementInitial measurement of the right-of-use asset23. At the commencement date, a lessee shall measure the right-of-use asset at cost.
24. The cost of the right-of-use asset shall comprise:
25. A lessee shall recognise the costs described in paragraph 24(d) as part of the cost of the right-of-use asset when it incurs an obligation for those costs. A lessee applies Ind AS 2, Inventories, to costs that are incurred during a particular period as a consequence of having used the right-of-use asset to produce inventories during that period. The obligations for such costs accounted for applying this Standard or Ind AS 2 are recognised and measured applying Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Initial measurement of the lease liability26. At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee's incremental borrowing rate.
27. At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments for the right to use the underlying asset during the lease term that are not paid at the commencement date:
28. Variable lease payments that depend on an index or a rate described in paragraph 27(b) include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates.
Subsequent measurementSubsequent measurement of the right-of-use asset29. After the commencement date, a lessee shall measure the right-of-use asset applying a cost model, unless it applies the measurement model described in paragraph 35.
Cost model30. To apply a cost model, a lessee shall measure the right-of-use asset at cost:
31. A lessee shall apply the depreciation requirements in Ind AS 16, Property, Plant and Equipment, in depreciating the right-of-use asset, subject to the requirements in paragraph 32.
32. If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
33. A lessee shall apply Ind AS 36, Impairment of Assets, to determine whether the right-of-use asset is impaired and to account for any impairment loss identified.
Other measurement models34. [Refer Appendix 1].
35. If right-of-use assets relate to a class of property, plant and equipment to which the lessee applies the revaluation model in Ind AS 16, a lessee may elect to apply that revaluation model to all of the rightof- use assets that relate to that class of property, plant and equipment.
Subsequent measurement of the lease liability36. After the commencement date, a lessee shall measure the lease liability by:
37. Interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. The periodic rate of interest is the discount rate described in paragraph 26, or if applicable the revised discount rate described in paragraph 41, paragraph 43 or paragraph 45(c).
38. After the commencement date, a lessee shall recognise in profit or loss, unless the costs are included in the carrying amount of another asset applying other applicable Standards, both:
39. After the commencement date, a lessee shall apply paragraphs 40-43 to remeasure the lease liability to reflect changes to the lease payments. A lessee shall recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, a lessee shall recognise any remaining amount of the remeasurement in profit or loss.
40. A lessee shall remeasure the lease liability by discounting the revised lease payments using a revised discount rate, if either:
41. In applying paragraph 40, a lessee shall determine the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the lessee's incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
42. A lessee shall remeasure the lease liability by discounting the revised lease payments, if either:
43. In applying paragraph 42, a lessee shall use an unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In that case, the lessee shall use a revised discount rate that reflects changes in the interest rate.
Lease modifications44. A lessee shall account for a lease modification as a separate lease if both:
45. For a lease modification that is not accounted for as a separate lease, at the effective date of the lease modification a lessee shall:
46. For a lease modification that is not accounted for as a separate lease, the lessee shall account for the remeasurement of the lease liability by:
47. A lessee shall either present in the balance sheet, or disclose in the notes:
48. The requirement in paragraph 47(a) does not apply to right-of-use assets that meet the definition of investment property, which shall be presented in the balance sheet as investment property.
49. In the statement of profit and loss, a lessee shall present interest expense on the lease liability separately from the depreciation charge for the right-of-use asset. Interest expense on the lease liability is a component of finance costs, which paragraph 82(b) of Ind AS 1, Presentation of Financial Statements, requires to be presented separately in the statement of profit and loss.
50. In the statement of cash flows, a lessee shall classify:
51. The objective of the disclosures is for lessees to disclose information in the notes that, together with the information provided in the balance sheet, statement of profit and loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee. Paragraphs 52-60 specify requirements on how to meet this objective.
52. A lessee shall disclose information about its leases for which it is a lessee in a single note or separate section in its financial statements. However, a lessee need not duplicate information that is already presented elsewhere in the financial statements, provided that the information is incorporated by cross-reference in the single note or separate section about leases.
53. A lessee shall disclose the following amounts for the reporting period:
54. A lessee shall provide the disclosures specified in paragraph 53 in a tabular format, unless another format is more appropriate. The amounts disclosed shall include costs that a lessee has included in the carrying amount of another asset during the reporting period.
55. A lessee shall disclose the amount of its lease commitments for short-term leases accounted for applying paragraph 6 if the portfolio of short-term leases to which it is committed at the end of the reporting period is dissimilar to the portfolio of short-term leases to which the short-term lease expense disclosed applying paragraph 53(c) relates.
56. If right-of-use assets meet the definition of investment property, a lessee shall apply the disclosure requirements in Ind AS 40. In that case, a lessee is not required to provide the disclosures in paragraph 53(a), (f), (h) or (j) for those right-of-use assets.
57. If a lessee measures right-of-use assets at revalued amounts applying Ind AS 16, the lessee shall disclose the information required by paragraph 77 of Ind AS 16 for those right-of-use assets.
58. A lessee shall disclose a maturity analysis of lease liabilities applying paragraphs 39 and B11 of Ind AS 107, Financial Instruments: Disclosures, separately from the maturity analyses of other financial liabilities.
59. In addition to the disclosures required in paragraphs 53-58, a lessee shall disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in paragraph 51 (as described in paragraph B48). This additional information may include, but is not limited to, information that helps users of financial statements to assess:
60. A lessee that accounts for short-term leases or leases of low-value assets applying paragraph 6 shall disclose that fact.
Lessor___________________________________________________________________________________Classification of leases (paragraphs B53-B58)61. A lessor shall classify each of its leases as either an operating lease or a finance lease.
62. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.
63. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract. Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:
64. Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are:
65. The examples and indicators in paragraphs 63-64 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset, the lease is classified as an operating lease. For example, this may be the case if ownership of the underlying asset transfers at the end of the lease for a variable payment equal to its then fair value, or if there are variable lease payments, as a result of which the lessor does not transfer substantially all such risks and rewards.
66. Lease classification is made at the inception date and is reassessed only if there is a lease modification. Changes in estimates (for example, changes in estimates of the economic life or of the residual value of the underlying asset), or changes in circumstances (for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes.
Finance leasesRecognition and measurement67. At the commencement date, a lessor shall recognise assets held under a finance lease in its balance sheet and present them as a receivable at an amount equal to the net investment in the lease.
Initial measurement68. The lessor shall use the interest rate implicit in the lease to measure the net investment in the lease. In the case of a sublease, if the interest rate implicit in the sublease cannot be readily determined, an intermediate lessor may use the discount rate used for the head lease (adjusted for any initial direct costs associated with the sublease) to measure the net investment in the sublease.
69. Initial direct costs, other than those incurred by manufacturer or dealer lessors, are included in the initial measurement of the net investment in the lease and reduce the amount of income recognised over the lease term. The interest rate implicit in the lease is defined in such a way that the initial direct costs are included automatically in the net investment in the lease; there is no need to add them separately.
Initial measurement of the lease payments included in the net investment in the lease70. At the commencement date, the lease payments included in the measurement of the net investment in the lease comprise the following payments for the right to use the underlying asset during the lease term that are not received at the commencement date:
71. At the commencement date, a manufacturer or dealer lessor shall recognise the following for each of its finance leases:
72. Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A finance lease of an asset by a manufacturer or dealer lessor gives rise to profit or loss equivalent to the profit or loss resulting from an outright sale of the underlying asset, at normal selling prices, reflecting any applicable volume or trade discounts.
73. Manufacturer or dealer lessors sometimes quote artificially low rates of interest in order to attract customers. The use of such a rate would result in a lessor recognising an excessive portion of the total income from the transaction at the commencement date. If artificially low rates of interest are quoted, a manufacturer or dealer lessor shall restrict selling profit to that which would apply if a market rate of interest were charged.
74. A manufacturer or dealer lessor shall recognise as an expense costs incurred in connection with obtaining a finance lease at the commencement date because they are mainly related to earning the manufacturer or dealer's selling profit. Costs incurred by manufacturer or dealer lessors in connection with obtaining a finance lease are excluded from the definition of initial direct costs and, thus, are excluded from the net investment in the lease.
Subsequent measurement75. A lessor shall recognise finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the lease.
76. A lessor aims to allocate finance income over the lease term on a systematic and rational basis. A lessor shall apply the lease payments relating to the period against the gross investment in the lease to reduce both the principal and the unearned finance income.
77. A lessor shall apply the derecognition and impairment requirements in Ind AS 109 to the net investment in the lease. A lessor shall review regularly estimated unguaranteed residual values used in computing the gross investment in the lease. If there has been a reduction in the estimated unguaranteed residual value, the lessor shall revise the income allocation over the lease term and recognise immediately any reduction in respect of amounts accrued.
78. A lessor that classifies an asset under a finance lease as held for sale (or includes it in a disposal group that is classified as held for sale) applying Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, shall account for the asset in accordance with that Standard.
Lease modifications79. A lessor shall account for a modification to a finance lease as a separate lease if both:
80. For a modification to a finance lease that is not accounted for as a separate lease, a lessor shall account for the modification as follows:
81. A lessor shall recognise lease payments from operating leases as income on either a straight-line basis or another systematic basis. The lessor shall apply another systematic basis if that basis is more representative of the pattern in which benefit from the use of the underlying asset is diminished.
82. A lessor shall recognise costs, including depreciation, incurred in earning the lease income as an expense.
83. A lessor shall add initial direct costs incurred in obtaining an operating lease to the carrying amount of the underlying asset and recognise those costs as an expense over the lease term on the same basis as the lease income.
84. The depreciation policy for depreciable underlying assets subject to operating leases shall be consistent with the lessor's normal depreciation policy for similar assets. A lessor shall calculate depreciation in accordance with Ind AS 16 and Ind AS 38.
85. A lessor shall apply Ind AS 36 to determine whether an underlying asset subject to an operating lease is impaired and to account for any impairment loss identified.
86. A manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is not the equivalent of a sale.
Lease modifications87. A lessor shall account for a modification to an operating lease as a new lease from the effective date of the modification, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.
Presentation88. A lessor shall present underlying assets subject to operating leases in its balance sheet according to the nature of the underlying asset.
Disclosure89. The objective of the disclosures is for lessors to disclose information in the notes that, together with the information provided in the balance sheet, statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor. Paragraphs 90-97 specify requirements on how to meet this objective.
90. A lessor shall disclose the following amounts for the reporting period:
91. A lessor shall provide the disclosures specified in paragraph 90 in a tabular format, unless another format is more appropriate.
92. A lessor shall disclose additional qualitative and quantitative information about its leasing activities necessary to meet the disclosure objective in paragraph 89. This additional information includes, but is not limited to, information that helps users of financial statements to assess:
93. A lessor shall provide a qualitative and quantitative explanation of the significant changes in the carrying amount of the net investment in finance leases.
94. A lessor shall disclose a maturity analysis of the lease payments receivable, showing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years. A lessor shall reconcile the undiscounted lease payments to the net investment in the lease. The reconciliation shall identify the unearned finance income relating to the lease payments receivable and any discounted unguaranteed residual value.
Operating leases95. For items of property, plant and equipment subject to an operating lease, a lessor shall apply the disclosure requirements of Ind AS 16. In applying the disclosure requirements in Ind AS 16, a lessor shall disaggregate each class of property, plant and equipment into assets subject to operating leases and assets not subject to operating leases. Accordingly, a lessor shall provide the disclosures required by Ind AS 16 for assets subject to an operating lease (by class of underlying asset) separately from owned assets held and used by the lessor.
96. A lessor shall apply the disclosure requirements in Ind AS 36, Ind AS 38, Ind AS 40 and Ind AS 41 for assets subject to operating leases.
97. A lessor shall disclose a maturity analysis of lease payments, showing the undiscounted lease payments to be received on an annual basis for a minimum of each of the first five years and a total of the amounts for the remaining years.
Sale and leaseback transactions__________________________________________________________________________________98. If an entity (the seller-lessee) transfers an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, both the seller-lessee and the buyer-lessor shall account for the transfer contract and the lease applying paragraphs 99-103.
Assessing whether the transfer of the asset is a sale99. An entity shall apply the requirements for determining when a performance obligation is satisfied in Ind AS 115 to determine whether the transfer of an asset is accounted for as a sale of that asset.
Transfer of the asset is a sale100. If the transfer of an asset by the seller-lessee satisfies the requirements of Ind AS 115 to be accounted for as a sale of the asset:
101. If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the lease are not at market rates, an entity shall make the following adjustments to measure the sale proceeds at fair value:
102. The entity shall measure any potential adjustment required by paragraph 101 on the basis of the more readily determinable of:
103. If the transfer of an asset by the seller-lessee does not satisfy the requirements of Ind AS 115 to be accounted for as a sale of the asset:
| Commencement date of the lease (commencementdate) | The date on which a lessor makes an underlyingasset available for use by a lessee | |
| Economic life | Either the period over which an asset isexpected to be economically usable by one or more users or thenumber of production or similar units expected to be obtainedfrom an asset by one or more users. | |
| Effective date of the modification | The date when both parties agree to a leasemodification. | |
| Fair value | For the purpose of applying thelessoraccounting requirements in this Standard, the amount for which anasset could be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arm’s lengthtransaction. | |
| Finance lease | Aleasethat transfers substantially allthe risks and rewards incidental to ownership of anunderlyingasset. | |
| Fixed payments | Payments made by alesseeto alessorfor the right to use an underlying asset during theleaseterm, excluding variable lease payments. | |
| Gross investment in the lease | The sum of:(a) theleasepaymentsreceivable by alessorunder afinancelease;and(b) any unguaranteed residual value accruing tothe lessor. | |
| Inception date of the lease (inception date) | The earlier of the date of aleaseagreement and the date of commitment by the parties to theprincipal terms and conditions of the lease. | |
| Initial direct costs | Incremental costs of obtaining a lease thatwould not have been incurred if the lease had not been obtained,except for such costs incurred by a manufacturer or dealer lessorin connection with afinance lease. | |
| Interest rate implicit in the lease | The rate of interestthat causes the present value of(a) thelease paymentsand (b) theunguaranteed residual valueto equal the sum of (i) thefair valueof theunderlying assetand (ii) anyinitial direct costsof the lessor. | |
| Lease | A contract, or part of a contract, that conveysthe right to use an asset (theunderlying asset) for aperiod of time in exchange for consideration. | |
| Lease incentives | Payments made by a lessor to a lessee associatedwith a lease, or the reimbursement or assumption by a lessor ofcosts of a lessee. | |
| Lease Modification | A change in the scope of a lease, or theconsideration for a lease, that was not part of the originalterms and conditions of the lease(for example, adding orterminating the right to use one or more underlying assets, orextending or shortening the contractual lease term). | |
| Lease payments | Payments made by alessee to a lessor relating to the right to use an underlyingasset during the lease term, comprising the following:(a) fixed payments(including in-substance fixed payments), less anyleaseincentives;(b) variable leasepaymentsthat depend on an index or a rate;(c) the exerciseprice of a purchase option if the lessee is reasonably certain toexercise that option; and(d) payments ofpenalties for terminating the lease, if the lease term reflectsthe lessee exercising an option to terminate the lease.For the lessee, leasepayments also include amounts expected to be payable by thelessee under residual value guarantees. Lease payments do notinclude payments allocated to non-lease components of a contract,unless the lessee elects to combine non-lease components with alease component and to account for them as a single leasecomponent.For the lessor, lease payments also include anyresidual value guarantees provided to the lessor by the lessee, aparty related to the lessee or a third party unrelated to thelessor that is financially capable of discharging the obligationsunder the guarantee. Lease payments do not include paymentsallocated to non-lease components. | |
| Lease term | The non-cancellableperiod for which a lessee has the right to use an underlyingasset, together with both:(a) periods coveredby an option to extend the lease if the lessee is reasonablycertain to exercise that option; and(b) periods covered by an option to terminatethe lease if the lessee is reasonably certain not to exercisethat option. | |
| Lessee | An entity that obtains the right to use anunderlying assetfor a period of time in exchange forconsideration. | |
| Lessee's incremental borrowing rate | The rate of interest that a lessee would have topay to borrow over a similar term, and with a similar security,the funds necessary to obtain an asset of a similar value to theright-of-use asset in a similar economic environment. | |
| Lessor | An entity that provides the right to use anunderlying asset for a period of time in exchange forconsideration. | |
| Net investment in the lease | Thegross investment in the leasediscounted at theinterest rate implicit in the lease. | |
| Operating lease | Aleasethat does not transfersubstantially all the risks and rewards incidental to ownershipof anunderlying asset. | |
| Optional lease Payments | Payments to be made by alesseeto alessorfor the right to use anunderlying assetduring periods covered by an option to extend or terminate alease that are not included in thelease term. | |
| Period of use | The total period of time that an asset is usedto fulfil a contract with a customer (including anynon-consecutive periods of time). | |
| Residual value Guarantee | A guarantee made to alessorby a partyunrelated to the lessor that the value (or part of the value) ofanunderlying assetat the end of aleasewill beat least a specified amount. | |
| Right-of-use asset | An asset that represents alessee’sright to use anunderlying assetfor the lease term. | |
| Short-term lease | A lease that, at thecommencement date,hasa lease termof 12 months or less. A lease thatcontains a purchase option is not a short-term lease. | |
| Sublease | A transaction for which anunderlying assetis re-leased by alessee(‘intermediate lessor’)to a third party, and the lease(‘head lease’) betweenthe head lessor and lessee remains in effect. | |
| Underlying asset | An asset that is the subject of a lease, forwhich the right to use that asset has been provided by a lessorto a lessee. | |
| Unearned finance income | The differencebetween:(a) thegrossinvestment in the lease; and(b) thenet investment in the lease. | |
| Unguaranteed residual value | That portion of the residual value of theunderlying asset, the realisation of which by a lessor is notassured or is guaranteed solely by a party related to the lessor. | |
| Variable lease payments | The portion of payments made by a lessee to alessor for the right to use an underlying asset during the leaseterm that varies because of changes in facts or circumstancesoccurring after thecommencement date, other than thepassage of time. | |
| Terms defined in other Standards and used inthis Standard with the same meaning | ||
| {| | ||
| Contract | An agreement between two or more parties thatcreates enforceable rights and obligations. | |
| Useful life | The period over which an asset is expected to beavailable for use by an entity; or the number of production orsimilar units expected to be obtained from an asset by an entity. |
1. With regard to subsequent measurement, paragraph 34 of IFRS 16 provides that if lessee applies fair value model in IAS 40 to its investment property, it shall apply that fair value model to the right-of-use assets that meet the definition of investment property. Since Ind AS 40, Investment Property, does not allow the use of fair value model, paragraph 34 has been deleted in Ind AS 116. Accordingly, reference to paragraph 34 has been deleted in paragraph 29. Paragraph C9(b) and paragraph C9(c) of Appendix C, Effective Date and Transition, given in context of fair value model of investment property have been deleted. However, paragraph numbers have been retained in Ind AS 116 to maintain consistency with paragraph numbers of IFRS 16.
2. Paragraph 50(b) of IFRS 16 requires to classify cash payments for interest portion of lease liability applying requirements of IAS 7, Statement of Cash Flows. IAS 7 provides option of treating interest paid as operating or financing activity. However, Ind AS 7 requires interest paid to be treated as financing activity only. Accordingly, paragraph 50(b) has been modified in Ind AS 116 to specify that cash payments for interest portion of lease liability will be classified as financing activities applying Ind AS 7.
3. Different terminology is used in this standard, eg, the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
4. Paragraph C20 of Appendix C, Effective Date and Transition, dealing with interchange of reference of IFRS 9 to IAS 39 if entity does not apply IFRS 9 has been deleted since India has early adopted Ind AS 109, corresponding to IFRS 9.
Indian Accounting Standard (Ind AS) 1Presentation of Financial Statements(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles).Objective1. This Standard prescribes the basis for presentation of general purpose financial statements to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content.
Scope2. An entity shall apply this Standard in preparing and presenting general purpose financial statements in accordance with Indian Accounting Standards (Ind ASs).
3. Other Ind ASs set out the recognition, measurement and disclosure requirements for specific transactions and other events.
4. This Standard does not apply to the structure and content of condensed interim financial statements prepared in accordance with Ind AS 34, Interim Financial Reporting. However, paragraphs 15-35 apply to such financial statements. This Standard applies equally to all entities, including those that present consolidated financial statements in accordance with Ind AS 110, Consolidated Financial Statements, and those that present separate financial statements in accordance with Ind AS 27, Separate Financial Statements.
5. This Standard uses terminology that is suitable for profit-oriented entities, including public sector business entities. If entities with not-for-profit activities in the private sector or the public sector apply this Standard, they may need to amend the descriptions used for particular line items in the financial statements and for the financial statements themselves.
6. Similarly, entities whose share capital is not equity may need to adapt the financial statement presentation of members' interests.
Definitions7. The following terms are used in this Standard with the meanings specified:
General purpose financial statements (referred to as 'financial statements') are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.Indian Accounting Standards (Ind ASs) are Standards prescribed under Section 133 of the Companies Act, 2013.Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.Assessing whether an omission or misstatement could influence economic decisions of users, and so be material, requires consideration of the characteristics of those users. The Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India states in paragraph 25 that 'users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.' Therefore, the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making economic decisions.Notes contain information in addition to that presented in the balance sheet), statement of profit and loss, statement of changes in equity and statement of cash flows. Notes provide narrative descriptions or disaggregations of items presented in those statements and information about items that do not qualify for recognition in those statements.Other comprehensive income comprises items of income and expense (including reclassification adjustments) that are not recognized in profit or loss as required or permitted by other Ind ASs.The components of other comprehensive income include:8. [Refer Appendix 1]
8A. The following terms are described in Ind AS 32, Financial Instruments: Presentation, and are used in this Standard with the meaning specified in Ind AS 32:
9. Financial statements are a structured representation of the financial position and financial performance of an entity. The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the management's stewardship of the resources entrusted to it. To meet this objective, financial statements provide information about an entity's:
10. A complete set of financial statements comprises:
10A. An entity shall present a single statement of profit and loss, with profit or loss and other comprehensive income presented in two sections. The sections shall be presented together, with the profit or loss section presented first followed directly by the other comprehensive income section.
11. An entity shall present with equal prominence all of the financial statements in a complete set of financial statements.
12. [Refer Appendix 1]
13. Many entities present, outside the financial statements, a financial review by management that describes and explains the main features of the entity's financial performance and financial position, and the principal uncertainties it faces. Such a report may include a review of:
14. Many entities also present, outside the financial statements, reports and statements such as environmental reports and value added statements, particularly in industries in which environmental factors are significant and when employees are regarded as an important user group. Reports and statements presented outside financial statements are outside the scope of Ind ASs.
General featuresPresentation of True and Fair View and compliance with Ind ASs15. Financial statements shall present a true and fair view of the financial position, financial performance and cash flows of an entity. Presentation of true and fair view requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework. The application of Ind ASs, with additional disclosure when necessary, is presumed to result in financial statements that present a true and fair view.
16. An entity whose financial statements comply with Ind ASs shall make an explicit and unreserved statement of such compliance in the notes. An entity shall not describe financial statements as complying with Ind ASs unless they comply with all the requirements of Ind ASs.
17. In virtually all circumstances, presentation of a true and fair view is achieved by compliance with applicable Ind ASs. Presentation of a true and fair view also requires an entity:
18. An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting policies used or by notes or explanatory material.
19. In the extremely rare circumstances in which management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, the entity shall depart from that requirement in the manner set out in paragraph 20 if the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
20. When an entity departs from a requirement of an Ind AS in accordance with paragraph 19, it shall disclose:
21. When an entity has departed from a requirement of an Ind AS in a prior period, and that departure affects the amounts recognized in the financial statements for the current period, it shall make the disclosures set out in paragraph 20(c) and (d).
22. Paragraph 21 applies, for example, when an entity departed in a prior period from a requirement in an Ind AS for the measurement of assets or liabilities and that departure affects the measurement of changes in assets and liabilities recognized in the current period's financial statements.
23. In the extremely rare circumstances in which management concludes that compliance with a requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:
24. For the purpose of paragraphs 19-23, an item of information would conflict with the objective of financial statements when it does not represent faithfully the transactions, other events and conditions that it either purports to represent or could reasonably be expected to represent and, consequently, it would be likely to influence economic decisions made by users of financial statements. When assessing whether complying with a specific requirement in an Ind AS would be so misleading that it would conflict with the objective of financial statements set out in the Framework, management considers:
25. When preparing financial statements, management shall make an assessment of an entity's ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern, the entity shall disclose those uncertainties. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern.
26. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The degree of consideration depends on the facts in each case. When an entity has a history of profitable operations and ready access to financial resources, the entity may reach a conclusion that the going concern basis of accounting is appropriate without detailed analysis. In other cases, management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.
Accrual basis of accounting27. An entity shall prepare its financial statements, except for cash flow information, using the accrual basis of accounting.
28. When the accrual basis of accounting is used, an entity recognises items as assets, liabilities, equity, income and expenses (the elements of financial statements) when they satisfy the definitions and recognition criteria for those elements in the Framework.
Materiality and aggregation29. An entity shall present separately each material class of similar items. An entity shall present separately items of a dissimilar nature or function unless they are immaterial except when required by law.
30. Financial statements result from processing large numbers of transactions or other events that are aggregated into classes according to their nature or function. The final stage in the process of aggregation and classification is the presentation of condensed and classified data, which form line items in the financial statements. If a line item is not individually material, it is aggregated with other items either in those statements or in the notes. An item that is not sufficiently material to warrant separate presentation in those statements may warrant separate presentation in the notes.
30A. [ When applying this and other Ind ASs an entity shall decide, taking into consideration all relevant facts and circumstances, how it aggregates information in the financial statements, which include the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
31. [ Some Ind ASs specify information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure required by an Ind AS if the information resulting from that disclosure is not material except when required by law. This is the case even if the Ind AS contains a list of specific requirements or describes them as minimum requirements. An entity shall also consider whether to provide additional disclosures when compliance with the specific requirements in Ind AS is insufficient to enable users of financial statements to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Offsetting32. An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Ind AS.
33. An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statement of profit and loss or balance sheet, except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity's future cash flows. Measuring assets net of valuation allowances-for example, obsolescence allowances on inventories and doubtful debts allowances on receivables-is not offsetting.
34. [ Ind AS 115, Revenue from Contracts with Customers, requires an entity to measure revenue from contracts with customers at the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services. For example, the amount of revenue recognized reflects any trade discounts and volume rebates the entity allows. An entity undertakes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. An entity presents the results of such transactions, when this presentation reflects the substance of the transaction or other event, by netting any income with related expenses arising on the same transaction. For example:
35. In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material.
Frequency of reporting36. An entity shall present a complete set of financial statements (including comparative information) at least annually. When an entity changes the end of its reporting period and presents financial statements for a period longer or shorter than one year, an entity shall disclose, in addition to the period covered by the financial statements:
37. [Refer Appendix 1]
Comparative informationMinimum comparative information38. Except when Ind ASs permit or require otherwise, an entity shall present comparative information in respect of the preceding period for all amounts reported in the current period's financial statements. An entity shall include comparative information for narrative and descriptive information if it is relevant to understanding the current period's financial statements.
38A. An entity shall present, as a minimum, two balance sheets , two statements of profit and loss, two statements of cash flows and two statements of changes in equity, and related notes.
38B. In some cases, narrative information provided in the financial statements for the preceding period(s) continues to be relevant in the current period. For example, an entity discloses in the current period details of a legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users may benefit from the disclosure of information that the uncertainty existed at the end of the preceding period and from the disclosure of information about the steps that have been taken during the period to resolve the uncertainty.
Additional comparative information38C. An entity may present comparative information in addition to the minimum comparative financial statements required by Ind ASs, as long as that information is prepared in accordance with Ind ASs. This comparative information may consist of one or more statements referred to in paragraph 10, but need not comprise a complete set of financial statements. When this is the case, the entity shall present related note information for those additional statements.
38D. For example, an entity may present a third statement of profit and loss (thereby presenting the current period, the preceding period and one additional comparative period). However, the entity is not required to present a third balance sheet, a third statement of cash flows or a third statement of changes in equity (i.e. an additional financial statement comparative). The entity is required to present, in the notes to the financial statements, the comparative information related to that additional statement of profit and loss.
39. [Refer Appendix 1]
Change in accounting policy, retrospective restatement or reclassification40A. An entity shall present a third balance sheet as at the beginning of the preceding period in addition to the minimum comparative financial statements required in paragraph 38A if:
40B. In the circumstances described in paragraph 40A, an entity shall present three balance sheets as at:
40C. When an entity is required to present an additional balance sheet in accordance with paragraph 40A, it must disclose the information required by paragraphs 41-44 and Ind AS 8. However, it need not present the related notes to the opening balance sheet as at the beginning of the preceding period.
40D. The date of that opening balance sheet shall be as at the beginning of the preceding period regardless of whether an entity's financial statements present comparative information for earlier periods (as permitted in paragraph 38C).
41. If an entity changes the presentation or classification of items in its financial statements, it shall reclassify comparative amounts unless reclassification is impracticable. When an entity reclassifies comparative amounts, it shall disclose (including as at the beginning of the preceding period):
42. When it is impracticable to reclassify comparative amounts, an entity shall disclose:
43. Enhancing the inter-period comparability of information assists users in making economic decisions, especially by allowing the assessment of trends in financial information for predictive purposes. In some circumstances, it is impracticable to reclassify comparative information for a particular prior period to achieve comparability with the current period. For example, an entity may not have collected data in the prior period(s) in a way that allows reclassification, and it may be impracticable to recreate the information.
44. Ind AS 8 sets out the adjustments to comparative information required when an entity changes an accounting policy or corrects an error.
Consistency of presentation45. An entity shall retain the presentation and classification of items in the financial statements from one period to the next unless:
46. For example, a significant acquisition or disposal, or a review of the presentation of the financial statements, might suggest that the financial statements need to be presented differently. An entity changes the presentation of its financial statements only if the changed presentation provides information that is reliable and more relevant to users of the financial statements and the revised structure is likely to continue, so that comparability is not impaired. When making such changes in presentation, an entity reclassifies its comparative information in accordance with paragraphs 41 and 42.
Structure and contentIntroduction47. This Standard requires particular disclosures in the balance sheet or in the statement of profit and loss, or in the statement of changes in equity and requires disclosure of other line items either in those statements or in the notes. Ind AS 7, Statement of Cash Flows, sets out requirements for the presentation of cash flow information.
48. This Standard sometimes uses the term 'disclosure' in a broad sense, encompassing items presented in the financial statements. Disclosures are also required by other Ind ASs. Unless specified to the contrary elsewhere in this Standard or in another Ind AS, such disclosures may be made in the financial statements.
Identification of the financial statements49. An entity shall clearly identify the financial statements and distinguish them from other information in the same published document.
50. Ind ASs apply only to financial statements, and not necessarily to other information presented in an annual report, a regulatory filing, or another document. Therefore, it is important that users can distinguish information that is prepared using Ind ASs from other information that may be useful to users but is not the subject of those requirements.
51. An entity shall clearly identify each financial statement and the notes. In addition, an entity shall display the following information prominently, and repeat it when necessary for the information presented to be understandable:
52. An entity meets the requirements in paragraph 51 by presenting appropriate headings for pages, statements, notes, columns and the like. Judgement is required in determining the best way of presenting such information. For example, when an entity presents the financial statements electronically, separate pages are not always used; an entity then presents the above items to ensure that the information included in the financial statements can be understood.
53. An entity often makes financial statements more understandable by presenting information in thousands, lakhs, millions or crores of units of the presentation currency. This is acceptable as long as the entity discloses the level of rounding and does not omit material information.
Balance SheetInformation to be presented in the balance sheet54. [ The balance sheet shall include line items that present the following amounts:] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
55. [ An entity shall present additional line items (including by disaggregating the line items listed in paragraph 54), headings and subtotals in the balance sheet when such presentation is relevant to an understanding of the entity's financial position.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
55A. [ When an entity presents subtotals in accordance with paragraph 55, those subtotals shall:
56. When an entity presents current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet, it shall not classify deferred tax assets (liabilities) as current assets (liabilities). [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
57. This Standard does not prescribe the order or format in which an entity presents items. Paragraph 54 simply lists items that are sufficiently different in nature or function to warrant separate presentation in the balance sheet. In addition:
58. An entity makes the judgement about whether to present additional items separately on the basis of an assessment of:
59. The use of different measurement bases for different classes of assets suggests that their nature or function differs and, therefore, that an entity presents them as separate line items. For example, different classes of property, plant and equipment can be carried at cost or at revalued amounts in accordance with Ind AS 16.
Current/non-current distinction60. An entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications in its balance sheet in accordance with paragraphs 66-76 except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, an entity shall present all assets and liabilities in order of liquidity.
61. Whichever method of presentation is adopted, an entity shall disclose the amount expected to be recovered or settled after more than twelve months for each asset and liability line item that combines amounts expected to be recovered or settled:
62. When an entity supplies goods or services within a clearly identifiable operating cycle, separate classification of current and non-current assets and liabilities in the balance sheet provides useful information by distinguishing the net assets that are continuously circulating as working capital from those used in the entity's long-term operations. It also highlights assets that are expected to be realised within the current operating cycle, and liabilities that are due for settlement within the same period.
63. For some entities, such as financial institutions, a presentation of assets and liabilities in increasing or decreasing order of liquidity provides information that is reliable and more relevant than a current/non-current presentation because the entity does not supply goods or services within a clearly identifiable operating cycle.
64. In applying paragraph 60, an entity is permitted to present some of its assets and liabilities using a current/non-current classification and others in order of liquidity when this provides information that is reliable and more relevant. The need for a mixed basis of presentation might arise when an entity has diverse operations.
65. Information about expected dates of realisation of assets and liabilities is useful in assessing the liquidity and solvency of an entity. Ind AS 107, Financial Instruments: Disclosures, requires disclosure of the maturity dates of financial assets and financial liabilities. Financial assets include trade and other receivables, and financial liabilities include trade and other payables. Information on the expected date of recovery of non-monetary assets such as inventories and expected date of settlement for liabilities such as provisions is also useful, whether assets and liabilities are classified as current or as non-current. For example, an entity discloses the amount of inventories that are expected to be recovered more than twelve months after the reporting period.
Current assets66. An entity shall classify an asset as current when:
67. This Standard uses the term 'non-current' to include tangible, intangible and financial assets of a long-term nature. It does not prohibit the use of alternative descriptions as long as the meaning is clear.
68. The operating cycle of an entity is the time between the acquisition of assets for processing and their realisation in cash or cash equivalents. When the entity's normal operating cycle is not clearly identifiable, it is assumed to be twelve months. Current assets include assets (such as inventories and trade receivables) that are sold, consumed or realised as part of the normal operating cycle even when they are not expected to be realised within twelve months after the reporting period. Current assets also include assets held primarily for the purpose of trading (examples include some financial assets that meet the definition of held for trading in Ind AS 109) and the current portion of non-current financial assets.
Current liabilities69. An entity shall classify a liability as current when:
70. Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in the entity's normal operating cycle. An entity classifies such operating items as current liabilities even if they are due to be settled more than twelve months after the reporting period. The same normal operating cycle applies to the classification of an entity's assets and liabilities. When the entity's normal operating cycle is not clearly identifiable, it is assumed to be twelve months.
71. Other current liabilities are not settled as part of the normal operating cycle, but are due for settlement within twelve months after the reporting period or held primarily for the purpose of trading. Examples are some financial liabilities that meet the definition of held for trading in Ind AS 109, bank overdrafts, and the current portion of non-current financial liabilities, dividends payable, income taxes and other non-trade payables. Financial liabilities that provide financing on a long-term basis (i.e. are not part of the working capital used in the entity's normal operating cycle) and are not due for settlement within twelve months after the reporting period are non-current liabilities, subject to paragraphs 74 and 75.
72. An entity classifies its financial liabilities as current when they are due to be settled within twelve months after the reporting period, even if:
73. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility, it classifies the obligation as non-current, even if it would otherwise be due within a shorter period. However, when refinancing or rolling over the obligation is not at the discretion of the entity (for example, there is no arrangement for refinancing), the entity does not consider the potential to refinance the obligation and classifies the obligation as current.
74. Where there is a breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, the entity does not classify the liability as current, if the lender agreed, after the reporting period and before the approval of the financial statements for issue, not to demand payment as a consequence of the breach.
75. However, an entity classifies the liability as non-current if the lender agreed by the end of the reporting period to provide a period of grace ending at least twelve months after the reporting period, within which the entity can rectify the breach and during which the lender cannot demand immediate repayment.
76. [Refer Appendix 1]
Information to be presented either in the balance sheet or in the notes77. An entity shall disclose, either in the balance sheet or in the notes, further sub-classifications of the line items presented, classified in a manner appropriate to the entity's operations.
78. The detail provided in sub-classifications depends on the requirements of Ind ASs and on the size, nature and function of the amounts involved. An entity also uses the factors set out in paragraph 58 to decide the basis of subclassification. The disclosures vary for each item, for example:
79. An entity shall disclose the following, either in the balance sheet or the statement of changes in equity, or in the notes:
80. An entity whose capital is not limited by shares e.g., a company limited by guarantee, shall disclose information equivalent to that required by paragraph 79(a), showing changes during the period in each category of equity interest, and the rights, preferences and restrictions attaching to each category of equity interest.
80A. If an entity has reclassified
81. [Refer Appendix 1]
81A. The statement of profit and loss shall present, in addition to the profit or loss and other comprehensive income sections:
81B. An entity shall present the following items, in addition to the profit or loss and other comprehensive income sections, as allocation of profit or loss and other comprehensive income for the period:
82. In addition to items required by other Ind ASs, the profit or loss section of the statement of profit and loss shall include line items that present the following amounts for the period:
82A. [ The other comprehensive income section shall present line items for the amounts for the period of:
83. [Refer Appendix 1]
84. [Refer Appendix 1]
85. [ An entity shall present additional line items (including by disaggregating the line items listed in paragraph 82), headings and subtotals in the statement of profit and loss, when such presentation is relevant to an understanding of the entity's financial performance.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
85A. [ When an entity presents subtotals in accordance with paragraph 85, those subtotals shall:
85B. An entity shall present the line items in the statement of profit and loss that reconcile any subtotals presented in accordance with paragraph 85 with the subtotals or totals required in Ind AS for such statement.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
86. Because the effects of an entity's various activities, transactions and other events differ in frequency, potential for gain or loss and predictability, disclosing the components of financial performance assists users in understanding the financial performance achieved and in making projections of future financial performance. An entity includes additional line items in the statement of profit and loss, and it amends the descriptions used and the ordering of items when this is necessary to explain the elements of financial performance. An entity considers factors including materiality and the nature and function of the items of income and expense. For example, a financial institution may amend the descriptions to provide information that is relevant to the operations of a financial institution. An entity does not offset income and expense items unless the criteria in paragraph 32 are met.
87. An entity shall not present any items of income or expense as extraordinary items, in the statement of profit and loss or in the notes.
Profit or loss for the period88. An entity shall recognise all items of income and expense in a period in profit or loss unless an Ind AS requires or permits otherwise.
89. Some Ind ASs specify circumstances when an entity recognises particular items outside profit or loss in the current period. Ind AS 8 specifies two such circumstances: the correction of errors and the effect of changes in accounting policies. Other Ind ASs require or permit components of other comprehensive income that meet the Framework's definition of income or expense to be excluded from profit or loss (see paragraph 7).
Other comprehensive income for the period90. An entity shall disclose the amount of income tax relating to each item of other comprehensive income, including reclassification adjustments, either in the statement of profit and loss or in the notes.
91. An entity may present items of other comprehensive income either:
92. An entity shall disclose reclassification adjustments relating to components of other comprehensive income.
93. Other Ind ASs specify whether and when amounts previously recognized in other comprehensive income are reclassified to profit or loss. Such reclassifications are referred to in this Standard as reclassification adjustments. A reclassification adjustment is included with the related component of other comprehensive income in the period that the adjustment is reclassified to profit or loss. These amounts may have been recognized in other comprehensive income as unrealised gains in the current or previous periods. Those unrealised gains must be deducted from other comprehensive income in the period in which the realised gains are reclassified to profit or loss to avoid including them in total comprehensive income twice.
94. An entity may present reclassification adjustments in the statement of profit and loss or in the notes. An entity presenting reclassification adjustments in the notes presents the items of other comprehensive income after any related reclassification adjustments.
95. Reclassification adjustments arise, for example, on disposal of a foreign operation (see Ind AS 21) and when some hedged forecast cash flow affect profit or loss (see paragraph 6.5.11(d) of Ind AS109 in relation to cash flow hedges).
96. Reclassification adjustments do not arise on changes in revaluation surplus recognized in accordance with Ind AS 16 or Ind AS 38 or on reameasurements of defined benefit plans recognized in accordance with Ind AS 19. These components are recognized in other comprehensive income and are not reclassified to profit or loss in subsequent periods. Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognized (see Ind AS 16 and Ind AS 38). In accordance with Ind AS 109, reclassification adjustments do not arise if a cash flow hedge or the accounting for the time value of an option (or the forward element of a forward contract or the foreign currency basis spread of a financial instrument) result in amounts that are removed from the cash flow hedge reserve or a separate component of equity, respectively, and included directly in the initial cost or other carrying amount of an asset or a liability. These amounts are directly transferred to assets or liabilities.
Information to be presented in the statement of profit and loss or in the notes97. When items of income or expense are material, an entity shall disclose their nature and amount separately.
98. Circumstances that would give rise to the separate disclosure of items of income and expense include:
99. An entity shall present an analysis of expenses recognized in profit or loss using a classification based on the nature of expense method.
100. Entities are encouraged to present the analysis in paragraph 99 in the statement of profit and loss.
101. Expenses are subclassified to highlight components of financial performance that may differ in terms of frequency, potential for gain or loss and predictability. This analysis is provided in the form as described in paragraph 102.
102. In the analysis based on the 'nature of expense' method, an entity aggregates expenses within profit or loss according to their nature (for example, depreciation, purchases of materials, transport costs, employee benefits and advertising costs), and does not reallocate them among functions within the entity. This method is simple to apply because no allocations of expenses to functional classifications are necessary. An example of a classification using the nature of expense method is as follows:
| Revenue | X |
| Other income | X |
| Changes in inventories of finished goods and work in progress | X |
| Raw materials and consumables used | X |
| Employee benefits expense | X |
| Depreciation and amortisation expense | X |
| Other expenses | X |
| Total expenses | (X) |
| Profit before tax | X |
103. [Refer Appendix 1]
104. [Refer Appendix 1]
105. [Refer Appendix 1]
Statement of changes in equityInformation to be presented in the statement of changes in equity106. An entity shall present a statement of changes in equity as required by paragraph 10. The statement of changes in equity includes the following information:
106A. For each component of equity an entity shall present, either in the statement of changes in equity or in the notes, an analysis of other comprehensive income by item (see paragraph 106 (d) (ii)).
107. An entity shall present, either in the statement of changes in equity or in the notes, the amount of dividends recognized as distributions to owners during the period, and the related amount of dividends per share.
108. In paragraph 106, the components of equity include, for example, each class of contributed equity, the accumulated balance of each class of other comprehensive income and retained earnings.
109. Changes in an entity's equity between the beginning and the end of the reporting period reflect the increase or decrease in its net assets during the period. Except for changes resulting from transactions with owners in their capacity as owners (such as equity contributions, reacquisitions of the entity's own equity instruments and dividends) and transaction costs directly related to such transactions, the overall change in equity during a period represents the total amount of income and expense, including gains and losses, generated by the entity's activities during that period.
110. Ind AS 8 requires retrospective adjustments to effect changes in accounting policies, to the extent practicable, except when the transition provisions in another Ind AS require otherwise. Ind AS 8 also requires restatements to correct errors to be made retrospectively, to the extent practicable. Retrospective adjustments and retrospective restatements are not changes in equity but they are adjustments to the opening balance of retained earnings, except when an Ind AS requires retrospective adjustment of another component of equity. Paragraph 106(b) requires disclosure in the statement of changes in equity of the total adjustment to each component of equity resulting from changes in accounting policies and, separately, from corrections of errors. These adjustments are disclosed for each prior period and the beginning of the period.
Statement of cash flows111. Cash flow information provides users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. Ind AS 7 sets out requirements for the presentation and disclosure of cash flow information.
NotesStructure112. The notes shall:
113. [ An entity shall present notes in a systematic manner. In determining a systematic manner, the entity shall consider the effect on the understandability and comparability of its financial statements. An entity shall cross-reference each item in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows to any related information in the notes. [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
114. Examples of systematic ordering or grouping of the notes include:
(a)giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities;(b)grouping together information about items measured similarly such as assets measured at fair value; or(c)following the order of the line items in the statement of profit and loss and the balance sheet, such as:(i)statement of compliance with Ind ASs (see paragraph 16);(ii)significant accounting policies applied (see paragraph 117);(iii)supporting information for items presented in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows, in the order in which each statement and each line item is presented; and(iv)other disclosures, including:116. An entity may present notes providing information about the basis of preparation of the financial statements and specific accounting policies as a separate section of the financial statements.
Disclosure of accounting policies117. [ An entity shall disclose its significant accounting policies comprising:
118. It is important for an entity to inform users of the measurement basis or bases used in the financial statements (for example, historical cost, current cost, net realisable value, fair value or recoverable amount) because the basis on which an entity prepares the financial statements significantly affects users' analysis. When an entity uses more than one measurement basis in the financial statements, for example when particular classes of assets are revalued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied.
119. [ In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in reported financial performance and financial position. Each entity considers the nature of its operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in Ind ASs. An example is disclosure of a regular way purchase or sale of financial assets using either trade date accounting or settlement date accounting (see Ind AS 109, Financial Instruments). Some Ind ASs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, Ind AS 16 requires disclosure of the measurement bases used for classes of property, plant and equipment.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
[Refer Appendix 1] [Omitted '120. Each entity considers the nature of its operations and the policies that the users of its financial statements would expect to be disclosed for that type of entity. For example, users would expect an entity subject to income taxes to disclose its accounting policies for income taxes, including those applicable to deferred tax liabilities and assets. When an entity has significant foreign operations or transactions in foreign currencies, users would expect disclosure of accounting policies for the recognition of foreign exchange gains and losses.' by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]121. An accounting policy may be significant because of the nature of the entity's operations even if amounts for current and prior periods are not material. It is also appropriate to disclose each significant accounting policy that is not specifically required by Ind ASs but the entity selects and applies in accordance with Ind AS 8.
122. [ An entity shall disclose, along with its significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity's accounting policies and that have the most significant effect on the amounts recognized in the financial statements.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
123. In the process of applying the entity's accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements. For example, management makes judgements in determining:
124. Some of the disclosures made in accordance with paragraph 122 are required by other Ind ASs. For example, Ind AS 112, Disclosure of Interests in Other Entities, requires an entity to disclose the judgements it has made in determining whether it controls another entity. Ind AS 40, Investment Property, requires disclosure of the criteria developed by the entity to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of business, when classification of the property is difficult.
Sources of estimation uncertainty125. An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
126. Determining the carrying amounts of some assets and liabilities requires estimation of the effects of uncertain future events on those assets and liabilities at the end of the reporting period. For example, in the absence of recently observed market prices, future-oriented estimates are necessary to measure the recoverable amount of classes of property, plant and equipment, the effect of technological obsolescence on inventories, provisions subject to the future outcome of litigation in progress, and long-term employee benefit liabilities such as pension obligations. These estimates involve assumptions about such items as the risk adjustment to cash flows or discount rates, future changes in salaries and future changes in prices affecting other costs.
127. The assumptions and other sources of estimation uncertainty disclosed in accordance with paragraph 125 relate to the estimates that require management's most difficult, subjective or complex judgements. As the number of variables and assumptions affecting the possible future resolution of the uncertainties increases, those judgements become more subjective and complex, and the potential for a consequential material adjustment to the carrying amounts of assets and liabilities normally increases accordingly.
128. The disclosures in paragraph 125 are not required for assets and liabilities with a significant risk that their carrying amounts might change materially within the next financial year if, at the end of the reporting period, they are measured at fair value based on a quoted price in an active market for an identical asset or liability. Such fair values might change materially within the next financial year but these changes would not arise from assumptions or other sources of estimation uncertainty at the end of the reporting period.
129. An entity presents the disclosures in paragraph 125 in a manner that helps users of financial statements to understand the judgements that management makes about the future and about other sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures an entity makes are:
130. This Standard does not require an entity to disclose budget information or forecasts in making the disclosures in paragraph 125.
131. Sometimes it is impracticable to disclose the extent of the possible effects of an assumption or another source of estimation uncertainty at the end of the reporting period. In such cases, the entity discloses that it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from the assumption could require a material adjustment to the carrying amount of the asset or liability affected. In all cases, the entity discloses the nature and carrying amount of the specific asset or liability (or class of assets or liabilities) affected by the assumption.
132. The disclosures in paragraph 122 of particular judgements that management made in the process of applying the entity's accounting policies do not relate to the disclosures of sources of estimation uncertainty in paragraph 125.
133. Other Ind ASs require the disclosure of some of the assumptions that would otherwise be required in accordance with paragraph 125. For example, Ind AS 37 requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. Ind AS 113, Fair Value Measurement, requires disclosure of significant assumptions (including the valuation technique(s) and inputs) the entity uses when measuring the fair values of assets and liabilities that are carried at fair value.
Capital134. An entity shall disclose information that enables users of its financial statements to evaluate the entity's objectives, policies and processes for managing capital.
135. To comply with paragraph 134, the entity discloses the following:
136. An entity may manage capital in a number of ways and be subject to a number of different capital requirements. For example, a conglomerate may include entities that undertake insurance activities and banking activities and those entities may operate in several jurisdictions. When an aggregate disclosure of capital requirements and how capital is managed would not provide useful information or distorts a financial statement user's understanding of an entity's capital resources, the entity shall disclose separate information for each capital requirement to which the entity is subject.
Puttable financial instruments classified as equity136A. For puttable financial instruments classified as equity instruments, an entity shall disclose (to the extent not disclosed elsewhere):
137. An entity shall disclose in the notes:
138. An entity shall disclose the following, if not disclosed elsewhere in information published with the financial statements:
139. *
139A. *
139B. *
139C. *
139D. *
139E. *
139F. *
139G. *
139H. *
139I. *
139J. *
139K. *
139L. *
139M. *
139N. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph 34 is amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[139 O-139P Omitted *139Q. Ind AS 116, Leases, amended paragraph 123. An entity shall apply that amendment when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
*Refer Appendix 1Appendix AReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the different appendices which are the part of other Indian Accounting Standards and make reference to Ind AS 1.1. Appendix A, Distributions of Non-cash Assets to Owners, contained in Ind AS 10, Events after the Reporting Period.
2. Appendix A, Changes in Existing Decommissioning, Restoration and Similar Liabilities, contained in Ind AS 16, Property, Plant and Equipment.
3. Appendix B, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, contained in Ind AS 19, Employee Benefits.
4. Appendix A, Intangible Assets-Web Site Costs, contained in Ind AS 38, Intangible Assets.
5. Appendix D, Extinguishing Financial Liabilities with Equity Instruments contained in Ind AS 109, Financial Instruments.
6. Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
7. Appendix B, Stripping Costs in the Production Phase of a Surface Mine, contained in Ind AS 16, Property, Plant and Equipment.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 1 and the corresponding International Accounting Standard (IAS) 1, Presentation of Financial Statements, issued by the International Accounting Standards Board.Comparison with IAS 1, Presentation of Financial Statements1. With regard to preparation of Statement of profit and loss, International Accounting Standard (IAS) 1, Presentation of Financial Statements, provides an option either to follow the single statement approach or to follow the two statement approach. Paragraph 10A of IAS 1 provides that an entity may present a single statement of profit or loss and other comprehensive income, with profit or loss and other comprehensive income presented in two sections or an entity may present the profit or loss section in a separate statement of profit or loss which shall immediately precede the statement presenting comprehensive income, which shall begin with profit or loss. Ind AS 1 allows only the single statement approach. Accordingly paragraph 10A has been modified.
2. Different terminology is used in Ind AS 1 e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of Profit and Loss' is used instead of 'Statement of profit and loss and other comprehensive income'. The words 'approval of the financial statements for issue' have been used instead of 'authorisation of the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period. The words 'true and fair view' have been used instead of 'fair presentation'.
3. Paragraph 8 of IAS 1 gives the option to individual entities to follow different terminology for the titles of financial statements. Ind AS 1 is changed to remove alternatives by giving one terminology to be used by all entities. However, paragraph number 8 has been retained in Ind AS 1 to maintain consistency with paragraph numbers of IAS 1. Similar changes has been made in paragraph 10 also.
4. Paragraph 37 of IAS 1 permits the periodicity, for example, of 52 weeks for preparation of financial statements. As Ind AS 1 does not permit it, the same is deleted. However, paragraph number 37 has been retained in Ind AS 1 to maintain consistency with paragraph numbers of IAS 1.
5. Paragraph 99 of IAS 1 requires an entity to present an analysis of expenses recognized in profit or loss using a classification based on either their nature or their function within the equity. Ind AS 1 requires only naturewise classification of expenses. In IAS 1 the following paragraphs are with reference to function-wise classification of expense. In order to maintain consistency with paragraph numbers of IAS 1, the paragraph numbers are retained in Ind AS 1:
6. [ Following paragraph numbers appear as 'Deleted' in IAS 1. In order to maintain consistency with paragraph numbers of IAS 1, the paragraph numbers are retained in Ind AS 1.
7. Paragraph 29 and 31 dealing with materiality and aggregation has been modified to include words 'except when required by law'.
8. Paragraph 106(d)(iv) of Ind AS 1 dealing with disclosures regarding reconciliation between the carrying amount at the beginning and the end of the period for each component of equity, has been amended to include disclosure regarding recognition of bargain purchase gain arising on business combination in line with treatment prescribed in this regard in Ind AS 103.
9. Paragraph 74 has been modified to clarify that long term loan arrangement need not be classified as current on account of breach of a material provision, for which the lender has agreed to waive before the approval of financial statements for issue. Consequential to this Paragraph 76 has been deleted.
10. [ Paragraphs 139 to 139M and 139O-139P related to Transition and Effective Date have not been included in Ind AS 1 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 1, these paragraph numbers are retained in Ind AS 1.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 2Inventories(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles.)Objective1. The objective of 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 realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.
Scope2. This Standard applies to all inventories, except:
[***] [Omitted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]3. This Standard does not apply to the measurement of inventories held by:
4. The inventories referred to in paragraph 3(a) are measured at net realisable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or minerals have been extracted and sale is assured under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of failure to sell. These inventories are excluded from only the measurement requirements of this Standard.
5. Broker-traders are those who buy or sell commodities for others or on their own account. The inventories referred to in paragraph 3(b) are principally acquired with the purpose of selling in the near future and generating a profit from fluctuations in price or broker-traders' margin. When these inventories are measured at fair value less costs to sell, they are excluded from only the measurement requirements of this Standard.
Definitions6. The following terms are used in this Standard with the meanings specified:
Inventories are assets:7. Net realisable value refers to the net amount that an entity expects to realise from the sale of inventory in the ordinary course of business. Fair value reflects the price at which an orderly transaction to sell the same inventory in the principal (or most advantageous) market for that inventory would take place between market participants at the measurement date. The former is an entity-specific value; the latter is not. Net realisable value for inventories may not equal fair value less costs to sell.
8. [ Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity and include materials and supplies awaiting use in the production process. Costs incurred to fulfil a contract with a customer that do not give rise to inventories (or assets within the scope of another Standard) are accounted for in accordance with Ind AS 115, Revenue from Contracts with Customers.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Measurement of inventories9. Inventories shall be measured at the lower of cost and net realisable value.
Cost of inventories10. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Costs of purchase11. The costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.
Costs of conversion12. [ The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings, equipment and right-of-use assets used in the production process, and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
13. The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed overhead allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognized as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed overhead allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are allocated to each unit of production on the basis of the actual use of the production facilities.
14. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost.
Other costs15. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include non-production overheads or the costs of designing products for specific customers in the cost of inventories.
16. Examples of costs excluded from the cost of inventories and recognized as expenses in the period in which they are incurred are:
17. Ind AS 23, Borrowing Costs, identifies limited circumstances where borrowing costs are included in the cost of inventories.
18. An entity may purchase inventories on deferred settlement terms. When the arrangement effectively contains a financing element, that element, for example a difference between the purchase price for normal credit terms and the amount paid, is recognized as interest expense over the period of the financing.
Cost of inventories of a service provider19. [***] [Omitted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Cost of agricultural produce harvested from biological assets20. In accordance with Ind AS 41, Agriculture, inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their fair value less costs to sell at the point of harvest. This is the cost of the inventories at that date for application of this Standard.
Techniques for the measurement of cost21. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate cost. Standard costs take into account normal levels of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions.
22. The retail method is often used in the retail industry for measuring inventories of large numbers of rapidly changing items with similar margins for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing the sales value of the inventory by the appropriate percentage gross margin. The percentage used takes into consideration inventory that has been marked down to below its original selling price. An average percentage for each retail department is often used.
Cost Formulas23. [ The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects shall be assigned by using specific identification of their individual costs.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
24. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is the appropriate treatment for items that are segregated for a specific project, regardless of whether they have been bought or produced. However, specific identification of costs is inappropriate when there are large numbers of items of inventory that are ordinarily interchangeable. In such circumstances, the method of selecting those items that remain in inventories could be used to obtain predetermined effects on profit or loss.
25. The cost of inventories, other than those dealt with in paragraph 23, shall be assigned by using the firstin, first-out (FIFO) or weighted average cost formula. An entity shall use the same cost formula for all inventories having a similar nature and use to the entity. For inventories with a different nature or use, different cost formulas may be justified.
26. For example, inventories used in one operating segment may have a use to the entity different from the same type of inventories used in another operating segment. However, a difference in geographical location of inventories (or in the respective tax rules), by itself, is not sufficient to justify the use of different cost formulas.
27. The FIFO formula assumes that the items of inventory that were purchased or produced first are sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the entity.
Net realisable value28. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs to be incurred to make the sale have increased. The practice of writing inventories down below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use.
29. [ Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write inventories down on the basis of a classification of inventory, for example, finished goods, or all the inventories in a particular operating segment.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
30. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made, of the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the end of the period to the extent that such events confirm conditions existing at the end of the period.
31. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess is based on general selling prices. Provisions may arise from firm sales contracts in excess of inventory quantities held or from firm purchase contracts. Such provisions are dealt with under Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
32. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when a decline in the price of materials indicates that the cost of the finished products exceeds net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value.
33. A new assessment is made of net realisable value in each subsequent period. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down is reversed (i.e. the reversal is limited to the amount of the original write-down) so that the new carrying amount is the lower of the cost and the revised net realisable value. This occurs, for example, when an item of inventory that is carried at net realisable value, because its selling price has declined, is still on hand in a subsequent period and its selling price has increased.
Recognition as an expense34. When inventories are sold, the carrying amount of those inventories shall be recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realisable value and all losses of inventories shall be recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, shall be recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.
35. Some inventories may be allocated to other asset accounts, for example, inventory used as a component of self-constructed property, plant or equipment. Inventories allocated to another asset in this way are recognized as an expense during the useful life of that asset.
Disclosure36. The financial statements shall disclose:
37. [ 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.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
38. [Refer Appendix 1]
39. An entity adopts a format for profit or loss that results in amounts being disclosed other than the cost of inventories recognized 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 recognized 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.
[Effective Date40. *
40A. *
40B. *
40C. *
40D. *
40E. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 2, 8, 29, 37 are amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[40F Omitted *40G. Ind AS 116 amended paragraph 12. An entity shall apply that amendment when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix AReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference to Ind AS 2, Inventories.1. Appendix A, Intangible Assets-Web site Costs, contained in Ind AS 38, Intangible Assets.
2. Appendix B, Stripping Costs in the Production Phase of a Surface Mine, contained in Ind AS 16, Property, Plant and Equipment.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 2 and the corresponding International Accounting Standard (IAS) 2, Inventories, issued by the International Accounting Standards Board.Comparison with IAS 2, Inventories1. Paragraph 38 of IAS 2 dealing with recognition of inventories as an expense based on function-wise classification, has been deleted keeping in view the fact that option provided in IAS 1 to present an analysis of expenses recognized in profit or loss using a classification based on their function within the entity has been removed and Ind AS 1 requires only nature-wise classification of expenses. However, in order to maintain consistency with paragraph numbers of IAS 2, the paragraph number is retained in Ind AS 2.
2. [ Following paragraph numbers appear as `Deleted' in IAS 2.. In order to maintain consistency with paragraph numbers of IAS 2, the paragraph numbers are retained in Ind AS 2:
3. [ Paragraphs 40-40D and 40F related to effective date have not been included in Ind AS 2 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 2, these paragraph numbers are retained in Ind AS 2.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 7Statement of Cash Flows(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)ObjectiveInformation about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation.The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities.Scope1. An entity shall prepare a statement of cash flows in accordance with the requirements of this Standard and shall present it as an integral part of its financial statements for each period for which financial statements are presented.
2. [Refer Appendix 1]
3. Users of an entity's financial statements are interested in how the entity generates and uses cash and cash equivalents. This is the case regardless of the nature of the entity's activities and irrespective of whether cash can be viewed as the product of the entity, as may be the case with a financial institution. Entities need cash for essentially the same reasons however different their principal revenue-producing activities might be. They need cash to conduct their operations, to pay their obligations, and to provide returns to their investors. Accordingly, this Standard requires all entities to present a statement of cash flows.
Benefits of cash flow information4. A statement of cash flows, when used in conjunction with the rest of the financial statements, provides information that enables users to evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities. Cash flow information is useful in assessing the ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities. It also enhances the comparability of the reporting of operating performance by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events.
5. Historical cash flow information is often used as an indicator of the amount, timing and certainty of future cash flows. It is also useful in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.
Definitions6. The following terms are used in this Standard with the meanings specified:
Cash comprises cash on hand and demand deposits.Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.Cash flows are inflows and outflows of cash and cash equivalents.Operating activities are the principal revenue-producing activities of the entity and other activities that are not investing or financing activities.Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.Cash and cash equivalents7. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preference shares acquired within a short period of their maturity and with a specified redemption date.
8. 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.
9. Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an entity rather than part of its operating, investing and financing activities. Cash management includes the investment of excess cash in cash equivalents.
Presentation of a statement of cash flows10. The statement of cash flows shall report cash flows during the period classified by operating, investing and financing activities.
11. An entity presents its cash flows from operating, investing and financing activities in a manner which is most appropriate to its business. Classification by activity provides information that allows users to assess the impact of those activities on the financial position of the entity and the amount of its cash and cash equivalents. This information may also be used to evaluate the relationships among those activities.
12. A single transaction may include cash flows that are classified differently. For example, when the instalment paid in respect of an item of Property, Plant and Equipment acquired on deferred payment basis includes interest, the interest element is classified under financing activities and the loan element is classified under investing activities.
Operating activities13. The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the entity have generated sufficient cash flows to repay loans, maintain the operating capability of the entity, pay dividends and make new investments without recourse to external sources of financing. Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.
14. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. Therefore, they generally result from the transactions and other events that enter into the determination of profit or loss. Examples of cash flows from operating activities are:
15. An entity may hold securities and loans for dealing or trading purposes, in which case they are similar to inventory acquired specifically for resale. Therefore, cash flows arising from the purchase and sale of dealing or trading securities are classified as operating activities. Similarly, cash advances and loans made by financial institutions are usually classified as operating activities since they relate to the main revenue producing activity of that entity.
Investing activities16. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Only expenditures that result in a recognized asset in the balance sheet are eligible for classification as investing activities. Examples of cash flows arising from investing activities are:
17. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the entity. Examples of cash flows arising from financing activities are:
18. An entity shall report cash flows from operating activities using either:
19. Entities are encouraged to report cash flows from operating activities using the direct method. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method. Under the direct method, information about major classes of gross cash receipts and gross cash payments may be obtained either:
20. Under the indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of:
21. An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows described in paragraphs 22 and 24 are reported on a net basis.
Reporting cash flows on a net basis22. Cash flows arising from the following operating, investing or financing activities may be reported on a net basis:
23. Examples of cash receipts and payments referred to in paragraph 22(a) are:
23A. Examples of cash receipts and payments referred to in paragraph 22(b) are advances made for, and the repayment of:
24. Cash flows arising from each of the following activities of a financial institution may be reported on a net basis:
25. Cash flows arising from transactions in a foreign currency shall be recorded in an entity's functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow.
26. The cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional currency and the foreign currency at the dates of the cash flows.
27. Cash flows denominated in a foreign currency are reported in a manner consistent with Ind AS 21, The Effects of Changes in Foreign Exchange Rates. This permits the use of an exchange rate that approximates the actual rate. For example, a weighted average exchange rate for a period may be used for recording foreign currency transactions or the translation of the cash flows of a foreign subsidiary. However, Ind AS 21 does not permit use of the exchange rate at the end of the reporting period when translating the cash flows of a foreign subsidiary.
28. Unrealised gains and losses arising from changes in foreign currency exchange rates are not cash flows. However, the effect of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the statement of cash flows in order to reconcile cash and cash equivalents at the beginning and the end of the period. This amount is presented separately from cash flows from operating, investing and financing activities and includes the differences, if any, had those cash flows been reported at end of period exchange rates.
29. [Refer Appendix 1]
30. [Refer Appendix 1]
Interest and dividends31. Cash flows from interest and dividends received and paid shall each be disclosed separately. Cash flows arising from interest paid and interest and dividends received in the case of a financial institution should be classified as cash flows arising from operating activities. In the case of other entities, cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing activities. Dividends paid should be classified as cash flows from financing activities.
32. The total amount of interest paid during a period is disclosed in the statement of cash flows whether it has been recognized as an expense in profit or loss or capitalised in accordance with Ind AS 23, Borrowing Costs.
33. Interest paid and interest and dividends received are usually classified as operating cash flows for a financial institution. However, there is no consensus on the classification of these cash flows for other entities. Some argue that interest paid and interest and dividends received may be classified as operating cash flows because they enter into the determination of profit or loss. However, it is more appropriate that interest paid and interest and dividends received are classified as financing cash flows and investing cash flows respectively, because they are costs of obtaining financial resources or returns on investments.
34. Some argue that dividends paid may be classified as a component of cash flows from operating activities in order to assist users to determine the ability of an entity to pay dividends out of operating cash flows. However, it is considered more appropriate that dividends paid should be classified as cash flows from financing activities because they are cost of obtaining financial resources.
Taxes on income35. Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.
36. Taxes on income arise on transactions that give rise to cash flows that are classified as operating, investing or financing activities in a statement of cash flows. While tax expense may be readily identifiable with investing or financing activities, the related tax cash flows are often impracticable to identify and may arise in a different period from the cash flows of the underlying transaction. Therefore, taxes paid are usually classified as cash flows from operating activities. However, when it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or financing activities the tax cash flow is classified as an investing or financing activity as appropriate. When tax cash flows are allocated over more than one class of activity, the total amount of taxes paid is disclosed.
Investments in subsidiaries, associates and joint ventures37. When accounting for an investment in an associate, a joint venture or a subsidiary accounted for by use of the equity or cost method, an investor restricts its reporting in the statement of cash flows to the cash flows between itself and the investee, for example, to dividends and advances.
38. An entity that reports its interest in an associate or a joint venture using the equity method includes in its statement of cash flows the cash flows in respect of its investments in the associate or joint venture, and distributions and other payments or receipts between it and the associate or joint venture.
Changes in ownership interests in subsidiaries and other businesses39. The aggregate cash flows arising from obtaining or losing control of subsidiaries or other businesses shall be presented separately and classified as investing activities.
40. An entity shall disclose, in aggregate, in respect of both obtaining and losing control of subsidiaries or other businesses during the period each of the following:
40A. An investment entity, as defined in Ind AS 110, Consolidated Financial Statements, need not apply paragraphs 40(c) or 40(d) to an investment in a subsidiary that is required to be measured at fair value through profit or loss.
41. The separate presentation of the cash flow effects of obtaining or losing control of subsidiaries or other businesses as single line items, together with the separate disclosure of the amounts of assets and liabilities acquired or disposed of, helps to distinguish those cash flows from the cash flows arising from the other operating, investing and financing activities. The cash flow effects of losing control are not deducted from those of obtaining control.
42. 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.
42A. 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 , unless the subsidiary is held by an investment entity, as defined in Ind AS 110, and is required to be measured at fair value through profit or loss.
42B. 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 110), unless the subsidiary is held by an investment entity and is required to be measured at fair value through profit or loss. Accordingly, the resulting cash flows are classified in the same way as other transactions with owners described in paragraph 17.
Non-cash transactions43. Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.
44. Many investing and financing activities do not have a direct impact on current cash flows although they do affect the capital and asset structure of an entity. The exclusion of non-cash transactions from the statement of cash flows is consistent with the objective of a statement of cash flows as these items do not involve cash flows in the current period. Examples of non-cash transactions are:
44A. An entity shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.
44B. To the extent necessary to satisfy the requirement in paragraph 44A, an entity shall disclose the following changes in liabilities arising from financing activities:
44C. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities. In addition, the disclosure requirement in paragraph 44A also applies to changes in financial assets (for example, assets that hedge liabilities arising from financing activities) if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.
44D. One way to fulfil the disclosure requirement in paragraph 44A is by providing a reconciliation between the opening and closing balances in the balance sheet for liabilities arising from financing activities, including the changes identified in paragraph 44B. Where an entity discloses such a reconciliation, it shall provide sufficient information to enable users of the financial statements to link items included in the reconciliation to the balance sheet and the statement of cash flows.
44E. If an entity provides the disclosure required by paragraph 44A in combination with disclosures of changes in other assets and liabilities, it shall disclose the changes in liabilities arising from financing activities separately from changes in those other assets and liabilities.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Components of cash and cash equivalents45. An entity shall disclose the components of cash and cash equivalents and shall present a reconciliation of the amounts in its statement of cash flows with the equivalent items reported in the balance sheet.
46. In view of the variety of cash management practices and banking arrangements around the world and in order to comply with Ind AS 1, Presentation of Financial Statements, an entity discloses the policy which it adopts in determining the composition of cash and cash equivalents.
47. The effect of any change in the policy for determining components of cash and cash equivalents, for example, a change in the classification of financial instruments previously considered to be part of an entity's investment portfolio, is reported in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
Other disclosures48. [An entity shall disclose, together with a commentary by management, the amount of significant cash and cash equivalent balances held by the entity that are not available for use by the group] [The requirements shall be equally applicable to the entities in case of separate financial statements also.].
49. [There are various circumstances in which cash and cash equivalent balances held by an entity are not available for use by the group] [The requirements shall be equally applicable to the entities in case of separate financial statements also.]. Examples include cash and cash equivalent balances held by a subsidiary that operates in a country where exchange controls or other legal restrictions apply when the balances are not available for general use by the parent or other subsidiaries.
50. Additional information may be relevant to users in understanding the financial position and liquidity of an entity. Disclosure of this information, together with a commentary by management, is encouraged and may include:
51. The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity is useful in enabling the user to determine whether the entity is investing adequately in the maintenance of its operating capacity. An entity that does not invest adequately in the maintenance of its operating capacity may be prejudicing future profitability for the sake of current liquidity and distributions to owners.
52. The disclosure of segmental cash flows enables users to obtain a better understanding of the relationship between the cash flows of the business as a whole and those of its component parts and the availability and variability of segmental cash flows.
[Effective date [Inserted by Notification No. G.S.R. 258(E), dated 17.3.2017 (w.e.f. 16.2.2015).][53-58] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).] [Refer Appendix 1]59. [ Ind 116, Leases, amended paragraphs 17 and 44. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
60. Paragraphs 44A-44E have been added. When the entity first applies these amendments, it is not required to provide comparative information for preceding periods. An entity shall apply those amendments for annual periods beginning on or after 1 April, 2017.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 7 and the corresponding International Accounting Standard (IAS) 7, Statement of Cash Flows, issued by the International Accounting Standards Board.Comparison with IAS 7, Statement of Cash FlowsInd AS 7 differs from International Accounting Standard (IAS) 7, Statement of Cash Flows, in the following major respects:1. In case of other than financial entities, IAS 7 gives an option to classify the interest paid and interest and dividends received as item of operating cash flows. Ind AS 7 does not provide such an option and requires these item to be classified as item of financing activity and investing activity, respectively (refer to the paragraph 33).
2. IAS 7 gives an option to classify the dividend paid as an item of operating activity. However, Ind AS 7 requires it to be classified as a part of financing activity only (refer paragraph 34).
3. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
4. Paragraph 2 of IAS 7 which states that IAS 7 supersedes the earlier version IAS 7 is deleted in Ind AS 7 as this is not relevant in Ind AS 7. However, paragraph number 2 is retained in Ind AS 7 to maintain consistency with paragraph numbers of IAS 7.
5. The following paragraph numbers appear as 'Deleted' in IAS 7. In order to maintain consistency with paragraph numbers of IAS 7, the paragraph numbers are retained in Ind AS 7:
6. [ Paragraphs 53-58 of IAS 7 have not been included in Ind AS 7 as these paragraphs relate to Effective Date. However, in order to maintain consistency with paragraph numbers of IAS 7, these paragraph numbers are retained in Ind AS 7.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 8Accounting Policies, Changes in Accounting Estimates and Errors(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. 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.
2. Disclosure requirements for accounting policies, except those for changes in accounting policies, are set out in Ind AS 1, Presentation of Financial Statements.
Scope3. 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.
4. 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.
Definitions5. The following terms are used in this Standard with the meanings specified:
Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.A change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.Indian Accounting Standards (Ind ASs) are Standards prescribed under Section 133 of the Companies Act, 2013.Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor.Prior period errors are omissions from, and misstatements in, the entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:6. Assessing whether an omission or misstatement could influence economic decisions of users, and so be material, requires consideration of the characteristics of those users. The Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by the Institute of Chartered Accountants of India states in paragraph 25 that 'users are assumed to have a reasonable knowledge of business and economic activities and accounting and a willingness to study the information with reasonable diligence.' Therefore, the assessment needs to take into account how users with such attributes could reasonably be expected to be influenced in making economic decisions.
Accounting policiesSelection and application of accounting policies7. 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.
8. 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.
9. Ind ASs are accompanied by guidance that is integral part of Ind AS to assist entities in applying their requirements. Such guidance is mandatory.
10. 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:
11. In making the judgement described in paragraph 10, management shall refer to, and consider the applicability of, the following sources in descending order:
12. 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.
Consistency of accounting policies13. 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.
Changes in accounting policies14. An entity shall change an accounting policy only if the change:
15. Users of financial statements need to be able to compare the financial statements of an entity over time to identify trends in its financial position, financial performance and cash flows. Therefore, the same accounting policies are applied within each period and from one period to the next unless a change in accounting policy meets one of the criteria in paragraph 14.
16. The following are not changes in accounting policies:
17. 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.
18. Paragraphs 19-31 do not apply to the change in accounting policy described in paragraph 17.
Applying changes in accounting policies19. Subject to paragraph 23:
20. For the purpose of this Standard, early application of an Ind AS is not a voluntary change in accounting policy.
21. 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.
Retrospective application22. Subject to paragraph 23, 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 application23. When retrospective application is required by paragraph 19(a) or (b), a change in accounting policy shall be applied retrospectively except to the extent that it is impracticable to determine either the period specific effects or the cumulative effect of the change.
24. 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.
25. 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.
26. 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.
27. 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. Paragraphs 50-53 provide guidance on when it is impracticable to apply a new accounting policy to one or more prior periods.
Disclosure28. 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:
29. 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:
30. When an entity has not applied a new Ind AS that has been issued but is not yet effective, the entity shall disclose:
31. In complying with paragraph 30, an entity considers disclosing:
32. As a result of the uncertainties inherent in business activities, many items in financial statements cannot be measured with precision but can only be estimated. Estimation involves judgements based on the latest available, reliable information. For example, estimates may be required of:
33. The use of reasonable estimates is an essential part of the preparation of financial statements and does not undermine their reliability.
34. An estimate may need revision if changes occur in the circumstances on which the estimate was based or as a result of new information or more experience. By its nature, the revision of an estimate does not relate to prior periods and is not the correction of an error.
35. A change in the measurement basis applied is a change in an accounting policy, and is not a change in an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a change in an accounting estimate, the change is treated as a change in an accounting estimate.
36. The effect of change in an accounting estimate, other than a change to which paragraph 37 applies, shall be recognized prospectively by including it in profit or loss in:
37. 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 recognized by adjusting the carrying amount of the related asset, liability or equity item in the period of the change.
38. Prospective recognition of the effect of a change in an accounting estimate means that the change is applied to transactions, other events and conditions from the date of the change in estimate. A change in an accounting estimate may affect only the current period's profit or loss, or the profit or loss of both the current period and future periods. For example, a change in the estimate of the amount of bad debts affects only the current period's profit or loss and therefore is recognized in the current period. However, a change in the estimated useful life of, or the expected pattern of consumption of the future economic benefits embodied in, a depreciable asset affects depreciation expense for the current period and for each future period during the asset's remaining useful life. In both cases, the effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.
Disclosure39. An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect.
40. If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact.
Errors41. 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).
42. 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:
43. 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.
44. 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).
45. 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.
46. 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.
47. When it is impracticable to determine the amount of an error (e.g. 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.
48. 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 recognized on the outcome of a contingency is not the correction of an error.
Disclosure of prior period errors49. In applying paragraph 42, an entity shall disclose the following:
50. 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.
51. It is frequently necessary to make estimates in applying an accounting policy to elements of financial statements recognized 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.
52. Therefore, retrospectively applying a new accounting policy or correcting a prior period error requires distinguishing information that -
53. 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 recognized, measured or disclosed in a prior period. For example, 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.
Appendix AReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.2. [ Appendix B, Foreign Currency Transactions and Advance Consideration, contained in Ind AS 21, The Effects of Changes in Foreign Exchange Rates, makes reference to Ind AS 8.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 8 and the corresponding International Accounting Standard (IAS) 8, Accounting Policies, Changes in Accounting Estimates and Errors, issued by the International Accounting Standards Board.Comparison with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors1. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. The words 'approval of the financial statements for issue, have been used instead of 'authorisation of the financial statements for issue 'in the context of financial statements considered for the purpose of events after the reporting period.
2. Paragraph 9 dealing with status of guidance given along with the Ind ASs forming integral and non-integral part of the standard, has been modified to delete the text given in the context of the Guidance forming non-integral part of the Standard as such guidance has not been included in the Standards. 3. In paragraph 12 of Ind AS 8, it is mentioned that in absence of an Ind AS, management may first consider the most recent pronouncements of International Accounting Standards Board.
Indian Accounting Standard (Ind AS) 10Events after the Reporting Period(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe:
2. This Standard shall be applied in the accounting for, and disclosure of, events after the reporting period.
Definitions3. The following terms are used in this Standard with the meanings specified:
Events after the reporting period are those events, favourable and unfavourable, that occur between the end of the reporting period and the date when the financial statements are approved by the Board of Directors in case of a company, and, by the corresponding approving authority in case of any other entity for issue. Two types of events can be identified:4. The process involved in approving the financial statements for issue will vary depending upon the management structure, statutory requirements and procedures followed in preparing and finalising the financial statements.
5. In some cases, an entity is required to submit its financial statements to its shareholders for approval after the financial statements have been approved by the Board for issue. In such cases, the financial statements are approved for issue on the date of approval by the Board, not the date when shareholders approve the financial statements.
6. In some cases, the management of an entity is required to issue its financial statements to a supervisory board (made up solely of non-executives) for approval. In such cases, the financial statements are approved for issue when the management approves them for issue to the supervisory board.
| Example |
| On 18 March 20X2, themanagement of an entity approves financial statements for issueto its supervisory board. The supervisory board is made up solelyof non-executives and may include representatives of employeesand other outside interests. The supervisory board approves thefinancial statements on 26 March 20X2. The financial statementsare made available to shareholders and others on 1 April 20X2.The shareholders approve the financial statements at their annualmeeting on 15 May 20X2 and the financial statements are thenfiled with a regulatory body on 17 May 20X2.The financial statements are approved forissue on 18 March 20X2 (date of management approval for issue tothe supervisory board). |
7. Events after the reporting period include all events up to the date when the financial statements are approved for issue, even if those events occur after the public announcement of profit or of other selected financial information.
Recognition and measurementAdjusting events after the reporting period8. An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events after the reporting period.
9. The following are examples of adjusting events after the reporting period that require an entity to adjust the amounts recognized in its financial statements, or to recognise items that were not previously recognized:
10. An entity shall not adjust the amounts recognized in its financial statements to reflect non-adjusting events after the reporting period.
11. An example of a non-adjusting event after the reporting period is a decline in fair value of investments between the end of the reporting period and the date when the financial statements are approved for issue. The decline in fair 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 recognized in its financial statements for the investments. Similarly, the entity does not update the amounts disclosed for the investments as at the end of the reporting period, although it may need to give additional disclosure under paragraph 21.
Dividends12. 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.
13. If dividends are declared after the reporting period but before the financial statements are approved for issue, the dividends are not recognized as a liability at the end of the reporting period because no obligation exists at that time. Such dividends are disclosed in the notes in accordance with Ind AS 1, Presentation of Financial Statements.
Going concern14. 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.
15. Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the effect is so pervasive that this Standard requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognized within the original basis of accounting.
16. Ind AS 1 specifies required disclosures if:
17. 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.
18. 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.
Updating disclosure about conditions at the end of the reporting period19. 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.
20. 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. One example of the need to update disclosures is when evidence becomes available after the reporting period about a contingent liability that existed at the end of the reporting period. In addition to considering whether it should recognise or change a provision under Ind AS 37, an entity updates its disclosures about the contingent liability in the light of that evidence.
Non-adjusting events after the reporting period21. 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:
22. The following are examples of non-adjusting events after the reporting period that would generally result in disclosure:
1. Sometimes an entity distributes assets other than cash (non-cash assets) as dividends to its [owners] [Paragraph 7 of Ind AS 1 defines owners as holders of instruments classified as equity.] acting in their capacity as owners. In those situations, an entity may also give its owners a choice of receiving either non-cash assets or a cash alternative.
2. Indian Accounting Standards (Ind ASs) do not provide guidance on how an entity should measure distributions to its owners (commonly referred to as dividends). Ind AS 1 requires an entity to present details of dividends recognized as distributions to owners either in the statement of changes in equity or in the notes to the financial statements.
Scope3. This Appendix applies to the following types of non-reciprocal distributions of assets by an entity to its owners acting in their capacity as owners:
4. This Appendix applies only to distributions in which all owners of the same class of equity instruments are treated equally.
5. This Appendix does not apply to a distribution of a non-cash asset that is ultimately controlled by the same party or parties before and after the distribution. This exclusion applies to the separate, individual and consolidated financial statements of an entity that makes the distribution.
6. In accordance with paragraph 5, this Appendix does not apply when the non-cash asset is ultimately controlled by the same parties both before and after the distribution. Paragraph 7 of Appendix C to Ind AS 103. states that 'A group of individuals shall be regarded as controlling an entity when, as a result of contractual arrangements, they collectively have the power to govern its financial and operating policies so as to obtain benefits from its activities, and that ultimate collective power is not transitory.' Therefore, for a distribution to be outside the scope of this Appendix on the basis that the same parties control the asset both before and after the distribution, a group of individual shareholders receiving the distribution must have, as a result of contractual arrangements, such ultimate collective power over the entity making the distribution.
7. In accordance with paragraph 5, this Appendix does not apply when an entity distributes some of its ownership interests in a subsidiary but retains control of the subsidiary. The entity making a distribution that results in the entity recognising a non-controlling interest in its subsidiary accounts for the distribution in accordance with Ind AS 110.
8. This Appendix addresses only the accounting by an entity that makes a non-cash asset distribution. It does not address the accounting by shareholders who receive such a distribution.
Issues9. When an entity declares a distribution and has an obligation to distribute the assets concerned to its owners, it must recognise a liability for the dividend payable. Consequently, this Appendix addresses the following issues:
10. The liability to pay a dividend shall be recognized when the dividend is appropriately authorised and is no longer at the discretion of the entity, which is the date:
11. An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at the fair value of the assets to be distributed.
12. If an entity gives its owners a choice of receiving either a non-cash asset or a cash alternative, the entity shall estimate the dividend payable by considering both the fair value of each alternative and the associated probability of owners selecting each alternative.
13. At the end of each reporting period and at the date of settlement, the entity shall review and adjust the carrying amount of the dividend payable, with any changes in the carrying amount of the dividend payable recognized in equity as adjustments to the amount of the distribution.
Accounting for any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable when an entity settles the dividend payable14. When an entity settles the dividend payable, it shall recognise the difference, if any, between the carrying amount of the assets distributed and the carrying amount of the dividend payable in profit or loss.
Presentation and disclosures15. An entity shall present the difference described in paragraph 14 as a separate line item in profit or loss.
16. An entity shall disclose the following information, if applicable:
17. If, after the end of a reporting period but before the financial statements are approved for issue, an entity declares a dividend to distribute a non-cash asset, it shall disclose:
1. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position'. The words 'approval of the financial statements for issue' have been used instead of 'authorisation of the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period.
2. Consequent to changes made in Ind AS 1, it has been provided in the definition of 'Events after the reporting period' that in case of breach of a material provision of a long-term loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on demand on the reporting date, if the lender, before the approval of the financial statements for issue, agrees to waive the breach, it shall be considered as an adjusting event.
[***] [Omitted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).][Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]| [Indian Accounting Standard (Ind AS) 11] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]Construction Contracts(This Indian Accounting Standard includes paragraphs set inboldtype and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)ObjectiveThe objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India to determine when contract revenue and contract costs should be recognized as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria.Scope1. This Standard shall be applied in accounting for construction contracts in the financial statements of contractors.1A. The impairment of any contractual right to receive cash or another financial asset arising from this Standard shall be dealt in accordance with Ind AS 109, Financial Instruments.2. [Refer Appendix 1]Definitions3. The following terms are used in this Standard with the meanings specified:Aconstruction contractis a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.Afixed price contractis a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses.Acost plus contractis a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee.4. A construction contract may be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use; examples of such contracts include those for the construction of refineries and other complex pieces of plant or equipment.5. For the purposes of this Standard, construction contracts include:(a) contracts for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; and(b) contracts for the destruction or restoration of assets, and the restoration of the environment following the demolition of assets.6. Construction contracts are formulated in a number of ways which, for the purposes of this Standard, are classified as fixed price contracts and cost plus contracts. Some construction contracts may contain characteristics of both a fixed price contract and a cost plus contract, for example in the case of a cost plus contract with an agreed maximum price. In such circumstances, a contractor needs to consider all the conditions in paragraphs 23 and 24 in order to determine when to recognise contract revenue and expenses.Combining and segmenting construction contracts7. The requirements of this Standard are usually applied separately to each construction contract. However, in certain circumstances, it is necessary to apply the Standard to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.8. When a contract covers a number of assets, the construction of each asset shall be treated as a separate construction contract when:(a) separate proposals have been submitted for each asset;(b) each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and(c) the costs and revenues of each asset can be identified.9. A group of contracts, whether with a single customer or with several customers, shall be treated as a single construction contract when:(a) the group of contracts is negotiated as a single package;(b) the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin; and(c) the contracts are performed concurrently or in a continuous sequence.10. A contract may provide for the construction of an additional asset at the option of the customer or may be amended to include the construction of an additional asset. The construction of the additional asset shall be treated as a separate construction contract when:(a) the asset differs significantly in design, technology or function from the asset or assets covered by the original contract; or(b) the price of the asset is negotiated without regard to the original contract price. Contract revenue11. Contract revenue shall comprise:(a) the initial amount of revenue agreed in the contract; and(b) variations in contract work, claims and incentive payments:(i) to the extent that it is probable that they will result in revenue; and(ii) they are capable of being reliably measured.12. Contract revenue is measured at the fair value of the consideration received or receivable. The measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future events. The estimates often need to be revised as events occur and uncertainties are resolved. Therefore, the amount of contract revenue may increase or decrease from one period to the next. For example:(a) a contractor and a customer may agree variations or claims that increase or decrease contract revenue in a period subsequent to that in which the contract was initially agreed;(b) the amount of revenue agreed in a fixed price contract may increase as a result of cost escalation clauses;(c) the amount of contract revenue may decrease as a result of penalties arising from delays caused by the contractor in the completion of the contract; or(d) when a fixed price contract involves a fixed price per unit of output, contract revenue increases as the number of units is increased.13. A variation is an instruction by the customer for a change in the scope of the work to be performed under the contract. A variation may lead to an increase or a decrease in contract revenue. Examples of variations are changes in the specifications or design of the asset and changes in the duration of the contract. A variation is included in contract revenue when:(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and(b) the amount of revenue can be reliably measured.14. A claim is an amount that the contractor seeks to collect from the customer or another party as reimbursement for costs not included in the contract price. A claim may arise from, for example, customer caused delays, errors in specifications or design, and disputed variations in contract work. The measurement of the amounts of revenue arising from claims is subject to a high level of uncertainty and often depends on the outcome of negotiations. Therefore, claims are included in contract revenue only when:(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and(b) the amount that it is probable will be accepted by the customer can be measured reliably.15. Incentive payments are additional amounts paid to the contractor if specified performance standards are met or exceeded. For example, a contract may allow for an incentive payment to the contractor for early completion of the contract. Incentive payments are included in contract revenue when:(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and(b) the amount of the incentive payment can be measured reliably.Contract costs16. Contract costs shall comprise:(a) costs that relate directly to the specific contract;(b) costs that are attributable to contract activity in general and can be allocated to the contract; and(c) such other costs as are specifically chargeable to the customer under the terms of the contract.17. Costs that relate directly to a specific contract include:(a) site labour costs, including site supervision;(b) costs of materials used in construction;(c) depreciation of plant and equipment used on the contract;(d) costs of moving plant, equipment and materials to and from the contract site;(e) costs of hiring plant and equipment;(f) costs of design and technical assistance that is directly related to the contract;(g) the estimated costs of rectification and guarantee work, including expected warranty costs; and(h) claims from third parties.These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract.18. Costs that may be attributable to contract activity in general and can be allocated to specific contracts include:(a) insurance;(b) costs of design and technical assistance that are not directly related to a specific contract; and(c) construction overheads.Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts also include borrowing costs.19. Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and development costs for which reimbursement is specified in the terms of the contract.20. Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include:(a) general administration costs for which reimbursement is not specified in the contract;(b) selling costs;(c) research and development costs for which reimbursement is not specified in the contract; and(d) depreciation of idle plant and equipment that is not used on a particular contract.21. Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. However, costs that relate directly to a contract and are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. When costs incurred in securing a contract are recognized as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period.Recognition of contract revenue and expenses22. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shall be recognized as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period. An expected loss on the construction contract shall be recognized as an expense immediately in accordance with paragraph 36.23. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:(a) total contract revenue can be measured reliably;(b) it is probable that the economic benefits associated with the contract will flow to the entity;(c) both the contract costs to complete the contract and the stage of contract completion at the end of the reporting period can be measured reliably; and(d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates.24. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:(a) it is probable that the economic benefits associated with the contract will flow to the entity; and(b) the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.25. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed. This method provides useful information on the extent of contract activity and performance during a period.26. Under the percentage of completion method, contract revenue is recognized as revenue in profit or loss in the accounting periods in which the work is performed. Contract costs are usually recognized as an expense in profit or loss in the accounting periods in which the work to which they relate is performed. However, any expected excess of total contract costs over total contract revenue for the contract is recognized as an expense immediately in accordance with paragraph 36.27. A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are recognized as an asset provided it is probable that they will be recovered. Such costs represent an amount due from the customer and are often classified as contract work in progress.28. The outcome of a construction contract can only be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the entity. However, when an uncertainty arises about the collectibility of an amount already included in contract revenue, and already recognized in profit or loss, the uncollectible amount or the amount in respect of which recovery has ceased to be probable is recognized as an expense rather than as an adjustment of the amount of contract revenue.29. An entity is generally able to make reliable estimates after it has agreed to a contract which establishes:(a) each party's enforceable rights regarding the asset to be constructed;(b) the consideration to be exchanged; and(c) the manner and terms of settlement.It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system. The entity reviews and, when necessary, revises the estimates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily indicate that the outcome of the contract cannot be estimated reliably.30. The stage of completion of a contract may be determined in a variety of ways. The entity uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include:(a) the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs;(b) surveys of work performed; or(c) completion of a physical proportion of the contract work.Progress payments and advances received from customers often do not reflect the work performed.31. When the stage of completion is determined by reference to the contract costs incurred to date, only those contract costs that reflect work performed are included in costs incurred to date. Examples of contract costs which are excluded are:(a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and(b) payments made to subcontractors in advance of work performed under the subcontract.32. When the outcome of a construction contract cannot be estimated reliably:(a) revenue shall be recognized only to the extent of contract costs incurred that it is probable will be recoverable; and(b) contract costs shall be recognized as an expense in the period in which they are incurred.An expected loss on the construction contract shall be recognized as an expense immediately in accordance with paragraph 36.33. During the early stages of a contract it is often the case that the outcome of the contract cannot be estimated reliably. Nevertheless, it may be probable that the entity will recover the contract costs incurred. Therefore, contract revenue is recognized only to the extent of costs incurred that are expected to be recoverable. As the outcome of the contract cannot be estimated reliably, no profit is recognized. However, even though the outcome of the contract cannot be estimated reliably, it may be probable that total contract costs will exceed total contract revenues. In such cases, any expected excess of total contract costs over total contract revenue for the contract is recognized as an expense immediately in accordance with paragraph 36.34. Contract costs that are not probable of being recovered are recognized as an expense immediately. Examples of circumstances in which the recoverability of contract costs incurred may not be probable and in which contract costs may need to be recognized as an expense immediately include contracts:(a) that are not fully enforceable, ie their validity is seriously in question;(b) the completion of which is subject to the outcome of pending litigation or legislation;(c) relating to properties that are likely to be condemned or expropriated;(d) where the customer is unable to meet its obligations; or(e) where the contractor is unable to complete the contract or otherwise meet its obligations under the contract.35. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract shall be recognized in accordance with paragraph 22 rather than in accordance with paragraph 32.Recognition of expected losses36. When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognized as an expense immediately.37. The amount of such a loss is determined irrespective of:(a) whether work has commenced on the contract;(b) the stage of completion of contract activity; or(c) the amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with paragraph 9.Changes in estimates38. The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors). The changed estimates are used in the determination of the amount of revenue and expenses recognized in profit or loss in the period in which the change is made and in subsequent periods.Disclosure39. An entity shall disclose:(a) the amount of contract revenue recognized as revenue in the period;(b) the methods used to determine the contract revenue recognized in the period; and(c) the methods used to determine the stage of completion of contracts in progress.40. An entity shall disclose each of the following for contracts in progress at the end of the reporting period:(a) the aggregate amount of costs incurred and recognized profits (less recognized losses) to date;(b) the amount of advances received; and(c) the amount of retentions.41. Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. Progress billings are amounts billed for work performed on a contract whether or not they have been paid by the customer. Advances are amounts received by the contractor before the related work is performed.42. An entity shall present:(a) the gross amount due from customers for contract work as an asset; and(b) the gross amount due to customers for contract work as a liability.43. The gross amount due from customers for contract work is the net amount of:(a) costs incurred plus recognized profits; less(b) the sum of recognized losses and progress billingsfor all contracts in progress for which costs incurred plus recognized profits (less recognized losses) exceeds progress billings.44. The gross amount due to customers for contract work is the net amount of:(a) costs incurred plus recognized profits; less(b) the sum of recognized losses and progress billingsfor all contracts in progress for which progress billings exceed costs incurred plus recognized profits (less recognized losses).45. An entity discloses any contingent liabilities and contingent assets in accordance with Ind AS 37,Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise from such items as warranty costs, claims, penalties or possible losses.Appendix AService Concession ArrangementsThis Appendix is an integral part of Indian Accounting Standard (Ind AS)Background1. Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy supply and telecommunication networks-has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation.2. In recent times, governments have introduced contractual service arrangements to attract private sector participation in the development, financing, operation and maintenance of such infrastructure. The infrastructure may already exist, or may be constructed during the period of the service arrangement. An arrangement within the scope of this Appendix typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining that infrastructure for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes. Such an arrangement is often described as a 'build-operate-transfer', a 'rehabilitate-operate-transfer' or a 'public-to-private' service concession arrangement.3. A feature of these service arrangements is the public service nature of the obligation undertaken by the operator. Public policy is for the services related to the infrastructure to be provided to the public, irrespective of the identity of the party that operates the services. The service arrangement contractually obliges the operator to provide the services to the public on behalf of the public sector entity. Other common features are:(a) the party that grants the service arrangement (the grantor) is a public sector entity, including a governmental body, or a private sector entity to which the responsibility for the service has been devolved.(b) the operator is responsible for at least some of the management of the infrastructure and related services and does not merely act as an agent on behalf of the grantor.(c) the contract sets the initial prices to be levied by the operator and regulates price revisions over the period of the service arrangement.(d) the operator is obliged to hand over the infrastructure to the grantor in a specified condition at the end of the period of the arrangement, for little or no incremental consideration, irrespective of which party initially financed it.Scope4. This Appendix gives guidance on the accounting by operators for public-to-private service concession arrangements5. This Appendix applies to public-to-private service concession arrangements if:(a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and(b) the grantor controls-through ownership, beneficial entitlement or otherwise-any significant residual interest in the infrastructure at the end of the term of the arrangement.6. Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this Appendix if the conditions in paragraph 5(a) of this Appendix are met. Paragraphs AG1-AG8 of the Application Guidance of this Appendix provide guidance on determining whether, and to what extent, public-to-private service concession arrangements are within the scope of this Appendix.7. This Appendix applies to both:(a) infrastructure that the operator constructs or acquires from a third party for the purpose of the service arrangement; and(b) existing infrastructure to which the grantor gives the operator access for the purpose of the service arrangement.8. This Appendix does not specify the accounting for infrastructure that was held and recognized as property, plant and equipment by the operator before entering the service arrangement. The derecognition requirements of Indian Accounting Standards (as set out in Ind AS 16 ) apply to such infrastructure.9. This Appendix does not specify the accounting by grantors.Issues10. This Appendix sets out general principles on recognising and measuring the obligations and related rights in service concession arrangements. Requirements for disclosing information about service concession arrangements are in Appendix B to this Indian Accounting Standard. The issues addressed in this Appendix are:(a) treatment of the operator's rights over the infrastructure;(b) recognition and measurement of arrangement consideration;(c) construction or upgrade services;(d) operation services;(e) borrowing costs;(f) subsequent accounting treatment of a financial asset and an intangible asset; and(g) items provided to the operator by the grantor.Accounting PrinciplesTreatment of the operator's rights over the infrastructure11. Infrastructure within the scope of this Appendix shall not be recognized as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract.Recognition and measurement of arrangement consideration12. Under the terms of contractual arrangements within the scope of this Appendix, the operator acts as a service provider. The operator constructs or upgrades infrastructure (construction or upgrade services) used to provide a public service and operates and maintains that infrastructure (operation services) for a specified period of time.13. The operator shall recognise and measure revenue in accordance with Ind AS 11 and Ind AS 18 for the services it performs. If the operator performs more than one service (ie construction or upgrade services and operation services) under a single contract or arrangement, consideration received or receivable shall be allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable. The nature of the consideration determines its subsequent accounting treatment. The subsequent accounting for consideration received as a financial asset and as an intangible asset is detailed in paragraphs 23-26 below.Construction or upgrade services14. The operator shall account for revenue and costs relating to construction or upgrade services in accordance with this standard.Consideration given by the grantor to the operator15. If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognized at its fair value. The consideration may be rights to:(a) a financial asset, or(b) an intangible asset.16. The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.17. The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.18. If the operator is paid for the construction services partly by a financial asset and partly by an intangible asset it is necessary to account separately for each component of the operator's consideration. The consideration received or receivable for both components shall be recognized initially at the fair value of the consideration received or receivable.19. The nature of the consideration given by the grantor to the operator shall be determined by reference to the contract terms and, when it exists, relevant contract law.Operation services20. The operator shall account for revenue and costs relating to operation services in accordance with Ind AS 18. Contractual obligations to restore the infrastructure to a specified level of serviceability21. The operator may have contractual obligations it must fulfil as a condition of its licence (a) to maintain the infrastructure to a specified level of serviceability or (b) to restore the infrastructure to a specified condition before it is handed over to the grantor at the end of the service arrangement. These contractual obligations to maintain or restore infrastructure, except for any upgrade element (see paragraph 14 of this Appendix), shall be recognized and measured in accordance with Ind AS 37, ie at the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period.Borrowing costs incurred by the operator22. In accordance with Ind AS 23, borrowing costs attributable to the arrangement shall be recognized as an expense in the period in which they are incurred unless the operator has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case borrowing costs attributable to the arrangement shall be capitalised during the construction phase of the arrangement in accordance with that Standard.Financial asset23. Ind AS 32, Ind AS 107 and Ind AS 109 apply to the financial asset recognized under paragraphs 16 and 18 of this Appendix.24. The amount due from or at the direction of the grantor is accounted for in accordance with Ind AS 109 at:(a) amortised cost;(b) fair value through other comprehensive income; or(c) fair value through profit or loss.25. If the amount due from the grantor is measured at amortised cost or fair value through other comprehensive income, Ind AS 109 requires interest calculated using the effective interest method to be recognized in profit or loss.Intangible asset26. Ind AS 38 applies to the intangible asset recognized in accordance with paragraphs 17 and 18 of this Appendix. Paragraphs 45-47 of Ind AS 38 provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets.Items provided to the operator by the grantor27. In accordance with paragraph 11, infrastructure items to which the operator is given access by the grantor for the purposes of the service arrangement are not recognized as property, plant and equipment of the operator. The grantor may also provide other items to the operator that the operator can keep or deal with as it wishes. If such assets form part of the consideration payable by the grantor for the services, they are not government grants as defined in Ind AS 20. They are recognized as assets of the operator, measured at fair value on initial recognition. The operator shall recognise a liability in respect of unfulfilled obligations it has assumed in exchange for the assets.Application Guidance on Appendix AThis Application Guidance is an integral part of Appendix AScope(paragraph 5 of Appendix A){| | |
| AG1 | Paragraph 5 of Appendix A specifies that infrastructure iswithin the scope of the Appendix when the following conditionsapply: |
| (a) | the grantor controls or regulates what services the operatormust provide with the infrastructure, to whom it must providethem, and at what price; and |
| (b) | the grantor controls—through ownership, beneficialentitlement or otherwise—any significant residual interestin the infrastructure at the end of the term of the arrangement. |
| AG2 | The control or regulation referred to in condition (a) couldbe by contract or otherwise (such as through a regulator), andincludes circumstances in which the grantor buys all of theoutput as well as those in which some or all of the output isbought by other users. In applying this condition, the grantorand any related parties shall be considered together. If thegrantor is a public sector entity, the public sector as a whole,together with any regulators acting in the public interest, shallbe regarded as related to the grantor for the purposes of thisAppendix A. |
| AG3 | For the purpose of condition (a), the grantor does not need tohave complete control of the price: it is sufficient for theprice to be regulated by the grantor, contract or regulator, forexample by a capping mechanism. However, the condition shall beapplied to the substance of the agreement. Non-substantivefeatures, such as a cap that will apply only in remotecircumstances, shall be ignored. Conversely, if for example, acontract purports to give the operator freedom to set prices, butany excess profit is returned to the grantor, the operator'sreturn is capped and the price element of the control test ismet. |
| AG4 | For the purpose of condition (b), the grantor's control overany significant residual interest should both restrict theoperator's practical ability to sell or pledge the infrastructureand give the grantor a continuing right of use throughout theperiod of the arrangement. The residual interest in theinfrastructure is the estimated current value of theinfrastructure as if it were already of the age and in thecondition expected at the end of the period of the arrangement. |
| AG5 | Control should be distinguished from management. If thegrantor retains both the degree of control described in paragraph5(a) of Appendix A and any significant residual interest in theinfrastructure, the operator is only managing the infrastructureon the grantor's behalf—even though, in many cases, it mayhave wide managerial discretion. |
| AG6 | Conditions (a) and (b) together identify when theinfrastructure, including any replacements required (seeparagraph 21 of Appendix A), is controlled by the grantor for thewhole of its economic life. For example, if the operator has toreplace part of an item of infrastructure during the period ofthe arrangement (eg the top layer of a road or the roof of abuilding), the item of infrastructure shall be considered as awhole. Thus condition (b) is met for the whole of theinfrastructure, including the part that is replaced, if thegrantor controls any significant residual interest in the finalreplacement of that part. |
| AG7 | Sometimes the use of infrastructure is partly regulated in themanner described in paragraph 5(a) of Appendix A and partlyunregulated. However, these arrangements take a variety of forms: |
| (a) | any infrastructure that is physically separable and capable ofbeing operated independently and meets the definition of acash-generating unit as defined in Ind AS 36 shall be analysedseparately if it is used wholly for unregulated purposes. Forexample, this might apply to a private wing of a hospital, wherethe remainder of the hospital is used by the grantor to treatpublic patients. |
| (b) | when purely ancillary activities (such as a hospital shop) areunregulated, the control tests shall be applied as if thoseservices did not exist, because in cases in which the grantorcontrols the services in the manner described in paragraph 5 ofAppendix A, the existence of ancillary activities does notdetract from the grantor's control of the infrastructure. |
| AG8 | The operator may have a right to use the separableinfrastructure described in paragraph AG7 (a), or the facilitiesused to provide ancillary unregulated services described inparagraph AG7 (b). In either case, there may in substance be alease from the grantor to the operator; if so, it shall beaccounted for in accordance with Ind AS 17. |
| Category | Lessee | Service provider | Owner | |||
| Typical arrangement types | Lease (eg Operator leases asset from grantor) | Service and/ or maintenance contract (specifictasks eg debt collection) | Rehabilitate - operate - transfer | Build - operate - transfer | Build - own - operate | 100% Divestment/ Privatisation/ Corporation |
| Asset ownership | Grantor | Operator | ||||
| Capital investment | Grantor | Operator | ||||
| Demand risk | Shared | Grantor | Operator and/or Grantor | Operator | ||
| Typical duration | 8–20 years | 1–5 years | 25–30 years | Indefinite (or may be limited by licence) | ||
| Residual interest | Grantor | Operator | ||||
| Relevant Indian Accounting Standards | Ind AS 17 | Ind AS 18 | This Appendix A | Ind AS 16 |
1. An entity (the operator) may enter into an arrangement with another entity (the grantor) to provide services that give the public access to major economic and social facilities. The grantor may be a public or private sector entity, including a governmental body. Examples of service concession arrangements involve water treatment and supply facilities, motorways, car parks, tunnels, bridges, airports and telecommunication networks. Examples of arrangements that are not service concession arrangements include an entity outsourcing the operation of its internal services (eg employee cafeteria, building maintenance, and accounting or information technology functions).
2. A service concession arrangement generally involves the grantor conveying for the period of the concession to the operator:
3. The common characteristic of all service concession arrangements is that the operator both receives a right and incurs an obligation to provide public services.
4. The issue is what information should be disclosed in the notes in the financial statements of an operator and a grantor.
5. Certain aspects and disclosures relating to some service concession arrangements are addressed by Indian Accounting Standards (eg Ind AS 16 applies to acquisitions of items of property, plant and equipment, Ind AS 17 applies to leases of assets, and Ind AS 38 applies to acquisitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements.
Accounting Principles6. All aspects of a service concession arrangement shall be considered in determining the appropriate disclosures in the notes. An operator and a grantor shall disclose the following in each period:
6A. An operator shall disclose the amount of revenue and profits or losses recognized in the period on exchanging construction services for a financial asset or an intangible asset.
7. The disclosures required in accordance with paragraph 6 of this Appendix shall be provided individually for each service concession arrangement or in aggregate for each class of service concession arrangements. A class is a grouping of service concession arrangements involving services of a similar nature (eg toll collections, telecommunications and water treatment services).
Appendix CReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of Indian Accounting Standard (Ind AS) 11.This appendix lists the appendices which are part of other Indian Accounting Standards and makes reference to Ind AS 11,Construction Contracts.1. Appendix AIntangible Assets - Web Site Costscontained in Ind AS 38,Intangible Assets.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 11 and the corresponding International Accounting Standard (IAS) 11, Construction Contracts, IFRIC 12, Service Concession Arrangements and SIC 29, Service Concession Arrangements: DisclosuresComparison with IAS 11, Construction Contracts, IFRIC 12,Service Concession Arrangementsand SIC 29,Service Concession Arrangements: Disclosures1. The transitional provisions given in IFRIC 12 have not been given in Ind AS 11, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101,First time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
3. Paragraph 2 of IAS 11 which states that IAS 11 supersedes the earlier version of IAS 11 is deleted in Ind AS 11 as this is not relevant in Ind AS 11. However, paragraph number 2 is retained in Ind AS 11 to maintain consistency with paragraph numbers of IAS 11.
|}Indian Accounting Standard (Ind AS) 12Income Taxes(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)ObjectiveThe objective of this Standard is to prescribe the accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of:1. This Standard shall be applied in accounting for income taxes.
2. For the purposes of this Standard, income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint arrangement on distributions to the reporting entity.
3. [Refer Appendix 1]
4. This Standard does not deal with the methods of accounting for government grants (see Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance) or investment tax credits. However, this Standard does deal with the accounting for temporary differences that may arise from such grants or investment tax credits.
Definitions5. The following terms are used in this Standard with the meanings specified:
Accounting profit is profit or loss for a period before deducting tax expense.Taxable profit (tax loss) is the profit (loss) for a period, determined in accordance with the rules established by the taxation authorities, upon which income taxes are payable (recoverable).Tax expense (tax income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax.Current tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax loss) for a period.Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of taxable temporary differences.Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of:6. Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).
Tax base7. The tax base of an asset is the amount that will be deductible for tax purposes against any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
| Examples |
| 1. A machine cost Rs.100. For tax purposes, depreciation of Rs. 30 has already beendeducted in the current and prior periods and the remaining costwill be deductible in future periods, either as depreciation orthrough a deduction on disposal. Revenue generated by using themachine is taxable, any gain on disposal of the machine will betaxable and any loss on disposal will be deductible for taxpurposes.The tax base of the machine is Rs. 70.2. Interestreceivable has a carrying amount of Rs. 100. The related interestrevenue will be taxed on a cash basis.The tax base of theinterest receivable is nil.3. Trade receivableshave a carrying amount of Rs. 100. The related revenue hasalready been included in taxable profit (tax loss).The taxbase of the trade receivables is Rs. 100.4. [ Dividendsreceivable from a subsidiary have a carrying amount of Rs. 100.The dividends are not taxable.In substance, the entirecarrying amount of the asset is deductible against the economicbenefits. Consequently, the tax base of the dividends receivableis Rs. 100.] [Under this analysis, there is no taxable temporary difference. An alternative analysis is that the accrued dividends receivable have a tax base of nil and that a tax rate of nil is applied to the resulting taxable temporary difference of Rs. 100. Under both analyses, there is no deferred tax liability.]5. A loan receivablehas a carrying amount of Rs. 100. The repayment of the loan willhave no tax consequences.The tax base of the loan is Rs. 100. |
8. The tax base of a liability is its carrying amount, less any amount that will be deductible for tax purposes in respect of that liability in future periods. In the case of revenue which is received in advance, the tax base of the resulting liability is its carrying amount, less any amount of the revenue that will not be taxable in future periods.
| Examples |
| 1. Currentliabilities include accrued expenses with a carrying amount ofRs. 100. The related expense will be deducted for tax purposes ona cash basis.The tax base of the accrued expenses is nil.2. Currentliabilities include interest revenue received in advance, with acarrying amount of Rs. 100. The related interest revenue wastaxed on a cash basis.The tax base of the interest receivedin advance is nil.3. Currentliabilities include accrued expenses with a carrying amount ofRs. 100. The related expense has already been deducted for taxpurposes.The tax base of the accrued expenses is Rs. 100.4. [ Currentliabilities include accrued fines and penalties with a carryingamount of Rs. 100. Fines and penalties are not deductible for taxpurposes.The tax base of the accrued fines and penalties isRs. 100.] [Under this analysis, there is no deductible temporary difference. An alternative analysis is that the accrued fines and penalties payable have a tax base of nil and that a tax rate of nil is applied to the resulting deductible temporary difference of Rs. 100. Under both analyses, there is no deferred tax asset.]5. A loan payable has a carrying amount of Rs.100. The repayment of the loan will have no tax consequences.Thetax base of the loan is Rs. 100. |
9. Some items have a tax base but are not recognized as assets and liabilities in the balance sheet. For example, preliminary expenses are recognized as an expense in determining accounting profit in the period in which they are incurred but may not be permitted as a deduction in determining taxable profit (tax loss) until a later period(s). The difference between the tax base of the preliminary expenses, being the amount permitted as a deduction in future periods under taxation laws, and the carrying amount of nil is a deductible temporary difference that results in a deferred tax asset.
10. Where the tax base of an asset or liability is not immediately apparent, it is helpful to consider the fundamental principle upon which this Standard is based: that an entity shall, with certain limited exceptions, recognise a deferred tax liability (asset) whenever recovery or settlement of the carrying amount of an asset or liability would make future tax payments larger (smaller) than they would be if such recovery or settlement were to have no tax consequences. Example C following paragraph 51A illustrates circumstances when it may be helpful to consider this fundamental principle, for example, when the tax base of an asset or liability depends on the expected manner of recovery or settlement.
11. The tax base is determined by reference to the tax returns of each entity in the group. In some jurisdictions, in consolidated financial statements, temporary differences are determined by comparing the carrying amounts of assets and liabilities in the consolidated financial statements with the appropriate tax base. The tax base is determined by reference to a consolidated tax return in those jurisdictions in which such a return is filed.
Recognition of current tax liabilities and current tax assets12. Current tax for current and prior periods shall, to the extent unpaid, be recognized as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess shall be recognized as an asset.
13. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period shall be recognized as an asset.
14. When a tax loss is used to recover current tax of a previous period, an entity recognises the benefit as an asset in the period in which the tax loss occurs because it is probable that the benefit will flow to the entity and the benefit can be reliably measured.
Recognition of deferred tax liabilities and deferred tax assetsTaxable temporary differences15. A deferred tax liability shall be recognized for all taxable temporary differences, except to the extent that the deferred tax liability arises from:
16. It is inherent in the recognition of an asset that its carrying amount will be recovered in the form of economic benefits that flow to the entity in future periods. When the carrying amount of the asset exceeds its tax base, the amount of taxable economic benefits will exceed the amount that will be allowed as a deduction for tax purposes. This difference is a taxable temporary difference and the obligation to pay the resulting income taxes in future periods is a deferred tax liability. As the entity recovers the carrying amount of the asset, the taxable temporary difference will reverse and the entity will have taxable profit. This makes it probable that economic benefits will flow from the entity in the form of tax payments. Therefore, this Standard requires the recognition of all deferred tax liabilities, except in certain circumstances described in paragraphs 15 and 39.
| Example |
| An asset which costRs. 150 has a carrying amount of Rs. 100. Cumulative depreciationfor tax purposes is Rs. 90 and the tax rate is 25%.The tax base of the asset is Rs. 60 (cost ofRs. 150 less cumulative tax depreciation of Rs. 90). To recoverthe carrying amount of Rs. 100, the entity must earn taxableincome of Rs. 100, but will only be able to deduct taxdepreciation of Rs. 60. Consequently, the entity will pay incometaxes of Rs. 10 (Rs. 40 at 25%) when it recovers the carryingamount of the asset. The difference between the carrying amountof Rs. 100 and the tax base of Rs. 60 is a taxable temporarydifference of Rs. 40. Therefore, the entity recognises a deferredtax liability of Rs. 10 (Rs. 40 at 25%) representing the incometaxes that it will pay when it recovers the carrying amount ofthe asset. |
17. Some temporary differences arise when income or expense is included in accounting profit in one period but is included in taxable profit in a different period. Such temporary differences are often described as timing differences. The following are examples of temporary differences of this kind which are taxable temporary differences and which therefore result in deferred tax liabilities:
18. Temporary differences also arise when:
19. With limited exceptions, the identifiable assets acquired and liabilities assumed in a business combination are recognized at their fair values at the acquisition date. Temporary differences arise when the tax bases of the identifiable assets acquired and liabilities assumed are not affected by the business combination or are affected differently. For example, when the carrying amount of an asset is increased to fair value but the tax base of the asset remains at cost to the previous owner, a taxable temporary difference arises which results in a deferred tax liability. The resulting deferred tax liability affects goodwill (see paragraph 66).
Assets carried at fair value20. [ Ind ASs permit or require certain assets to be carried at fair value or to be revalued (see, for example, Ind AS 16, Property, Plant and Equipment, Ind AS 38, Intangible Assets, Ind AS 109, Financial Instruments and Ind AS 116, Leases). In some jurisdictions, the revaluation or other restatement of an asset to fair value affects taxable profit (tax loss) for the current period. As a result, the tax base of the asset is adjusted and no temporary difference arises. In other jurisdictions, the revaluation or restatement of an asset does not affect taxable profit in the period of the revaluation or restatement and, consequently, the tax base of the asset is not adjusted. Nevertheless, the future recovery of the carrying amount will result in a taxable flow of economic benefits to the entity and the amount that will be deductible for tax purposes will differ from the amount of those economic benefits. The difference between the carrying amount of a revalued asset and its tax base is a temporary difference and gives rise to a deferred tax liability or asset. This is true even if:
21. Goodwill arising in a business combination is measured as the excess of (a) over (b) below:
21A. Subsequent reductions in a deferred tax liability that is unrecognized because it arises from the initial recognition of goodwill are also regarded as arising from the initial recognition of goodwill and are therefore not recognized under paragraph 15(a). For example, if in a business combination an entity recognises goodwill of Rs. 100 that has a tax base of nil, paragraph 15(a) prohibits the entity from recognising the resulting deferred tax liability. If the entity subsequently recognises an impairment loss of Rs. 20 for that goodwill, the amount of the taxable temporary difference relating to the goodwill is reduced from Rs. 100 to Rs. 80, with a resulting decrease in the value of the unrecognized deferred tax liability. That decrease in the value of the unrecognized deferred tax liability is also regarded as relating to the initial recognition of the goodwill and is therefore prohibited from being recognized under paragraph 15(a).
21B. Deferred tax liabilities for taxable temporary differences relating to goodwill are, however, recognized to the extent they do not arise from the initial recognition of goodwill. For example, if in a business combination an entity recognises goodwill of Rs. 100 that is deductible for tax purposes at a rate of 20 per cent per year starting in the year of acquisition, the tax base of the goodwill is Rs. 100 on initial recognition and Rs. 80 at the end of the year of acquisition. If the carrying amount of goodwill at the end of the year of acquisition remains unchanged at Rs. 100, a taxable temporary difference of Rs. 20 arises at the end of that year. Because that taxable temporary difference does not relate to the initial recognition of the goodwill, the resulting deferred tax liability is recognized.
Initial recognition of an asset or liability22. A temporary difference may arise on initial recognition of an asset or liability, for example if part or all of the cost of an asset will not be deductible for tax purposes. The method of accounting for such a temporary difference depends on the nature of the transaction that led to the initial recognition of the asset or liability:
| Example illustrating paragraph 22(c) |
| An entity intends touse an asset which cost Rs. 1,000 throughout its useful life offive years and then dispose of it for a residual value of nil.The tax rate is 40%. Depreciation of the asset is not deductiblefor tax purposes. On disposal, any capital gain would not betaxable and any capital loss would not be deductible.As it recovers thecarrying amount of the asset, the entity will earn taxable incomeof Rs. 1,000 and pay tax of Rs. 400. The entity does notrecognise the resulting deferred tax liability of Rs. 400 becauseit results from the initial recognition of the asset.In the following year, the carrying amount ofthe asset is Rs. 800. In earning taxable income of Rs. 800, theentity will pay tax of Rs. 320. The entity does not recognise thedeferred tax liability of Rs. 320 because it results from theinitial recognition of the asset. |
23. In accordance with Ind AS 32, Financial Instruments: Presentation, the issuer of a compound financial instrument (for example, a convertible bond) classifies the instrument's liability component as a liability and the equity component as equity. In some jurisdictions, the tax base of the liability component on initial recognition is equal to the initial carrying amount of the sum of the liability and equity components. The resulting taxable temporary difference arises from the initial recognition of the equity component separately from the liability component. Therefore, the exception set out in paragraph 15(b) does not apply. Consequently, an entity recognises the resulting deferred tax liability. In accordance with paragraph 61A, the deferred tax is charged directly to the carrying amount of the equity component. In accordance with paragraph 58, subsequent changes in the deferred tax liability are recognized in profit or loss as deferred tax expense (income).
Deductible temporary differences24. A deferred tax asset shall be recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:
25. It is inherent in the recognition of a liability that the carrying amount will be settled in future periods through an outflow from the entity of resources embodying economic benefits. When resources flow from the entity, part or all of their amounts may be deductible in determining taxable profit of a period later than the period in which the liability is recognized. In such cases, a temporary difference exists between the carrying amount of the liability and its tax base. Accordingly, a deferred tax asset arises in respect of the income taxes that will be recoverable in the future periods when that part of the liability is allowed as a deduction in determining taxable profit. Similarly, if the carrying amount of an asset is less than its tax base, the difference gives rise to a deferred tax asset in respect of the income taxes that will be recoverable in future periods.
| Example |
| An entity recognisesa liability of Rs. 100 for gratuity and leave encashment expensesby creating a provision for gratuity and leave encashment. Fortax purposes, any amount with regard to gratuity and leaveencashment will not be deductible until the entity pays the same.The tax rate is 25%.The tax base of the liability is nil(carrying amount of Rs. 100, less the amount that will bedeductible for tax purposes in respect of that liability infuture periods). In settling the liability for its carryingamount, the entity will reduce its future taxable profit by anamount of Rs. 100 and, consequently, reduce its future taxpayments by Rs. 25 (Rs. 100 at 25%). The difference between thecarrying amount of Rs. 100 and the tax base of nil is adeductible temporary difference of Rs. 100. Therefore, the entityrecognises a deferred tax asset of Rs. 25 (Rs. 100 at 25%),provided that it is probable that the entity will earn sufficienttaxable profit in future periods to benefit from a reduction intax payments. |
26. The following are examples of deductible temporary differences that result in deferred tax assets:
| [Exampleillustrating paragraph 26(d) [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).] |
| Identificationof a deductible temporary difference at the end of Year 2:EntityA purchases for Rs. 1,000, at the beginning of Year 1, a debtinstrument with a nominal value of Rs. 1,000 payable on maturityin 5 years with an interest rate of 2% payable at the end of eachyear. The effective interest rate is 2%. The debt instrument ismeasured at fair value.Atthe end of Year 2, the fair value of the debt instrument hasdecreased to Rs. 918 as a result of an increase in marketinterest rates to 5%. It is probable that Entity A will collectall the contractual cash flows if it continues to hold the debtinstrument.Anygains (losses) on the debt instrument are taxable (deductible)only when realised. The gains (losses) arising on the sale ormaturity of the debt instrument are calculated for tax purposesas the difference between the amount collected and the originalcost of the debt instrument.Accordingly,the tax base of the debt instrument is its original cost.Thedifference between the carrying amount of the debt instrument inEntity A’s balance sheet of Rs. 918 and its tax base of Rs.1,000 gives rise to a deductible temporary difference of Rs. 82at the end of Year 2 (see paragraphs 20 and 26(d)), irrespectiveof whether Entity A expects to recover the carrying amount of thedebt instrument by sale or by use, i.e. by holding it andcollecting contractual cash flows, or a combination of both.Thisis because deductible temporary differences are differencesbetween the carrying amount of an asset or liability in thebalance sheet and its tax base that will result in amounts thatare deductible in determining taxable profit (tax loss) of futureperiods, when the carrying amount of the asset or liability isrecovered or settled (see paragraph 5). Entity A obtains adeduction equivalent to the tax base of the asset of Rs. 1,000 indetermining taxable profit (tax loss) either on sale or onmaturity.] |
27. The reversal of deductible temporary differences results in deductions in determining taxable profits of future periods. However, economic benefits in the form of reductions in tax payments will flow to the entity only if it earns sufficient taxable profits against which the deductions can be offset. Therefore, an entity recognises deferred tax assets only when it is probable that taxable profits will be available against which the deductible temporary differences can be utilised.
[27A When an entity assesses whether taxable profits will be available against which it can utilise a deductible temporary difference, it considers whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. If tax law imposes no such restrictions, an entity assesses a deductible temporary difference in combination with all of its other deductible temporary differences. However, if tax law restricts the utilisation of losses to deduction against income of a specific type, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]28. It is probable that taxable profit will be available against which a deductible temporary difference can be utilised when there are sufficient taxable temporary differences relating to the same taxation authority and the same taxable entity which are expected to reverse:
30. Tax planning opportunities are actions that the entity would take in order to create or increase taxable income in a particular period before the expiry of a tax loss or tax credit carry forward. For example, in some jurisdictions, taxable profit may be created or increased by:
31. When an entity has a history of recent losses, the entity considers the guidance in paragraphs 35 and 36.
32. [Refer Appendix 1]
Goodwill32A. If the carrying amount of goodwill arising in a business combination is less than its tax base, the difference gives rise to a deferred tax asset. The deferred tax asset arising from the initial recognition of goodwill shall be recognized as part of the accounting for a business combination to the extent that it is probable that taxable profit will be available against which the deductible temporary difference could be utilised.
33. [ One case when a deferred tax asset arises on initial recognition of an asset is when a non-taxable Government grant related to an asset is deducted in arriving at the carrying amount of the asset but, for tax purposes, is not deducted from the asset's depreciable amount (in other words its tax base); the carrying amount of the asset is less than its tax base and this gives rise to a deductible temporary difference. Government grants may also be set up as deferred income in which case the difference between the deferred income and its tax base of nil is a deductible temporary difference. Whichever method of presentation an entity adopts, the entity does not recognise the resulting deferred tax asset, for the reason given in paragraph 22.] [Substituted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Unused tax losses and unused tax credits34. A deferred tax asset shall be recognized for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised.
35. The criteria for recognising deferred tax assets arising from the carry forward of unused tax losses and tax credits are the same as the criteria for recognising deferred tax assets arising from deductible temporary differences. However, the existence of unused tax losses is strong evidence that future taxable profit may not be available. Therefore, when an entity has a history of recent losses, the entity recognises a deferred tax asset arising from unused tax losses or tax credits only to the extent that the entity has sufficient taxable temporary differences or there is convincing other evidence that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the entity. In such circumstances, paragraph 82 requires disclosure of the amount of the deferred tax asset and the nature of the evidence supporting its recognition.
36. An entity considers the following criteria in assessing the probability that taxable profit will be available against which the unused tax losses or unused tax credits can be utilised:
37. At the end of each reporting period, an entity reassesses unrecognized deferred tax assets. The entity recognises a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. For example, an improvement in trading conditions may make it more probable that the entity will be able to generate sufficient taxable profit in the future for the deferred tax asset to meet the recognition criteria set out in paragraph 24 or 34. Another example is when an entity reassesses deferred tax assets at the date of a business combination or subsequently (see paragraphs 67 and 68).
Investments in subsidiaries, branches and associates and interests in joint arrangements38. Temporary differences arise when the carrying amount of investments in subsidiaries, branches and associates or interests in joint arrangements (namely the parent or investor's share of the net assets of the subsidiary, branch, associate or investee, including the carrying amount of goodwill) becomes different from the tax base (which is often cost) of the investment or interest. Such differences may arise in a number of different circumstances, for example:
39. An entity shall recognise a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, branches and associates, and interests in joint arrangements, except to the extent that both of the following conditions are satisfied:
40. As a parent controls the dividend policy of its subsidiary, it is able to control the timing of the reversal of temporary differences associated with that investment (including the temporary differences arising not only from undistributed profits but also from any foreign exchange translation differences). Furthermore, it would often be impracticable to determine the amount of income taxes that would be payable when the temporary difference reverses. Therefore, when the parent has determined that those profits will not be distributed in the foreseeable future the parent does not recognise a deferred tax liability. The same considerations apply to investments in branches.
41. The non-monetary assets and liabilities of an entity are measured in its functional currency (see Ind AS 21, The Effects of Changes in Foreign Exchange Rates). If the entity's taxable profit or tax loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency, changes in the exchange rate give rise to temporary differences that result in a recognized deferred tax liability or (subject to paragraph 24) asset. The resulting deferred tax is charged or credited to profit or loss (see paragraph 58).
42. An investor in an associate does not control that entity and is usually not in a position to determine its dividend policy. Therefore, in the absence of an agreement requiring that the profits of the associate will not be distributed in the foreseeable future, an investor recognises a deferred tax liability arising from taxable temporary differences associated with its investment in the associate. In some cases, an investor may not be able to determine the amount of tax that would be payable if it recovers the cost of its investment in an associate, but can determine that it will equal or exceed a minimum amount. In such cases, the deferred tax liability is measured at this amount.
43. The arrangement between the parties to a joint arrangement usually deals with the distribution of the profits and identifies whether decisions on such matters require the consent of all the parties or a group of the parties. When the joint venturer or joint operator can control the timing of the distribution of its share of the profits of the joint arrangement and it is probable that its share of the profits will not be distributed in the foreseeable future, a deferred tax liability is not recognized.
44. An entity shall recognise a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint arrangements, to the extent that, and only to the extent that, it is probable that:
45. In deciding whether a deferred tax asset is recognized for deductible temporary differences associated with its investments in subsidiaries, branches and associates, and its interests in joint arrangements, an entity considers the guidance set out in paragraphs 28 to 31.
Measurement46. Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
47. Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
48. Current and deferred tax assets and liabilities are usually measured using the tax rates (and tax laws) that have been enacted. However, in some jurisdictions, announcements of tax rates (and tax laws) by the government have the substantive effect of actual enactment, which may follow the announcement by a period of several months. In these circumstances, tax assets and liabilities are measured using the announced tax rate (and tax laws).
49. When different tax rates apply to different levels of taxable income, deferred tax assets and liabilities are measured using the average rates that are expected to apply to the taxable profit (tax loss) of the periods in which the temporary differences are expected to reverse.
50. [Refer Appendix 1]
51. The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that would follow from the manner in which the entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
51A. In some jurisdictions, the manner in which an entity recovers (settles) the carrying amount of an asset (liability) may affect either or both of:
| Example A |
| An item of property,plant and equipment has a carrying amount of Rs. 100 and a taxbase of Rs. 60. A tax rate of 20% would apply if the item weresold and a tax rate of 30% would apply to other income.The entity recognises a deferred taxliability of Rs. 8 (Rs. 40 at 20%) if it expects to sell the itemwithout further use and a deferred tax liability of Rs. 12 (Rs.40 at 30%) if it expects to retain the item and recover itscarrying amount through use. |
| Example B | |||
| An item of property,plant and equipment with a cost of Rs. 100 and a carrying amountof Rs. 80 is revalued to Rs. 150. No equivalent adjustment ismade for tax purposes. Cumulative depreciation for tax purposesis Rs. 30 and the tax rate is 30%. If the item is sold for morethan cost, the cumulative tax depreciation of Rs. 30. will beincluded in taxable income but sale proceeds in excess of costwill not be taxable.The tax base ofthe item is Rs. 70 and there is a taxable temporary difference ofRs. 80. If the entity expects to recover the carrying amount byusing the item, it must generate taxable income of Rs. 150, butwill only be able to deduct depreciation of Rs. 70. On thisbasis, there is a deferred tax liability of Rs. 24 (Rs. 80 at30%). If the entity expects to recover the carrying amount byselling the item immediately for proceeds of Rs. 150, thedeferred tax liability is computed as follows:{| | |||
| Taxable Temporary Difference | Tax Rate | Deferred Tax Liability | |
| (Amount in Rs..) | (Amount in Rs..) | ||
| Cumulative tax depreciation | 30 | 30% | 9 |
| Proceeds in excess of cost | 50 | nil | - |
| Total | 80 | 9 |
| Example C |
| The facts are as inexample B, except that if the item is sold for more than cost,the cumulative tax depreciation will be included in taxableincome (taxed at 30%) and the sale proceeds will be taxed at 40%,after deducting an inflation-adjusted cost of Rs.. 110.If the entityexpects to recover the carrying amount by using the item , itmust generate taxable income of Rs.. 150, but will only be ableto deduct depreciation of Rs.. 70. On this basis, the tax base isRs.. 70, there is a taxable temporary difference of Rs.. 80 andthere is a deferred tax liability of Rs.. 24 (Rs.. 80 at 30%), asin example B.If the entityexpects to recover the carrying amount by selling the itemimmediately for proceeds of Rs.. 150, the entity will be able todeduct the indexed cost of Rs.. 110. The net proceeds of Rs.. 40will be taxed at 40%. In addition, the cumulative taxdepreciation of Rs.. 30 will be included in taxable income andtaxed at 30%. On this basis, the tax base is Rs.. 80 (Rs.. 110less Rs.. 30), there is a taxable temporary difference of Rs.. 70and there is a deferred tax liability of Rs.. 25 (Rs.. 40 at 40%plus Rs.. 30 at 30%). If the tax base is not immediately apparentin this example, it may be helpful to consider the fundamentalprinciple set out in paragraph 10.(note: in accordance with paragraph 61A, theadditional deferred tax that arises on the revaluation isrecognized in other comprehensive income) |
51B. If a deferred tax liability or deferred tax asset arises from a non-depreciable asset measured using the revaluation model in Ind AS 16, the measurement of the deferred tax liability or deferred tax asset shall reflect the tax consequences of recovering the carrying amount of the non-depreciable asset through sale, regardless of the basis of measuring the carrying amount of that asset. Accordingly, if the tax law specifies a tax rate applicable to the taxable amount derived from the sale of an asset that differs from the tax rate applicable to the taxable amount derived from using an asset, the former rate is applied in measuring the deferred tax liability or asset related to a non-depreciable asset.
51C.
-51D. (Refer Appendix 1)51E. Paragraph 51B does not change the requirements to apply the principles in paragraphs 24-33 (deductible temporary differences) and paragraphs 34-36 (unused tax losses and unused tax credits) of this Standard when recognising and measuring deferred tax assets.
52. [Moved and renumbered 51A]
52A. In some jurisdictions, income taxes are payable at a higher or lower rate if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In some other jurisdictions, income taxes may be refundable or payable if part or all of the net profit or retained earnings is paid out as a dividend to shareholders of the entity. In these circumstances, current and deferred tax assets and liabilities are measured at the tax rate applicable to undistributed profits.
[***] [Omitted '52B' by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).].| [Example illustrating paragraphs 52A and 57A] [Substituted 'Example illustrating paragraphs 52A and 52B' by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).] |
| The following exampledeals with the measurement of current and deferred tax assets andliabilities for an entity in a jurisdiction where income taxesare payable at a higher rate on undistributed profits (50%) withan amount being refundable when profits are distributed. The taxrate on distributed profits is 35%. At the end of the reportingperiod, 31 December 20X1, the entity does not recognise aliability for dividends proposed or declared after the reportingperiod. As a result, no dividends are recognized in the year20X1. Taxable income for 20X1 is Rs.. 100,000. The net taxabletemporary difference for the year 20X1 is Rs. 40,000.The entityrecognises a current tax liability and a current income taxexpense of Rs. 50,000. No asset is recognized for the amountpotentially recoverable as a result of future dividends. Theentity also recognises a deferred tax liability and deferred taxexpense of Rs. 20,000 (Rs.. 40,000 at 50%) representing theincome taxes that the entity will pay when it recovers or settlesthe carrying amounts of its assets and liabilities based on thetax rate applicable to undistributed profits.Subsequently, on 15March 20X2 the entity recognises dividends of Rs.. 10,000 fromprevious operating profits as a liability.On 15 March 20X2, the entity recognises therecovery of income taxes of Rs. 1,500 (15% of the dividendsrecognized as a liability) as a current tax asset and as areduction of current income tax expense for 20X2. |
53. Deferred tax assets and liabilities shall not be discounted.
54. The reliable determination of deferred tax assets and liabilities on a discounted basis requires detailed scheduling of the timing of the reversal of each temporary difference. In many cases such scheduling is impracticable or highly complex. Therefore, it is inappropriate to require discounting of deferred tax assets and liabilities. To permit, but not to require, discounting would result in deferred tax assets and liabilities which would not be comparable between entities. Therefore, this Standard does not require or permit the discounting of deferred tax assets and liabilities.
55. Temporary differences are determined by reference to the carrying amount of an asset or liability. This applies even where that carrying amount is itself determined on a discounted basis, for example in the case of retirement benefit obligations (see Ind AS 19, Employee Benefits).
56. The carrying amount of a deferred tax asset shall be reviewed at the end of each reporting period. An entity shall reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilised. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.
Recognition of current and deferred tax57. Accounting for the current and deferred tax effects of a transaction or other event is consistent with the accounting for the transaction or event itself. Paragraphs 58 to 68C implement this principle.
[57A An entity shall recognise the income tax consequences of dividends as defined in Ind AS 109 when it recognises a liability to pay a dividend. The income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity shall recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Items recognized in profit or loss58. Current and deferred tax shall be recognized as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from:
59. Most deferred tax liabilities and deferred tax assets arise where income or expense is included in accounting profit in one period, but is included in taxable profit (tax loss) in a different period. The resulting deferred tax is recognized in profit or loss. Examples are when:
60. The carrying amount of deferred tax assets and liabilities may change even though there is no change in the amount of the related temporary differences. This can result, for example, from:
61. [Refer Appendix 1]
61A. Current tax and deferred tax shall be recognized outside profit or loss if the tax relates to items that are recognized, in the same or a different period, outside profit or loss. Therefore, current tax and deferred tax that relates to items that are recognized, in the same or a different period:
62. Indian Accounting Standards require or permit particular items to be recognized in other comprehensive income. Examples of such items are:
62A. Indian Accounting Standards require or permit particular items to be credited or charged directly to equity. Examples of such items are:
63. In exceptional circumstances it may be difficult to determine the amount of current and deferred tax that relates to items recognized outside profit or loss (either in other comprehensive income or directly in equity). This may be the case, for example, when:
64. Ind AS 16 does not specify whether an entity should transfer each year from revaluation surplus to retained earnings an amount equal to the difference between the depreciation or amortisation on a revalued asset and the depreciation or amortisation based on the cost of that asset. If an entity makes such a transfer, the amount transferred is net of any related deferred tax. Similar considerations apply to transfers made on disposal of an item of property, plant or equipment.
65. When an asset is revalued for tax purposes and that revaluation is related to an accounting revaluation of an earlier period, or to one that is expected to be carried out in a future period, the tax effects of both the asset revaluation and the adjustment of the tax base are recognized in other comprehensive income in the periods in which they occur. However, if the revaluation for tax purposes is not related to an accounting revaluation of an earlier period, or to one that is expected to be carried out in a future period, the tax effects of the adjustment of the tax base are recognized in profit or loss.
65A. When an entity pays dividends to its shareholders, it may be required to pay a portion of the dividends to taxation authorities on behalf of shareholders. In many jurisdictions, this amount is referred to as a withholding tax. Such an amount paid or payable to taxation authorities is charged to equity as a part of the dividends.
Deferred tax arising from a business combination66. As explained in paragraphs 19 and 26(c), temporary differences may arise in a business combination. In accordance with Ind AS 103, an entity recognises any resulting deferred tax assets (to the extent that they meet the recognition criteria in paragraph 24) or deferred tax liabilities as identifiable assets and liabilities at the acquisition date. Consequently, those deferred tax assets and deferred tax liabilities affect the amount of goodwill or the bargain purchase gain the entity recognises. However, in accordance with paragraph 15(a), an entity does not recognise deferred tax liabilities arising from the initial recognition of goodwill.
67. As a result of a business combination, the probability of realising a pre-acquisition deferred tax asset of the acquirer could change. An acquirer may consider it probable that it will recover its own deferred tax asset that was not recognized before the business combination. For example, the acquirer may be able to utilise the benefit of its unused tax losses against the future taxable profit of the acquiree. Alternatively, as a result of the business combination it might no longer be probable that future taxable profit will allow the deferred tax asset to be recovered. In such cases, the acquirer recognises a change in the deferred tax asset in the period of the business combination, but does not include it as part of the accounting for the business combination. Therefore, the acquirer does not take it into account in measuring the goodwill or bargain purchase gain it recognises in the business combination.
68. The potential benefit of the acquiree's income tax loss carry forwards or other deferred tax assets might not satisfy the criteria for separate recognition when a business combination is initially accounted for but might be realised subsequently. An entity shall recognise acquired deferred tax benefits that it realises after the business combination as follows:
68A. In some tax jurisdictions, an entity receives a tax deduction (i.e. an amount that is deductible in determining taxable profit) that relates to remuneration paid in shares, share options or other equity instruments of the entity. The amount of that tax deduction may differ from the related cumulative remuneration expense, and may arise in a later accounting period. For example, in some jurisdictions, an entity may recognise an expense for the consumption of employee services received as consideration for share options granted, in accordance with Ind AS 102, Share-based Payment, and not receive a tax deduction until the share options are exercised, with the measurement of the tax deduction based on the entity's share price at the date of exercise.
68B. As with the preliminary expenses discussed in paragraphs 9 and 26(b) of this Standard, the difference between the tax base of the employee services received to date (being the amount permitted as a deduction in future periods under taxation laws), and the carrying amount of nil, is a deductible temporary difference that results in a deferred tax asset. If the amount permitted as a deduction in future periods under taxation laws is not known at the end of the period, it shall be estimated, based on information available at the end of the period. For example, if the amount permitted as a deduction in future periods under taxation laws is dependent upon the entity's share price at a future date, the measurement of the deductible temporary difference should be based on the entity's share price at the end of the period.
68C. As noted in paragraph 68A, the amount of the tax deduction (or estimated future tax deduction, measured in accordance with paragraph 68B) may differ from the related cumulative remuneration expense. Paragraph 58 of the Standard requires that current and deferred tax should be recognized as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from (a) a transaction or event that is recognized, in the same or a different period, outside profit or loss, or (b) a business combination (other than the acquisition by an investment entity of a subsidiary that is required to be measured at fair value through profit or loss). If the amount of the tax deduction (or estimated future tax deduction) exceeds the amount of the related cumulative remuneration expense, this indicates that the tax deduction relates not only to remuneration expense but also to an equity item. In this situation, the excess of the associated current or deferred tax should be recognized directly in equity.
PresentationTax assets and tax liabilities69.
-70. [Refer Appendix 1]Offset71. An entity shall offset current tax assets and current tax liabilities if, and only if, the entity:
72. Although current tax assets and liabilities are separately recognized and measured they are offset in the balance sheet subject to criteria similar to those established for financial instruments in Ind AS 32. An entity will normally have a legally enforceable right to set off a current tax asset against a current tax liability when they relate to income taxes levied by the same taxation authority and the taxation laws permit the entity to make or receive a single net payment.
73. In consolidated financial statements, a current tax asset of one entity in a group is offset against a current tax liability of another entity in the group if, and only if, the entities concerned have a legally enforceable right to make or receive a single net payment and the entities intend to make or receive such a net payment or to recover the asset and settle the liability simultaneously.
74. An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:
75. To avoid the need for detailed scheduling of the timing of the reversal of each temporary difference, this Standard requires an entity to set off a deferred tax asset against a deferred tax liability of the same taxable entity if, and only if, they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.
76. In rare circumstances, an entity may have a legally enforceable right of set-off, and an intention to settle net, for some periods but not for others. In such rare circumstances, detailed scheduling may be required to establish reliably whether the deferred tax liability of one taxable entity will result in increased tax payments in the same period in which a deferred tax asset of another taxable entity will result in decreased payments by that second taxable entity.
Tax expenseTax expense (income) related to profit or loss from ordinary activities77. The tax expense (income) related to profit or loss from ordinary activities shall be presented as part of profit or loss in the statement of profit and loss.
77A. [Refer Appendix 1]
Exchange differences on deferred foreign tax liabilities or assets78. Ind AS 21 requires certain exchange differences to be recognized as income or expense but does not specify where such differences should be presented in the statement of profit and loss. Accordingly, where exchange differences on deferred foreign tax liabilities or assets are recognized in the statement of profit and loss, such differences may be classified as deferred tax expense (income) if that presentation is considered to be the most useful to financial statement users.
Disclosure79. The major components of tax expense (income) shall be disclosed separately.
80. Components of tax expense (income) may include:
81. The following shall also be disclosed separately:
82. An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when:
82A. In the circumstances described in paragraph 52A, an entity shall disclose the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders. In addition, the entity shall disclose the amounts of the potential income tax consequences practicably determinable and whether there are any potential income tax consequences not practicably determinable.
83. [Refer Appendix 1]
84. The disclosures required by paragraph 81(c) enable users of financial statements to understand whether the relationship between tax expense (income) and accounting profit is unusual and to understand the significant factors that could affect that relationship in the future. The relationship between tax expense (income) and accounting profit may be affected by such factors as revenue that is exempt from taxation, expenses that are not deductible in determining taxable profit (tax loss), the effect of tax losses and the effect of foreign tax rates.
85. In explaining the relationship between tax expense (income) and accounting profit, an entity uses an applicable tax rate that provides the most meaningful information to the users of its financial statements. Often, the most meaningful rate is the domestic rate of tax in the country in which the entity is domiciled, aggregating the tax rate applied for national taxes with the rates applied for any local taxes which are computed on a substantially similar level of taxable profit (tax loss). However, for an entity operating in several jurisdictions, it may be more meaningful to aggregate separate reconciliations prepared using the domestic rate in each individual jurisdiction. The following example illustrates how the selection of the applicable tax rate affects the presentation of the numerical reconciliation.
| Example illustrating paragraph 85 | ||
| In 19X2, an entityhas accounting profit in its own jurisdiction (country A) of Rs.1,500 (19X1: Rs. 2,000) and in country B of Rs. 1,500 (19X1: Rs.500). The tax rate is 30% in country A and 20% in country B. Incountry A, expenses of Rs. 100 (19X1: Rs. 200) are not deductiblefor tax purposes.The following isan example of a reconciliation to the domestic tax rate.{| | ||
| (Amount in Rs.) | ||
| 19X1 | 19X2 | |
| Accounting profit | 2,500 | 3,000 |
| Tax at the domestic rate of 30% | 750 | 900 |
| Tax effect of expenses that are not deductible for taxpurposes | 60 | 30 |
| Effect of lower tax rates in country B | (50) | (150) |
| Tax expense | 760 | 780 |
86. The average effective tax rate is the tax expense (income) divided by the accounting profit.
87. It would often be impracticable to compute the amount of unrecognized deferred tax liabilities arising from investments in subsidiaries, branches and associates and interests in joint arrangements (see paragraph 39). Therefore, this Standard requires an entity to disclose the aggregate amount of the underlying temporary differences but does not require disclosure of the deferred tax liabilities. Nevertheless, where practicable, entities are encouraged to disclose the amounts of the unrecognized deferred tax liabilities because financial statement users may find such information useful.
87A. Paragraph 82A requires an entity to disclose the nature of the potential income tax consequences that would result from the payment of dividends to its shareholders. An entity discloses the important features of the income tax systems and the factors that will affect the amount of the potential income tax consequences of dividends.
87B. It would sometimes not be practicable to compute the total amount of the potential income tax consequences that would result from the payment of dividends to shareholders. This may be the case, for example, where an entity has a large number of foreign subsidiaries. However, even in such circumstances, some portions of the total amount may be easily determinable. For example, in a consolidated group, a parent and some of its subsidiaries may have paid income taxes at a higher rate on undistributed profits and be aware of the amount that would be refunded on the payment of future dividends to shareholders from consolidated retained earnings. In this case, that refundable amount is disclosed. If applicable, the entity also discloses that there are additional potential income tax consequences not practicably determinable. In the parent's separate financial statements, if any, the disclosure of the potential income tax consequences relates to the parent's retained earnings.
87C. An entity required to provide the disclosures in paragraph 82A may also be required to provide disclosures related to temporary differences associated with investments in subsidiaries, branches and associates or interests in joint arrangements. In such cases, an entity considers this in determining the information to be disclosed under paragraph 82A. For example, an entity may be required to disclose the aggregate amount of temporary differences associated with investments in subsidiaries for which no deferred tax liabilities have been recognized (see paragraph 81(f)). If it is impracticable to compute the amounts of unrecognized deferred tax liabilities (see paragraph 87) there may be amounts of potential income tax consequences of dividends not practicably determinable related to these subsidiaries.
88. An entity discloses any tax-related contingent liabilities and contingent assets in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise, for example, from unresolved disputes with the taxation authorities. Similarly, where changes in tax rates or tax laws are enacted or announced after the reporting period, an entity discloses any significant effect of those changes on its current and deferred tax assets and liabilities (see Ind AS 10, Events after the Reporting Period).
[Effective Date89. *
90. *
91. *
92. *
93. *
94. *
95. *
96. *
97. *
98. *
98A. *
98B. *
98C. *
98D. *
98E. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph 59 is amended. An entity shall apply those amendments when it applies Ind AS 115.
98F. *
[98G Ind AS 116 amended paragraph 20. An entity shall apply that amendment when it applies Ind AS 116.98H. Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to Ind AS 12) amended paragraph 29 and added paragraphs 27A, 29A and 89-98F and the example following paragraph 26. An entity shall apply those amendments for annual periods beginning on or after April 01, 2018. An entity shall apply those amendments retrospectively in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. If an entity applies this relief, it shall disclose that fact.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[98I Annual Improvements to Ind AS (2018) added paragraph 57A and deleted paragraph 52B. An entity shall apply those amendments for annual reporting periods beginning on or after 1 April, 2019.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Appendix AIncome Taxes-Changes in the Tax Status of an Entity or its ShareholdersThis Appendix is an integral part of the Ind AS.Issue1. A change in the tax status of an entity or of its shareholders may have consequences for an entity by increasing or decreasing its tax liabilities or assets. This may, for example, occur upon the public listing of an entity's equity instruments or upon the restructuring of an entity's equity. It may also occur upon a controlling shareholder's move to a foreign country. As a result of such an event, an entity may be taxed differently; it may for example gain or lose tax incentives or become subject to a different rate of tax in the future.
2. A change in the tax status of an entity or its shareholders may have an immediate effect on the entity's current tax liabilities or assets. The change may also increase or decrease the deferred tax liabilities and assets recognized by the entity, depending on the effect the change in tax status has on the tax consequences that will arise from recovering or settling the carrying amount of the entity's assets and liabilities.
3. The issue is how an entity should account for the tax consequences of a change in its tax status or that of its shareholders.
Accounting Principles4. A change in the tax status of an entity or its shareholders does not give rise to increases or decreases in amounts recognized outside profit or loss. The current and deferred tax consequences of a change in tax status shall be included in profit or loss for the period, unless those consequences relate to transactions and events that result, in the same or a different period, in a direct credit or charge to the recognized amount of equity or in amounts recognized in other comprehensive income. Those tax consequences that relate to changes in the recognized amount of equity, in the same or a different period (not included in profit or loss), shall be charged or credited directly to equity. Those tax consequences that relate to amounts recognized in other comprehensive income shall be recognized in other comprehensive income.
Appendix BReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.1. Appendix A, Applying the Restatement Approach under Ind AS 29, Financial Reporting in Hyper-inflationary Economies, contained in Ind AS 29, Financial Reporting in Hyper-inflationary Economies, makes reference to Ind AS 12.
2. Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
[Appendix C] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Uncertainty over Income Tax TreatmentsThis appendix is an integral part of the Ind AS and has the same authority as the other parts of the Ind ASBackground1. Ind AS 12, Income Taxes, specifies requirements for current and deferred tax assets and liabilities. An entity applies the requirements in Ind AS 12 based on applicable tax laws.
2. It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the taxation authority may affect an entity's accounting for a current or deferred tax asset or liability.
3. In this Appendix:
4. This Appendix clarifies how to apply the recognition and measurement requirements in Ind AS 12 when there is uncertainty over income tax treatments. In such a circumstance, an entity shall recognise and measure its current or deferred tax asset or liability applying the requirements in Ind AS 12 based on taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this Appendix.
Issues________________________________________________________________________________5. When there is uncertainty over income tax treatments, this Appendix addresses:
6. An entity shall determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. In determining the approach that better predicts the resolution of the uncertainty, an entity might consider, for example, (a) how it prepares its income tax filings and supports tax treatments; or (b) how the entity expects the taxation authority to make its examination and resolve issues that might arise from that examination.
7. If, applying paragraph 6, an entity considers more than one uncertain tax treatment together, the entity shall read references to an 'uncertain tax treatment' in this Appendix as referring to the group of uncertain tax treatments considered together.
Examination by taxation authorities8. In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, an entity shall assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations.
Determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates9. An entity shall consider whether it is probable that a taxation authority will accept an uncertain tax treatment.
10. If an entity concludes it is probable that the taxation authority will accept an uncertain tax treatment, the entity shall determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings.
11. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the entity shall reflect the effect of uncertainty in determining the related taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates. An entity shall reflect the effect of uncertainty for each uncertain tax treatment by using either of the following methods, depending on which method the entity expects to better predict the resolution of the uncertainty:
12. If an uncertain tax treatment affects current tax and deferred tax (for example, if it affects both taxable profit used to determine current tax and tax bases used to determine deferred tax), an entity shall make consistent judgements and estimates for both current tax and deferred tax.
Changes in facts and circumstances13. An entity shall reassess a judgement or estimate required by this Appendix if the facts and circumstances on which the judgement or estimate was based change or as a result of new information that affects the judgement or estimate. For example, a change in facts and circumstances might change an entity's conclusions about the acceptability of a tax treatment or the entity's estimate of the effect of uncertainty, or both. Paragraphs A1-A3 set out guidance on changes in facts and circumstances.
14. An entity shall reflect the effect of a change in facts and circumstances or of new information as a change in accounting estimate applying Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors. An entity shall apply Ind AS 10, Events after the Reporting Period, to determine whether a change that occurs after the reporting period is an adjusting or non-adjusting event.
Application GuidanceThis Application Guidance is an integral part of Appendix C and has the same authority as the other parts of Appendix C.Changes in facts and circumstances (paragraph 13)_____________________________________________________________________________________A1 In applying paragraph 13 of this Appendix, an entity shall assess the relevance and effect of a change in facts and circumstances or of new information in the context of applicable tax laws. For example, a particular event might result in the reassessment of a judgement or estimate made for one tax treatment but not another, if those tax treatments are subject to different tax laws.A2 Examples of changes in facts and circumstances or new information that, depending on the circumstances, can result in the reassessment of a judgement or estimate required by this Appendix include, but are not limited to, the following:1. The transitional provisions given in SIC 25 have not been given in Ind AS 12, since all transitional provisions related to Ind ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. Words 'approved for issue' have been used instead of 'authorised for issue' in the context of financial statements considered for the purpose of events after the reporting period.
3. Requirements regarding presentation of tax expense (income) in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding the two statement approach in Ind AS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.
4. The following paragraph numbers appear as 'Deleted' in IAS 12. In order to maintain consistency with paragraph numbers of IAS 12, the paragraph numbers are retained in Ind AS 12:
5. As a consequence of not allowing fair value model in Ind AS 40, paragraphs 51C-51D have been deleted and the following paragraphs have been modified in Ind AS 12:
6. Paragraph 68 (a) has been modified as a consequence of different accounting treatment of bargain purchase gain in Ind AS 103, Business Combinations, in comparison to IFRS 3, Business Combination.
7. [ ***] [Omitted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
8. [ Paragraphs 89 to 98D and 98F of IAS 12 related to effective date have not been included in Ind AS 12 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 12, these paragraph numbers are retained in Ind AS 12.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 16Property, Plant and Equipment(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity's investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognized in relation to them.
Scope2. This Standard shall be applied in accounting for property, plant and equipment except when another Standard requires or permits a different accounting treatment.
3. This Standard does not apply to:
5. [ An entity accounting for investment property in accordance with Ind AS 40, Investment Property, shall use the cost model in this Standard for owned investment property.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Definitions6. The following terms are used in this Standard with the meanings specified:
A bearer plant is a living plant that:7. The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if:
8. Items such as spare parts, stand-by equipment and servicing equipment are recognized in accordance with this Ind AS when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory.
9. This Standard does not prescribe the unit of measure for recognition, i.e. what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to an entity's specific circumstances. It may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies, and to apply the criteria to the aggregate value.
10. [ An entity evaluates under this recognition principle all its property, plant and equipment costs at the time they are incurred. These costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. The cost of an item of property, plant and equipment may include costs incurred relating to leases of assets that are used to construct, add to, replace part of or service an item of property, plant and equipment, such as depreciation of right-of-use assets.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Initial costs11. Items of property, plant and equipment may be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an entity to obtain the future economic benefits from its other assets. Such items of property, plant and equipment qualify for recognition as assets because they enable an entity to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognized as an asset because without them the entity is unable to manufacture and sell chemicals. However, the resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with Ind AS 36, Impairment of Assets.
Subsequent costs12. Under the recognition principle in paragraph 7, an entity does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognized in profit or loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of these expenditures is often described as for the 'repairs and maintenance' of the item of property, plant and equipment.
13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Items of property, plant and equipment may also be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a nonrecurring replacement. Under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of this Standard (see paragraphs 67-72).
14. A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as distinct from physical parts) is derecognized. This occurs regardless of whether the cost of the previous inspection was identified in the transaction in which the item was acquired or constructed. If necessary, the estimated cost of a future similar inspection may be used as an indication of what the cost of the existing inspection component was when the item was acquired or constructed.
Measurement at recognition15. An item of property, plant and equipment that qualifies for recognition as an asset shall be measured at its cost.
Elements of cost16. The cost of an item of property, plant and equipment comprises:
17. Examples of directly attributable costs are:
18. An entity applies Ind AS 2, Inventories, to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with Ind AS 2 or Ind AS 16 are recognized and measured in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
19. Examples of costs that are not costs of an item of property, plant and equipment are:
20. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment:
21. Some operations occur in connection with the construction or development of an item of property, plant and equipment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the construction or development activities. For example, income may be earned through using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognized in profit or loss and included in their respective classifications of income and expense.
22. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an entity makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see Ind AS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-constructing an asset is not included in the cost of the asset. Ind AS 23, Borrowing Costs, establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.
22A. Bearer plants are accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to 'construction' in this Standard should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management.
Measurement of cost23. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognized as interest over the period of credit unless such interest is capitalised in accordance with Ind AS 23.
24. One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired item is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.
25. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:
26. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.
[***] [Omitted '(27)' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]28. [ The carrying amount of an item of property, plant and equipment may be reduced by Government grants in accordance with Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance.] [Substituted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Measurement after recognition29. An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class of property, plant and equipment.
Cost model30. After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.
Revaluation model31. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.
32. [Refer Appendix 1].
33. [Refer Appendix 1].
34. The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.
35. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:
36. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued.
37. A class of property, plant and equipment is a grouping of assets of a similar nature and use in an entity's operations. The following are examples of separate classes:
38. The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date.
39. If an asset's carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
40. If an asset's carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.
41. The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognized. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset's original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss.
42. The effects of taxes on income, if any, resulting from the revaluation of property, plant and equipment are recognized and disclosed in accordance with Ind AS 12, Income Taxes.
Depreciation43. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.
44. [ An entity allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft. Similarly, if an entity acquires property, plant and equipment subject to an operating lease in which it is the lessor, it may be appropriate to depreciate separately amounts reflected in the cost of that item that are attributable to favourable or unfavourable lease terms relative to market terms.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
45. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge.
46. To the extent that an entity depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an entity has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts.
47. An entity may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.
48. The depreciation charge for each period shall be recognized in profit or loss unless it is included in the carrying amount of another asset.
49. The depreciation charge for a period is usually recognized in profit or loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see Ind AS 2). Similarly, depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognized in accordance with Ind AS 38, Intangible Assets.
Depreciable amount and depreciation period50. The depreciable amount of an asset shall be allocated on a systematic basis over its useful life.
51. The residual value and the useful life of an asset shall be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
52. Depreciation is recognized even if the fair value of the asset exceeds its carrying amount, as long as the asset's residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it.
53. The depreciable amount of an asset is determined after deducting its residual value. In practice, the residual value of an asset is often insignificant and therefore immaterial in the calculation of the depreciable amount.
54. The residual value of an asset may increase to an amount equal to or greater than the asset's carrying amount. If it does, the asset's depreciation charge is zero unless and until its residual value subsequently decreases to an amount below the asset's carrying amount.
55. Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognized. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. However, under usage methods of depreciation the depreciation charge can be zero while there is no production.
56. The future economic benefits embodied in an asset are consumed by an entity principally through its use. However, other factors, such as technical or commercial obsolescence and wear and tear while an asset remains idle, often result in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset:
57. The useful life of an asset is defined in terms of the asset's expected utility to the entity. The asset management policy of the entity may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of judgement based on the experience of the entity with similar assets.
58. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.
59. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it.
Depreciation method60. The depreciation method used shall reflect the pattern in which the asset's future economic benefits are expected to be consumed by the entity.
61. The depreciation method applied to an asset shall be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method shall be changed to reflect the changed pattern. Such a change shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8.
62. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the asset's residual value does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The entity selects the method that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits.
62A. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits of the asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed.
Impairment63. To determine whether an item of property, plant and equipment is impaired, an entity applies Ind AS 36, Impairment of Assets. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.
64. [Refer Appendix 1]
Compensation for impairment65. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up shall be included in profit or loss when the compensation becomes receivable.
66. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:
67. The carrying amount of an item of property, plant and equipment shall be derecognized:
68A. [ However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with Ind AS 115, Revenue from Contracts with Customers. Ind AS 105 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.20186 (w.e.f. 16.2.2015).]
69. [ The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). The date of disposal of an item of property, plant and equipment is the date the recipient obtains control of that item in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115. Ind AS 116 applies to disposal by a sale and leaseback.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
70. If, under the recognition principle in paragraph 7, an entity recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.
71. The gain or loss arising from the derecognition of an item of property, plant and equipment shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.
72. [ The amount of consideration to be included in the gain or loss arising from the derecognition of an item of property, plant and equipment is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Disclosure73. The financial statements shall disclose, for each class of property, plant and equipment:
74. The financial statements shall also disclose:
75. Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other entities. For similar reasons, it is necessary to disclose:
76. In accordance with Ind AS 8 an entity discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to:
77. If items of property, plant and equipment are stated at revalued amounts, the following shall be disclosed in addition to the disclosures required by Ind AS 113:
78. In accordance with Ind AS 36 an entity discloses information on impaired property, plant and equipment in addition to the information required by paragraph 73(e)(iv)-(vi).
79. Users of financial statements may also find the following information relevant to their needs:
80. *
80A. *
80B. *
80C. *
Effective Date81. *
81A. *
81B. *
81C. *
81D. *
81E. *
81F. *
81G. *
81H. *
81I. *
81J. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 68A, 69, 72 are amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[81K Omitted*81L. Ind AS 116 deleted paragraphs 4 and 27 and paragraph 3 of Appendix C and amended paragraphs 5, 10, 44, 68-69 and paragraph 2 of Appendix A. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
* Refer Appendix 1Appendix AChanges in Existing Decommissioning, Restoration and Similar LiabilitiesThis Appendix is an integral part of the Ind AS.Background1. Many entities have obligations to dismantle, remove and restore items of property, plant and equipment. In this Appendix such obligations are referred to as 'decommissioning, restoration and similar liabilities'. Under Ind AS 16, the cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. Ind AS 37 contains requirements on how to measure decommissioning, restoration and similar liabilities. This Appendix provides guidance on how to account for the effect of changes in the measurement of existing decommissioning, restoration and similar liabilities.
Scope2. This Appendix applies to changes in the measurement of any existing decommissioning, restoration or similar liability that is both:
3. This Appendix addresses how the effect of the following events that change the measurement of an existing decommissioning, restoration or similar liability should be accounted for:
4. Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate, shall be accounted for in accordance with paragraphs 5-7 below.
5. If the related asset is measured using the cost model:
6. If the related asset is measured using the revaluation model:
7. The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability shall be recognized in profit or loss as they occur. This applies under both the cost model and the revaluation model.
8. The periodic unwinding of the discount shall be recognized in profit or loss as a finance cost as it occurs. Capitalisation under Ind AS 23 is not permitted.
Appendix BThis appendix is an integral part of the Ind AS.Stripping Costs in the Production Phase of a Surface MineBackground1. In surface mining operations, entities may find it necessary to remove mine waste materials ('overburden') to gain access to mineral ore deposits. This waste removal activity is known as 'stripping'.
2. During the development phase of the mine (before production begins), stripping costs are usually capitalised as part of the depreciable cost of building, developing and constructing the mine. Those capitalised costs are depreciated or amortised on a systematic basis, usually by using the units of production method, once production begins.
3. A mining entity may continue to remove overburden and to incur stripping costs during the production phase of the mine.
4. The material removed when stripping in the production phase will not necessarily be a total waste; often it will be a combination of ore and waste. The ratio of ore to waste can range from uneconomic low grade to profitable high grade. Removal of material with a low ratio of ore to waste may produce some usable material, which can be used to produce inventory. This removal might also provide access to deeper levels of material that have a higher ratio of ore to waste. There can therefore be two benefits accruing to the entity from the stripping activity: usable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods.
5. This Appendix considers when and how to account separately for these two benefits arising from the stripping activity, as well as how to measure these benefits both initially and subsequently.
Scope6. This Appendix applies to waste removal costs that are incurred in surface mining activity during the production phase of the mine ('production stripping costs').
Issues7. This Appendix addresses the following issues:
8. To the extent that the benefit from the stripping activity is realised in the form of inventory produced, the entity shall account for the costs of that stripping overburden removal activity in accordance with the principles of Ind AS 2, Inventories. To the extent the benefit is improved access to ore, the entity shall recognise these costs as a non-current asset, say, Stripping Activity Asset, if the criteria in paragraph 9 below are met.
9. An entity shall recognise a stripping activity asset if, and only if, all of the following are met:
10. The stripping activity asset shall be accounted for as an addition to, or as an enhancement of, an existing asset. In other words, the stripping activity asset will be accounted for as part of an existing asset.
11. The stripping activity asset's classification as a tangible or intangible asset is the same as the existing asset. In other words, the nature of this existing asset will determine whether the entity shall classify the stripping activity asset as tangible or intangible.
Initial measurement of the stripping activity asset12. The entity shall initially measure the stripping activity asset at cost, this being the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. Examples of the types of costs that would be included as directly attributable overhead costs include an allocation of salary costs of the mine supervisor overseeing that component of the mine, and the rental costs of any equipment that was hired specifically to perform the stripping activity. Some incidental operations may take place at the same time as the production stripping activity, but which are not necessary for the production stripping activity to continue as planned. The costs associated with these incidental operations shall not be included in the cost of the stripping activity asset. An example of such type of incidental operations would be building an access road in the area in which the stripping campaign is taking place.
13. When the costs of the stripping activity asset and the inventory produced are not separately identifiable, the entity shall allocate the production stripping costs between the inventory produced and the stripping activity asset by using an allocation basis that is based on a relevant production measure. This production measure shall be calculated for the identified component of the ore body, and shall be used as a benchmark to identify the extent to which the additional activity of creating a future benefit has taken place. Examples of such measures include:
13A. The production measure shall not be calculated using a basis that is based on sales values. A basis that is based on sales values, in the context of stripping costs, is inappropriate because it is not closely linked to the activity taking place. Furthermore, if the current sales price of the relevant material is used in determining the allocation basis, the same current sales price will be applied to the volume of the mineral in both the extracted ore and the identified component. Hence, the relevant variable will be the volume of mineral in both the extracted ore and the identified component, i.e., the current sales price will not change the allocation basis. Applying a future sales price basis involves practical difficulties. Identifying a future sales price for ore that will be mined in the future can be difficult, given the volatility of market prices for many minerals. Further complexities may arise when more than one mineral is present (whether by-products or joint products) when the ore is extracted.
Subsequent measurement of the stripping activity asset14. After initial recognition, the stripping activity asset shall be carried at either its cost or its revalued amount less depreciation or amortisation and less impairment losses, in the same way as the existing asset of which it is a part.
15. The stripping activity asset shall be depreciated or amortised on a systematic basis, over the expected useful life of the identified component of the ore body that becomes more accessible as a result of the stripping activity. The units of production method shall be applied unless another method is more appropriate.
The expected useful life of the identified component of the ore body that is used to depreciate or amortise the stripping activity asset will differ from the expected useful life that is used to depreciate or amortise the mine itself and the related life-of-mine assets. The exception to this are those limited circumstances when the stripping activity provides improved access to the whole of the remaining ore body. For example, this might occur towards the end of a mine's useful life when the identified component represents the final part of the ore body to be extracted.Appendix CReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 16, Property, Plant and Equipment.1. [ Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers. [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
2. Appendix E, Service Concession Arrangements: Disclosures contained in Ind AS 115, Revenue from Contracts with Customers.]
[***] [Omitted '3' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]4. Appendix A, Intangible Assets-Web Site Costs contained in Ind AS 38, Intangible Assets.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 16 and the corresponding International Accounting Standard (IAS) 16, Property, Plant and Equipment, and IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities and IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine issued by the International Accounting Standards Board.Comparison with IAS 16, Property, Plant and Equipment, IFRIC 1 and IFRIC 201. The transitional provisions given in IAS 16 and IFRIC 1 and IFRIC 20 have not been given in Ind AS 16, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit' and loss is used instead of 'Statement of comprehensive income'.
3. [ ***.] [Omitted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
4. [ The following paragraph numbers appear as 'Deleted' in IAS 16. In order to maintain consistency with paragraph numbers of IAS 16, the paragraph numbers are retained in Ind AS 16:
5. Paragraphs 5 of Ind AS 16 has been modified, since Ind AS 40, Investment Property, prohibits the use of fair value model.
6. Paragraph 12 of Appendix B has been modified and paragraph 13A of Appendix B has been added to provide guidance with regard to the requirements contained in the paragraphs 12 and 13.
7. [ Paragraphs 80 to 80C of IAS 16 which deals with the transitional provisions have not been included in Ind AS 16 as all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards. Paragraphs 81 to 81I and 81K related to effective date have not been included in Ind AS 16 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 16, these paragraph numbers are retained in Ind AS 16.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
[***] [Omitted 'Indian Accounting Standard (Ind AS) 17' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).][Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]| Indian Accounting Standard (Ind AS) 17Leases(This Indian Accounting Standard includes paragraphs set inboldtype and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to leases.Scope2. This Standard 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 (see Ind AS 40,Investment Property);(b) investment property provided by lessors under operating leases (see Ind AS 40,Investment Property);(c) biological assets within the scope of Ind AS 41Agricultureheld by lessees under finance leases; or(d) biological assets within the scope of Ind AS 41 provided by lessors under operating leases.3. 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.Definitions4. The following terms are used in this Standard with the meanings specified:A leaseis an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.A finance leaseis a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.An operating leaseis a lease other than a finance lease.A non-cancellable leaseis a lease that is cancellable only:(a) upon the occurrence of some remote contingency;(b) with the permission of the lessor;(c) if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or(d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.Theinception of the leaseis the earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease. As at this date:(a) a lease is classified as either an operating or a finance lease; and(b) in the case of a finance lease, the amounts to be recognized at the commencement of the lease term are determined.Thecommencement of the lease termis the date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease (i.e. the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate).Thelease termis the non-cancellable period for which the lessee has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.Minimum lease paymentsare the payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:(a) for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or(b) for a lessor, any residual value guaranteed to the lessor by:(i) the lessee;(ii) a party related to the lessee; or(iii) a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it.Fair valueis the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.Economic lifeis either:(a) the period over which an asset is expected to be economically usable by one or more users; or(b) the number of production or similar units expected to be obtained from the asset by one or more users.Useful lifeis the estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity.Guaranteed residual valueis:(a) for a lessee, that part of the residual value that is guaranteed by the lessee or by a party related to the lessee (the amount of the guarantee being the maximum amount that could, in any event, become payable); and(b) for a lessor, that part of the residual value that is guaranteed by the lessee or by a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.Unguaranteed residual valueis that portion of the residual value of the leased asset, the realisation of which by the lessor is not assured or is guaranteed solely by a party related to the lessor.Initial direct costsare incremental costs that are directly attributable to negotiating and arranging a lease, except for such costs incurred by manufacturer or dealer lessors.Gross investment in the leaseis the aggregate of:(a) the minimum lease payments receivable by the lessor under a finance lease, and(b) any unguaranteed residual value accruing to the lessor.Net investment in the leaseis the gross investment in the lease discounted at the interest rate implicit in the lease.sis the difference between:(a) the gross investment in the lease, and(b) the net investment in the lease.Theinterest rate implicit in the leaseis the discount rate that, at the inception of the lease, causes the aggregate present value of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the lessor.Thelessee's incremental borrowing rate of interestis the rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to purchase the asset.Contingent rentis that portion of the lease payments that is not fixed in amount but is based on the future amount of a factor that changes other than with the passage of time (e.g. percentage of future sales, amount of future use, future price indices, future market rates of interest).5. 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.6. The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfilment of agreed conditions. These contracts are sometimes known as hire purchase contracts.6A. Ind AS 17 uses the term 'fair value' in a way that differs in some respects from the definition of fair value in Ind AS 113,Fair Value Measurement. Therefore, when applying Ind AS 17 an entity measures fair value in accordance with Ind AS 17, not Ind AS 113.Classification of leases7. The classification of leases adopted in this Standard is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. Risks include the possibilities of losses from idle capacity or technological obsolescence and of variations in return because of changing economic conditions. Rewards may be represented by the expectation of profitable operation over the asset's economic life and of gain from appreciation in value or realisation of a residual value.8. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.9. Because the transaction between a lessor and a lessee is based on a lease agreement between them, it is appropriate to use consistent definitions. The application of these definitions to the differing circumstances of the lessor and lessee may result in the same lease being classified differently by them. For example, this may be the case if the lessor benefits from a residual value guarantee provided by a party unrelated to the lessee.10.[Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract.] [See also Appendix B Evaluating the Substance of Transactions Involving the Legal Form of a Lease]Examples of situations that individually or in combination would normally lead to a lease being classified as a finance lease are:(a) the lease transfers ownership of the asset to the lessee by the end of the lease term;(b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised;(c) the lease term is for the major part of the economic life of the asset even if title is not transferred;(d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset; and(e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications.11. Indicators of situations that individually or in combination could also lead to a lease being classified as a finance lease are:(a) if the lessee can cancel the lease, the lessor's losses associated with the cancellation are borne by the lessee;(b) gains or losses from the fluctuation in the fair value of the residual accrue to the lessee (for example, in the form of a rent rebate equalling most of the sales proceeds at the end of the lease); and(c) the lessee has the ability to continue the lease for a secondary period at a rent that is substantially lower than market rent.12. The examples and indicators in paragraphs 10 and 11 are not always conclusive. If it is clear from other features that the lease does not transfer substantially all risks and rewards incidental to ownership, the lease is classified as an operating lease. For example, this may be the case if ownership of the asset transfers at the end of the lease for a variable payment equal to its then fair value, or if there are contingent rents, as a result of which the lessee does not have substantially all such risks and rewards.13. Lease classification is made at the inception of the lease. If at any time the lessee and the lessor agree to change the provisions of the lease, other than by renewing the lease, in a manner that would have resulted in a different classification of the lease under the criteria in paragraphs 7-12 if the changed terms had been in effect at the inception of the lease, the revised agreement is regarded as a new agreement over its term. However, changes in estimates (for example, changes in estimates of the economic life or of the residual value of the leased property), or changes in circumstances (for example, default by the lessee), do not give rise to a new classification of a lease for accounting purposes.14-15 [Refer Appendix 1]15A. When a lease includes both land and buildings elements, an entity assesses the classification of each element as a 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.16. 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.17. For a lease of land and buildings in which the amount that would initially be recognized 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.18.-19. [Refer Appendix 1]Leases in the financial statements of lesseesFinance leasesInitial recognition20. 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 recognized as an asset.21. Transactions and other events are accounted for and presented in accordance with their substance and financial reality and not merely with legal form. Although the legal form of a lease agreement is that the lessee may acquire no legal title to the leased asset, in the case of finance leases the substance and financial reality are that the lessee acquires the economic benefits of the use of the leased asset for the major part of its economic life in return for entering into an obligation to pay for that right an amount approximating, at the inception of the lease, the fair value of the asset and the related finance charge.22. If such lease transactions are not reflected in the lessee's balance sheet, the economic resources and the level of obligations of an entity are understated, thereby distorting financial ratios. Therefore, it is appropriate for a finance lease to be recognized in the lessee's balance sheet both as an asset and as an obligation to pay future lease payments. At the commencement of the lease term, the asset and the liability for the future lease payments are recognized in the balance sheet at the same amounts except for any initial direct costs of the lessee that are added to the amount recognized as an asset.23. It is not appropriate for the liabilities for leased assets to be presented in the financial statements as a deduction from the leased assets. If for the presentation of liabilities in the balance sheet a distinction is made between current and non-current liabilities, the same distinction is made for lease liabilities.24. Initial direct costs are often incurred in connection with specific leasing activities, such as negotiating and securing leasing arrangements. The costs identified as directly attributable to activities performed by the lessee for a finance lease are added to the amount recognized as an asset.Subsequent measurement25. Minimum lease payments shall be apportioned between the finance charge and the reduction of the outstanding liability. The finance charge shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents shall be charged as expenses in the periods in which they are incurred.26. In practice, in allocating the finance charge to periods during the lease term, a lessee may use some form of approximation to simplify the calculation.27. A finance lease gives rise to depreciation expense for depreciable assets as well as finance expense for each accounting period. The depreciation policy for depreciable leased assets shall be consistent with that for depreciable assets that are owned, and the depreciation recognized shall be calculated in accordance with Ind AS 16,Property, Plant and Equipmentand Ind AS 38,Intangible Assets. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life.28. The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. If there is reasonable certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise the asset is depreciated over the shorter of the lease term and its useful life.29. The sum of the depreciation expense for the asset and the finance expense for the period is rarely the same as the lease payments payable for the period, and it is, therefore, inappropriate simply to recognise the lease payments payable as an expense. Accordingly, the asset and the related liability are unlikely to be equal in amount after the commencement of the lease term.30. To determine whether a leased asset has become impaired, an entity applies Ind AS 36,Impairment of Assets.Disclosures31. Lessees shall, in addition to meeting the requirements of Ind AS 107,Financial Instruments: Disclosures, make the following disclosures for finance leases:(a) for each class of asset, the net carrying amount at the end of the reporting period.(b) a reconciliation between the total of future minimum lease payments at the end of the reporting period, and their present value. In addition, an entity shall disclose the total of future minimum lease payments at the end of the reporting period, and their present value, for each of the following periods:(i) not later than one year;(ii) later than one year and not later than five years;(iii) later than five years.(c) contingent rents recognized as an expense in the period.(d) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the end of the reporting period.(e) a general description of the lessee's material leasing arrangements including, but not limited to, the following:(i) the basis on which contingent rent payable is determined;(ii) the existence and terms of renewal or purchase options and escalation clauses; and(iii) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt, and further leasing.32. In addition, the requirements for disclosure in accordance with Ind AS 16, Ind AS 36, Ind AS 38, Ind AS 40 and Ind AS 41 apply to lessees for assets leased under finance leases.[Operating leases33. Lease payments under an operating lease shall be recognized as an expense on a straight-line basis over the lease term unless either:(a) another systematic basis is more representative of the time pattern of the user's benefit even if the payments to the lessors are not on that basis; or[See also Appendix A Operating Leases-Incentives.](b) the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor's expected inflationary cost increases. If payments to the lessor vary because of factors other than general inflation, then this condition is not met.]34. For operating leases, lease payments (excluding costs for services such as insurance and maintenance) are recognized as an expense on a straight-line basis unless another systematic basis is representative of the time pattern of the user's benefit, even if the payments are not on that basis.Disclosures35. Lessees shall, in addition to meeting the requirements of Ind AS 107, make the following disclosures for operating leases:(a) the total of future minimum lease payments under non-cancellable operating leases for each of the following periods:(i) not later than one year;(ii) later than one year and not later than five years;(iii) later than five years.(b) the total of future minimum sublease payments expected to be received under non-cancellable subleases at the end of the reporting period.(c) lease and sublease payments recognized as an expense in the period, with separate amounts for minimum lease payments, contingent rents, and sublease payments.(d) a general description of the lessee's significant leasing arrangements including, but not limited to, the following:(i) the basis on which contingent rent payable is determined;(ii) the existence and terms of renewal or purchase options and escalation clauses; and(iii) restrictions imposed by lease arrangements, such as those concerning dividends, additional debt and further leasing.Leases in the financial statements of lessorsFinance leasesInitial recognition36. Lessors shall recognise assets held under a finance lease in their balance sheets and present them as a receivable at an amount equal to the net investment in the lease.37. Under a finance lease substantially all the risks and rewards incidental to legal ownership are transferred by the lessor, and thus the lease payment receivable is treated by the lessor as repayment of principal and finance income to reimburse and reward the lessor for its investment and services.38. Initial direct costs are often incurred by lessors and include amounts such as commissions, legal fees and internal costs that are incremental and directly attributable to negotiating and arranging a lease. They exclude general overheads such as those incurred by a sales and marketing team. For finance leases other than those involving manufacturer or dealer lessors, initial direct costs are included in the initial measurement of the finance lease receivable and reduce the amount of income recognized over the lease term. The interest rate implicit in the lease is defined in such a way that the initial direct costs are included automatically in the finance lease receivable; there is no need to add them separately. Costs incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease are excluded from the definition of initial direct costs. As a result, they are excluded from the net investment in the lease and are recognized as an expense when the selling profit is recognized, which for a finance lease is normally at the commencement of the lease term.Subsequent measurement39. The recognition of finance income shall be based on a pattern reflecting a constant periodic rate of return on the lessor's net investment in the finance lease.40. A lessor aims to allocate finance income over the lease term on a systematic and rational basis. This income allocation is based on a pattern reflecting a constant periodic return on the lessor's net investment in the finance lease. Lease payments relating to the period, excluding costs for services, are applied against the gross investment in the lease to reduce both the principal and the unearned finance income.41. Estimated unguaranteed residual values used in computing the lessor's gross investment in the lease are reviewed regularly. If there has been a reduction in the estimated unguaranteed residual value, the income allocation over the lease term is revised and any reduction in respect of amounts accrued is recognized immediately.41A. An asset under a finance lease that is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105,Non-current Assets Held for Sale and Discontinued Operations, shall be accounted for in accordance with that Ind AS.42. Manufacturer or dealer lessors shall recognise selling profit or loss in the period, in accordance with the policy followed by the entity for outright sales. If artificially low rates of interest are quoted, selling profit shall be restricted to that which would apply if a market rate of interest were charged. Costs incurred by manufacturer or dealer lessors in connection with negotiating and arranging a lease shall be recognized as an expense when the selling profit is recognized.43. Manufacturers or dealers often offer to customers the choice of either buying or leasing an asset. A finance lease of an asset by a manufacturer or dealer lessor gives rise to two types of income:(a) profit or loss equivalent to the profit or loss resulting from an outright sale of the asset being leased, at normal selling prices, reflecting any applicable volume or trade discounts; and(b) finance income over the lease term.44. The sales revenue recognized at the commencement of the lease term by a manufacturer or dealer lessor is the fair value of the asset, or, if lower, the present value of the minimum lease payments accruing to the lessor, computed at a market rate of interest. The cost of sale recognized at the commencement of the lease term is the cost, or carrying amount if different, of the leased property less the present value of the unguaranteed residual value. The difference between the sales revenue and the cost of sale is the selling profit, which is recognized in accordance with the entity's policy for outright sales.45. Manufacturer or dealer lessors sometimes quote artificially low rates of interest in order to attract customers. The use of such a rate would result in an excessive portion of the total income from the transaction being recognized at the time of sale. If artificially low rates of interest are quoted, selling profit is restricted to that which would apply if a market rate of interest were charged.46. Costs incurred by a manufacturer or dealer lessor in connection with negotiating and arranging a finance lease are recognized as an expense at the commencement of the lease term because they are mainly related to earning the manufacturer's or dealer's selling profit.Disclosures47. Lessors shall, in addition to meeting the requirements in Ind AS 107, disclose the following for finance leases:(a) a reconciliation between the gross investment in the lease at the end of the reporting period, and the present value of minimum lease payments receivable at the end of the reporting period. In addition, an entity shall disclose the gross investment in the lease and the present value of minimum lease payments receivable at the end of the reporting period, for each of the following periods:(i) not later than one year;(ii) later than one year and not later than five years;(iii) later than five years.(b) unearned finance income.(c) the unguaranteed residual values accruing to the benefit of the lessor.(d) the accumulated allowance for uncollectible minimum lease payments receivable.(e) contingent rents recognized as income in the period.(f) a general description of the lessor's material leasing arrangements.48. As an indicator of growth it is often useful also to disclose the gross investment less unearned income in new business added during the period, after deducting the relevant amounts for canceled leases.[Operating leases49. Lessors shall present assets subject to operating leases in their balance sheet according to the nature of the asset.50. Lease income from operating leases (excluding amounts for services such as insurance and maintenance) shall be recognized in income on a straight-line basis over the lease term, unless either:(a) another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished, even if the payments to the lessors are not on that basis; or[See also Appendix A Operating Leases-Incentives.](b) the payments to the lessor are structured to increase in line with expected general inflation to compensate for the lessor's expected inflationary cost increases. If payments to the lessor vary according to factors other than inflation, then this condition is not met.]51. Costs, including depreciation, incurred in earning the lease income are recognized as an expense. Lease income (excluding receipts for services provided such as insurance and maintenance) is recognized on a straight-line basis over the lease term even if the receipts are not on such a basis, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.52. Initial direct costs incurred by lessors in negotiating and arranging an operating lease shall be added to the carrying amount of the leased asset and recognized as an expense over the lease term on the same basis as the lease income.53. The depreciation policy for depreciable leased assets shall be consistent with the lessor's normal depreciation policy for similar assets, and depreciation shall be calculated in accordance with Ind AS 16 and Ind AS 38.54. To determine whether a leased asset has become impaired, an entity applies Ind AS 36.55. A manufacturer or dealer lessor does not recognise any selling profit on entering into an operating lease because it is not the equivalent of a sale.Disclosures56. Lessors shall, in addition to meeting the requirements of Ind AS 107, disclose the following for operating leases:(a) the future minimum lease payments under non-cancellable operating leases in the aggregate and for each of the following periods:(i) not later than one year;(ii) later than one year and not later than five years;(iii) later than five years.(b) total contingent rents recognized as income in the period.(c) a general description of the lessor's leasing arrangements.57. In addition, the disclosure requirements in Ind AS 16, Ind AS 36, Ind AS 38, Ind AS 40 and Ind AS 41 apply to lessors for assets provided under operating leases.Sale and leaseback transactions58. A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset. The lease payment and the sale price are usually interdependent because they are negotiated as a package. The accounting treatment of a sale and leaseback transaction depends upon the type of lease involved.59. If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount shall not be immediately recognized as income by a seller-lessee. Instead, it shall be deferred and amortised over the lease term.60. If the leaseback is a finance lease, the transaction is a means whereby the lessor provides finance to the lessee, with the asset as security. For this reason it is not appropriate to regard an excess of sales proceeds over the carrying amount as income. Such excess is deferred and amortised over the lease term.61. If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss shall be recognized immediately. If the sale price is below fair value, any profit or loss shall be recognized immediately except that, if the loss is compensated for by future lease payments at below market price, it shall be deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortised over the period for which the asset is expected to be used.62. If the leaseback is an operating lease, and the lease payments and the sale price are at fair value, there has in effect been a normal sale transaction and any profit or loss is recognized immediately.63. For operating leases, if the fair value at the time of a sale and leaseback transaction is less than the carrying amount of the asset, a loss equal to the amount of the difference between the carrying amount and fair value shall be recognized immediately.64. For finance leases, no such adjustment is necessary unless there has been an impairment in value, in which case the carrying amount is reduced to recoverable amount in accordance with Ind AS 36.65. Disclosure requirements for lessees and lessors apply equally to sale and leaseback transactions. The required description of material leasing arrangements leads to disclosure of unique or unusual provisions of the agreement or terms of the sale and leaseback transactions.66. Sale and leaseback transactions may trigger the separate disclosure criteria in Ind AS 1,Presentation of Financial Statements.Appendix AOperating Leases-IncentivesThis appendix is an integral part of the Ind AS.Issue1. In negotiating a new or renewed operating lease, the lessor may provide incentives for the lessee to enter into the agreement. Examples of such incentives are an up-front cash payment to the lessee or the reimbursement or assumption by the lessor of costs of the lessee (such as relocation costs, leasehold improvements and costs associated with a pre-existing lease commitment of the lessee). Alternatively, initial periods of the lease term may be agreed to be rent-free or at a reduced rent.2. The issue is how incentives in an operating lease should be recognized in the financial statements of both the lessee and the lessor.Accounting Principles3. All incentives for the agreement of a new or renewed operating lease shall be recognized as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive's nature or form or the timing of payments.4. The lessor shall recognise the aggregate cost of incentives as a reduction of rental income over the lease term, on a straight-line basis unless another systematic basis is representative of the time pattern over which the benefit of the leased asset is diminished.5. The lessee shall recognise the aggregate benefit of incentives as a reduction of rental expense over the lease term, on a straight-line basis unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.6. Costs incurred by the lessee, including costs in connection with a pre-existing lease (for example costs for termination, relocation or leasehold improvements), shall be accounted for by the lessee in accordance with the Standards applicable to those costs, including costs which are effectively reimbursed through an incentive arrangement.Appendix BEvaluating the Substance of Transactions Involving the Legal Form of a LeaseThis appendix is an integral part of the Ind AS.Issue1. An Entity may enter into a transaction or a series of structured transactions (an arrangement) with an unrelated party or parties (an Investor) that involves the legal form of a lease. For example, an Entity may lease assets to an Investor and lease the same assets back, or alternatively, legally sell assets and lease the same assets back. The form of each arrangement and its terms and conditions can vary significantly. In the lease and leaseback example, it may be that the arrangement is designed to achieve a tax advantage for the Investor that is shared with the Entity in the form of a fee, and not to convey the right to use an asset.2. When an arrangement with an Investor involves the legal form of a lease, the issues are:(a) how to determine whether a series of transactions is linked and should be accounted for as one transaction;(b) whether the arrangement meets the definition of a lease under Ind AS 17; and, if not,(i) whether a separate investment account and lease payment obligations that might exist represent assets and liabilities of the Entity ;(ii) how the Entity should account for other obligations resulting from the arrangement; and(iii) how the Entity should account for a fee it might receive from an Investor.Accounting Principles3. A series of transactions that involve the legal form of a lease is linked and shall be accounted for as one transaction when the overall economic effect cannot be understood without reference to the series of transactions as a whole. This is the case, for example, when the series of transactions are closely interrelated, negotiated as a single transaction, and takes place concurrently or in a continuous sequence.4. The accounting shall reflect the substance of the arrangement. All aspects and implications of an arrangement shall be evaluated to determine its substance, with weight given to those aspects and implications that have an economic effect.5. Ind AS 17 applies when the substance of an arrangement includes the conveyance of the right to use an asset for an agreed period of time. Indicators that individually demonstrate that an arrangement may not, in substance, involve a lease under Ind AS 17 include :(a) an Entity retains all the risks and rewards incident to ownership of an underlying asset and enjoys substantially the same rights to its use as before the arrangement;(b) the primary reason for the arrangement is to achieve a particular tax result, and not to convey the right to use an asset; and(c) an option is included on terms that make its exercise almost certain (e.g. a put option that is exercisable at a price sufficiently higher than the expected fair value when it becomes exercisable).6. The definitions and guidance in paragraphs 49-64 of theFramework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards, issued by the Institute of Chartered Accountants of India, shall be applied in determining whether, in substance, a separate investment account and lease payment obligations represent assets and liabilities of the Entity. Indicators that collectively demonstrate that, in substance, a separate investment account and lease payment obligations do not meet the definitions of an asset and a liability and shall not be recognized by the Entity include :(a) the Entity is not able to control the investment account in pursuit of its own objectives and is not obligated to pay the lease payments. This occurs when, for example, a prepaid amount is placed in a separate investment account to protect the Investor and may only be used to pay the Investor, the Investor agrees that the lease payment obligations are to be paid from funds in the investment account, and the Entity has no ability to withhold payments to the Investor from the investment account;(b) the Entity has only a remote risk of reimbursing the entire amount of any fee received from an Investor and possibly paying some additional amount, or, when a fee has not been received, only a remote risk of paying an amount under other obligations (e.g. a guarantee). Only a remote risk of payment exists when, for example, the terms of the arrangement require that a prepaid amount is invested in risk-free assets that are expected to generate sufficient cash flows to satisfy the lease payment obligations; and(c) other than the initial cash flows at inception of the arrangement, the only cash flows expected under the arrangement are the lease payments that are satisfied solely from funds withdrawn from the separate investment account established with the initial cash flows.7. Other obligations of an arrangement, including any guarantees provided and obligations incurred upon early termination, shall be accounted for under Ind AS 37,Provisions, Contingent Liabilities and Contingent Assets, Ind AS 104,Insurance Contractsor Ind AS 109,Financial Instrumentsdepending on the terms.8. [ The requirements in Ind AS 115, Revenue from Contracts with Customers, shall be applied to the facts and circumstances of each arrangement in determining when to recognise a fee as income that an Entity might receive. Factors such as whether there is continuing involvement in the form of significant future performance obligations necessary to earn the fee, whether there are retained risks, the terms of any guarantee arrangements, and the risk of repayment of the fee, shall be considered. Indicators that individually demonstrate that recognition of the entire fee as income when received, if received at the beginning of the arrangement, is inappropriate include:] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).](a) obligations either to perform or to refrain from certain significant activities are conditions of earning the fee received, and therefore execution of a legally binding arrangement is not the most significant act required by the arrangement;(b) limitations are put on the use of the underlying asset that have the practical effect of restricting and significantly changing the Entity's ability to use (e.g. deplete, sell or pledge as collateral) the asset;(c) the possibility of reimbursing any amount of the fee and possibly paying some additional amount is not remote. This occurs when, for example,(i) the underlying asset is not a specialised asset that is required by the Entity to conduct its business, and therefore there is a possibility that the Entity may pay an amount to terminate the arrangement early; or(ii) the Entity is required by the terms of the arrangement, or has some or total discretion, to invest a prepaid amount in assets carrying more than an insignificant amount of risk (e.g. currency, interest rate or credit risk). In this circumstance, the risk of the investment's value being insufficient to satisfy the lease payment obligations is not remote, and therefore there is a possibility that the Entity may be required to pay some amount.9. The fee shall be presented in the statement of profit and loss based on its economic substance and nature.Disclosure10. All aspects of an arrangement that does not, in substance, involve a lease under Ind AS 17 shall be considered in determining the appropriate disclosures that are necessary to understand the arrangement and the accounting treatment adopted. An Entity shall disclose the following in each period that an arrangement exists:(a) a description of the arrangement including :(i) the underlying asset and any restrictions on its use;(ii) the life and other significant terms of the arrangement;(iii) the transactions that are linked together, including any options; and(b) the accounting treatment applied to any fee received, the amount recognized as income in the period, and the line item of the statement of profit and loss in which it is included.The disclosures required in accordance with paragraph 10 of this appendix shall be provided individually for each arrangement or in aggregate for each class of arrangement. A class is a grouping of arrangements with underlying assets of a similar nature (e.g. power plants).Appendix CDetermining whether an Arrangement contains a LeaseThis appendix is an integral part of the Ind AS.Background1. An entity may enter into an arrangement, comprising a transaction or a series of related transactions, that does not take the legal form of a lease but conveys a right to use an asset (e.g. an item of property, plant or equipment) in return for a payment or series of payments. Examples of arrangements in which one entity (the supplier) may convey such a right to use an asset to another entity (the purchaser), often together with related services, include :• outsourcing arrangements (e.g. the outsourcing of the data processing functions of an entity).• arrangements in the telecommunications industry, in which suppliers of network capacity enter into contracts to provide purchasers with rights to capacity.• take-or-pay and similar contracts, in which purchasers must make specified payments regardless of whether they take delivery of the contracted products or services (e.g. a take-or-pay contract to acquire substantially all of the output of a supplier's power generator).2. This appendix provides guidance for determining whether such arrangements are, or contain, leases that should be accounted for in accordance with Ind AS 17. This Appendix does not provide guidance for determining how such a lease should be classified under Ind AS 17.3. In some arrangements, the underlying asset that is the subject of the lease is a portion of a larger asset. This appendix does not address how to determine when a portion of a larger asset is itself the underlying asset for the purposes of applying Ind AS 17. Nevertheless, arrangements in which the underlying asset would represent a unit of account in either Ind AS 16 or Ind AS 38 are within the scope of this appendix.Scope4. This appendix does not apply to arrangements that :(a) are, or contain, leases excluded from the scope of Ind AS 17; or(b) [ are public-to-private service concession arrangements within the scope of Appendix D of Ind AS 115,Service Concession Arrangements] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]Issues5. The issues addressed in this appendix are :(a) how to determine whether an arrangement is, or contains, a lease as defined in Ind AS 17;(b) when the assessment or a reassessment of whether an arrangement is, or contains, a lease should be made; and(c) if an arrangement is, or contains, a lease, how the payments for the lease should be separated from payments for any other elements in the arrangement.Accounting PrinciplesDetermining whether an arrangement is, or contains, a lease6. Determining whether an arrangement is, or contains, a lease shall be based on the substance of the arrangement and requires an assessment of whether :(a) fulfilment of the arrangement is dependent on the use of a specific asset or assets (the asset); and(b) the arrangement conveys a right to use the asset.Fulfilment of the arrangement is dependent on the use of a specific asset7. Although a specific asset may be explicitly identified in an arrangement, it is not the subject of a lease if fulfilment of the arrangement is not dependent on the use of the specified asset. For example, if the supplier is obliged to deliver a specified quantity of goods or services and has the right and ability to provide those goods or services using other assets not specified in the arrangement, then fulfilment of the arrangement is not dependent on the specified asset and the arrangement does not contain a lease. A warranty obligation that permits or requires the substitution of the same or similar assets when the specified asset is not operating properly does not preclude lease treatment. In addition, a contractual provision (contingent or otherwise) permitting or requiring the supplier to substitute other assets for any reason on or after a specified date does not preclude lease treatment before the date of substitution.8. An asset has been implicitly specified if, for example, the supplier owns or leases only one asset with which to fulfil the obligation and it is not economically feasible or practicable for the supplier to perform its obligation through the use of alternative assets.Arrangement conveys a right to use the asset9. An arrangement conveys the right to use the asset if the arrangement conveys to the purchaser (lessee) the right to control the use of the underlying asset. The right to control the use of the underlying asset is conveyed if any one of the following conditions is met :(a) The purchaser has the ability or right to operate the asset or direct others to operate the asset in a manner it determines while obtaining or controlling more than an insignificant amount of the output or other utility of the asset.(b) The purchaser has the ability or right to control physical access to the underlying asset while obtaining or controlling more than an insignificant amount of the output or other utility of the asset.(c) Facts and circumstances indicate that it is remote that one or more parties other than the purchaser will take more than an insignificant amount of the output or other utility that will be produced or generated by the asset during the term of the arrangement, and the price that the purchaser will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit of output as of the time of delivery of the output.Assessing or reassessing whether an arrangement is, or contains, a lease10. The assessment of whether an arrangement contains a lease shall be made at the inception of the arrangement, being the earlier of the date of the arrangement and the date of commitment by the parties to the principal terms of the arrangement, on the basis of all of the facts and circumstances. A reassessment of whether the arrangement contains a lease after the inception of the arrangement shall be made only if any one of the following conditions is met :(a) There is a change in the contractual terms, unless the change only renews or extends the arrangement.(b) A renewal option is exercised or an extension is agreed to by the parties to the arrangement, unless the term of the renewal or extension had initially been included in the lease term in accordance with paragraph 4 of Ind AS 17. A renewal or extension of the arrangement that does not include modification of any of the terms in the original arrangement before the end of the term of the original arrangement shall be evaluated under paragraphs 6-9 only with respect to the renewal or extension period.(c) There is a change in the determination of whether fulfilment is dependent on a specified asset.(d) There is a substantial change to the asset, for example a substantial physical change to property, plant or equipment.11. A reassessment of an arrangement shall be based on the facts and circumstances as of the date of reassessment, including the remaining term of the arrangement. Changes in estimate (for example, the estimated amount of output to be delivered to the purchaser or other potential purchasers) would not trigger a reassessment. If an arrangement is reassessed and is determined to contain a lease (or not to contain a lease), lease accounting shall be applied (or cease to apply) from :(a) in the case of (a), (c) or (d) in paragraph 10, when the change in circumstances giving rise to the reassessment occurs;(b) in the case of (b) in paragraph 10, the inception of the renewal or extension period.Separating payments for the lease from other payments12. If an arrangement contains a lease, the parties to the arrangement shall apply the requirements of Ind AS 17 to the lease element of the arrangement, unless exempted from those requirements in accordance with paragraph 2 of Ind AS 17. Accordingly, if an arrangement contains a lease, that lease shall be classified as a finance lease or an operating lease in accordance with paragraphs 7-17 of Ind AS 17. Other elements of the arrangement not within the scope of Ind AS 17 shall be accounted for in accordance with other Standards.13. For the purpose of applying the requirements of Ind AS 17, payments and other consideration required by the arrangement shall be separated at the inception of the arrangement or upon a reassessment of the arrangement into those for the lease and those for other elements on the basis of their relative fair values. The minimum lease payments as defined in paragraph 4 of Ind AS 17 include only payments for the lease (i.e. the right to use the asset) and exclude payments for other elements in the arrangement (e.g. for services and the cost of inputs).14. In some cases, separating the payments for the lease from payments for other elements in the arrangement will require the purchaser to use an estimation technique. For example, a purchaser may estimate the lease payments by reference to a lease agreement for a comparable asset that contains no other elements, or by estimating the payments for the other elements in the arrangement by reference to comparable agreements and then deducting these payments from the total payments under the arrangement.15. If a purchaser concludes that it is impracticable to separate the payments reliably, it shall:(a) in the case of a finance lease, recognise an asset and a liability at an amount equal to the fair value of the underlying asset that was identified in paragraphs 7 and 8 as the subject of the lease. Subsequently the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser's incremental borrowing rate of interest.(b) in the case of an operating lease, treat all payments under the arrangement as lease payments for the purposes of complying with the disclosure requirements of Ind AS 17, but(i) disclose those payments separately from minimum lease payments of other arrangements that do not include payments for non-lease elements, and(ii) state that the disclosed payments also include payments for non-lease elements in the arrangement.Appendix DReferences to matters contained in other Indian Accounting StandardsThis appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 17,Leases.1. [ Appendix D,Service Concession Arrangements containedin Ind AS 115,Revenue from Contracts with Customers. [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]2. Appendix E,Service Concession Arrangements: Disclosurescontained in Ind AS 115,Revenue from Contracts with Customers.]3. Appendix A,Intangible Assets-Web Site Costscontained in Ind AS 38,Intangible Assets.Appendix 1Note:This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 17 and the corresponding International Accounting Standard (IAS) 17, Leases, SIC 15, Operating Leases - Incentives, SIC 27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease and IFRIC 4, Determining whether an Arrangement contains a Lease, issued by the International Accounting Standards Board.Comparison with IAS 17, Leases, SIC 15, SIC 27 and IFRIC 41. Paragraph 18 of IAS 17 dealing with measurement of the land and buildings elements when the lessee's interest in both land and buildings is classified as an investment property in accordance with Ind AS 40,Investment Property, if the fair value model is adopted and paragraph 19 of IAS 17 dealing with property interest held under an operating lease as an investment property, if the definition of investment property is otherwise met and fair value model is applied, have been deleted, since Ind AS 40,Investment Property, prohibits the use of fair value model. However, paragraph numbers have been retained in Ind AS 17 to maintain consistency with paragraph numbers of IAS 17.2. Paragraphs 33 and 50 have been modified to provide that where the escalation of lease rentals is in line with the expected general inflation so as to compensate the lessor for expected inflationary cost, the increases in the rentals shall not be straight lined.3. Paragraph numbers 14 and 15 appear as 'Deleted' in IAS 17. In order to maintain consistency with paragraph numbers of IAS 17, the paragraph numbers are retained in Ind AS 17.4. The transitional provisions given in IAS 17 and IFRIC 4 have not been given in Ind AS 17, since all transitional provisions related to Ind ASs, wherever considered appropriate, have been included in Ind AS 101,First-time Adoption of Indian Accounting Standardscorresponding to IFRS 1,First-time Adoption of International Financial Reporting Standards.5. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.6. Following references to 'Examples of linked transactions' or 'The substance of an arrangement' which are not integral part of SIC 27 have not been included in Ind AS 17 :(i) Reference to paragraph A2(a) of 'Examples of linked transactions' in paragraph 2(b)(i) of Appendix B,(ii) Reference to illustrations given in 'Examples of linked transactions' in paragraph 3 of Appendix B,(iii)Reference to illustrations given under 'The substance of an arrangement' in paragraph 5 of Appendix B. |
| [Indian Accounting Standard (Ind AS) 18]Revenue(This Indian Accounting Standard includes paragraphs set inboldtype and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)ObjectiveIncome is defined in theFramework for the Preparation and Presentation of Financial Statementsissued by the Institute of Chartered Accountants of India as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events.The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognized when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.Scope1. This Standard shall be applied in accounting for revenue arising from the following transactions and events2:(a) the sale of goods;(b) the rendering of services; and(c) the use by others of entity assets yielding interest and royalties.2For real estate developers, revenue shall be accounted for in accordance with the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India.1A. This Standard deals with recognition of interest. However, the following are dealt in accordance with Ind AS 109,Financial Instruments:(a) measurement of interest charges for the use of cash or cash equivalents or amounts due to the entity; and(b) recognition and measurement of dividend.1B. The impairment of any contractual right to receive cash or another financial asset arising from this Standard shall be dealt in accordance with Ind AS 109,Financial Instruments.2. [Refer Appendix 1]3. Goods includes goods produced by the entity for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale.4. The rendering of services typically involves the performance by the entity of a contractually agreed task over an agreed period of time. The services may be rendered within a single period or over more than one period. Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in Ind AS 11Construction Contracts.5. The use by others of entity assets gives rise to revenue in the form of:(a) interest-charges for the use of cash or cash equivalents or amounts due to the entity;(b) royalties-charges for the use of long-term assets of the entity, for example, patents, trademarks, copyrights and computer software; and(c) dividends-distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital.6. This Standard does not deal with revenue arising from:(a) lease agreements (see Ind AS 17 Leases);(b) dividends arising from investments which are accounted for under the equity method (see Ind AS 28Investments in Associates and Joint Ventures);(c) insurance contracts within the scope of Ind AS 104 Insurance Contracts;(d) changes in the fair value of financial assets and financial liabilities or their disposal (see Ind AS 109Financial Instruments);(e) changes in the value of other current assets;(f) initial recognition and from changes in the fair value of biological assets related to agricultural activity (see Ind AS 41Agriculture);(g) initial recognition of agricultural produce (see Ind AS 41); and(h) the extraction of mineral ores.Definitions7. The following terms are used in this Standard with the meanings specified:Revenueis the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.Fair valueis the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.(See Ind AS 113,Fair Value Measurement)8. Revenue includes only the gross inflows of economic benefits received and receivable by the entity on its own account. Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. Therefore, they are excluded from revenue. Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.Measurement of revenue9. Revenue shall be measured at the fair value of the consideration received or receivable.33seealso Appendix A of this standard, Revenue-Barter Transactions Involving Advertising Services.10. The amount of revenue arising on a transaction is usually determined by agreement between the entity and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.11. In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable. For example, an entity may provide interest-free credit to the buyer or accept a note receivable bearing a below-market interest rate from the buyer as consideration for the sale of goods. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The imputed rate of interest is the more clearly determinable of either:(a) the prevailing rate for a similar instrument of an issuer with a similar credit rating; or(b) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.The difference between the fair value and the nominal amount of the consideration is recognized as interest revenue in accordance with Ind AS 109.12. When goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfil demand on a timely basis in a particular location. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.Identification of the transaction13. The recognition criteria in this Standard are usually applied separately to each transaction. However, in certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. For example, when the selling price of a product includes an identifiable amount for subsequent servicing, that amount is deferred and recognized as revenue over the period during which the service is performed. Conversely, the recognition criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole. For example, an entity may sell goods and, at the same time, enter into a separate agreement to repurchase the goods at a later date, thus negating the substantive effect of the transaction; in such a case, the two transactions are dealt with together.Sale of goods14. Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied:(a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;(b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;(c) the amount of revenue can be measured reliably;(d) it is probable that the economic benefits associated with the transaction will flow to the entity; and(e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.15. The assessment of when an entity has transferred the significant risks and rewards of ownership to the buyer requires an examination of the circumstances of the transaction. In most cases, the transfer of the risks and rewards of ownership coincides with the transfer of the legal title or the passing of possession to the buyer. This is the case for most retail sales. In other cases, the transfer of risks and rewards of ownership occurs at a different time from the transfer of legal title or the passing of possession.16. If the entity retains significant risks of ownership, the transaction is not a sale and revenue is not recognized. An entity may retain a significant risk of ownership in a number of ways. Examples of situations in which the entity may retain the significant risks and rewards of ownership are:(a) when the entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions;(b) when the receipt of the revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of the goods;(c) when the goods are shipped subject to installation and the installation is a significant part of the contract which has not yet been completed by the entity; and(d) when the buyer has the right to rescind the purchase for a reason specified in the sales contract and the entity is uncertain about the probability of return.17. If an entity retains only an insignificant risk of ownership, the transaction is a sale and revenue is recognized. For example, a seller may retain the legal title to the goods solely to protect the collectability of the amount due. In such a case, if the entity has transferred the significant risks and rewards of ownership, the transaction is a sale and revenue is recognized. Another example of an entity retaining only an insignificant risk of ownership may be a retail sale when a refund is offered if the customer is not satisfied. Revenue in such cases is recognized at the time of sale provided the seller can reliably estimate future returns and recognises a liability for returns based on previous experience and other relevant factors.18. Revenue is recognized only when it is probable that the economic benefits associated with the transaction will flow to the entity. In some cases, this may not be probable until the consideration is received or until an uncertainty is removed. For example, it may be uncertain that a foreign governmental authority will grant permission to remit the consideration from a sale in a foreign country. When the permission is granted, the uncertainty is removed and revenue is recognized. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible amount or the amount in respect of which recovery has ceased to be probable is recognized as an expense, rather than as an adjustment of the amount of revenue originally recognized.19. Revenue and expenses that relate to the same transaction or other event are recognized simultaneously; this process is commonly referred to as the matching of revenues and expenses. Expenses, including warranties and other costs to be incurred after the shipment of the goods can normally be measured reliably when the other conditions for the recognition of revenue have been satisfied. However, revenue cannot be recognized when the expenses cannot be measured reliably; in such circumstances, any consideration already received for the sale of the goods is recognized as a liability.Rendering of services20. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:(a) the amount of revenue can be measured reliably;(b) it is probable that the economic benefits associated with the transaction will flow to the entity;(c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and(d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.44seealso Appendix A of this standard, Revenue-Barter Transactions Involving Advertising Services and Appendix B of Ind AS 17 , Evaluating the Substance of Transactions Involving the Legal Form of a Lease.21. The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. Under this method, revenue is recognized in the accounting periods in which the services are rendered. The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period. Ind AS 11 also requires the recognition of revenue on this basis. The requirements of that Standard are generally applicable to the recognition of revenue and the associated expenses for a transaction involving the rendering of services.22. Revenue is recognized only when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognized as an expense, rather than as an adjustment of the amount of revenue originally recognized.23. An entity is generally able to make reliable estimates after it has agreed to the following with the other parties to the transaction:(a) each party's enforceable rights regarding the service to be provided and received by the parties;(b) the consideration to be exchanged; and(c) the manner and terms of settlement.It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system. The entity reviews and, when necessary, revises the estimates of revenue as the service is performed. The need for such revisions does not necessarily indicate that the outcome of the transaction cannot be estimated reliably.24. The stage of completion of a transaction may be determined by a variety of methods. An entity uses the method that measures reliably the services performed. Depending on the nature of the transaction, the methods may include:(a) surveys of work performed;(b) services performed to date as a percentage of total services to be performed; or(c) the proportion that costs incurred to date bear to the estimated total costs of the transaction. Only costs that reflect services performed to date are included in costs incurred to date. Only costs that reflect services performed or to be performed are included in the estimated total costs of the transaction.Progress payments and advances received from customers often do not reflect the services performed.25. For practical purposes, when services are performed by an indeterminate number of acts over a specified period of time, revenue is recognized on a straight-line basis over the specified period unless there is evidence that some other method better represents the stage of completion. When a specific act is much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed.26. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognized only to the extent of the expenses recognized that are recoverable.27. During the early stages of a transaction, it is often the case that the outcome of the transaction cannot be estimated reliably. Nevertheless, it may be probable that the entity will recover the transaction costs incurred. Therefore, revenue is recognized only to the extent of costs incurred that are expected to be recoverable. As the outcome of the transaction cannot be estimated reliably, no profit is recognized.28. When the outcome of a transaction cannot be estimated reliably and it is not probable that the costs incurred will be recovered, revenue is not recognized and the costs incurred are recognized as an expense. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue is recognized in accordance with paragraph 20 rather than in accordance with paragraph 26.Interest and Royalties29. Revenue arising from the use by others of entity assets yielding interest and royalties shall be recognized on the bases set out in paragraph 30 when:(a) it is probable that the economic benefits associated with the transaction will flow to the entity; and(b) the amount of the revenue can be measured reliably.30. Revenue shall be recognized on the following bases:(a) interest shall be recognized using the effective interest method as set out in Ind AS109; and(b) royalties shall be recognized on an accrual basis in accordance with the substance of the relevant agreement.(c) Omitted*31. Omitted*32. Omitted** Refer Appendix 133. Royalties accrue in accordance with the terms of the relevant agreement and are usually recognized on that basis unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue on some other systematic and rational basis.34. Revenue is recognized only when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when an uncertainty arises about the collectibility of an amount already included in revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognized as an expense, rather than as an adjustment of the amount of revenue originally recognized.Disclosure35. An entity shall disclose:(a) the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services;(b) the amount of each significant category of revenue recognized during the period, including revenue arising from:(i) the sale of goods;(ii) the rendering of services; and(iii) Omitted*(iv) royalties(v) Omitted *(c) the amount of revenue arising from exchanges of goods or services included in each significant category of revenue.* Refer Appendix 136. An entity discloses any contingent liabilities and contingent assets in accordance with Ind AS 37,Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise from items such as warranty costs, claims, penalties or possible losses.Appendix ARevenue-Barter Transactions Involving Advertising ServicesIssue1. An entity (Seller) may enter into a barter transaction to provide advertising services in exchange for receiving advertising services from its customer (Customer). Advertisements may be displayed on the Internet or poster sites, broadcast on the television or radio, published in magazines or journals, or presented in another medium.2. In some cases, no cash or other consideration is exchanged between the entities. In some other cases, equal or approximately equal amounts of cash or other consideration are also exchanged.3. A Seller that provides advertising services in the course of its ordinary activities recognises revenue under Ind AS 18 from a barter transaction involving advertising when, amongst other criteria, the services exchanged are dissimilar (paragraph 12 of Ind AS 18) and the amount of revenue can be measured reliably (paragraph 20(a) of Ind AS 18.This Appendix only applies to an exchange of dissimilar advertising services. An exchange of similar advertising services is not a transaction that generates revenue under Ind AS 18.4. The issue is under what circumstances can a Seller reliably measure revenue at the fair value of advertising services received or provided in a barter transaction.Accounting Principles5. Revenue from a barter transaction involving advertising cannot be measured reliably at the fair value of advertising services received. However, a Seller can reliably measure revenue at the fair value of the advertising services it provides in a barter transaction, by reference only to non-barter transactions that:(a) involve advertising similar to the advertising in the barter transaction;(b) occur frequently;(c) represent a predominant number of transactions and amount when compared to all transactions to provide advertising that is similar to the advertising in the barter transaction;(d) involve cash and/or another form of consideration (eg marketable securities, non-monetary assets, and other services) that has a reliably measurable fair value; and(e) do not involve the same counterparty as in the barter transaction.Appendix BCustomer Loyalty ProgrammesBackground1. Customer loyalty programmes are used by entities to provide customers with incentives to buy their goods or services. If a customer buys goods or services, the entity grants the customer award credits (often described as 'points'). The customer can redeem the award credits for awards such as free or discounted goods or services.2. The programmes operate in a variety of ways. Customers may be required to accumulate a specified minimum number or value of award credits before they are able to redeem them. Award credits may be linked to individual purchases or groups of purchases, or to continued custom over a specified period. The entity may operate the customer loyalty programme itself or participate in a programme operated by a third party. The awards offered may include goods or services supplied by the entity itself and/or rights to claim goods or services from a third party.Scope3. This Appendix applies to customer loyalty award credits that:(a) an entity grants to its customers as part of a sales transaction, ie a sale of goods, rendering of services or use by a customer of entity assets; and(b) subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services.The Appendix addresses accounting by the entity that grants award credits to its customers.Issues4. The issues addressed in this Appendix are:(a) whether the entity's obligation to provide free or discounted goods or services ('awards') in the future should be recognized and measured by:(i) allocating some of the consideration received or receivable from the sales transaction to the award credits and deferring the recognition of revenue (applying paragraph 13 of Ind AS 18); or(ii) providing for the estimated future costs of supplying the awards (applying paragraph 19 of Ind AS 18); and(b) if consideration is allocated to the award credits:(i) how much should be allocated to them;(ii) when revenue should be recognized; and(iii) if a third party supplies the awards, how revenue should be measured.Accounting Principles5. An entity shall apply paragraph 13 of Ind AS 18 and account for award credits as a separately identifiable component of the sales transaction(s) in which they are granted (the 'initial sale'). The fair value of the consideration received or receivable in respect of the initial sale shall be allocated between the award credits and the other components of the sale.6. The consideration allocated to the award credits shall be measured by reference to their fair value.7. If the entity supplies the awards itself, it shall recognise the consideration allocated to award credits as revenue when award credits are redeemed and it fulfils its obligations to supply awards. The amount of revenue recognized shall be based on the number of award credits that have been redeemed in exchange for awards, relative to the total number expected to be redeemed.8. If a third party supplies the awards, the entity shall assess whether it is collecting the consideration allocated to the award credits on its own account (ie as the principal in the transaction) or on behalf of the third party (ie as an agent for the third party).(a) If the entity is collecting the consideration on behalf of the third party, it shall:(i) measure its revenue as the net amount retained on its own account, ie the difference between the consideration allocated to the award credits and the amount payable to the third party for supplying the awards; and(ii) recognise this net amount as revenue when the third party becomes obliged to supply the awards and entitled to receive consideration for doing so. These events may occur as soon as the award credits are granted. Alternatively, if the customer can choose to claim awards from either the entity or a third party, these events may occur only when the customer chooses to claim awards from the third party.(b) If the entity is collecting the consideration on its own account, it shall measure its revenue as the gross consideration allocated to the award credits and recognise the revenue when it fulfils its obligations in respect of the awards.9. If at any time the unavoidable costs of meeting the obligations to supply the awards are expected to exceed the consideration received and receivable for them (ie the consideration allocated to the award credits at the time of the initial sale that has not yet been recognized as revenue plus any further consideration receivable when the customer redeems the award credits), the entity has onerous contracts. A liability shall be recognized for the excess in accordance with Ind AS 37. The need to recognise such a liability could arise if the expected costs of supplying awards increase, for example if the entity revises its expectations about the number of award credits that will be redeemed.Application guidance on Appendix BThis application guidance is an integral part of Appendix B.Measuring the fair value of award credits{| | |
| AG1 | Paragraph 6 of Appendix B requires the consideration allocatedto award credits to be measured by reference to their fair value.If there is not a quoted market price for an identical awardcredit, fair value must be measured using another valuationtechnique. |
| AG2 | An entity may measure the fair value of award credits byreference to the fair value of the awards for which they could beredeemed. The fair value of the award credits takes into account,as appropriate: |
| (a) | the amount of the discounts or incentives that would otherwisebe offered to customers who have not earned award credits from aninitial sale; |
| (b) | the proportion of award credits that are not expected to beredeemed by customers; and |
| (c) | non-performance risk. |
| If customers can choose from a range of different awards, thefair value of the award credits reflects the fair values of therange of available awards, weighted in proportion to the frequencywith which each award is expected to be selected. | |
| AG3 | In some circumstances, other valuation techniques may be used.For example, if a third party will supply the awards and theentity pays the third party for each award credit it grants, itcould measure the fair value of the award credits by reference tothe amount it pays the third party, adding a reasonable profitmargin. Judgement is required to select and apply the valuationtechnique that satisfies the requirements of paragraph 6 ofAppendix B and is most appropriate in the circumstances. |
1. In the utilities industry, an entity may receive from its customers items of property, plant and equipment that must be used to connect those customers to a network and provide them with ongoing access to a supply of commodities such as electricity, gas or water. Alternatively, an entity may receive cash from customers for the acquisition or construction of such items of property, plant and equipment. Typically, customers are required to pay additional amounts for the purchase of goods or services based on usage.
2. Transfers of assets from customers may also occur in industries other than utilities. For example, an entity outsourcing its information technology functions may transfer its existing items of property, plant and equipment to the outsourcing provider.
3. In some cases, the transferor of the asset may not be the entity that will eventually have ongoing access to the supply of goods or services and will be the recipient of those goods or services. However, for convenience this Appendix refers to the entity transferring the asset as the customer.
Scope4. This Appendix applies to the accounting for transfers of items of property, plant and equipment by entities that receive such transfers from their customers.
5. Agreements within the scope of this Appendix are agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both.
6. This Appendix also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use the item of property, plant and equipment either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both.
7. This Appendix does not apply to agreements in which the transfer is either a government grant as defined in Ind AS 20 or infrastructure used in a service concession arrangement that is within the scope of Appendix A of Ind AS 11 Service Concession Arrangements.
Issues8. The Appendix addresses the following issues:
9. When an entity receives from a customer a transfer of an item of property, plant and equipment, it shall assess whether the transferred item meets the definition of an asset set out in theFramework for the Preparation and Presentation of Financial Statementsissued by the Institute of Chartered Accountants of India. Paragraph 49(a) of the Framework states that 'an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.' In most circumstances, the entity obtains the right of ownership of the transferred item of property, plant and equipment. However, in determining whether an asset exists, the right of ownership is not essential. Therefore, if the customer continues to control the transferred item, the asset definition would not be met despite a transfer of ownership.
10. An entity that controls an asset can generally deal with that asset as it pleases. For example, the entity can exchange that asset for other assets, employ it to produce goods or services, charge a price for others to use it, use it to settle liabilities, hold it, or distribute it to owners. The entity that receives from a customer a transfer of an item of property, plant and equipment shall consider all relevant facts and circumstances when assessing control of the transferred item. For example, although the entity must use the transferred item of property, plant and equipment to provide one or more services to the customer, it may have the ability to decide how the transferred item of property, plant and equipment is operated and maintained and when it is replaced. In this case, the entity would normally conclude that it controls the transferred item of property, plant and equipment.
How should the transferred item of property, plant and equipment be measured on initial recognition?11. If the entity concludes that the definition of an asset is met, it shall recognise the transferred asset as an item of property, plant and equipment in accordance with paragraph 7 of Ind AS 16 and measure its cost on initial recognition at its fair value in accordance with paragraph 24 of that Standard.
How should the credit be accounted for?12. The following discussion assumes that the entity receiving an item of property, plant and equipment has concluded that the transferred item should be recognized and measured in accordance with paragraphs 9-11.
13. Paragraph 12 of Ind AS 18 states that 'When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue.' According to the terms of the agreements within the scope of this Appendix, a transfer of an item of property, plant and equipment would be an exchange for dissimilar goods or services. Consequently, the entity shall recognise revenue in accordance with Ind AS 18.
Identifying the separately identifiable services14. An entity may agree to deliver one or more services in exchange for the transferred item of property, plant and equipment, such as connecting the customer to a network, providing the customer with ongoing access to a supply of goods or services, or both. In accordance with paragraph 13 of Ind AS 18, the entity shall identify the separately identifiable services included in the agreement.
15. Features that indicate that connecting the customer to a network is a separately identifiable service include:
16. A feature that indicates that providing the customer with ongoing access to a supply of goods or services is a separately identifiable service is that, in the future, the customer making the transfer receives the ongoing access, the goods or services, or both at a price lower than would be charged without the transfer of the item of property, plant and equipment.
17. Conversely, a feature that indicates that the obligation to provide the customer with ongoing access to a supply of goods or services arises from the terms of the entity's operating licence or other regulation rather than from the agreement relating to the transfer of an item of property, plant and equipment is that customers that make a transfer pay the same price as those that do not for the ongoing access, or for the goods or services, or for both.
Revenue recognition18. If only one service is identified, the entity shall recognise revenue when the service is performed in accordance with paragraph 20 of Ind AS 18. If such a service is ongoing, revenue shall be recognized in accordance with paragraph 20 of this Appendix.
19. If more than one separately identifiable service is identified, paragraph 13 of Ind AS 18 requires the fair value of the total consideration received or receivable for the agreement to be allocated to each service and the recognition criteria of Ind AS 18 are then applied to each service.
20. If an ongoing service is identified as part of the agreement, the period over which revenue shall be recognized for that service is generally determined by the terms of the agreement with the customer. If the agreement does not specify a period, the revenue shall be recognized over a period no longer than the useful life of the transferred asset used to provide the ongoing service.
How should the entity account for a transfer of cash from its customer?21. When an entity receives a transfer of cash from a customer, it shall assess whether the agreement is within the scope of this Appendix in accordance with paragraph 6. If it is, the entity shall assess whether the constructed or acquired item of property, plant and equipment meets the definition of an asset in accordance with paragraphs 9 and 10. If the definition of an asset is met, the entity shall recognise the item of property, plant and equipment at its cost in accordance with Ind AS 16 and shall recognise revenue in accordance with paragraphs 13-20 at the amount of cash received from the customer.
Appendix DReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of Indian Accounting Standard 18.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 18,Revenues1. Appendix A,Service Concession Arrangementscontained in Ind AS 11Construction Contracts.
2. Appendix B,Evaluating the Substance of Transactions Involving the Legal Form of a Leasecontained in Ind AS 17Leases.
Appendix 1Note: This appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 18 and the corresponding International Accounting Standard (IAS) 18, Revenue, SIC 31, Revenue-Barter Transactions Involving Advertising Services, IFRIC 13, Customer Loyalty Programmes and IFRIC 18, Transfers Of Assets from Customers.Comparison with IAS 18,Revenue, SIC 31, IFRIC 13 and IFRIC 181. The transitional provisions given in IAS 18, SIC 13 and IFRIC 13 have not been given in Ind AS 18, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1,First-time Adoption of International Financial Reporting Standards.
2. On the basis of principles of the IAS 18, IFRIC 15 onAgreement for Construction of Real Estateprescribes that construction of real estate should be treated as sale of goods and revenue should be recognized when the entity has transferred significant risks and rewards of ownership and retained neither continuing managerial involvement nor effective control. IFRIC 15 has not been included in Ind AS 18. Instead, a footnote has been given specifying that the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India shall be followed.
3. Paragraph 2 of IAS 18 which states that IAS 18 supersedes the earlier version IAS 18 is deleted in Ind AS 18 as this is not relevant in Ind AS 18. However, paragraph number 2 is retained in Ind AS 18 to maintain consistency with paragraph numbers of IAS 18.
4. Paragraph number 31 appear as 'Deleted 'in IAS 18. In order to maintain consistency with paragraph numbers of IAS 18, the paragraph number is retained in Ind AS 18.
5. Paragraph 30(c), 32, 35 b(iii), 35b(v) appear as 'Deleted' in Ind AS 18 which addresses revenue in form of interest and dividend. The recognition, measurement of dividend is given in Ind AS 109, whereas the measurement of interest is given in Ind AS 109.
6. Paragraph 1A is inserted which states that recognition of interest is dealt in this standard whereas measurement of interest charges for the use of cash or cash equivalents or amounts due to the entity and recognition and measurement of dividend is dealt in accordance with Ind AS 109,Financial Instruments.
7. Paragraph 1B is inserted, which prescribes the impairment of any contractual right to receive cash or another financial asset arising from this standard, shall be dealt in accordance with Ind AS 109,Financial Instruments.
|}Indian Accounting Standard (Ind AS) 19Employee Benefits(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an entity to recognise :
2. This Standard shall be applied by an employer in accounting for all employee benefits, except those to which Ind AS 102, Share-based Payment, applies.
3. This Standard does not deal with reporting by employee benefit plans.
4. The employee benefits to which this Standard applies include those provided:
5. Employee benefits include:
6. Employee benefits include benefits provided either to employees or to their dependants or beneficiaries and may be settled by payments (or the provision of goods or services) made either directly to the employees, to their spouses, children or other dependants or to others, such as insurance companies.
7. An employee may provide services to an entity on a full-time, part-time, permanent, casual or temporary basis. For the purpose of this Standard, employees include directors and other management personnel.
Definitions8. The following terms are used in this Standard with the meanings specified:
Definitions of employee benefitsEmployee benefits are all forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.Short-term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.Post-employment benefits are employee benefits (other than termination benefits and short-term employee benefits) that are payable after the completion of employment.Other long-term employee benefits are all employee benefits other than short-term employee benefits, post employment benefits and termination benefits.Termination benefits are employee benefits provided in exchange for the termination of an employee's employment as a result of either:9. Short-term employee benefits include items such as the following, if expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related services:
10. An entity need not reclassify a short-term employee benefit if the entity's expectations of the timing of settlement change temporarily. However, if the characteristics of the benefit change (such as a change from a non-accumulating benefit to an accumulating benefit) or if a change in expectations of the timing of settlement is not temporary, then the entity considers whether the benefit still meets the definition of short-term employee benefits.
Recognition and measurementAll short-term employee benefits11. When an employee has rendered service to an entity during an accounting period, the entity shall recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service:
12. Paragraphs 13, 16 and 19 explain how an entity shall apply paragraph 11 to short-term employee benefits in the form of paid absences and profit-sharing and bonus plans.
Short-term paid absences13. An entity shall recognise the expected cost of short-term employee benefits in the form of paid absences under paragraph 11 as follows:
14. An entity may pay employees for absence for various reasons including holidays, sickness and short-term disability, maternity or paternity, jury service and military service. Entitlement to paid absences falls into two categories:
15. Accumulating paid absences are those that are carried forward and can be used in future periods if the current period's entitlement is not used in full. Accumulating paid absences may be either vesting (in other words, employees are entitled to a cash payment for unused entitlement on leaving the entity) or non-vesting (when employees are not entitled to a cash payment for unused entitlement on leaving). An obligation arises as employees render service that increases their entitlement to future paid absences. The obligation exists, and is recognized, even if the paid absences are non-vesting, although the possibility that employees may leave before they use an accumulated non-vesting entitlement affects the measurement of that obligation.
16. An entity shall measure the expected cost of accumulating paid absences as the additional amount that the entity expects to pay as a result of the unused entitlement that has accumulated at the end of the reporting period.
17. The method specified in the previous paragraph measures the obligation at the amount of the additional payments that are expected to arise solely from the fact that the benefit accumulates. In many cases, an entity may not need to make detailed computations to estimate that there is no material obligation for unused paid absences. For example, a sick leave obligation is likely to be material only if there is a formal or informal understanding that unused paid sick leave may be taken as paid annual leave.
Example illustrating paragraphs 16 and 17An entity has 100 employees, who are each entitled to five working days of paid sick leave for each year. Unused sick leave may be carried forward for one calendar year. Sick leave is taken first out of the current year's entitlement and then out of any balance brought forward from the previous year (a LIFO basis). At 31 December 20X1 the average unused entitlement is two days per employee. The entity expects, on the basis of experience that is expected to continue, that 92 employees will take no more than five days of paid sick leave in 20X2 and that the remaining eight employees will take an average of six and a half days each.The entity expects that it will pay an additional twelve days of sick pay as a result of the unused entitlement that has accumulated at 31 December 20X1 (one and a half days each, for eight employees). Therefore, the entity recognises a liability equal to twelve days of sick pay.18. Non-accumulating paid absences do not carry forward: they lapse if the current period's entitlement is not used in full and do not entitle employees to a cash payment for unused entitlement on leaving the entity. This is commonly the case for sick pay (to the extent that unused past entitlement does not increase future entitlement), maternity or paternity leave and paid absences for jury service or military service. An entity recognises no liability or expense until the time of the absence, because employee service does not increase the amount of the benefit.
Profit-sharing and bonus plans19. An entity shall recognise the expected cost of profit-sharing and bonus payments under paragraph 11 when, and only when:
20. Under some profit-sharing plans, employees receive a share of the profit only if they remain with the entity for a specified period. Such plans create a constructive obligation as employees render service that increases the amount to be paid if they remain in service until the end of the specified period. The measurement of such constructive obligations reflects the possibility that some employees may leave without receiving profit-sharing payments.
Example illustrating paragraph 20A profit-sharing plan requires an entity to pay a specified proportion of its profit for the year to employees who serve throughout the year. If no employees leave during the year, the total profit-sharing payments for the year will be 3 per cent of profit. The entity estimates that staff turnover will reduce the payments to 2.5 per cent of profit.The entity recognises a liability and an expense of 2.5 per cent of profit.21. An entity may have no legal obligation to pay a bonus. Nevertheless, in some cases, an entity has a practice of paying bonuses. In such cases, the entity has a constructive obligation because the entity has no realistic alternative but to pay the bonus. The measurement of the constructive obligation reflects the possibility that some employees may leave without receiving a bonus.
22. An entity can make a reliable estimate of its legal or constructive obligation under a profit-sharing or bonus plan when, and only when:
23. An obligation under profit-sharing and bonus plans results from employee service and not from a transaction with the entity's owners. Therefore, an entity recognises the cost of profit-sharing and bonus plans not as a distribution of profit but as an expense.
24. If profit-sharing and bonus payments are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, those payments are other long-term employee benefits (see paragraphs 153-158).
Disclosure25. Although this Standard does not require specific disclosures about short-term employee benefits, other Ind ASs may require disclosures. For example, Ind AS 24 requires disclosures about employee benefits for key management personnel. Ind AS 1, Presentation of Financial Statements, requires disclosure of employee benefits expense.
Post-employment benefits: distinction between defined contribution plans and defined benefit plans26. Post-employment benefits include items such as the following:
27. Post-employment benefit plans are classified as either defined contribution plans or defined benefit plans, depending on the economic substance of the plan as derived from its principal terms and conditions.
28. Under defined contribution plans the entity's legal or constructive obligation is limited to the amount that it agrees to contribute to the fund. Thus, the amount of the post-employment benefits received by the employee is determined by the amount of contributions paid by an entity (and perhaps also the employee) to a post-employment benefit plan or to an insurance company, together with investment returns arising from the contributions. In consequence, actuarial risk (that benefits will be less than expected) and investment risk (that assets invested will be insufficient to meet expected benefits) fall, in substance, on the employee.
29. Examples of cases where an entity's obligation is not limited to the amount that it agrees to contribute to the fund are when the entity has a legal or constructive obligation through:
30. Under defined benefit plans:
31. Paragraphs 32-49 explain the distinction between defined contribution plans and defined benefit plans in the context of multi-employer plans, defined benefit plans that share risks between entities under common control, state plans and insured benefits.
Multi-employer plans32. An entity shall classify a multi-employer plan as a defined contribution plan or a defined benefit plan under the terms of the plan (including any constructive obligation that goes beyond the formal terms).
33. If an entity participates in a multi-employer defined benefit plan, unless paragraph 34 applies, it shall:
34. When sufficient information is not available to use defined benefit accounting for a multi-employer defined benefit plan, an entity shall:
35. One example of a multi-employer defined benefit plan is one where:
36. Where sufficient information is available about a multi-employer defined benefit plan, an entity accounts for its proportionate share of the defined benefit obligation, plan assets and post-employment cost associated with the plan in the same way as for any other defined benefit plan. However, an entity may not be able to identify its share of the underlying financial position and performance of the plan with sufficient reliability for accounting purposes. This may occur if:
37. 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 34 shall recognise the asset or liability that arises from the contractual agreement and the resulting income or expense in profit or loss.
| Example illustrating paragraph 37 |
| An entityparticipates in a multi-employer defined benefit plan that doesnot prepare plan valuations on an Ind AS 19 basis. It thereforeaccounts for the plan as if it were a defined contribution plan.A non-Ind AS 19 funding valuation shows a deficit of Rs.100million in the plan. The plan has agreed under contract aschedule of contributions with the participating employers in theplan that will eliminate the deficit over the next five years.The entity's total contributions under the contract are Rs.8million.The entity recognises a liability for thecontributions adjusted for the time value of money and an equalexpense in profit or loss. |
38. Multi-employer plans are distinct from group administration plans. A group administration plan is merely an aggregation of single employer plans combined to allow participating employers to pool their assets for investment purposes and reduce investment management and administration costs, but the claims of different employers are segregated for the sole benefit of their own employees. Group administration plans pose no particular accounting problems because information is readily available to treat them in the same way as any other single employer plan and because such plans do not expose the participating entities to actuarial risks associated with the current and former employees of other entities. The definitions in this Standard require an entity to classify a group administration plan as a defined contribution plan or a defined benefit plan in accordance with the terms of the plan (including any constructive obligation that goes beyond the formal terms).*
39. In determining when to recognise, and how to measure, a liability relating to the wind-up of a multi-employer defined benefit plan, or the entity's withdrawal from a multi-employer defined benefit plan, an entity shall apply Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Defined benefit plans that share risks between entities under common control40. Defined benefit plans that share risks between entities under common control, for example, a parent and its subsidiaries, are not multi-employer plans.
41. An entity participating in such a plan shall obtain information about the plan as a whole measured in accordance with this Standard on the basis of assumptions that apply to the plan as a whole. If there is a contractual agreement or stated policy for charging to individual group entities the net defined benefit cost for the plan as a whole measured in accordance with this Standard, the entity shall, in its separate or individual financial statements, recognise the net defined benefit cost so charged. If there is no such agreement or policy, the net defined benefit cost shall be recognized in the separate or individual financial statements of the group entity that is legally the sponsoring employer for the plan. The other group entities shall, in their separate or individual financial statements, recognise a cost equal to their contribution payable for the period.
42. 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, disclose the information required by paragraph 149.
State plans43. An entity shall account for a state plan in the same way as for a multi-employer plan (see paragraphs 32-39).
44. State plans are established by legislation to cover all entities (or all entities in a particular category, for example, a specific industry) and are operated by national or local government or by another body (for example, an autonomous agency created specifically for this purpose) that is not subject to control or influence by the reporting entity. Some plans established by an entity provide both compulsory benefits, as a substitute for benefits that would otherwise be covered under a state plan, and additional voluntary benefits. Such plans are not state plans.
45. State plans are characterised as defined benefit or defined contribution, depending on the entity's obligation under the plan. Many state plans are funded on a pay-as-you-go basis: contributions are set at a level that is expected to be sufficient to pay the required benefits falling due in the same period; future benefits earned during the current period will be paid out of future contributions. Nevertheless, in most state plans the entity has no legal or constructive obligation to pay those future benefits: its only obligation is to pay the contributions as they fall due and if the entity ceases to employ members of the state plan, it will have no obligation to pay the benefits earned by its own employees in previous years. For this reason, state plans are normally defined contribution plans. However, when a state plan is a defined benefit plan an entity applies paragraphs 32-39.
Insured benefits46. An entity may pay insurance premiums to fund a post-employment benefit plan. The entity shall treat such a plan as a defined contribution plan unless the entity will have (either directly, or indirectly through the plan) a legal or constructive obligation either:
47. The benefits insured by an insurance policy need not have a direct or automatic relationship with the entity's obligation for employee benefits. Post-employment benefit plans involving insurance policies are subject to the same distinction between accounting and funding as other funded plans.
48. Where an entity funds a post-employment benefit obligation by contributing to an insurance policy under which the entity (either directly, indirectly through the plan, through the mechanism for setting future premiums or through a related party relationship with the insurer) retains a legal or constructive obligation, the payment of the premiums does not amount to a defined contribution arrangement. It follows that the entity:
49. Where an insurance policy is in the name of a specified plan participant or a group of plan participants and the entity does not have any legal or constructive obligation to cover any loss on the policy, the entity has no obligation to pay benefits to the employees and the insurer has sole responsibility for paying the benefits. The payment of fixed premiums under such contracts is, in substance, the settlement of the employee benefit obligation, rather than an investment to meet the obligation. Consequently, the entity no longer has an asset or a liability. Therefore, an entity treats such payments as contributions to a defined contribution plan.
Post-employment benefits: defined contribution plans50. Accounting for defined contribution plans is straightforward because the reporting entity's obligation for each period is determined by the amounts to be contributed for that period. Consequently, no actuarial assumptions are required to measure the obligation or the expense and there is no possibility of any actuarial gain or loss. Moreover, the obligations are measured on an undiscounted basis, except where they are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service.
Recognition and measurement51. When an employee has rendered service to an entity during a period, the entity shall recognise the contribution payable to a defined contribution plan in exchange for that service:
52. When contributions to a defined contribution plan are not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service, they shall be discounted using the discount rate specified in paragraph 83.
Disclosure53. An entity shall disclose the amount recognized as an expense for defined contribution plans.
54. Where required by Ind AS 24 an entity discloses information about contributions to defined contribution plans for key management personnel.
Post-employment benefits: defined benefit plans55. Accounting for defined benefit plans is complex because actuarial assumptions are required to measure the obligation and the expense and there is a possibility of actuarial gains and losses. Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service.
Recognition and measurement56. Defined benefit plans may be unfunded, or they may be wholly or partly funded by contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting entity and from which the employee benefits are paid. The payment of funded benefits when they fall due depends not only on the financial position and the investment performance of the fund but also on an entity's ability, and willingness, to make good any shortfall in the fund's assets. Therefore, the entity is, in substance, underwriting the actuarial and investment risks associated with the plan. Consequently, the expense recognized for a defined benefit plan is not necessarily the amount of the contribution due for the period.
57. Accounting by an entity for defined benefit plans involves the following steps:
58. An entity shall determine the net defined benefit liability (asset) with sufficient regularity that the amounts recognized in the financial statements do not differ materially from the amounts that would be determined at the end of the reporting period.
59. This Standard encourages, but does not require, an entity to involve a qualified actuary in the measurement of all material post-employment benefit obligations. For practical reasons, an entity may request a qualified actuary to carry out a detailed valuation of the obligation before the end of the reporting period. Nevertheless, the results of that valuation are updated for any material transactions and other material changes in circumstances (including changes in market prices and interest rates) up to the end of the reporting period.
60. In some cases, estimates, averages and computational short cuts may provide a reliable approximation of the detailed computations illustrated in this Standard.
Accounting for the constructive obligation61. An entity shall account not only for its legal obligation under the formal terms of a defined benefit plan, but also for any constructive obligation that arises from the entity's informal practices. Informal practices give rise to a constructive obligation where the entity has no realistic alternative but to pay employee benefits. An example of a constructive obligation is where a change in the entity's informal practices would cause unacceptable damage to its relationship with employees.
62. The formal terms of a defined benefit plan may permit an entity to terminate its obligation under the plan. Nevertheless, it is usually difficult for an entity to terminate its obligation under a plan (without payment) if employees are to be retained. Therefore, in the absence of evidence to the contrary, accounting for post employment benefits assumes that an entity that is currently promising such benefits will continue to do so over the remaining working lives of employees.
Balance Sheet63. An entity shall recognise the net defined benefit liability (asset) in the balance sheet.
64. When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of:
65. A net defined benefit asset may arise where a defined benefit plan has been over funded or where actuarial gains have arisen. An entity recognises a net defined benefit asset in such cases because:
66. The ultimate cost of a defined benefit plan may be influenced by many variables, such as final salaries, employee turnover and mortality, employee contributions and medical cost trends. The ultimate cost of the plan is uncertain and this uncertainty is likely to persist over a long period of time. In order to measure the present value of the post-employment benefit obligations and the related current service cost, it is necessary:
67. An entity shall use the projected unit credit method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost.
68. The projected unit credit method (sometimes known as the accrued benefit method pro-rated on service or as the benefit/years of service method) sees each period of service as giving rise to an additional unit of benefit entitlement (see paragraphs 70-74) and measures each unit separately to build up the final obligation (see paragraphs 75-98).
| Example illustrating paragraph 68 | |||||
| A lump sum benefit ispayable on termination of service and equal to 1 per cent offinal salary for each year of service. The salary in year 1 isRs.10,000 and is assumed to increase at 7 per cent (compound)each year. The discount rate used is 10 per cent per year. Thefollowing table shows how the obligation builds up for anemployee who is expected to leave at the end of year 5, assumingthat there are no changes in actuarial assumptions. Forsimplicity, this example ignores the additional adjustment neededto reflect the probability that the employee may leave the entityat an earlier or later date.{| | |||||
| Year | 1 | 2 | 3 | 4 | 5 |
| Rs. | Rs. | Rs. | Rs. | Rs. | |
| Benefit attributed to: | |||||
| - prior years | 0 | 131 | 262 | 393 | 524 |
| - current year (1% of final salary) | 131 | 131 | 131 | 131 | 131 |
| - current and prior years | 131 | 262 | 393 | 524 | 655 |
| Opening Obligation | - | 89 | 196 | 324 | 476 |
| Interest at 10% | - | 9 | 20 | 33 | 48 |
| Current service cost | 89 | 98 | 108 | 119 | 131 |
| Closing Obligation | 89 | 196 | 324 | 476 | 655 |
1. The opening obligation is the
present value of the benefit attributed to prior years.2. The current service cost is
the present value of the benefit attributed to the current year.3. The closing obligation is the present value of the
benefit attributed to current and prior years.|}69. An entity discounts the whole of a post-employment benefit obligation, even if part of the obligation is expected to be settled before twelve months after the reporting period.
Attributing benefit to periods of service70. In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an entity shall attribute benefit to periods of service under the plan's benefit formula. However, if an employee's service in later years will lead to a materially higher level of benefit than in earlier years, an entity shall attribute benefit on a straight-line basis from:
71. The projected unit credit method requires an entity to attribute benefit to the current period (in order to determine current service cost) and the current and prior periods (in order to determine the present value of defined benefit obligations). An entity attributes benefit to periods in which the obligation to provide post-employment benefits arises. That obligation arises as employees render services in return for post-employment benefits that an entity expects to pay in future reporting periods. Actuarial techniques allow an entity to measure that obligation with sufficient reliability to justify recognition of a liability.
| Examples illustrating paragraph 71 |
| 1. A defined benefitplan provides a lump sum benefit of Rs.100 payable on retirementfor each year of service.A benefit ofRs.100 is attributed to each year. The current service cost isthe present value of Rs.100. The present value of the definedbenefit obligation is the present value of Rs.100, multiplied bythe number of years of service up to the end of the reportingperiod.If the benefit ispayable immediately when the employee leaves the entity, thecurrent service cost and the present value of the defined benefitobligation reflect the date at which the employee is expected toleave. Thus, because of the effect of discounting, they are lessthan the amounts that would be determined if the employee left atthe end of the reporting period.2. A plan provides amonthly pension of 0.2 per cent of final salary for each year ofservice. The pension is payable from the age of 65.Benefit equal to the present value, at theexpected retirement date, of a monthly pension of 0.2 per cent ofthe estimated final salary payable from the expected retirementdate until the expected date of death is attributed to each yearof service. The current service cost is the present value of thatbenefit. The present value of the defined benefit obligation isthe present value of monthly pension payments of 0.2 per cent offinal salary, multiplied by the number of years of service up tothe end of the reporting period. The current service cost and thepresent value of the defined benefit obligation are discountedbecause pension payments begin at the age of 65. |
72. Employee service gives rise to an obligation under a defined benefit plan even if the benefits are conditional on future employment (in other words they are not vested). Employee service before the vesting date gives rise to a constructive obligation because, at the end of each successive reporting period, the amount of future service that an employee will have to render before becoming entitled to the benefit is reduced. In measuring its defined benefit obligation, an entity considers the probability that some employees may not satisfy any vesting requirements. Similarly, although some post-employment benefits, for example, post-employment medical benefits, become payable only if a specified event occurs when an employee is no longer employed, an obligation is created when the employee renders service that will provide entitlement to the benefit if the specified event occurs. The probability that the specified event will occur affects the measurement of the obligation, but does not determine whether the obligation exists.
| Examples illustrating paragraph 72 |
| 1. A plan pays abenefit of Rs.100 for each year of service. The benefits vestafter ten years of service.A benefit ofRs.100 is attributed to each year. In each of the first tenyears, the current service cost and the present value of theobligation reflect the probability that the employee may notcomplete ten years of service.2. A plan pays abenefit of Rs.100 for each year of service, excluding servicebefore the age of 25. The benefits vest immediately.No benefit is attributed to service beforethe age of 25 because service before that date does not lead tobenefits (conditional or unconditional). A benefit of Rs.100 isattributed to each subsequent year. |
73. The obligation increases until the date when further service by the employee will lead to no material amount of further benefits. Therefore, all benefit is attributed to periods ending on or before that date. Benefit is attributed to individual accounting periods under the plan's benefit formula. However, if an employee's service in later years will lead to a materially higher level of benefit than in earlier years, an entity attributes benefit on a straight-line basis until the date when further service by the employee will lead to no material amount of further benefits. That is because the employee's service throughout the entire period will ultimately lead to benefit at that higher level.
| Examples illustrating paragraph 73 |
| 1. A plan pays a lumpsum benefit of Rs.1,000 that vests after ten years of service.The plan provides no further benefit for subsequent service.A benefit ofRs.100 (Rs.1,000 divided by ten) is attributed to each of thefirst ten years.The currentservice cost in each of the first ten years reflects theprobability that the employee may not complete ten years ofservice. No benefit is attributed to subsequent years.2. A plan pays a lumpsum retirement benefit of Rs. 2,000 to all employees who arestill employed at the age of 55 after twenty years of service, orwho are still employed at the age of 65, regardless of theirlength of service.For employees whojoin before the age of 35, service first leads to benefits underthe plan at the age of 35 (an employee could leave at the age of30 and return at the age of 33, with no effect on the amount ortiming of benefits). Those benefits are conditional on furtherservice. Also, service beyond the age of 55 will lead to nomaterial amount of further benefits. For these employees, theentity attributes benefit of Rs.100 (Rs.2,000 divided by twenty)to each year from the age of 35 to the age of 55.For employees whojoin between the ages of 35 and 45, service beyond twenty yearswill lead to no material amount of further benefits. For theseemployees, the entity attributes benefit of 100 (2,000 divided bytwenty) to each of the first twenty years.For an employeewho joins at the age of 55, service beyond ten years will lead tono material amount of further benefits. For this employee, theentity attributes benefit of Rs.200 (Rs.2,000 divided by ten) toeach of the first ten years.For all employees,the current service cost and the present value of the obligationreflect the probability that the employee may not complete thenecessary period of service.3. A post-employmentmedical plan reimburses 40 per cent of an employee'spost-employment medical costs if the employee leaves after morethan ten and less than twenty years of service and 50 per cent ofthose costs if the employee leaves after twenty or more years ofservice.Under the plan'sbenefit formula, the entity attributes 4 per cent of the presentvalue of the expected medical costs (40 per cent divided by ten)to each of the first ten years and 1 per cent (10 per centdivided by ten) to each of the second ten years. The currentservice cost in each year reflects the probability that theemployee may not complete the necessary period of service to earnpart or all of the benefits. For employees expected to leavewithin ten years, no benefit is attributed.4. A post-employmentmedical plan reimburses 10 per cent of an employee'spost-employment medical costs if the employee leaves after morethan ten and less than twenty years of service and 50 per cent ofthose costs if the employee leaves after twenty or more years ofservice.Service in lateryears will lead to a materially higher level of benefit than inearlier years. Therefore, for employees expected to leave aftertwenty or more years, the entity attributes benefit on astraight-line basis under paragraph 71. Service beyond twentyyears will lead to no material amount of further benefits.Therefore, the benefit attributed to each of the first twentyyears is 2.5 per cent of the present value of the expectedmedical costs (50 per cent divided by twenty).For employeesexpected to leave between ten and twenty years, the benefitattributed to each of the first ten years is 1 per cent of thepresent value of the expected medical costs.For theseemployees, no benefit is attributed to service between the end ofthe tenth year and the estimated date of leaving.For employeesexpected to leave within ten years, no benefit is attributed.5. An entity has1,000 employees. As per the statutory requirements, gratuityshall be payable to an employee on the termination of hisemployment after he has rendered continuous service for not lessthan five years (a) on his superannuation, or (b) on hisretirement or resignation, or (c) on his death or disablement dueto accident or disease. The completion of continuous service offive years shall not be necessary where the termination of theemployment of any employee is due to death or disablement. Theamount payable is determined by a formula linked to number ofyears of service and last drawn salary. As per the law, theamount payable shall not exceed Rs.1,000,000.The amount ofgratuity attributed to each year of service will be calculated asfollows:Number ofemployees not likely to fulfil the eligibility criteria will beignored.Other employeeswill be grouped according to period of service they are expectedto render taking into account mortality rate, disablement andresignation after 5 years. Gratuity payable will be calculated inaccordance with the formula prescribed in the governing statutebased on the period of service and the salary at the time oftermination of employment, assuming promotion, salary increasesetc.For thoseemployees for whom the amount payable as per the formula does notexceed Rs.1,000,000, over the expected period of service, theamount payable will be divided by the expected period of serviceand the resulting amount will be attributed to each year of theexpected period of service, including the period before thestipulated period of 5 years.In case of the remaining employees, theamount as per the formula exceeds Rs. 1,000,000 over the expectedperiod of service of 10 years, and the amount of the statutorythreshold of Rs. 1,000,000 is reached at the end of 8 years. Rs.1,25,000 (Rs. 1,000,000 divided by 8) is attributed to each ofthe first 8 years. In this case, no benefit is attributed tosubsequent two years. This is because service beyond 8 years willlead to no material amount of further benefits. |
74. Where the amount of a benefit is a constant proportion of final salary for each year of service, future salary increases will affect the amount required to settle the obligation that exists for service before the end of the reporting period, but do not create an additional obligation. Therefore:
75. Actuarial assumptions shall be unbiased and mutually compatible.
76. Actuarial assumptions are an entity's best estimates of the variables that will determine the ultimate cost of providing post-employment benefits. Actuarial assumptions comprise:
77. Actuarial assumptions are unbiased if they are neither imprudent nor excessively conservative.
78. Actuarial assumptions are mutually compatible if they reflect the economic relationships between factors such as inflation, rates of salary increase and discount rates. For example, all assumptions that depend on a particular inflation level (such as assumptions about interest rates and salary and benefit increases) in any given future period assume the same inflation level in that period.
79. An entity determines the discount rate and other financial assumptions in nominal (stated) terms, unless estimates in real (inflation-adjusted) terms are more reliable, for example, in a hyper-inflationary economy (see Ind AS 29, Financial Reporting in Hyper-inflationary Economies), or where the benefit is index-linked and there is a deep market in index-linked bonds of the same currency and term.
80. Financial assumptions shall be based on market expectations, at the end of the reporting period, for the period over which the obligations are to be settled.
Actuarial assumptions: mortality81. An entity shall determine its mortality assumptions by reference to its best estimate of the mortality of plan members both during and after employment.
82. In order to estimate the ultimate cost of the benefit an entity takes into consideration expected changes in mortality, for example by modifying standard mortality tables with estimates of mortality improvements.
Actuarial assumptions: discount rate83. [ The rate used to discount post-employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on government bonds. However, for currencies other than Indian rupee for which there is deep market in high quality corporate bonds, the market yields (at the end of the reporting period) on such high quality corporate bonds denominated in that currency shall be used. The currency and term of the government bonds or corporate bonds shall be consistent with the currency and estimated term of the post-employment benefit obligations.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
84. One actuarial assumption that has a material effect is the discount rate. The discount rate reflects the time value of money but not the actuarial or investment risk. Furthermore, the discount rate does not reflect the entity specific credit risk borne by the entity's creditors, nor does it reflect the risk that future experience may differ from actuarial assumptions.
85. The discount rate reflects the estimated timing of benefit payments. In practice, an entity often achieves this by applying a single weighted average discount rate that reflects the estimated timing and amount of benefit payments and the currency in which the benefits are to be paid.
86. In some cases, there may be no deep market in government bonds with a sufficiently long maturity to match the estimated maturity of all the benefit payments. In such cases, an entity uses current market rates of the appropriate term to discount shorter-term payments, and estimates the discount rate for longer maturities by extrapolating current market rates along the yield curve. The total present value of a defined benefit obligation is unlikely to be particularly sensitive to the discount rate applied to the portion of benefits that is payable beyond the final maturity of the available government bonds.
Actuarial assumptions: salaries, benefits and medical costs87. An entity shall measure its defined benefit obligations on a basis that reflects:
88. Actuarial assumptions reflect future benefit changes that are set out in the formal terms of a plan (or a constructive obligation that goes beyond those terms) at the end of the reporting period. This is the case if, for example:
89. Actuarial assumptions do not reflect future benefit changes that are not set out in the formal terms of the plan (or a constructive obligation) at the end of the reporting period. Such changes will result in:
90. Estimates of future salary increases take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.
91. Some defined benefit plans limit the contributions that an entity is required to pay. The ultimate cost of the benefits takes account of the effect of a limit on contributions. The effect of a limit on contributions is determined over the shorter of:
92. Some defined benefit plans require employees or third parties to contribute to the cost of the plan. Contributions by employees reduce the cost of the benefits to the entity. An entity considers whether third-party contributions reduce the cost of the benefits to the entity, or are a reimbursement right as described in paragraph 116. Contributions by employees or third parties are either set out in the formal terms of the plan (or arise from a constructive obligation that goes beyond those terms), or are discretionary. Discretionary contributions by employees or third parties reduce service cost upon payment of these contributions to the plan.
93. Contributions from employees or third parties set out in the formal terms of the plan either reduce service cost (if they are linked to service), or affect remeasurements of the net defined benefit liability (asset) (if they are not linked to service). An example of contributions that are not linked to service is when the contributions are required to reduce a deficit arising from losses on plan assets or from actuarial losses. If contributions from employees or third parties are linked to service, those contributions reduce the service cost as follows:
94. For contributions from employees or third parties that are attributed to periods of service in accordance with paragraph 93(a), changes in the contributions result in:
95. Some post-employment benefits are linked to variables such as the level of state retirement benefits or state medical care. The measurement of such benefits reflects the best estimate of such variables, based on historical data and other reliable evidence.
96. Assumptions about medical costs shall take account of estimated future changes in the cost of medical services, resulting from both inflation and specific changes in medical costs.
97. Measurement of post-employment medical benefits requires assumptions about the level and frequency of future claims and the cost of meeting those claims. An entity estimates future medical costs on the basis of historical data about the entity's own experience, supplemented where necessary by historical data from other entities, insurance companies, medical providers or other sources. Estimates of future medical costs consider the effect of technological advances, changes in health care utilisation or delivery patterns and changes in the health status of plan participants.
98. The level and frequency of claims is particularly sensitive to the age, health status and sex of employees (and their dependants) and may be sensitive to other factors such as geographical location. Therefore, historical data are adjusted to the extent that the demographic mix of the population differs from that of the population used as a basis for the data. They are also adjusted where there is reliable evidence that historical trends will not continue.
Past service cost and gains and losses on settlement[99 When determining past service cost, or a gain or loss on settlement, an entity shall remeasure the net defined benefit liability (asset) using the current fair value of plan assets and current actuarial assumptions, including current market interest rates and other current market prices, reflecting:100. An entity need not distinguish between past service cost resulting from a plan amendment, past service cost resulting from a curtailment and a gain or loss on settlement if these transactions occur together. In some cases, a plan amendment occurs before a settlement, such as when an entity changes the benefits under the plan and settles the amended benefits later. In those cases an entity recognises past service cost before any gain or loss on settlement.
101. A settlement occurs together with a plan amendment and curtailment if a plan is terminated with the result that the obligation is settled and the plan ceases to exist. However, the termination of a plan is not a settlement if the plan is replaced by a new plan that offers benefits that are, in substance, the same.
[101A When a plan amendment, curtailment or settlement occurs, an entity shall recognise and measure any past service cost, or a gain or loss on settlement, in accordance with paragraphs 99-101 and paragraphs 102-112. In doing so, an entity shall not consider the effect of the asset ceiling. An entity shall then determine the effect of the asset ceiling after the plan amendment, curtailment or settlement and shall recognise any change in that effect in accordance with paragraph 57(d).] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Past service cost102. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment.
103. An entity shall recognise past service cost as an expense at the earlier of the following dates:
104. A plan amendment occurs when an entity introduces, or withdraws, a defined benefit plan or changes the benefits payable under an existing defined benefit plan.
105. A curtailment occurs when an entity significantly reduces the number of employees covered by a plan. A curtailment may arise from an isolated event, such as the closing of a plant, discontinuance of an operation or termination or suspension of a plan.
106. Past service cost may be either positive (when benefits are introduced or changed so that the present value of the defined benefit obligation increases) or negative (when benefits are withdrawn or changed so that the present value of the defined benefit obligation decreases).
107. Where an entity reduces benefits payable under an existing defined benefit plan and, at the same time, increases other benefits payable under the plan for the same employees, the entity treats the change as a single net change.
108. Past service cost excludes:
109. The gain or loss on a settlement is the difference between:
110. An entity shall recognise a gain or loss on the settlement of a defined benefit plan when the settlement occurs.
111. A settlement occurs when an entity enters into a transaction that eliminates all further legal or constructive obligation for part or all of the benefits provided under a defined benefit plan (other than a payment of benefits to, or on behalf of, employees in accordance with the terms of the plan and included in the actuarial assumptions). For example, a one-off transfer of significant employer obligations under the plan to an insurance company through the purchase of an insurance policy is a settlement; a lump sum cash payment, under the terms of the plan, to plan participants in exchange for their rights to receive specified post-employment benefits is not.
112. In some cases, an entity acquires an insurance policy to fund some or all of the employee benefits relating to employee service in the current and prior periods. The acquisition of such a policy is not a settlement if the entity retains a legal or constructive obligation (see paragraph 46) to pay further amounts if the insurer does not pay the employee benefits specified in the insurance policy. Paragraphs 116-119 deal with the recognition and measurement of reimbursement rights under insurance policies that are not plan assets.
Recognition and measurement: plan assetsFair value of plan assets113. The fair value of any plan assets is deducted from the present value of the defined benefit obligation in determining the deficit or surplus.
114. Plan assets exclude unpaid contributions due from the reporting entity to the fund, as well as any nontransferable financial instruments issued by the entity and held by the fund. Plan assets are reduced by any liabilities of the fund that do not relate to employee benefits, for example, trade and other payables and liabilities resulting from derivative financial instruments.
115. Where plan assets include qualifying insurance policies that exactly match the amount and timing of some or all of the benefits payable under the plan, the fair value of those insurance policies is deemed to be the present value of the related obligations (subject to any reduction required if the amounts receivable under the insurance policies are not recoverable in full).
Reimbursements116. When, and only when, it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, an entity shall:
117. Sometimes, an entity is able to look to another party, such as an insurer, to pay part or all of the expenditure required to settle a defined benefit obligation. Qualifying insurance policies, as defined in paragraph 8, are plan assets. An entity accounts for qualifying insurance policies in the same way as for all other plan assets and paragraph 116 is not relevant (see paragraphs 46-49 and 115).
118. When an insurance policy held by an entity is not a qualifying insurance policy, that insurance policy is not a plan asset. Paragraph 116 is relevant to such cases: the entity recognises its right to reimbursement under the insurance policy as a separate asset, rather than as a deduction in determining the defined benefit deficit or surplus. Paragraph 140(b) requires the entity to disclose a brief description of the link between the reimbursement right and the related obligation.
119. If the right to reimbursement arises under an insurance policy that exactly matches the amount and timing of some or all of the benefits payable under a defined benefit plan, the fair value of the reimbursement right is deemed to be the present value of the related obligation (subject to any reduction required if the reimbursement is not recoverable in full).
Components of defined benefit cost120. An entity shall recognise the components of defined benefit cost, except to the extent that another Ind AS requires or permits their inclusion in the cost of an asset, as follows:
121. Other Ind ASs require the inclusion of some employee benefit costs within the cost of assets, such as inventories and property, plant and equipment (see Ind AS 2 and Ind AS 16). Any post-employment benefit costs included in the cost of such assets include the appropriate proportion of the components listed in paragraph 120.
122. Remeasurements of the net defined benefit liability (asset) recognized in other comprehensive income shall not be reclassified to profit or loss in a subsequent period. However, the entity may transfer those amounts recognized in other comprehensive income within equity.
[Current service cost122A. An entity shall determine current service cost using actuarial assumptions determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, it shall determine current service cost for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using the actuarial assumptions used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b).] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Net interest on the net defined benefit liability (asset)[123 An entity shall determine net interest on the net defined benefit liability (asset) by multiplying the net defined benefit liability (asset) by the discount rate specified in paragraph 83.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).][123A To determine net interest in accordance with paragraph 123, an entity shall use the net defined benefit liability (asset) and the discount rate determined at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine net interest for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using:124. Net interest on the net defined benefit liability (asset) can be viewed as comprising interest income on plan assets, interest cost on the defined benefit obligation and interest on the effect of the asset ceiling mentioned in paragraph 64.
[125 Interest income on plan assets is a component of the return on plan assets, and is determined by multiplying the fair value of the plan assets by the discount rate specified in paragraph 123A. An entity shall determine the fair value of the plan assets at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine interest income for the remainder of the annual reporting period after the plan amendment, curtailment or settlement using the plan assets used to remeasure the net defined benefit liability (asset) in accordance with paragraph 99(b). In applying paragraph 125, the entity shall also take into account any changes in the plan assets held during the period resulting from contributions or benefit payments. The difference between the interest income on plan assets and the return on plan assets is included in the remeasurement of the net defined benefit liability (asset).] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).][126 Interest on the effect of the asset ceiling is part of the total change in the effect of the asset ceiling, and is determined by multiplying the effect of the asset ceiling by the discount rate specified in paragraph 123A.An entity shall determine the effect of the asset ceiling at the start of the annual reporting period. However, if an entity remeasures the net defined benefit liability (asset) in accordance with paragraph 99, the entity shall determine interest on the effect of the asset ceiling for the remainder of the annual reporting period after the plan amendment, curtailment or settlement taking into account any change in the effect of the asset ceiling determined in accordance with paragraph 101A. The difference between interest on the effect of the asset ceilingand the total change in the effect of the asset ceiling is included in the remeasurement of the net defined benefit liability (asset).] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Remeasurements of the net defined benefit liability (asset)127. Remeasurements of the net defined benefit liability (asset) comprise:
128. Actuarial gains and losses result from increases or decreases in the present value of the defined benefit obligation because of changes in actuarial assumptions and experience adjustments. Causes of actuarial gains and losses include, for example:
129. Actuarial gains and losses do not include changes in the present value of the defined benefit obligation because of the introduction, amendment, curtailment or settlement of the defined benefit plan, or changes to the benefits payable under the defined benefit plan. Such changes result in past service cost or gains or losses on settlement.
130. In determining the return on plan assets, an entity deducts the costs of managing the plan assets and any tax payable by the plan itself, other than tax included in the actuarial assumptions used to measure the defined benefit obligation (paragraph 76). Other administration costs are not deducted from the return on plan assets.
PresentationOffset131. An entity shall offset an asset relating to one plan against a liability relating to another plan when, and only when, the entity:
132. The offsetting criteria are similar to those established for financial instruments in Ind AS 32, Financial Instruments: Presentation.
Current/non-current distinction133. Some entities distinguish current assets and liabilities from non-current assets and liabilities. This Standard does not specify whether an entity should distinguish current and non-current portions of assets and liabilities arising from post-employment benefits.
Components of defined benefit cost134. Paragraph 120 requires an entity to recognise service cost and net interest on the net defined benefit liability (asset) in profit or loss. This Standard does not specify how an entity should present service cost and net interest on the net defined benefit liability (asset). An entity presents those components in accordance with Ind AS1.
Disclosure135. An entity shall disclose information that:
136. To meet the objectives in paragraph 135, an entity shall consider all the following:
137. If the disclosures provided in accordance with the requirements in this Standard and other Ind ASs are insufficient to meet the objectives in paragraph 135, an entity shall disclose additional information necessary to meet those objectives. For example, an entity may present an analysis of the present value of the defined benefit obligation that distinguishes the nature, characteristics and risks of the obligation. Such a disclosure could distinguish:
138. An entity shall assess whether all or some disclosures should be disaggregated to distinguish plans or groups of plans with materially different risks. For example, an entity may disaggregate disclosure about plans showing one or more of the following features:
139. An entity shall disclose:
140. An entity shall provide a reconciliation from the opening balance to the closing balance for each of the following, if applicable:
141. Each reconciliation listed in paragraph 140 shall show each of the following, if applicable:
142. An entity shall disaggregate the fair value of the plan assets into classes that distinguish the nature and risks of those assets, subdividing each class of plan asset into those that have a quoted market price in an active market (as defined in Ind AS 113, Fair Value Measurement) and those that do not. For example, and considering the level of disclosure discussed in paragraph 136, an entity could distinguish between:
143. An entity shall disclose the fair value of the entity's own transferable financial instruments held as plan assets, and the fair value of plan assets that are property occupied by, or other assets used by, the entity.
144. An entity shall disclose the significant actuarial assumptions used to determine the present value of the defined benefit obligation (see paragraph 76). Such disclosure shall be in absolute terms (e.g. as an absolute percentage, and not just as a margin between different percentages and other variables). When an entity provides disclosures in total for a grouping of plans, it shall provide such disclosures in the form of weighted averages or relatively narrow ranges.
Amount, timing and uncertainty of future cash flows145. An entity shall disclose:
146. An entity shall disclose a description of any asset-liability matching strategies used by the plan or the entity, including the use of annuities and other techniques, such as longevity swaps, to manage risk.
147. To provide an indication of the effect of the defined benefit plan on the entity's future cash flows, an entity shall disclose:
148. If an entity participates in a multi-employer defined benefit plan, it shall disclose:
149. If an entity participates in a defined benefit plan that shares risks between entities under common control, it shall disclose:
150. The information required by paragraph 149(c) and (d) can be disclosed by cross-reference to disclosures in another group entity's financial statements if:
151. Where required by Ind AS 24 an entity discloses information about:
152. Where required by Ind AS 37 an entity discloses information about contingent liabilities arising from post-employment benefit obligations.
Other long-term employee benefits153. Other long-term employee benefits include items such as the following, if not expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service:
154. The measurement of other long-term employee benefits is not usually subject to the same degree of uncertainty as the measurement of post-employment benefits. For this reason, this Standard requires a simplified method of accounting for other long-term employee benefits. Unlike the accounting required for post-employment benefits, this method does not recognise remeasurements in other comprehensive income.
Recognition and measurement155. In recognising and measuring the surplus or deficit in an other long-term employee benefit plan, an entity shall apply paragraphs 56-98 and 113-115. An entity shall apply paragraphs 116-119 in recognising and measuring any reimbursement right.
156. For other long-term employee benefits, an entity shall recognise the net total of the following amounts in profit or loss, except to the extent that another Ind AS requires or permits their inclusion in the cost of an asset:
[(a) service cost (see paragraphs 66-112 and paragraph 122A);] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]157. One form of other long-term employee benefit is long-term disability benefit. If the level of benefit depends on the length of service, an obligation arises when the service is rendered. Measurement of that obligation reflects the probability that payment will be required and the length of time for which payment is expected to be made. If the level of benefit is the same for any disabled employee regardless of years of service, the expected cost of those benefits is recognized when an event occurs that causes a long-term disability.
Disclosure158. Although this Standard does not require specific disclosures about other long-term employee benefits, other Ind ASs may require disclosures. For example, Ind AS 24 requires disclosures about employee benefits for key management personnel. Ind AS 1 requires disclosure of employee benefits expense.
Termination benefits159. This Standard deals with termination benefits separately from other employee benefits because the event that gives rise to an obligation is the termination of employment rather than employee service. Termination benefits result from either an entity's decision to terminate the employment or an employee's decision to accept an entity's offer of benefits in exchange for termination of employment.
160. Termination benefits do not include employee benefits resulting from termination of employment at the request of the employee without an entity's offer, or as a result of mandatory retirement requirements, because those benefits are post-employment benefits. Some entities provide a lower level of benefit for termination of employment at the request of the employee (in substance, a post-employment benefit) than for termination of employment at the request of the entity. The difference between the benefit provided for termination of employment at the request of the employee and a higher benefit provided at the request of the entity is a termination benefit.
161. The form of the employee benefit does not determine whether it is provided in exchange for service or in exchange for termination of the employee's employment. Termination benefits are typically lump sum payments, but sometimes also include:
162. Indicators that an employee benefit is provided in exchange for services include the following:
163. Some termination benefits are provided in accordance with the terms of an existing employee benefit plan. For example, they may be specified by statute, employment contract or union agreement, or may be implied as a result of the employer's past practice of providing similar benefits. As another example, if an entity makes an offer of benefits available for more than a short period, or there is more than a short period between the offer and the expected date of actual termination, the entity considers whether it has established a new employee benefit plan and hence whether the benefits offered under that plan are termination benefits or post-employment benefits. Employee benefits provided in accordance with the terms of an employee benefit plan are termination benefits if they both result from an entity's decision to terminate an employee's employment and are not conditional on future service being provided.
164. Some employee benefits are provided regardless of the reason for the employee's departure. The payment of such benefits is certain (subject to any vesting or minimum service requirements) but the timing of their payment is uncertain. Although such benefits are described in some jurisdictions as termination indemnities or termination gratuities, they are post-employment benefits rather than termination benefits, and an entity accounts for them as post-employment benefits.
Recognition165. An entity shall recognise a liability and expense for termination benefits at the earlier of the following dates:
166. For termination benefits payable as a result of an employee's decision to accept an offer of benefits in exchange for the termination of employment, the time when an entity can no longer withdraw the offer of termination benefits is the earlier of:
167. For termination benefits payable as a result of an entity's decision to terminate an employee's employment, the entity can no longer withdraw the offer when the entity has communicated to the affected employees a plan of termination meeting all of the following criteria:
168. When an entity recognises termination benefits, the entity may also have to account for a plan amendment or a curtailment of other employee benefits (see paragraph 103).
Measurement169. An entity shall measure termination benefits on initial recognition, and shall measure and recognise subsequent changes, in accordance with the nature of the employee benefit, provided that if the termination benefits are an enhancement to post-employment benefits, the entity shall apply the requirements for post-employment benefits. Otherwise:
170. Because termination benefits are not provided in exchange for service, paragraphs 70-74 relating to the attribution of the benefit to periods of service are not relevant.
Example illustrating paragraphs 159-170BackgroundAs a result of a recent acquisition, an entity plans to close a factory in ten months and, at that time, terminate the employment of all of the remaining employees at the factory. Because the entity needs the expertise of the employees at the factory to complete some contracts, it announces a plan of termination as follows.Each employee who stays and renders service until the closure of the factory will receive on the termination date a cash payment of Rs 30,000. Employees leaving before closure of the factory will receive Rs.10,000.There are 120 employees at the factory. At the time of announcing the plan, the entity expects 20 of them to leave before closure. Therefore, the total expected cash outflows under the plan are Rs.3,200,000 (i.e. 20 × RS.10,000 + 100 × Rs.30,000). As required by paragraph 160, the entity accounts for benefits provided in exchange for termination of employment as termination benefits and accounts for benefits provided in exchange for services as short-term employee benefits.Termination benefitsThe benefit provided in exchange for termination of employment is Rs.10,000. This is the amount that an entity would have to pay for terminating the employment regardless of whether the employees stay and render service until closure of the factory or they leave before closure. Even though the employees can leave before closure, the termination of all employees' employment is a result of the entity's decision to close the factory and terminate their employment (i.e. all employees will leave employment when the factory closes). Therefore the entity recognises a liability of Rs.1,200,000 (i.e. 120 × Rs.10,000) for the termination benefits provided in accordance with the employee benefit plan at the earlier of when the plan of termination is announced and when the entity recognises the restructuring costs associated with the closure of the factory.Benefits provided in exchange for serviceThe incremental benefits that employees will receive if they provide services for the full ten-month period are in exchange for services provided over that period. The entity accounts for them as short-term employee benefits because the entity expects to settle them before twelve months after the end of the annual reporting period. In this example, discounting is not required, so an expense of Rs.200,000 (i.e. Rs.2,000,000 ÷ 10) is recognized in each month during the service period of ten months, with a corresponding increase in the carrying amount of the liability.Disclosure171. Although this Standard does not require specific disclosures about termination benefits, other Ind ASs may require disclosures. For example, Ind AS 24 requires disclosures about employee benefits for key management personnel. Ind AS 1 requires disclosure of employee benefits expense.
[Transition and effective date_____________________________________________________________________________________172. *
173. *
174. *
175. *
176. *
177. *
178. *
179. Plan Amendment, Curtailment or Settlement (Amendments to Ind AS 19), added paragraphs 101A, 122A and 123A, and amended paragraphs 57, 99, 120, 123, 125, 126 and 156. An entity shall apply these amendments to plan amendments, curtailments or settlements occurring on or after the beginning of the first annual reporting period that begins on or after 1 April, 2019.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
* Refer Appendix 1Appendix AApplication GuidanceThis appendix is an integral part of the Ind AS. It describes the application of paragraphs 92-93 and has the same authority as the other parts of the Ind AS.A1 The accounting requirements for contributions from employees or third parties are illustrated in the diagram below.1. Paragraph 64 of Ind 19 limits the measurement of a net defined benefit asset to the lower of the surplus in the defined benefit plan and the asset ceiling. Paragraph 8 of Ind AS 19 defines the asset ceiling as 'the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan'. Questions have arisen about when refunds or reductions in future contributions should be regarded as available, particularly when a minimum funding requirement exists.
2. Minimum funding requirements exist in many countries to improve the security of the post-employment benefit promise made to members of an employee benefit plan. Such requirements normally stipulate a minimum amount or level of contributions that must be made to a plan over a given period. Therefore, a minimum funding requirement may limit the ability of the entity to reduce future contributions.
3. Further, the limit on the measurement of a defined benefit asset may cause a minimum funding requirement to be onerous. Normally, a requirement to make contributions to a plan would not affect the measurement of the defined benefit asset or liability. This is because the contributions, once paid, will become plan assets and so the additional net liability is nil. However, a minimum funding requirement may give rise to a liability if the required contributions will not be available to the entity once they have been paid.
3A. [Refer Appendix 1].
Scope4. This Appendix applies to all post-employment defined benefits and other long-term employee defined benefits.
5. For the purpose of this Appendix, minimum funding requirements are any requirements to fund a post-employment or other long-term defined benefit plan.
Issues6. The issues addressed in this Appendix are:
7. An entity shall determine the availability of a refund or a reduction in future contributions in accordance with the terms and conditions of the plan and any statutory requirements in the jurisdiction of the plan.
8. An economic benefit, in the form of a refund or a reduction in future contributions, is available if the entity can realise it at some point during the life of the plan or when the plan liabilities are settled. In particular, such an economic benefit may be available even if it is not realisable immediately at the end of the reporting period.
9. The economic benefit available does not depend on how the entity intends to use the surplus. An entity shall determine the maximum economic benefit that is available from refunds, reductions in future contributions or a combination of both. An entity shall not recognise economic benefits from a combination of refunds and reductions in future contributions based on assumptions that are mutually exclusive.
10. In accordance with Ind AS 1, the entity shall disclose information about the key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amount of the net asset or liability recognized in the balance sheet. This might include disclosure of any restrictions on the current realisability of the surplus or disclosure of the basis used to determine the amount of the economic benefit available.
The economic benefit available as a refundThe right to a refund11. A refund is available to an entity only if the entity has an unconditional right to a refund:
12. If the entity's right to a refund of a surplus depends on the occurrence or non-occurrence of one or more uncertain future events not wholly within its control, the entity does not have an unconditional right and shall not recognise an asset.
Measurement of the economic benefit13. An entity shall measure the economic benefit available as a refund as the amount of the surplus at the end of the reporting period (being the fair value of the plan assets less the present value of the defined benefit obligation) that the entity has a right to receive as a refund, less any associated costs. For instance, if a refund would be subject to a tax other than income tax, an entity shall measure the amount of the refund net of the tax.
14. In measuring the amount of a refund available when the plan is wound up (paragraph 11(c)), an entity shall include the costs to the plan of settling the plan liabilities and making the refund. For example, an entity shall deduct professional fees if these are paid by the plan rather than the entity, and the costs of any insurance premiums that may be required to secure the liability on wind-up.
15. If the amount of a refund is determined as the full amount or a proportion of the surplus, rather than a fixed amount, an entity shall make no adjustment for the time value of money, even if the refund is realisable only at a future date.
The economic benefit available as a contribution reduction16. If there is no minimum funding requirement for contributions relating to future service, the economic benefit available as a reduction in future contributions is the future service cost to the entity for each period over the shorter of the expected life of the plan and the expected life of the entity. The future service cost to the entity excludes amounts that will be borne by employees.
17. An entity shall determine the future service costs using assumptions consistent with those used to determine the defined benefit obligation and with the situation that exists at the end of the reporting period as determined by Ind AS 19. Therefore, an entity shall assume no change to the benefits to be provided by a plan in the future until the plan is amended and shall assume a stable workforce in the future unless the entity makes a reduction in the number of employees covered by the plan. In the latter case, the assumption about the future workforce shall include the reduction.
The effect of a minimum funding requirement on the economic benefit available as a reduction in future contributions18. An entity shall analyse any minimum funding requirement at a given date into contributions that are required to cover (a) any existing shortfall for past service on the minimum funding basis and (b) future service.
19. Contributions to cover any existing shortfall on the minimum funding basis in respect of services already received do not affect future contributions for future service. They may give rise to a liability in accordance with paragraphs 23-26.
20. If there is a minimum funding requirement for contributions relating to future service, the economic benefit available as a reduction in future contributions is the sum of:
21. An entity shall estimate the future minimum funding requirement contributions for future service taking into account the effect of any existing surplus determined using the minimum funding basis but excluding the prepayment described in paragraph 20(a). An entity shall use assumptions consistent with the minimum funding basis and, for any factors not specified by that basis, assumptions consistent with those used to determine the defined benefit obligation and with the situation that exists at the end of the reporting period as determined by Ind AS 19. The estimate shall include any changes expected as a result of the entity paying the minimum contributions when they are due. However, the estimate shall not include the effect of expected changes in the terms and conditions of the minimum funding basis that are not substantively enacted or contractually agreed at the end of the reporting period.
22. When an entity determines the amount described in paragraph 20(b), if the future minimum funding requirement contributions for future service exceed the future IAS 19 service cost in any given period, that excess reduces the amount of the economic benefit available as a reduction in future contributions. However, the amount described in paragraph 20(b) can never be less than zero.
When a minimum funding requirement may give rise to a liability23. If an entity has an obligation under a minimum funding requirement to pay contributions to cover an existing shortfall on the minimum funding basis in respect of services already received, the entity shall determine whether the contributions payable will be available as a refund or reduction in future contributions after they are paid into the plan.
24. To the extent that the contributions payable will not be available after they are paid into the plan, the entity shall recognise a liability when the obligation arises. The liability shall reduce the net defined benefit asset or increase the net defined benefit liability so that no gain or loss is expected to result from applying paragraph 64 of Ind AS 19 when the contributions are paid.
25.
-26 (refer Appendix 1)Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 19 and the corresponding International Accounting Standard (IAS) 19, Employee Benefits, and IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, issued by the International Accounting Standards Board.Comparison with IAS 19, Employee Benefits, and IFRIC 141. Paragraph numbers 25-26 appear as 'Deleted' in IFRIC 14. In order to maintain consistency with paragraph numbers of IFRIC 14, the paragraph numbers are retained in Appendix B of Ind AS 19.
2. [ According to Ind AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19 , the government bonds can be used only for those currencies where there is no deep market of high quality corporate bonds. However, requirements given in IAS 19 in this regard have been retained with appropriate modifications for currencies other than Indian rupee.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
3. To illustrate treatment of gratuity subject to ceiling under Indian Gratuity Rules, an example has been added in paragraph 73.
4. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position'. The words 'approval of the financial statements for issue have been used instead of 'authorisation of the financial statements for issue ' in the context of financial statements considered for the purpose of events after the reporting period.
5. Paragraph 3A of Appendix B is deleted as this paragraph deals with reason for amending IFRIC 14, which is irrelevant for Appendix B to Ind AS 19.
[6 Paragraphs 172 to 177of IAS 19 have not been included as these paragraphs relate to transition and effective date that are not relevant in Indian context. Paragraph 178 has not been included as it refers to amendments due to issuance of IFRS 17, Insurance Contracts, for which corresponding Ind AS is under formulation. However, in order to maintain consistency with paragraph numbers of IAS 19, the paragraph numbers are retained in Ind AS 19.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Indian Accounting Standard (Ind AS) 20Accounting for Government Grants and Disclosure of Government Assistance(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Scope1. This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance.
2. This Standard does not deal with:
3. The following terms are used in this Standard with the meanings specified:
Government refers to government, government agencies and similar bodies whether local, national or international.Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, such as the provision of infrastructure in development areas or the imposition of trading constraints on competitors.[Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.] [See Appendix A Government Assistance-No Specific Relation to Operating Activities]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 price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement)4. Government assistance takes many forms varying both in the nature of the assistance given and in the conditions which are usually attached to it. The purpose of the assistance may be to encourage an entity to embark on a course of action which it would not normally have taken if the assistance was not provided.
5. The receipt of government assistance by an entity may be significant for the preparation of the financial statements for two reasons. Firstly, if resources have been transferred, an appropriate method of accounting for the transfer must be found. Secondly, it is desirable to give an indication of the extent to which the entity has benefited from such assistance during the reporting period. This facilitates comparison of an entity's financial statements with those of prior periods and with those of other entities.
6. Government grants are sometimes called by other names such as subsidies, subventions, or premiums.
Government grants7. Government grants, including non-monetary grants at fair value, shall not be recognized until there is reasonable assurance that:
8. A government grant is not recognized until there is reasonable assurance that the entity will comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant does not of itself provide conclusive evidence that the conditions attaching to the grant have been or will be fulfilled.
9. The manner in which a grant is received does not affect the accounting method to be adopted in regard to the grant. Thus a grant is accounted for in the same manner whether it is received in cash or as a reduction of a liability to the government.
10. A forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.
10A. The benefit of a government loan at a below-market rate of interest is treated as a government grant. The loan shall be recognized and measured in accordance with Ind AS 109, Financial Instruments. The benefit of the below-market rate of interest shall be measured as the difference between the initial carrying value of the loan determined in accordance with Ind AS 109, and the proceeds received. The benefit is accounted for in accordance with this Standard. The entity shall consider the conditions and obligations that have been, or must be, met when identifying the costs for which the benefit of the loan is intended to compensate.
11. Once a government grant is recognized, any related contingent liability or contingent asset is treated in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
12. Government grants shall be recognized in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grants are intended to compensate.
13. There are two broad approaches to the accounting for government grants: the capital approach, under which a grant is recognized outside profit or loss, and the income approach, under which a grant is recognized in profit or loss over one or more periods.
14. Those in support of the capital approach argue as follows:
15. Arguments in support of the income approach are as follows:
16. It is fundamental to the income approach that government grants should be recognized in profit or loss on a systematic basis over the periods in which the entity recognises as expenses the related costs for which the grant is intended to compensate. Recognition of government grants in profit or loss on a receipts basis is not in accordance with the accrual accounting assumption (see Ind AS 1, Presentation of Financial Statements) and would be acceptable only if no basis existed for allocating a grant to periods other than the one in which it was received.
17. In most cases the periods over which an entity recognises the costs or expenses related to a government grant are readily ascertainable. Thus grants in recognition of specific expenses are recognized in profit or loss in the same period as the relevant expenses. Similarly, grants related to depreciable assets are usually recognized in profit or loss over the periods and in the proportions in which depreciation expense on those assets is recognized.
18. Grants related to non-depreciable assets may also require the fulfilment of certain obligations and would then be recognized in profit or loss over the periods that bear the cost of meeting the obligations. As an example, a grant of land may be conditional upon the erection of a building on the site and it may be appropriate to recognise the grant in profit or loss over the life of the building.
19. Grants are sometimes received as part of a package of financial or fiscal aids to which a number of conditions are attached. In such cases, care is needed in identifying the conditions giving rise to costs and expenses which determine the periods over which the grant will be earned. It may be appropriate to allocate part of a grant on one basis and part on another.
20. A government grant that becomes receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity with no future related costs shall be recognized in profit or loss of the period in which it becomes receivable.
21. In some circumstances, a government grant may be awarded for the purpose of giving immediate financial support to an entity rather than as an incentive to undertake specific expenditures. Such grants may be confined to a particular entity and may not be available to a whole class of beneficiaries. These circumstances may warrant recognising a grant in profit or loss of the period in which the entity qualifies to receive it, with disclosure to ensure that its effect is clearly understood.
22. A government grant may become receivable by an entity as compensation for expenses or losses incurred in a previous period. Such a grant is recognized in profit or loss of the period in which it becomes receivable, with disclosure to ensure that its effect is clearly understood.
23. [ A Government grant may take the form of a transfer of a non-monetary asset, such as land or other resources, for the use of the entity. In these circumstances, it is usual to assess the fair value of the non-monetary asset and to account for both grant and asset at that fair value. An alternative course that is sometimes followed is to record both asset and grant at a nominal amount.
24. Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet either by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.
25. Two methods of presentation in financial statements of grants or the appropriate portions of grants related to assets are regarded as acceptable alternatives.
26. One method recognises the grant as deferred income that is recognised in profit or loss on a systematic basis over the useful life of the asset.
27. The other method deducts the grant in calculating the carrying amount of the asset. The grant is recognised in profit or loss over the life of a depreciable asset as a reduced depreciation expense.
28. The purchase of assets and the receipt of related grants can cause major movements in the cash flow of an entity. For this reason and in order to show the gross investment in assets, such movements are often disclosed as separate items in the statement of cash flows regardless of whether or not the grant is deducted from the related asset for presentation purposes in the balance sheet.] [Substituted by Notification no. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Presentation of grants related to income29. Grants related to income are presented as part of profit or loss, either separately or under a general heading such as 'Other income'; alternatively, they are deducted in reporting the related expense.
29A. [Refer Appendix 1]
30. Supporters of the first method claim that it is inappropriate to net income and expense items and that separation of the grant from the expense facilitates comparison with other expenses not affected by a grant. For the second method it is argued that the expenses might well not have been incurred by the entity if the grant had not been available and presentation of the expense without offsetting the grant may therefore be misleading.
31. Both methods are regarded as acceptable for the presentation of grants related to income. Disclosure of the grant may be necessary for a proper understanding of the financial statements. Disclosure of the effect of the grants on any item of income or expense which is required to be separately disclosed is usually appropriate.
32. [ A Government grant that becomes repayable shall be accounted for as a change in accounting estimate (see Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors). Repayment of a grant related to income shall be applied first against any unamortised deferred credit recognised in respect of the grant. To the extent that the repayment exceeds any such deferred credit, or when no deferred credit exists, the repayment shall be recognised immediately in profit or loss. Repayment of a grant related to an asset shall be recognised by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable. The cumulative additional depreciation that would have been recognised in profit or loss to date in the absence of the grant shall be recognised immediately in profit or loss.
33. Circumstances giving rise to repayment of a grant related to an asset may require consideration to be given to the possible impairment of the new carrying amount of the asset.] [Substituted by Notification no. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Government assistance34. Excluded from the definition of government grants in paragraph 3 are certain forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity.
35. Examples of assistance that cannot reasonably have a value placed upon them are free technical or marketing advice and the provision of guarantees. An example of assistance that cannot be distinguished from the normal trading transactions of the entity is a government procurement policy that is responsible for a portion of the entity's sales. The existence of the benefit might be unquestioned but any attempt to segregate the trading activities from government assistance could well be arbitrary.
36. The significance of the benefit in the above examples may be such that disclosure of the nature, extent and duration of the assistance is necessary in order that the financial statements may not be misleading.
37. [Refer Appendix 1]
38. In this Standard, government assistance does not include the provision of infrastructure by improvement to the general transport and communication network and the supply of improved facilities such as irrigation or water reticulation which is available on an ongoing indeterminate basis for the benefit of an entire local community.
Disclosure39. The following matters shall be disclosed:
40. [ *Refer Appendix 1
Effective date41. *
42. *
43. *
44. *
45. *
46. *
47. *
48. *
48A. Paragraphs 23-24, 26, 28 and 32 are amended, and paragraphs 25, 27, 33 and 40-48A have been added to allow the option of recording of non-monetary government grants at nominal value and presentation of government grants related to assets by deducting the same from the carrying amount of the asset. An entity shall apply these amendments for the annual periods beginning on or after April 1, 2018.] [Inserted by Notification no. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Appendix AGovernment Assistance-No Specific Relation to Operating ActivitiesThis appendix is an integral part of the Ind AS.Issue1. In some countries government assistance to entities may be aimed at encouragement or long-term support of business activities either in certain regions or industry sectors. Conditions to receive such assistance may not be specifically related to the operating activities of the entity. Examples of such assistance are transfers of resources by governments to entities which:
2. The issue is whether such government assistance is a 'government grant' within the scope of Ind AS 20 and, therefore, should be accounted for in accordance with this Standard.
Accounting Principle3. Government assistance to entities meets the definition of government grants in Ind AS 20, even if there are no conditions specifically relating to the operating activities of the entity other than the requirement to operate in certain regions or industry sectors. Such grants shall therefore not be credited directly to shareholders' interests.
Appendix BReferences to matters contained in other Indian Accounting StandardsThis appendix is an integral part of the Ind AS.1. Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 20 and the corresponding International Accounting Standard (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance, and SIC 10 Government Assistance-No Specific Relation to Operating Activities, issued by the International Accounting Standards Board.Comparison with IAS 20, Accounting for Government Grants and Disclosure of Government Assistance and SIC 101. [ and 2. ***] [Omitted '1 and 2' by Notification no. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
3. Requirements regarding presentation of grants related to income in the separate income statement, where separate income statement is presented under paragraph 29A of IAS 20 have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss. However, paragraph number 29A has been retained in Ind AS 20 to maintain consistency with paragraph numbers of IAS 20.
4. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
5. Paragraph number 37 appear as 'Deleted' in IAS 20. In order to maintain consistency with paragraph numbers of IAS 20, the paragraph number is retained in Ind AS 20.
[6 Paragraph 40 of IAS 20 related to transitional provisions has not been included in Ind AS 20 since transitional provisions considered relevant have been included in Ind AS 101, First Time Adoption of Indian Accounting Standards.7. Paragraphs 41-48 of Effective date of IAS 20 have not been included in Ind AS 20 since these are not relevant in Indian context.] [Inserted by Notification no. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
Indian Accounting Standard (Ind AS) 21The Effects of Changes in Foreign Exchange Rates(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. 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.
2. 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.
Scope3. This Standard shall be applied:
4. Ind AS 109 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 109 (e.g. 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.
5. 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 109 applies to hedge accounting.
6. 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 (Ind ASs). For translations of financial information into a foreign currency that do not meet these requirements, this Standard specifies information to be disclosed.
7. 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).
7AA. This Standard does not also apply to long-term foreign currency monetary items for which an entity has opted for the exemption given in paragraph D13AA of Appendix D to Ind AS 101. Such an entity may continue to apply the accounting policy so opted for such long-term foreign currency monetary items.
Definitions8. The following terms are used in this Standard with the meanings specified:
Closing rate is the spot exchange rate at the end of the reporting period.Exchange difference is the difference resulting from translating a given number of units of one currency into another currency at different exchange rates.Exchange rate is the ratio of exchange for two currencies.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 13, Fair Value Measurement.).Foreign currency is a currency other than the functional currency of the entity.Foreign operation is an entity that is a subsidiary, associate, joint arrangement or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.Functional currency is the currency of the primary economic environment in which the entity operates.A group is a parent and all its subsidiaries.Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.Net investment in a foreign operation is the amount of the reporting entity's interest in the net assets of that operation.Presentation currency is the currency in which the financial statements are presented.Spot exchange rate is the exchange rate for immediate delivery.Elaboration on the definitionsFunctional currency9. The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency:
10. The following factors may also provide evidence of an entity's functional currency:
11. The following additional factors are considered in determining the functional currency of a foreign operation, and whether its functional currency is the same as that of the reporting entity (the reporting entity, in this context, being the entity that has the foreign operation as its subsidiary, branch, associate or joint arrangement):
12. When the above indicators are mixed and the functional currency is not obvious, management uses its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As part of this approach, management gives priority to the primary indicators in paragraph 9 before considering the indicators in paragraphs 10 and 11, which are designed to provide additional supporting evidence to determine an entity's functional currency.
13. An entity's functional currency reflects the underlying transactions, events and conditions that are relevant to it. Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions.
14. If the functional currency is the currency of a hyper-inflationary economy, the entity's financial statements are restated in accordance with Ind AS 29, Financial Reporting in Hyper-inflationary Economies. An entity cannot avoid restatement in accordance with Ind AS 29 by, for example, adopting as its functional currency a currency other than the functional currency determined in accordance with this Standard (such as the functional currency of its parent).
Net investment in a foreign operation15. An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity's net investment in that foreign operation, and is accounted for in accordance with paragraphs 32 and 33. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables.
15A. The entity that has a monetary item receivable from or payable to a foreign operation described in paragraph 15 may be any subsidiary of the group. For example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A's loan receivable from Subsidiary B would be part of the entity's net investment in Subsidiary B if settlement of the loan is neither planned nor likely to occur in the foreseeable future. This would also be true if Subsidiary A were itself a foreign operation.
Monetary items16. [ The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: pensions and other employee benefits to be paid in cash; provisions that are to be settled in cash; lease liabilities; and cash dividends that are recognised as a liability. Similarly, a contract to receive (or deliver) a variable number of the entity's own equity instruments or a variable amount of assets in which the fair value to be received (or delivered) equals a fixed or determinable number of units of currency is a monetary item. Conversely, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Examples include: amounts prepaid for goods and services; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets and provisions that are to be settled by the delivery of a non-monetary asset.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Summary of the approach required by this Standard17. In preparing financial statements, each entity-whether a stand-alone entity, an entity with foreign operations (such as a parent) or a foreign operation (such as a subsidiary or branch)-determines its functional currency in accordance with paragraphs 9-14. The entity translates foreign currency items into its functional currency and reports the effects of such translation in accordance with paragraphs 20-37 and 50.
18. Many reporting entities comprise a number of individual entities (e.g. a group is made up of a parent and one or more subsidiaries). Various types of entities, whether members of a group or otherwise, may have investments in associates or joint arrangements. They may also have branches. It is necessary for the results and financial position of each individual entity included in the reporting entity to be translated into the currency in which the reporting entity presents its financial statements. This Standard permits the presentation currency of a reporting entity to be any currency (or currencies). The results and financial position of any individual entity within the reporting entity whose functional currency differs from the presentation currency are translated in accordance with paragraphs 38-50.
19. This Standard also permits a stand-alone entity preparing financial statements or an entity preparing separate financial statements in accordance with Ind AS 27, Separate Financial Statements, to present its financial statements in any currency (or currencies). If the entity's presentation currency differs from its functional currency, its results and financial position are also translated into the presentation currency in accordance with paragraphs 38-50.
Reporting foreign currency transactions in the functional currencyInitial recognition20. A foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, including transactions arising when an entity:
21. A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.
22. The date of a transaction is the date on which the transaction first qualifies for recognition in accordance with Ind ASs. For practical reasons, a rate that approximates the actual rate at the date of the transaction is often used, for example, an average rate for a week or a month might be used for all transactions in each foreign currency occurring during that period. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.
Reporting at the ends of subsequent reporting periods23. At the end of each reporting period:
24. The carrying amount of an item is determined in conjunction with other relevant Standards. For example, property, plant and equipment may be measured in terms of fair value or historical cost in accordance with Ind AS 16, Property, Plant and Equipment. Whether the carrying amount is determined on the basis of historical cost or on the basis of fair value, if the amount is determined in a foreign currency it is then translated into the functional currency in accordance with this Standard.
25. 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:
26. 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.
Recognition of exchange differences27. As noted in paragraph 3 (a) and 5, Ind AS 109 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 109 requires that exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge are recognized initially in other comprehensive income to the extent that the hedge is effective.
28. Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognized in profit or loss in the period in which they arise, except as described in paragraph 32.
29. 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 recognized in that period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognized in each period up to the date of settlement is determined by the change in exchange rates during each period.
30. When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss shall be recognized in other comprehensive income. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss shall be recognized in profit or loss.
31. Other Ind ASs require some gains and losses to be recognized 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 recognized in other comprehensive income. When 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 recognized in other comprehensive income.
32. 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 recognized 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 (e.g. consolidated financial statements when the foreign operation is a subsidiary), such exchange differences shall be recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment in accordance with paragraph 48.
33. 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 denominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity's separate financial statements in accordance with paragraph 28. 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 28. Such exchange differences are recognized in other comprehensive income in the financial statements that include the foreign operation and the reporting entity (i.e. financial statements in which the foreign operation is consolidated or accounted for using the equity method).
34. 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 currency35. 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.
36. 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.
37. The effect of a change in functional currency is accounted for prospectively. In other words, an entity translates all items into the new functional 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 recognized 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.
Use of a presentation currency other than the functional currencyTranslation to the presentation currency38. An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity's functional currency, it translates its results and financial position into the presentation currency. For example, when a group contains individual entities with different functional currencies, the results and financial position of each entity are expressed in a common currency so that consolidated financial statements may be presented.
39. The results and financial position of an entity whose functional currency is not the currency of a hyper-inflationary economy shall be translated into a different presentation currency using the following procedures:
40. For practical reasons, a rate that approximates the exchange rates at the dates of the transactions, for example an average rate for the period, is often used to translate income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for a period is inappropriate.
41. The exchange differences referred to in paragraph 39(c) result from:
42. The results and financial position of an entity whose functional currency is the currency of a hyper-inflationary economy shall be translated into a different presentation currency using the following procedures:
43. When an entity's functional currency is the currency of a hyper-inflationary economy, the entity shall restate its financial statements in accordance with Ind AS 29 before applying the translation method set out in paragraph 42, except for comparative amounts that are translated into a currency of a non-hyper-inflationary economy (see paragraph 42(b)). When the economy ceases to be hyper-inflationary 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 operation44. 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 or the equity method.
45. 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 (see Ind AS 110, Consolidated Financial Statements). 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 recognized in profit or loss or, if it arises from the circumstances described in paragraph 32, it is recognized in other comprehensive income and accumulated in a separate component of equity until the disposal of the foreign operation.
46. 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 110 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 110. The same approach is used in applying the equity method to associates and joint ventures in accordance with Ind AS 28.
47. 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.
Disposal or partial disposal of a foreign operation48. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, shall be reclassified from equity to profit or loss (as a reclassification adjustment) when the gain or loss on disposal is recognized (see Ind AS 1, Presentation of Financial Statements).
48A. In addition to the disposal of an entity's entire interest in a foreign operation, the following partial disposals are accounted for as disposals:
48B. On disposal of a subsidiary that includes a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation that have been attributed to the non-controlling interests shall be derecognized, but shall not be reclassified to profit or loss.
48C. On the partial disposal of a subsidiary that includes a foreign operation, the entity shall re-attribute the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income to the non-controlling interests in that foreign operation. In any other partial disposal of a foreign operation the entity shall reclassify to profit or loss only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income.
48D. A partial disposal of an entity's interest in a foreign operation is any reduction in an entity's ownership interest in a foreign operation, except those reductions in paragraph 48A that are accounted for as disposals.
49. An entity may dispose or partially dispose of its interest in a foreign operation through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity. A write-down of the carrying amount of a foreign operation, either because of its own losses or because of an impairment recognized by the investor, does not constitute a partial disposal. Accordingly, no part of the foreign exchange gain or loss recognized in other comprehensive income is reclassified to profit or loss at the time of a write-down.
Tax effects of all exchange differences50. Gains and losses on foreign currency transactions and exchange differences arising on translating the results and financial position of an entity (including a foreign operation) into a different currency may have tax effects. Ind AS 12, Income Taxes, applies to these tax effects.
Disclosure51. In paragraphs 53 and 55-57 references to 'functional currency' apply, in the case of a group, to the functional currency of the parent.
52. An entity shall disclose:
53. 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.
54. When there is a change in the functional currency of either the reporting entity or a significant foreign operation, that fact, the reason for the change in functional currency and the date of change in functional currency shall be disclosed.
55. When an entity presents its financial statements in a currency that is different from its functional currency, it shall describe the financial statements as complying with Ind ASs only if they comply with all the requirements of each applicable Standard including the translation method set out in paragraphs 39 and 42.
56. 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 hyper-inflationary 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 Ind ASs and the disclosures set out in paragraph 57 are required.
57. When an entity displays its financial statements or other financial information in a currency that is different from either its functional currency or its presentation currency and the requirements of paragraph 55 are not met, it shall:
58.
-60J Omitted*60K. Ind AS 116 amended paragraph 16. An entity shall apply that amendment when it applies Ind AS 116.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix AReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the appendix which is a part of another Indian Accounting Standard and makes reference to Ind AS 21, The Effects of Changes in Foreign Exchange Rates.1. Appendix C, Hedges of a Net Investment in a Foreign Operation, contained in Ind AS 109, Financial instruments makes reference to this Standard also.
[Appendix B, Foreign Currency Transactions and Advance ConsiderationThis appendix is an integral part of the Ind ASBackground1. Paragraph 21 of Ind AS 21, The Effects of Changes in Foreign Exchange Rates, requires an entity to record a foreign currency transaction, on initial recognition in its functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency (the exchange rate) at the date of the transaction. Paragraph 22 of Ind AS 21 states that the date of the transaction is the date on which the transaction first qualifies for recognition in accordance with Ind AS Standards (Standards).
2. When an entity pays or receives consideration in advance in a foreign currency, it generally recognises a non-monetary asset or non-monetary liability* before the recognition of the related asset, expense or income. The related asset, expense or income (or part of it) is the amount recognised applying relevant Standards, which results in the derecognition of the non-monetary asset or non-monetary liability arising from the advance consideration.
*For example, paragraph 106 of Ind AS 115, Revenue from Contracts with Customers, requires that if a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (ie a receivable), before the entity transfers a good or service to the customer, the entity shall present the contract as a contract liability when the payment is made or the payment is due (whichever is earlier).3. Initially, the issue was how to determine `the date of the transaction' applying paragraphs 21 -22 of Ind AS 21 when recognising revenue. The question specifically addressed circumstances in which an entity recognises a non-monetary liability arising from the receipt of advance consideration before it recognises the related revenue. It was noted that the receipt or payment of advance consideration in a foreign currency is not restricted to revenue transactions. Accordingly, this appendix clarifies the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income when an entity has received or paid advance consideration in a foreign currency.
Scope4. This Appendix applies to a foreign currency transaction (or part of it) when an entity recognises a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognises the related asset, expense or income (or part of it).
5. This Appendix does not apply when an entity measures the related asset, expense or income on initial recognition:
6. An entity is not required to apply this Appendix to:
7. This Appendix addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency.
Accounting Principles8. Applying paragraphs 21-22 of Ind AS 21, the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration.
9. If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.
Effective date and transition of Appendix BThis is an integral part of Appendix B and has the same authority as the other parts of the Appendix B.Effective dateA1 An entity shall apply this Appendix for annual reporting periods beginning on or after April 1, 2018.A2 On initial application, an entity shall apply this Appendix either:1. The transitional provisions given in IAS 21 have not been given in the Ind AS 21, since all transitional provisions related to Indian ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Paragraph 7AA has been inserted to scope out the long-term foreign currency monetary items for which an entity has opted for the exemption given in paragraph D13AA of Appendix D to Ind AS 101 allowing to continue the policy adopted for accounting for exchange differences arising from translation of such long-term foreign currency monetary items recognized in the financial statements for the period ending immediately before beginning of the first Ind AS financial reporting period as per the previous GAAP.
3. When there is a change in functional currency of either the reporting currency or a significant foreign operation, IAS 21 requires disclosure of that fact and the reason for the change in functional currency. Ind AS 21 requires an additional disclosure of the date of change in functional currency.
4. Different terminology is used in this Standard e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
5. [ Paragraphs 58-60J of IAS 21 have not been included in Ind AS 21 as these paragraphs relate to Effective date and transition. However, in order to maintain consistency with paragraph numbers of IAS 21, these paragraph numbers are retained in Ind AS 21.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 23Borrowing Costs(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Core principle1. 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 recognized as an expense.
Scope2. An entity shall apply this Standard in accounting for borrowing costs.
3. The Standard does not deal with the actual or imputed cost of equity, including preferred capital not classified as a liability.
4. An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production of:
5. This Standard uses the following terms with the meanings specified:
Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.6. Borrowing costs may include:
6A. With regard to exchange difference required to be treated as borrowing costs in accordance with paragraph 6(e), the manner of arriving at the adjustments stated therein shall be as follows:
7. Depending on the circumstances, any of the following may be qualifying assets:
8. An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. An entity shall recognise other borrowing costs as an expense in the period in which it incurs them.
9. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset. Such borrowing costs are capitalised as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. When an entity applies Ind AS 29 Financial Reporting in Hyper-inflationary Economies, it recognises as an expense the part of borrowing costs that compensates for inflation during the same period in accordance with paragraph 21 of that Standard.
Borrowing costs eligible for capitalisation10. The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. When an entity borrows funds specifically for the purpose of obtaining a particular qualifying asset, the borrowing costs that directly relate to that qualifying asset can be readily identified.
11. It may be difficult to identify a direct relationship between particular borrowings and a qualifying asset and to determine the borrowings that could otherwise have been avoided. Such a difficulty occurs, for example, when the financing activity of an entity is co-ordinated centrally. Difficulties also arise when a group uses a range of debt instruments to borrow funds at varying rates of interest, and lends those funds on various bases to other entities in the group. Other complications arise through the use of loans denominated in or linked to foreign currencies, when the group operates in highly inflationary economies, and from fluctuations in exchange rates. As a result, the determination of the amount of borrowing costs that are directly attributable to the acquisition of a qualifying asset is difficult and the exercise of judgement is required.
12. To the extent that an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings.
13. The financing arrangements for a qualifying asset may result in an entity obtaining borrowed funds and incurring associated borrowing costs before some or all of the funds are used for expenditures on the qualifying asset. In such circumstances, the funds are often temporarily invested pending their expenditure on the qualifying asset. In determining the amount of borrowing costs eligible for capitalisation during a period, any investment income earned on such funds is deducted from the borrowing costs incurred.
[14 To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate shall be the weighted average of the borrowing costs applicable to all borrowings of the entity that are outstanding during the period. However, an entity shall exclude from this calculation borrowing costs applicable to borrowings made specifically for the purpose of obtaining a qualifying asset until substantially all the activities necessary to prepare that asset for its intended use or sale are complete. The amount of borrowing costs that an entity capitalises during a period shall not exceed the amount of borrowing costs it incurred during that period.] [Substituted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]15. In some circumstances, it is appropriate to include all borrowings of the parent and its subsidiaries when computing a weighted average of the borrowing costs; in other circumstances, it is appropriate for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings.
Excess of the carrying amount of the qualifying asset over recoverable amount16. When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, the carrying amount is written down or written off in accordance with the requirements of other Standards. In certain circumstances, the amount of the write-down or write-off is written back in accordance with those other Standards.
Commencement of capitalisation17. An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:
18. Expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities. Expenditures are reduced by any progress payments received and grants received in connection with the asset (see Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance). The average carrying amount of the asset during a period, including borrowing costs previously capitalised, is normally a reasonable approximation of the expenditures to which the capitalisation rate is applied in that period.
19. The activities necessary to prepare the asset for its intended use or sale encompass more than the physical construction of the asset. They include technical and administrative work prior to the commencement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction. However, such activities exclude the holding of an asset when no production or development that changes the asset's condition is taking place. For example, borrowing costs incurred while land is under development are capitalised during the period in which activities related to the development are being undertaken. However, borrowing costs incurred while land acquired for building purposes is held without any associated development activity do not qualify for capitalisation.
Suspension of capitalisation20. An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.
21. An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not qualify for capitalisation. However, an entity does not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrative work. An entity also does not suspend capitalising borrowing costs when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale. For example, capitalisation continues during the extended period that high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographical region involved.
Cessation of capitalisation22. An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
23. An asset is normally ready for its intended use or sale when the physical construction of the asset is complete even though routine administrative work might still continue. If minor modifications, such as the decoration of a property to the purchaser's or user's specification, are all that are outstanding, this indicates that substantially all the activities are complete.
24. When an entity completes the construction of a qualifying asset in parts and each part is capable of being used while construction continues on other parts, the entity shall cease capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale.
25. A business park comprising several buildings, each of which can be used individually, is an example of a qualifying asset for which each part is capable of being usable while construction continues on other parts. An example of a qualifying asset that needs to be complete before any part can be used is an industrial plant involving several processes which are carried out in sequence at different parts of the plant within the same site, such as a steel mill.
Disclosure26. An entity shall disclose :
27.
-28 Omitted*Effective date_________________________________________________________________________________29.
-29B Omitted*29C. Ind AS 116 amended paragraph 6. An entity shall apply that amendment when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
[28A Annual Improvements to Ind AS (2018) amended paragraph 14. An entity shall apply those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).][29D Annual Improvements to Ind AS (2018) amended paragraph 14 and added paragraph 28A. An entity shall apply those amendments for annual reporting periods beginning on or after 1 April, 2019.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Appendix AReferences to matters contained in other Indian Accounting Standards (Ind ASs)This Appendix is an integral part of the Ind AS.1. Appendix A, Changes in Existing Decommissioning, Restoration and Similar Liabilities), contained in Ind AS 16, Property, Plant and Equipment, makes reference to this Standard also.
2. [ Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers, makes reference to this Standard also.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 23 and the corresponding International Accounting Standard (IAS) 23, Borrowing Costs, issued by the International Accounting Standards Board.Comparison with IAS 23, Borrowing Costs1. IAS 23 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.
2. The following paragraph numbers appear as 'Deleted' in IAS 23. In order to maintain consistency with paragraph numbers of IAS 23, the paragraph numbers are retained in Ind AS 23 :
3. [ Paragraphs 27-28 related to transitional provisions given in IAS 23 have not been given in Ind AS 23, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. Paragraphs 29-29B of IAS 23 have not been included in Ind AS 23 as these paragraphs relate to effective date which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 23, these paragraph numbers are retained in Ind AS 23.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 24Related Party Disclosures(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.).Objective1. The objective of this Standard 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.
Scope2. This Standard shall be applied in :
3. This Standard requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent or investors with joint control of, or significant influence over, an investee presented in accordance with Ind AS 110, Consolidated Financial Statements, or Ind AS 27, Separate Financial Statements. This Standard also applies to individual financial statements.
4. Related party transactions and outstanding balances with other entities in a group are disclosed in an entity's financial statements. Intragroup related party transactions and outstanding balances are eliminated, except for those between an investment entity and its subsidiaries measured at fair value through profit or loss, in the preparation of consolidated financial statements of the group.
4A. Related party disclosure requirements as laid down in this Standard do not apply in circumstances where providing such disclosures would conflict with the reporting entity's duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority.
4B. In case a statute or a regulator or a similar competent authority governing an entity prohibits the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. For example, banks are obliged by law to maintain confidentiality in respect of their customers' transactions and this Standard would not override the obligation to preserve the confidentiality of customers' dealings.
Purpose of related party disclosures5. Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on parts of their activities through subsidiaries, joint ventures and associates. In those circumstances, the entity has the ability to affect the financial and operating policies of the investee through the presence of control, joint control or significant influence.
6. A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as between unrelated parties.
7. The profit or loss and financial position of an entity may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties. For example, a subsidiary may terminate relations with a trading partner on acquisition by the parent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain from acting because of the significant influence of another-for example, a subsidiary may be instructed by its parent not to engage in research and development.
8. For these reasons, knowledge of an entity's transactions, outstanding balances, including commitments, and relationships with related parties may affect assessments of its operations by users of financial statements, including assessments of the risks and opportunities facing the entity.
Definitions9. The following terms are used in this Standard with the meanings specified :
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the 'reporting entity').10. In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.
11. In the context of this Standard, the following are not related parties :
12. In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate's subsidiary and the investor that has significant influence over the associate are related to each other.
DisclosuresAll entities13. Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity's parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.
14. To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is appropriate to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties. This is because the existence of control relationship may prevent the reporting entity from being independent in making its financial and operating decisions. The disclosure of the name of the related party and the nature of the related party relationship where control exists may sometimes be at least as relevant in appraising an entity's prospects as are the operating results and the financial position presented in its financial statements. Such a related party may establish the entity's credit standing, determine the source and price of its raw materials, and determine to whom and at what price the product is sold.
15. The requirement to disclose related party relationships between a parent and its subsidiaries is in addition to the disclosure requirements in Ind AS 27 and Ind AS 112, Disclosure of Interests in Other Entities.
16. Paragraph 13 refers to the next most senior parent. This is the first parent in the group above the immediate parent that produces consolidated financial statements available for public use.
17. An entity shall disclose key management personnel compensation in total and for each of the following categories :
17A. If an entity obtains key management personnel services from another entity (the 'management entity'), the entity is not required to apply the requirements in paragraph 17 to the compensation paid or payable by the management entity to the management entity's employees or directors.
18. If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to those in paragraph 17. At a minimum, disclosures shall include :
18A. Amounts incurred by the entity for the provision of key management personnel services that are provided by a separate management entity shall be disclosed.
19. The disclosures required by paragraph 18 shall be made separately for each of the following categories:
20. The classification of amounts payable to, and receivable from, related parties in the different categories as required in paragraph 19 is an extension of the disclosure requirement in Ind AS 1, Presentation of Financial Statements, for information to be presented either in the balance sheet or in the notes. The categories are extended to provide a more comprehensive analysis of related party balances and apply to related party transactions.
21. The following are examples of transactions that are disclosed if they are with a related party :
22. Participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities is a transaction between related parties (see paragraph 42 of Ind AS 19).
23. 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.
24. Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
24A. Disclosure of details of particular transactions with individual related parties would frequently be too voluminous to be easily understood. Accordingly, items of a similar nature may be disclosed in aggregate by type of related party. However, this is not done in such a way as to obscure the importance of significant transactions. Hence, purchases or sales of goods are not aggregated with purchases or sales of fixed assets. Nor a material related party transaction with an individual party is clubbed in an aggregated disclosure.
Government-related entities25. A reporting entity is exempt from the disclosure requirements of paragraph 18 in relation to related party transactions and outstanding balances, including commitments, with:
26. If a reporting entity applies the exemption in paragraph 25, it shall disclose the following about the transactions and related outstanding balances referred to in paragraph 25:
27. 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:
1. In the Ind AS 24, disclosures which conflict with confidentiality requirements of statute/regulations are not required to be made since Accounting Standards can not override legal/regulatory requirements. (Paragraphs 4A. and 4B of Ind AS 24).
2. Paragraph 24A has been included in the Ind AS 24. It provides additional clarificatory guidance regarding aggregation of transactions for disclosure.
3. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
4. Paragraph 14 has been modified to explain the rationale for disclosing related party relationship when control exists.
5. In paragraph 21 an example of related party transaction '(k) management contracts including for deputation or employees' has been added.
6. 'Definition of close members of the family of a person' in paragraph 9 has been amended to include brother, sister, father and mother in the category of family members who may be expected to influence, or be influenced.
Indian Accounting Standard (Ind AS) 27Separate Financial Statements(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.
Scope2. This Standard shall be applied in accounting for investments in subsidiaries, joint ventures and associates when an entity elects, or is required by law, to present separate financial statements.
3. This Standard does not mandate which entities produce separate financial statements. It applies when an entity prepares separate financial statements that comply with Indian Accounting Standards.
Definitions4. The following terms are used in this Standard with the meanings specified:
Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.Separate financial statements are those presented by a parent (i.e an investor with control of a subsidiary) or an investor with joint control of, or significant influence over, an investee, in which the investments are accounted for at cost or in accordance with Ind AS 109, Financial Instruments.5. The following terms are defined in Appendix A of Ind AS 110, Consolidated Financial Statements, Appendix A of Ind AS 111, Joint Arrangements, and paragraph 3 of Ind AS 28, Investments in Associates and Joint Ventures:
• associate• control of an investee• group• Investment Entity• joint control• joint venture• joint venturer• parent• significant influence• subsidiary.6. Separate financial statements are those presented in addition to consolidated financial statements or in addition to financial statements in which investments in associates or joint ventures are accounted for using the equity method, other than in the circumstances set out in paragraphs 8-8A. Separate financial statements need not be appended to, or accompany, those statements.
7. Financial statements in which the equity method is applied are not separate financial statements. These may be termed as 'consolidated financial statements'. Similarly, the financial statements of an entity that does not have a subsidiary, associate or joint venturer's interest in a joint venture are not separate financial statements.
8. An entity that is exempted in accordance with paragraph 4(a) of Ind AS 110 from consolidation or paragraph 17 of Ind AS 28 from applying the equity method may present separate financial statements as its only financial statements.
8A. An investment entity that is required, throughout the current period and all comparative periods presented, to apply the exception to consolidation for all of its subsidiaries in accordance with paragraph 31 of Ind AS 110 presents separate financial statements as its only financial statements.
Preparation of separate financial statements9. Separate financial statements shall be prepared in accordance with all applicable Ind AS, except as provided in paragraph 10.
10. When an entity prepares separate financial statements, it shall account for investments in subsidiaries, joint ventures and associates either:
11. If an entity elects, in accordance with paragraph 18 of Ind AS 28, to measure its investments in associates or joint ventures at fair value through profit or loss in accordance with Ind AS 109, it shall also account for those investments in the same way in its separate financial statements.
11A. If a parent is required, in accordance with paragraph 31 of Ind AS 110, to measure its investment in a subsidiary at fair value through profit or loss in accordance with Ind AS 109, it shall also account for its investment in a subsidiary in the same way in its separate financial statements.
11B. When a parent ceases to be an investment entity, or becomes an investment entity, it shall account for the change from the date when the change in status occurred, as follows:
12. An entity shall recognise a dividend from a subsidiary, a joint venture or an associate in profit or loss in its separate financial statements when its right to receive the dividend is established.
13. 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:
14. 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 13. The requirements in paragraph 13 apply equally to such reorganisations. In such cases, references to 'original parent' and 'original group' are to the 'original entity'.
Disclosure15. An entity shall apply all applicable Ind ASs when providing disclosures in its separate financial statements, including the requirements in paragraphs 16 and 17.
16. When a parent, in accordance with paragraph 4(a) of Ind AS 110, elects not to prepare consolidated financial statements and instead prepares separate financial statements, it shall disclose in those separate financial statements:
16A. When an investment entity that is a parent prepares, in accordance with paragraph 8A, separate financial statements as its only financial statements, it shall disclose that fact. The investment entity shall also present the disclosures relating to investment entities required by Ind AS 112, Disclosure of Interests in Other Entities.
17. When a parent (other than a parent covered by paragraphs 16-16A) or an investor with joint control of, or significant influence over, an investee prepares separate financial statements, the parent or investor shall identify the financial statements prepared in accordance with Ind AS 110, Ind AS 111 or Ind AS 28 to which they relate. The parent or investor shall also disclose in its separate financial statements:
1. Paragraph 17 (a) of IAS 27 requires to disclose the reason for preparing separate financial statements if not required by law. As the Companies Act mandates preparation of separate financial statements, paragraph 17 (a) has been modified to remove such requirement.
2. IAS 27 allows the entities to use the equity method to account for investment in subsidiaries, joint ventures and associates in their Separate Financial Statements (SFS). Such option is not given in Ind AS 27, as the equity method is not a measurement basis like cost and fair value but is a manner of consolidation and therefore would lead to inconsistent accounting conceptually.
Indian Accounting Standard (Ind AS) 28Investments in Associates and Joint Ventures(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.
Scope2. This Standard shall be applied by all entities that are investors with joint control of, or significant influence over, an investee.
Definitions3. The following terms are used in this Standard with the meanings specified:
An associate is an entity over which the investor has significant influence.Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor's share of the investee's net assets. The investor's profit or loss includes its share of the investee's profit or loss and the investor's other comprehensive income includes its share of the investee's other comprehensive income.A joint arrangement is an arrangement of which two or more parties have joint control.Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.A joint venturer is a party to a joint venture that has joint control of that joint venture.Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.4. The following terms are defined in paragraph 4 of Ind AS 27, Separate Financial Statements, and in Appendix A of Ind AS 110, Consolidated Financial Statements, and are used in this Standard with the meanings specified in the Ind ASs in which they are defined:
• control of an investee• group• parent• separate financial statements• subsidiary.Significant influence5. If an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (e.g. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence.
6. The existence of significant influence by an entity is usually evidenced in one or more of the following ways:
7. An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or to reduce another party's voting power over the financial and operating policies of another entity (i.e. 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.
8. 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 intentions of management and the financial ability to exercise or convert those potential rights.
9. An 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 arrangement.
Equity method10. Under the equity method, on initial recognition the investment in an associate or a joint venture is recognized at cost, and the carrying amount is increased or decreased to recognise the investor's share of the profit or loss of the investee after the date of acquisition. The investor's share of the investee's profit or loss is recognized in the investor's profit or loss. Distributions received from an investee reduce the carrying amount of the investment. 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. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor's share of those changes is recognized in the investor's other comprehensive income (see Ind AS 1, Presentation of Financial Statements).
11. The recognition of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the investor has joint control of, or significant influence over, the investee, the investor has an interest in the associate's or joint venture's performance and, as a result, the return on its investment. The investor accounts for this interest by extending the scope of its financial statements to include its share of the profit or loss of such an investee. As a result, application of the equity method provides more informative reporting of the investor's net assets and profit or loss.
12. When potential voting rights or other derivatives containing potential voting rights exist, an entity's interest in an associate or a joint venture is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless paragraph 13 applies.
13. In some circumstances, an entity has, in substance, an existing ownership as a result of a transaction that currently gives it access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the entity is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the returns.
14. Ind AS 109, Financial Instruments, does not apply to interests in associates and joint ventures that are accounted for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to Ind AS 109. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with Ind AS 109.
[14A An entity also applies Ind AS 109 to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity's net investment in an associate or joint venture (see paragraph 38). An entity applies Ind AS 109 to such long-term interests before it applies paragraph 38 and paragraphs 40-43 of this Standard. In applying Ind AS 109, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying this Standard.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]15. Unless an investment, or a portion of an investment, in an associate or a joint venture is classified as held for sale in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations, the investment, or any retained interest in the investment not classified as held for sale, shall be classified as a non-current asset.
Application of the equity method16. An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with paragraphs 17-19.
Exemptions from applying the equity method17. An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of Ind AS 110 or if all the following apply:
18. [ When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that investment at fair value through profit or loss in accordance with Ind AS 109. An entity shall make this election separately for each associate or joint venture, at initial recognition of the associate or joint venture.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
19. When an entity has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with Ind AS 109 regardless of whether the venture capital organisation has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation.
Classification as held for sale20. An entity shall apply Ind AS 105 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, an entity shall account for any retained interest in the associate or joint venture in accordance with Ind AS 109 unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method.
21. When an investment, or a portion of an investment, in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly.
Discontinuing the use of the equity method22. An entity shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture as follows:
23. Therefore, if a gain or loss previously recognized in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain or loss that had previously been recognized in other comprehensive income in relation to the foreign operation.
24. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest.
Changes in ownership interest25. If an entity's ownership interest in an associate or a joint venture is reduced, but the entity continues to apply the equity method, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities.
Equity method procedures26. Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in Ind AS 110. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in an associate or a joint venture.
27. [ A group's share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture 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 or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognized in the associate's or joint venture's financial statements (including the associate's or joint venture's share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 35-36A).] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
28. Gains and losses resulting from 'upstream' and 'downstream' transactions between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognized in the entity's financial statements only to the extent of unrelated investors' interests in the associate or joint venture. 'Upstream' transactions are, for example, sales of assets from an associate or a joint venture to the investor. 'Downstream' transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. The investor's share in the associate's or joint venture's gains or losses resulting from these transactions is eliminated.
29. When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognized in full by the investor. When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses.
30. The contribution of a non-monetary asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture shall be accounted for in accordance with paragraph 28, except when the contribution lacks commercial substance, as that term is described in Ind AS 16, Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognized unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity's consolidated balance sheet or in the entity's balance sheet in which investments are accounted for using the equity method.
31. If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or non-monetary assets received.
32. An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the entity's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as follows:
33. The most recent available financial statements of the associate or joint venture are used by the entity in applying the equity method. When the end of the reporting period of the entity is different from that of the associate or joint venture, the associate or joint venture prepares, for the use of the entity, financial statements as of the same date as the financial statements of the entity unless it is impracticable to do so.
34. When, in accordance with paragraph 33, the financial statements of an associate or a joint venture used in applying the equity method are prepared as of a date different from that used by the entity, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the entity's financial statements. In any case, the difference between the end of the reporting period of the associate or joint venture and that of the entity shall be no more than three months. The length of the reporting periods and any difference between the ends of the reporting periods shall be the same from period to period.
35. The entity's financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances unless, in case of an associate, it is impracticable to do so.
36. If an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate's or joint venture's accounting policies conform to those of the entity when the associate's or joint venture's financial statements are used by the entity in applying the equity method.
36A. [ Notwithstanding the requirement in paragraph 36, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate's or joint venture's interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
37. If an associate or a joint venture has outstanding cumulative preference shares that are held by parties other than the entity and are classified as equity, the entity computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared.
38. If an entity's share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the entity discontinues recognising its share of further losses. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the entity's net investment in the associate or joint venture. For example, an item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, an extension of the entity's investment in that associate or joint venture. Such items may include preference shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans. Losses recognized using the equity method in excess of the entity's investment in ordinary shares are applied to the other components of the entity's interest in an associate or a joint venture in the reverse order of their seniority (i.e. priority in liquidation).
39. After the entity's interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognized.
Impairment losses40. After application of the equity method, including recognising the associate's or joint venture's losses in accordance with paragraph 38, the entity applies paragraphs 41A-41Cto determine whether it isany objective evidence that its net investment in the associate or joint venture is impaired.
[***] [Omitted 'Paragraph 41' by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]41A. The net investment in an associate or joint venture is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the net investment (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows from the net investment that can be reliably estimated. It may not be possible to identify a single, discrete event that caused the impairment. Rather the combined effect of several events may have caused the impairment. Losses expected as a result of future events, no matter how likely, are not recognized. Objective evidence that the net investment is impaired includes observable data that comes to the attention of the entity about the following loss events:
41B. The disappearance of an active market because the associate's or joint venture's equity or financial instruments are no longer publicly traded is not evidence of impairment. A downgrade of an associate's or joint venture's credit rating or a decline in the fair value of the associate or joint venture, is not of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information.
41C. In addition to the types of events in paragraph 41A, objective evidence of impairment for the net investment in the equity instruments of the associate or joint venture includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the associate or joint venture operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.
42. Because goodwill that forms part of the carrying amount of the net investment in an associate or a joint venture is not separately recognized, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in Ind AS 36, Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with Ind AS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of paragraphs 41A-41C indicates that the net investment may be impaired. An impairment loss recognized in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the net investment in the associate or joint venture. Accordingly, any reversal of that impairment loss is recognized in accordance with Ind AS 36 to the extent that the recoverable amount of the net investment subsequently increases. In determining the value in use of the net investment, an entity estimates:
43. The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity.
Separate financial statements44. An investment in an associate or a joint venture shall be accounted for in the entity's separate financial statements in accordance with paragraph 10 of Ind AS 27.
[Effective date and transition45. *
45A. *
45B. *
45C. *
45D. *
45E. Annual Improvements to Ind AS - Amendments in Ind AS 112 and 28, amended paragraphs 18 and 36A. An entity shall apply those amendments retrospectively in accordance with Ind AS 8 for annual periods beginning on or after 1st April, 2018.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[45 F *45. G Long-term Interests in Associates and Joint Ventures, added paragraph 14A and deleted paragraph 41. An entity shall apply those amendments retrospectively in accordance with Ind AS 8 for annual reporting periods beginning on or after 1 April, 2019, except as specified in paragraphs 45H-K.
45. H An entity that first applies the amendments in paragraph 45G at the same time it first applies Ind AS 109 shall apply the transition requirements in Ind AS 109 to the long-term interests described in paragraph 14A.
45. I An entity that first applies the amendments in paragraph 45G after it first applies Ind AS 109 shall apply the transition requirements in Ind AS 109 necessary for applying the requirements set out in paragraph 14A to long-term interests. For that purpose, references to the date of initial application in Ind AS 109 shall be read as referring to the beginning of the annual reporting period in which the entity first applies the amendments (the date of initial application of the amendments). The entity is not required to restate prior periods to reflect the application of the amendments. The entity may restate prior periods only if it is possible without the use of hindsight.
45. J *
45. K If an entity does not restate prior periods applying paragraph 45I , at the date of initial application of the amendments it shall recognise in the opening retained earnings (or other component of equity, as appropriate) any difference between:
| At the end of | P Shares applying Ind AS 109 (fair value) | LT Loan applying Ind AS 109 (amortisedcost) | Profit (Loss) of the associate |
| Year 1 | L110 | L90 | L50 |
| Year 2 | L90 | L70 | L(200) |
| Year 3 | L50 | L50 | L(500) |
| Year 4 | L40 | L50 | L(150) |
| Year 5 | L60 | L60 | - |
| Year 6 | L80 | L70 | L500 |
| Year 7 | L110 | L90 | L500 |
| Analysis | |||
| Year 1 | |||
| The investor recognises the following in Year 1: | |||
| Investments in the associate: | |||
| DR. O Shares | L200 | ||
| DR. P Shares | L100 | ||
| DR. LT Loan | L100 | ||
| CR. Cash | L400 | ||
| To recognise the initial investment in theassociate | |||
| DR. P Shares | L10 | ||
| CR. Profit or loss | L10 | ||
| To recognise the change in fair value (L110 ?L100) | |||
| DR. Profit or loss | L10 | ||
| CR. Loss allowance (LT Loan) | L10 | ||
| To recognise an increase in the lossallowance (L90 ?L100) | |||
| DR. O Shares | L20 | ||
| CR. Profit or loss | L20 | ||
| To recognise the investor’s share ofthe associate’s profit (L50 × 40%) | |||
| At the end of Year 1, the carrying amount of OShares isL220, P Shares isL110 and the LT Loan (net of lossallowance) isL90. | |||
| Year 2 | |||
| The investor recognises the following in Year 2: | |||
| DR. Profit or loss | L20 | ||
| CR. P Shares | L20 | ||
| To recognise the change in fair value (L90 ?L110) | |||
| DR. Profit or loss | L20 | ||
| CR. Loss allowance (LT Loan) | L20 | ||
| To recognise an increase in the lossallowance (L70 –L90) | |||
| DR. Profit or loss | L80 | ||
| CR. O Shares | L80 | ||
| To recognise the investor’s share ofthe associate’s loss (L200 × 40%) | |||
| At the end of Year 2, the carrying amount of OShares isL140, P Shares isL90 and the LT Loan (net of lossallowance) isL70. | |||
| Year 3 | |||
| Applying paragraph 14A of Ind AS 28, theinvestor applies Ind AS 109 to P Shares and the LT Loan before itapplies paragraph 38 of Ind AS 28. Accordingly, the investorrecognises the following in Year 3: | |||
| DR. Profit or loss | L40 | ||
| CR. P Shares | L40 | ||
| To recognise the change in fair value (L50 ?L90) | |||
| DR. Profit or loss | L20 | ||
| CR. Loss allowance (LT Loan) | L20 | ||
| To recognise an increase in the lossallowance (L50 –L70) | |||
| DR. Profit or loss | L200 | ||
| CR. O Shares | L140 | ||
| CR. P Shares | L50 | ||
| CR. LT Loan | L10 | ||
| To recognise the investor’s share ofthe associate’s loss in reverse order of seniority asspecified in paragraph 38 of Ind AS 28 (L500 × 40%) | |||
| At the end of Year 3, the carrying amount of OShares is zero, P Shares is zero and the LT Loan (net of lossallowance) isL40. | |||
| Year 4 | |||
| Applying Ind AS 109 to its interests in theassociate, the investor recognises the following in Year 4: | |||
| DR. Profit or loss | L10 | ||
| CR. P Shares | L10 | ||
| To recognise the change in fair value (L40 ?L50) | |||
| Recognition of the change in fair value ofL10in Year 4 results in the carrying amount of P Shares beingnegativeL10. Consequently, the investor recognises the followingto reverse a portion of the associate’s losses previouslyallocated to P Shares: | |||
| DR. P Shares | L10 | ||
| CR. Profit or loss | L10 | ||
| To reverse a portion of the associate’slosses previously allocated to P Shares | |||
| Applying paragraph 38 of Ind AS 28, the investorlimits the recognition of the associate’s losses toL40because the carrying amount of its net investment in theassociate is then zero. Accordingly, the investor recognises thefollowing: | |||
| DR. Profit or loss | L40 | ||
| CR. LT Loan | L40 | ||
| To recognise the investor’s share ofthe associate’s loss | |||
| At the end of Year 4, the carrying amount of OShares is zero, P Shares is zero and the LT Loan (net of lossallowance) is zero. There is also an unrecognised share of theassociate’s losses ofL30 (the investor’s share ofthe associate’s cumulative losses ofL340 –L320losses recognised cumulatively +L10 losses reversed). | |||
| Year 5 | |||
| Applying Ind AS 109 to its interests in theassociate, the investor recognises the following in Year 5: | |||
| DR. P Shares | L20 | ||
| CR. Profit or loss | L20 | ||
| To recognise the change in fair value (L60 ?L40) | |||
| DR. Loss allowance (LT Loan) | L10 | ||
| CR. Profit or loss | L10 | ||
| To recognise a decrease in the loss allowance(L60 –L50) | |||
| After applying Ind AS 109 to P Shares and the LTLoan, these interests have a positive carrying amount.Consequently, the investor allocates the previously unrecognisedshare of the associate’s losses ofL30 to these interests. | |||
| DR. Profit or loss | L30 | ||
| CR. P Shares | L20 | ||
| CR. LT Loan | L10 | ||
| To recognise the previously unrecognisedshare of the associate’s losses | |||
| At the end ofYear 5, the carrying amount of O Shares is zero, P Shares is zeroand the LT Loan (net of loss allowance) is zero. | |||
| Year 6 | |||
| Applying Ind AS 109 to its interests in theassociate, the investor recognises the following in Year 6: | |||
| DR. P Shares | L20 | ||
| CR. Profit or loss | L20 | ||
| To recognise the change in fair value (L80 ?L60) | |||
| DR. Loss allowance (LT Loan) | L10 | ||
| CR. Profit or loss | L10 | ||
| To recognise a decrease in the loss allowance(L70 –L60) | |||
| The investor allocates the associate’sprofit to each interest in the order of seniority. The investorlimits the amount of the associate’s profit it allocates toP Shares and the LT Loan to the amount of equity method lossespreviously allocated to those interests, which in this example isL60 for both interests. | |||
| DR. O Shares | L80 | ||
| DR. P Shares | L60 | ||
| DR. LT Loan | L60 | ||
| CR. Profit or loss | L200 | ||
| To recognise the investor’s share ofthe associate’s profit (L500 × 40%) | |||
| At the end of Year 6, the carrying amount of OShares isL80, P Shares isL80 and the LT Loan (net of lossallowance) isL70. | |||
| Year 7 | |||
| The investor recognises the following in Year 7: | |||
| DR. P Shares | L30 | ||
| CR. Profit or loss | L30 | ||
| To recognise the change in fair value (L110 ?L80) | |||
| DR. Loss allowance (LT Loan) | L20 | ||
| CR. Profit or loss | L20 | ||
| To recognise a decrease in the loss allowance(L90 –L70) | |||
| DR. O Shares | L200 | ||
| CR. Profit or loss | L200 | ||
| To recognise the investor’s share ofthe associate’s profit (L500 × 40%) | |||
| At the end of Year 7, the carrying amount of OShares isL280, P Shares isL110 and the LT Loan (net of lossallowance) isL90. | |||
| Years 1–7 | |||
| When recognising interest revenue on the LT Loanin each year, the investor does not take account of anyadjustments to the carrying amount of the LT Loan that arose fromapplying Ind AS 28 (paragraph 14A of Ind AS 28). Accordingly, theinvestor recognises the following in each year: | |||
| DR. Cash | L5 | ||
| CR. Profit or loss | L5 | ||
| To recognise interest revenue on LT Loanbased on the effective interest rate of 5% | |||
| Summary of amounts recognised in profit orloss | |||
| This table summarises the amounts recognised inthe investor’s profit or loss. |
| Items recognised During | Impairment (losses), including reversals,applying Ind AS 109 | Gains (losses) of P Shares applying Ind AS 109 | Share of profit (loss) of the associaterecognised applying the equity method | Interest revenue applying Ind AS 109 |
| Year 1 | L(10) | L10 | L20 | L5 |
| Year 2 | L(20) | L(20) | L(80) | L5 |
| Year 3 | L(20) | L(40) | L(200) | L5 |
| Year 4 | – | L(10) | L(30) | L5 |
| Year 5 | L10 | L20 | L(30) | L5 |
| Year 6 | L10 | L20 | L200 | L5 |
| Year 7 | L20 | L30 | L200 | L5] |
1. Paragraph 35 of Ind AS 28 requires use of uniform accounting policies, unless, in case of an associate, it is impracticable, which IAS 28 does not provide. This change has been made because the investor does not have 'control' over the associate, it may not be able to influence the associate to prepare additional financial statements or to follow the accounting policies that are followed by the investor.
2. Paragraph 32 (b) has been modified on the lines of Ind AS 103, Business Combinations, to transfer excess of the investor's share of the net fair value of the investee's identifiable assets and liabilities over the cost of investment in capital reserve whereas in IAS 28, it is recognized in profit or loss.
3. Different terminology is used, as used in existing laws, e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
4. [ Paragraphs 45 to 45D have not been included as these paragraphs relate to effective date and transition that are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 28, the paragraph numbers are retained in Ind AS 28.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
5. [ Paragraph 41 appears as 'deleted' in IAS 28. In order to maintain consistency with paragraph numbers of IAS 28, the paragraph number is retained in Ind AS 28.
6. Paragraph 45Fof IAS 28 has not been included as it refers to amendments due to issuance of IFRS 17, Insurance Contracts, for which corresponding Ind AS is under formulation. Paragraph 45J of IAS 28 related to temporary exemption from IFRS 9 in accordance with IFRS 4, Insurance Contracts, has not been included in Ind AS 28 since the said exemption has not been given under Ind AS 104.However, in order to maintain consistency with paragraph numbers of IAS 28, the paragraph numbers are retained in Ind AS 28.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 29Financial Reporting in Hyper-inflationary Economies(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Scope1. This Standard shall be applied to the financial statements, including the consolidated financial statements, of any entity whose functional currency is the currency of a hyper-inflationary economy.
2. In a hyper-inflationary economy, reporting of operating results and financial position in the local currency without restatement is not useful. Money loses purchasing power at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same accounting period, is misleading.
3. This Standard does not establish an absolute rate at which hyperinflation is deemed to arise. It is a matter of judgement when restatement of financial statements in accordance with this Standard becomes necessary. Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:
4. It is preferable that all entities that report in the currency of the same hyper-inflationary economy apply this Standard from the same date. Nevertheless, this Standard applies to the financial statements of any entity from the beginning of the reporting period in which it identifies the existence of hyperinflation in the country in whose currency it reports.
The restatement of financial statements5. Prices change over time as the result of various specific or general political, economic and social forces. Specific forces such as changes in supply and demand and technological changes may cause individual prices to increase or decrease significantly and independently of each other. In addition, general forces may result in changes in the general level of prices and therefore in the general purchasing power of money.
6. Entities that prepare financial statements on the historical cost basis of accounting do so without regard either to changes in the general level of prices or to increases in specific prices of recognized assets or liabilities. The exceptions to this are those assets and liabilities that the entity is required, or chooses, to measure at fair value. For example, property, plant and equipment may be revalued to fair value and biological assets are generally required to be measured at fair value. Some entities, however, present financial statements that are based on a current cost approach that reflects the effects of changes in the specific prices of assets held.
7. In a hyper-inflationary economy, financial statements, whether they are based on a historical cost approach or a current cost approach, are useful only if they are expressed in terms of the measuring unit current at the end of the reporting period. As a result, this Standard applies to the financial statements of entities reporting in the currency of a hyper-inflationary economy. Presentation of the information required by this Standard as a supplement to unrestated financial statements is not permitted. Furthermore, separate presentation of the financial statements before restatement is discouraged.
8. The financial statements of an entity whose functional currency is the currency of a hyper-inflationary economy, whether they are based on a historical cost approach or a current cost approach, shall be stated in terms of the measuring unit current at the end of the reporting period. The corresponding figures for the previous period required by Ind AS 1, Presentation of Financial Statements, and any information in respect of earlier periods shall also be stated in terms of the measuring unit current at the end of the reporting period. For the purpose of presenting comparative amounts in a different presentation currency, paragraphs 42(b) and 43 of Ind AS 21, The Effects of Changes in Foreign Exchange Rates, apply.
9. The gain or loss on the net monetary position shall be included in profit or loss and separately disclosed.
10. The restatement of financial statements in accordance with this Standard requires the application of certain procedures as well as judgement. The consistent application of these procedures and judgements from period to period is more important than the precise accuracy of the resulting amounts included in the restated financial statements.
Historical cost financial statementsBalance sheet11. Balance sheet amounts not already expressed in terms of the measuring unit current at the end of the reporting period are restated by applying a general price index.
12. Monetary items are not restated because they are already expressed in terms of the monetary unit current at the end of the reporting period. Monetary items are money held and items to be received or paid in money.
13. Assets and liabilities linked by agreement to changes in prices, such as index linked bonds and loans, are adjusted in accordance with the agreement in order to ascertain the amount outstanding at the end of the reporting period. These items are carried at this adjusted amount in the restated balance sheet.
14. All other assets and liabilities are non-monetary. Some non-monetary items are carried at amounts current at the end of the reporting period, such as net realisable value and fair value, so they are not restated. All other non-monetary assets and liabilities are restated.
15. Most non-monetary items are carried at cost or cost less depreciation; hence they are expressed at amounts current at their date of acquisition. The restated cost, or cost less depreciation, of each item is determined by applying to its historical cost and accumulated depreciation the change in a general price index from the date of acquisition to the end of the reporting period. For example, property, plant and equipment, inventories of raw materials and merchandise, goodwill, patents, trademarks and similar assets are restated from the dates of their purchase. Inventories of partly-finished and finished goods are restated from the dates on which the costs of purchase and of conversion were incurred.
16. Detailed records of the acquisition dates of items of property, plant and equipment may not be available or capable of estimation. In these rare circumstances, it may be necessary, in the first period of application of this Standard, to use an independent professional assessment of the value of the items as the basis for their restatement.
17. A general price index may not be available for the periods for which the restatement of property, plant and equipment is required by this Standard. In these circumstances, it may be necessary to use an estimate based, for example, on the movements in the exchange rate between the functional currency and a relatively stable foreign currency.
18. Some non-monetary items are carried at amounts current at dates other than that of acquisition or that of the balance sheet, for example property, plant and equipment that has been revalued at some earlier date. In these cases, the carrying amounts are restated from the date of the revaluation.
19. The restated amount of a non-monetary item is reduced, in accordance with appropriate Ind ASs, when it exceeds its recoverable amount. For example, restated amounts of property, plant and equipment, goodwill, patents and trademarks are reduced to recoverable amount and restated amounts of inventories are reduced to net realisable value.
20. An investee that is accounted for under the equity method may report in the currency of a hyper-inflationary economy. The balance sheet and statement of profit and loss of such an investee are restated in accordance with this Standard in order to calculate the investor's share of its net assets and profit or loss. When the restated financial statements of the investee are expressed in a foreign currency they are translated at closing rates.
21. The impact of inflation is usually recognized in borrowing costs. It is not appropriate both to restate the capital expenditure financed by borrowing and to capitalise that part of the borrowing costs that compensates for the inflation during the same period. This part of the borrowing costs is recognized as an expense in the period in which the costs are incurred.
22. An entity may acquire assets under an arrangement that permits it to defer payment without incurring an explicit interest charge. Where it is impracticable to impute the amount of interest, such assets are restated from the payment date and not the date of purchase.
23. [Refer Appendix 1]
24. At the beginning of the first period of application of this Standard, the components of owners' equity, except retained earnings and any revaluation surplus, are restated by applying a general price index from the dates the components were contributed or otherwise arose. Any revaluation surplus that arose in previous periods is eliminated. Restated retained earnings are derived from all the other amounts in the restated balance sheet.
25. At the end of the first period and in subsequent periods, all components of owners' equity are restated by applying a general price index from the beginning of the period or the date of contribution, if later. The movements for the period in owners' equity are disclosed in accordance with Ind AS 1.
Statement of profit and loss26. This Standard requires that all items in the statement of profit and loss are expressed in terms of the measuring unit current at the end of the reporting period. Therefore all amounts need to be restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded in the financial statements.
Gain or loss on net monetary position27. In a period of inflation, an entity holding an excess of monetary assets over monetary liabilities loses purchasing power and an entity with an excess of monetary liabilities over monetary assets gains purchasing power to the extent the assets and liabilities are not linked to a price level. This gain or loss on the net monetary position may be derived as the difference resulting from the restatement of non-monetary assets, owners' equity and items in the statement of profit and loss and the adjustment of index linked assets and liabilities. The gain or loss may be estimated by applying the change in a general price index to the weighted average for the period of the difference between monetary assets and monetary liabilities.
28. The gain or loss on the net monetary position is included in profit or loss. The adjustment to those assets and liabilities linked by agreement to changes in prices made in accordance with paragraph 13 is offset against the gain or loss on net monetary position. Other income and expense items, such as interest income and expense, and foreign exchange differences related to invested or borrowed funds, are also associated with the net monetary position. Although such items are separately disclosed, it may be helpful if they are presented together with the gain or loss on net monetary position in the statement of profit and loss.
Current cost financial statementsBalance sheet29. Items stated at current cost are not restated because they are already expressed in terms of the measuring unit current at the end of the reporting period. Other items in the balance sheet are restated in accordance with paragraphs 11 to 25.
Statement of profit and loss30. The current cost statement of profit and loss, before restatement, generally reports costs current at the time at which the underlying transactions or events occurred. Cost of sales and depreciation are recorded at current costs at the time of consumption; sales and other expenses are recorded at their money amounts when they occurred. Therefore all amounts need to be restated into the measuring unit current at the end of the reporting period by applying a general price index.
Gain or loss on net monetary position31. The gain or loss on the net monetary position is accounted for in accordance with paragraphs 27 and 28.
Taxes32. The restatement of financial statements in accordance with this Standard may give rise to differences between the carrying amount of individual assets and liabilities in the balance sheet and their tax bases. These differences are accounted for in accordance with Ind AS 12, Income Taxes.
Statement of cash flows33. This Standard requires that all items in the statement of cash flows are expressed in terms of the measuring unit current at the end of the reporting period.
Corresponding figures34. Corresponding figures for the previous reporting period, whether they were based on a historical cost approach or a current cost approach, are restated by applying a general price index so that the comparative financial statements are presented in terms of the measuring unit current at the end of the reporting period. Information that is disclosed in respect of earlier periods is also expressed in terms of the measuring unit current at the end of the reporting period. For the purpose of presenting comparative amounts in a different presentation currency, paragraphs 42(b) and 43 of Ind AS 21 apply.
Consolidated financial statements35. A parent that reports in the currency of a hyper-inflationary economy may have subsidiaries that also report in the currencies of hyper-inflationary economies. The financial statements of any such subsidiary need to be restated by applying a general price index of the country in whose currency it reports before they are included in the consolidated financial statements issued by its parent. Where such a subsidiary is a foreign subsidiary, its restated financial statements are translated at closing rates. The financial statements of subsidiaries that do not report in the currencies of hyper-inflationary economies are dealt with in accordance with Ind AS 21.
36. If financial statements with different ends of the reporting periods are consolidated, all items, whether non-monetary or monetary, need to be restated into the measuring unit current at the date of the consolidated financial statements.
Selection and use of the general price index37. The restatement of financial statements in accordance with this Standard requires the use of a general price index that reflects changes in general purchasing power. It is preferable that all entities that report in the currency of the same economy use the same index.
Economies ceasing to be hyper-inflationary38. When an economy ceases to be hyper-inflationary and an entity discontinues the preparation and presentation of financial statements prepared in accordance with this Standard, it shall treat the amounts expressed in the measuring unit current at the end of the previous reporting period as the basis for the carrying amounts in its subsequent financial statements.
Disclosures39. The following disclosures shall be made:
40. The disclosures required by this Standard are needed to make clear the basis of dealing with the effects of inflation in the financial statements. They are also intended to provide other information necessary to understand that basis and the resulting amounts.
Appendix AApplying the Restatement Approach under Ind AS 29 Financial Reporting in Hyper-inflationary EconomiesThis Appendix is an integral part of the Ind AS.Background1. This Appendix provides guidance on how to apply the requirements of Ind AS 29 in a reporting period in which an [entity identifies] [The identification of hyperinflation is based on the entity's judgement of the criteria in paragraph 3 of Ind AS 29.] the existence of hyperinflation in the economy of its functional currency, when that economy was not hyper-inflationary in the prior period, and the entity therefore restates its financial statements in accordance with Ind AS 29.
Issues2. The questions addressed in this Appendix are:
3. In the reporting period in which an entity identifies the existence of hyperinflation in the economy of its functional currency, not having been hyper-inflationary in the prior period, the entity shall apply the requirements of Ind AS 29 as if the economy had always been hyper-inflationary. Therefore, in relation to non-monetary items measured at historical cost, the entity's opening balance sheet at the beginning of the earliest period presented in the financial statements shall be restated to reflect the effect of inflation from the date the assets were acquired and the liabilities were incurred or assumed until the end of the reporting period. For non-monetary items carried in the opening balance sheet at amounts current at dates other than those of acquisition or incurrence, that restatement shall reflect instead the effect of inflation from the dates those carrying amounts were determined until the end of the reporting period.
4. At the end of the reporting period, deferred tax items are recognized and measured in accordance with Ind AS 12. However, the deferred tax figures in the opening balance sheet for the reporting period shall be determined as follows:
5. After an entity has restated its financial statements, all corresponding figures in the financial statements for a subsequent reporting period, including deferred tax items, are restated by applying the change in the measuring unit for that subsequent reporting period only to the restated financial statements for the previous reporting period.
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 29 and the corresponding International Accounting Standard (IAS) 29, Financial Reporting in Hyper-inflationary Economies, and IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in Hyper-inflationary Economies, issued by the International Accounting Standards Board.Comparison with IAS 29, Financial Reporting in Hyper-inflationary Economies and IFRIC 71. Ind AS 29 requires an additional disclosure regarding the duration of the hyper-inflationary situation existing in the economy as compared to IAS 29.
2. Paragraph number 23 appears as 'Deleted' in IAS 29. In order to maintain consistency with paragraph numbers of IAS 29, the paragraph number is retained in Ind AS 29.
3. Different terminology is used in this standard, e.g., term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
Indian Accounting Standard (Ind AS) 32Financial Instruments: Presentation(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. [Refer Appendix 1]
2. The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset.
3. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Ind AS 109, Financial Instruments, and for disclosing information about them in Ind AS 107, Financial Instruments: Disclosures.
Scope4. This Standard shall be applied by all entities to all types of financial instruments except:
5.
-7. [Refer Appendix 1]8. This Standard shall be applied to those contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, as if the contracts were financial instruments, with the exception of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the entity's expected purchase, sale or usage requirements. However, this Standard shall be applied to those contracts that an entity designates as measured at fair value through profit or loss in accordance with paragraph 2.5 of Ind AS 109, Financial Instruments.
9. There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash or another financial instrument or by exchanging financial instruments. These include:
10. A written option to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments, in accordance with paragraph 9(a) or (d) is within the scope of this Standard. Such a contract cannot be entered into for the purpose of the receipt or delivery of the non-financial item in accordance with the entity's expected purchase, sale or usage requirements.
Definitions (see also paragraphs AG3-AG23)11. The following terms are used in this Standard with the meanings specified:
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.A financial asset is any asset that is:12. The following terms are defined in Appendix A of Ind AS 109 and are used in this Standard with the meaning specified in Ind AS 109.
• amortised cost of a financial asset or financial liability• derecognition• derivative• effective interest method• financial guarantee contract• financial liability at fair value through profit or loss• firm commitment• forecast transaction• hedge effectiveness• hedged item• hedging instrument• held for trading• regular way purchase or sale• transaction costs.13. In this Standard, 'contract' and 'contractual' refer to an agreement between two or more parties that has clear economic consequences that the parties have little, if any, discretion to avoid, usually because the agreement is enforceable by law. Contracts, and thus financial instruments, may take a variety of forms and need not be in writing.
14. In this Standard, 'entity' includes individuals, partnerships, incorporated bodies, trusts and Government agencies.
PresentationLiabilities and equity (see also paragraphs AG13-AG14J and AG25-AG29A)15. The issuer of a financial instrument shall classify the instrument, or its component parts, on initial recognition as a financial liability, a financial asset or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, a financial asset and an equity instrument.
16. When an issuer applies the definitions in paragraph 11 to determine whether a financial instrument is an equity instrument rather than a financial liability, the instrument is an equity instrument if, and only if, both conditions (a) and (b) below are met.
16A. A puttable financial instrument includes a contractual obligation for the issuer to repurchase or redeem that instrument for cash or another financial asset on exercise of the put. As an exception to the definition of a financial liability, an instrument that includes such an obligation is classified as an equity instrument if it has all the following features:
16B. For an instrument to be classified as an equity instrument, in addition to the instrument having all the above features, the issuer must have no other financial instrument or contract that has:
16C. Some financial instruments include a contractual obligation for the issuing entity to deliver to another entity a pro rata share of its net assets only on liquidation. The obligation arises because liquidation either is certain to occur and outside the control of the entity (for example, a limited life entity) or is uncertain to occur but is at the option of the instrument holder. As an exception to the definition of a financial liability, an instrument that includes such an obligation is classified as an equity instrument if it has all the following features:
16D. For an instrument to be classified as an equity instrument, in addition to the instrument having all the above features, the issuer must have no other financial instrument or contract that has:
16E. An entity shall classify a financial instrument as an equity instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D from the date when the instrument has all the features and meets the conditions set out in those paragraphs. An entity shall reclassify a financial instrument from the date when the instrument ceases to have all the features or meet all the conditions set out in those paragraphs. For example, if an entity redeems all its issued non-puttable instruments and any puttable instruments that remain outstanding have all the features and meet all the conditions in paragraphs 16A and 16B, the entity shall reclassify the puttable instruments as equity instruments from the date when it redeems the non-puttable instruments.
16F. An entity shall account as follows for the reclassification of an instrument in accordance with paragraph 16E:
17. With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a critical feature in differentiating a financial liability from an equity instrument is the existence of a contractual obligation of one party to the financial instrument (the issuer) either to deliver cash or another financial asset to the other party (the holder) or to exchange financial assets or financial liabilities with the holder under conditions that are potentially unfavourable to the issuer. Although the holder of an equity instrument may be entitled to receive a pro rata share of any dividends or other distributions of equity, the issuer does not have a contractual obligation to make such distributions because it cannot be required to deliver cash or another financial asset to another party.
18. The substance of a financial instrument, rather than its legal form, governs its classification in the entity's balance sheet. Substance and legal form are commonly consistent, but not always. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liabilities. For example:
19. If an entity does not have an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the obligation meets the definition of a financial liability, except for those instruments classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D. For example:
20. A financial instrument that does not explicitly establish a contractual obligation to deliver cash or another financial asset may establish an obligation indirectly through its terms and conditions. For example:
21. A contract is not an equity instrument solely because it may result in the receipt or delivery of the entity's own equity instruments. An entity may have a contractual right or obligation to receive or deliver a number of its own shares or other equity instruments that varies so that the fair value of the entity's own equity instruments to be received or delivered equals the amount of the contractual right or obligation. Such a contractual right or obligation may be for a fixed amount or an amount that fluctuates in part or in full in response to changes in a variable other than the market price of the entity's own equity instruments (e.g. an interest rate, a commodity price or a financial instrument price). Two examples are (a) a contract to deliver as many of the entity's own equity instruments as are equal in value to Rs. 100, and (b) a contract to deliver as many of the entity's own equity instruments as are equal in value to the value of 100 ounces of gold. Such a contract is a financial liability of the entity even though the entity must or can settle it by delivering its own equity instruments. It is not an equity instrument because the entity uses a variable number of its own equity instruments as a means to settle the contract. Accordingly, the contract does not evidence a residual interest in the entity's assets after deducting all of its liabilities.
22. Except as stated in paragraph 22A, a contract that will be settled by the entity (receiving or) delivering a fixed number of its own equity instruments in exchange for a fixed amount of cash or another financial asset is an equity instrument. For example, an issued share option that gives the counter-party a right to buy a fixed number of the entity's shares for a fixed price or for a fixed stated principal amount of a bond is an equity instrument. Changes in the fair value of a contract arising from variations in market interest rates that do not affect the amount of cash or other financial assets to be paid or received, or the number of equity instruments to be received or delivered, on settlement of the contract do not preclude the contract from being an equity instrument. Any consideration received (such as the premium received for a written option or warrant on the entity's own shares) is added directly to equity. Any consideration paid (such as the premium paid for a purchased option) is deducted directly from equity. Changes in the fair value of an equity instrument are not recognized in the financial statements.
22A. If the entity's own equity instruments to be received, or delivered, by the entity upon settlement of a contract are puttable financial instruments with all the features and meeting the conditions described in paragraphs 16A and 16B, or instruments that impose on the entity an obligation to deliver to another party a pro rata share of the net assets of the entity only on liquidation with all the features and meeting the conditions described in paragraphs 16C and 16D, the contract is a financial asset or a financial liability. This includes a contract that will be settled by the entity receiving or delivering a fixed number of such instruments in exchange for a fixed amount of cash or another financial asset.
23. With the exception of the circumstances described in paragraphs 16A and 16B or paragraphs 16C and 16D, a contract that contains an obligation for an entity to purchase its own equity instruments for cash or another financial asset gives rise to a financial liability for the present value of the redemption amount (for example, for the present value of the forward repurchase price, option exercise price or other redemption amount). This is the case even if the contract itself is an equity instrument. One example is an entity's obligation under a forward contract to purchase its own equity instruments for cash. The financial liability is recognized initially at the present value of the redemption amount, and is reclassified from equity. Subsequently, the financial liability is measured in accordance with Ind AS 109. If the contract expires without delivery, the carrying amount of the financial liability is reclassified to equity. An entity's contractual obligation to purchase its own equity instruments gives rise to a financial liability for the present value of the redemption amount even if the obligation to purchase is conditional on the counter-party exercising a right to redeem (e.g. a written put option that gives the counter-party the right to sell an entity's own equity instruments to the entity for a fixed price).
24. A contract that will be settled by the entity delivering or receiving a fixed number of its own equity instruments in exchange for a variable amount of cash or another financial asset is a financial asset or financial liability. An example is a contract for the entity to deliver 100 of its own equity instruments in return for an amount of cash calculated to equal the value of 100 ounces of gold.
Contingent settlement provisions25. A financial instrument may require the entity to deliver cash or another financial asset, or otherwise to settle it in such a way that it would be a financial liability, in the event of the occurrence or non-occurrence of uncertain future events (or on the outcome of uncertain circumstances) that are beyond the control of both the issuer and the holder of the instrument, such as a change in a stock market index, consumer price index, interest rate or taxation requirements, or the issuer's future revenues, net income or debt-to-equity ratio. The issuer of such an instrument does not have the unconditional right to avoid delivering cash or another financial asset (or otherwise to settle it in such a way that it would be a financial liability). Therefore, it is a financial liability of the issuer unless:
26. When a derivative financial instrument gives one party a choice over how it is settled (e.g. the issuer or the holder can choose settlement net in cash or by exchanging shares for cash), it is a financial asset or a financial liability unless all of the settlement alternatives would result in it being an equity instrument.
27. An example of a derivative financial instrument with a settlement option that is a financial liability is a share option that the issuer can decide to settle net in cash or by exchanging its own shares for cash. Similarly, some contracts to buy or sell a non-financial item in exchange for the entity's own equity instruments are within the scope of this Standard because they can be settled either by delivery of the non-financial item or net in cash or another financial instrument (see paragraphs 8-10). Such contracts are financial assets or financial liabilities and not equity instruments.
Compound financial instruments (see also paragraphs AG30-AG35)28. The issuer of a non-derivative financial instrument shall evaluate the terms of the financial instrument to determine whether it contains both a liability and an equity component. Such components shall be classified separately as financial liabilities, financial assets or equity instruments in accordance with paragraph 15.
29. An entity recognises separately the components of a financial instrument that (a) creates a financial liability of the entity and (b) grants an option to the holder of the instrument to convert it into an equity instrument of the entity. For example, a bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is a compound financial instrument. From the perspective of the entity, such an instrument comprises two components: a financial liability (a contractual arrangement to deliver cash or another financial asset) and an equity instrument (a call option granting the holder the right, for a specified period of time, to convert it into a fixed number of ordinary shares of the entity). The economic effect of issuing such an instrument is substantially the same as issuing simultaneously a debt instrument with an early settlement provision and warrants to purchase ordinary shares, or issuing a debt instrument with detachable share purchase warrants. Accordingly, in all cases, the entity presents the liability and equity components separately in its balance sheet.
30. Classification of the liability and equity components of a convertible instrument is not revised as a result of a change in the likelihood that a conversion option will be exercised, even when exercise of the option may appear to have become economically advantageous to some holders. Holders may not always act in the way that might be expected because, for example, the tax consequences resulting from conversion may differ among holders. Furthermore, the likelihood of conversion will change from time to time. The entity's contractual obligation to make future payments remains outstanding until it is extinguished through conversion, maturity of the instrument or some other transaction.
31. Ind AS 109 deals with the measurement of financial assets and financial liabilities. Equity instruments are instruments that evidence a residual interest in the assets of an entity after deducting all of its liabilities. Therefore, when the initial carrying amount of a compound financial instrument is allocated to its equity and liability components, the equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. The value of any derivative features (such as a call option) embedded in the compound financial instrument other than the equity component (such as an equity conversion option) is included in the liability component. The sum of the carrying amounts assigned to the liability and equity components on initial recognition is always equal to the fair value that would be ascribed to the instrument as a whole. No gain or loss arises from initially recognising the components of the instrument separately.
32. Under the approach described in paragraph 31, the issuer of a bond convertible into ordinary shares first determines the carrying amount of the liability component by measuring the fair value of a similar liability (including any embedded non-equity derivative features) that does not have an associated equity component. The carrying amount of the equity instrument represented by the option to convert the instrument into ordinary shares is then determined by deducting the fair value of the financial liability from the fair value of the compound financial instrument as a whole.
Treasury shares (see also paragraph AG36)33. If an entity reacquires its own equity instruments, those instruments ('treasury shares') shall be deducted from equity. No gain or loss shall be recognized in profit or loss on the purchase, sale, issue or cancellation of an entity's own equity instruments. Such treasury shares may be acquired and held by the entity or by other members of the consolidated group. Consideration paid or received shall be recognized directly in equity.
34. The amount of treasury shares held is disclosed separately either in the balance sheet or in the notes, in accordance with Ind AS 1, Presentation of Financial Statements. An entity provides disclosure in accordance with Ind AS 24, Related Party Disclosures, if the entity reacquires its own equity instruments from related parties.
Interest, dividends, losses and gains (see also paragraph AG37)35. Interest, dividends, losses and gains relating to a financial instrument or a component that is a financial liability shall be recognized as income or expense in profit or loss. Distributions to holders of an equity instrument shall be recognized by the entity directly in equity. Transaction costs of an equity transaction shall be accounted for as a deduction from equity.
35A. Income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction shall be accounted for in accordance with Ind AS 12, Income Taxes.
36. The classification of a financial instrument as a financial liability or an equity instrument determines whether interest, dividends, losses and gains relating to that instrument are recognized as income or expense in profit or loss. Thus, dividend payments on shares wholly recognized as liabilities are recognized as expenses in the same way as interest on a bond. Similarly, gains and losses associated with redemptions or refinancings of financial liabilities are recognized in profit or loss, whereas redemptions or refinancings of equity instruments are recognized as changes in equity. Changes in the fair value of an equity instrument are not recognized in the financial statements.
37. An entity typically incurs various costs in issuing or acquiring its own equity instruments. Those costs might include registration and other regulatory fees, amounts paid to legal, accounting and other professional advisers, printing costs and stamp duties. The transaction costs of an equity transaction are accounted for as a deduction from equity to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided. The costs of an equity transaction that is abandoned are recognized as an expense.
38. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components of the instrument in proportion to the allocation of proceeds. Transaction costs that relate jointly to more than one transaction (for example, costs of a concurrent offering of some shares and a stock exchange listing of other shares) are allocated to those transactions using a basis of allocation that is rational and consistent with similar transactions.
39. The amount of transaction costs accounted for as a deduction from equity in the period is disclosed separately in accordance with Ind AS 1.
40. Dividends classified as an expense may be presented in the statement of profit and loss either with interest on other liabilities or as a separate item. In addition to the requirements of this Standard, disclosure of interest and dividends is subject to the requirements of Ind AS 1 and Ind AS 107. In some circumstances, because of the differences between interest and dividends with respect to matters such as tax deductibility, it is desirable to disclose them separately in the statement of profit and loss. Disclosures of the tax effects are made in accordance with Ind AS 12.
41. Gains and losses related to changes in the carrying amount of a financial liability are recognized as income or expense in profit or loss even when they relate to an instrument that includes a right to the residual interest in the assets of the entity in exchange for cash or another financial asset (see paragraph 18(b)). Under Ind AS 1 the entity presents any gain or loss arising from remeasurement of such an instrument separately in the statement of profit and loss when it is relevant in explaining the entity's performance.
Offsetting a financial asset and a financial liability (see also paragraphs AG38A-AG 38F and AG39)42. A financial asset and a financial liability shall be offset and the net amount presented in the balance sheet when, and only when, an entity:
43. This Standard requires the presentation of financial assets and financial liabilities on a net basis when doing so reflects an entity's expected future cash flows from settling two or more separate financial instruments. When an entity has the right to receive or pay a single net amount and intends to do so, it has, in effect, only a single financial asset or financial liability. In other circumstances, financial assets and financial liabilities are presented separately from each other consistently with their characteristics as resources or obligations of the entity. An entity shall disclose the information required in paragraphs 13B-13E of Ind AS 107 for recognized financial instruments that are within the scope of paragraph 13A of Ind AS 107.
44. Offsetting a recognized financial asset and a recognized financial liability and presenting the net amount differs from the derecognition of a financial asset or a financial liability. Although offsetting does not give rise to recognition of a gain or loss, the derecognition of a financial instrument not only results in the removal of the previously recognized item from the balance sheet but also may result in recognition of a gain or loss.
45. A right of set-off is a debtor's legal right, by contract or otherwise, to settle or otherwise eliminate all or a portion of an amount due to a creditor by applying against that amount an amount due from the creditor. In unusual circumstances, a debtor may have a legal right to apply an amount due from a third party against the amount due to a creditor provided that there is an agreement between the three parties that clearly establishes the debtor's right of set-off. Because the right of set-off is a legal right, the conditions supporting the right may vary from one legal jurisdiction to another and the laws applicable to the relationships between the parties need to be considered.
46. The existence of an enforceable right to set off a financial asset and a financial liability affects the rights and obligations associated with a financial asset and a financial liability and may affect an entity's exposure to credit and liquidity risk. However, the existence of the right, by itself, is not a sufficient basis for offsetting. In the absence of an intention to exercise the right or to settle simultaneously, the amount and timing of an entity's future cash flows are not affected. When an entity intends to exercise the right or to settle simultaneously, presentation of the asset and liability on a net basis reflects more appropriately the amounts and timing of the expected future cash flows, as well as the risks to which those cash flows are exposed. An intention by one or both parties to settle on a net basis without the legal right to do so is not sufficient to justify offsetting because the rights and obligations associated with the individual financial asset and financial liability remain unaltered.
47. An entity's intentions with respect to settlement of particular assets and liabilities may be influenced by its normal business practices, the requirements of the financial markets and other circumstances that may limit the ability to settle net or to settle simultaneously. When an entity has a right of set-off, but does not intend to settle net or to realise the asset and settle the liability simultaneously, the effect of the right on the entity's credit risk exposure is disclosed in accordance with paragraph 36 of Ind AS 107.
48. Simultaneous settlement of two financial instruments may occur through, for example, the operation of a clearing house in an organised financial market or a face-to-face exchange. In these circumstances the cash flows are, in effect, equivalent to a single net amount and there is no exposure to credit or liquidity risk. In other circumstances, an entity may settle two instruments by receiving and paying separate amounts, becoming exposed to credit risk for the full amount of the asset or liquidity risk for the full amount of the liability. Such risk exposures may be significant even though relatively brief. Accordingly, realisation of a financial asset and settlement of a financial liability are treated as simultaneous only when the transactions occur at the same moment.
49. The conditions set out in paragraph 42 are generally not satisfied and offsetting is usually inappropriate when:
50. An entity that undertakes a number of financial instrument transactions with a single counter-party may enter into a 'master netting arrangement' with that counter-party. Such an agreement provides for a single net settlement of all financial instruments covered by the agreement in the event of default on, or termination of, any one contract. These arrangements are commonly used by financial institutions to provide protection against loss in the event of bankruptcy or other circumstances that result in a counter-party being unable to meet its obligations. A master netting arrangement commonly creates a right of set-off that becomes enforceable and affects the realisation or settlement of individual financial assets and financial liabilities only following a specified event of default or in other circumstances not expected to arise in the normal course of business. A master netting arrangement does not provide a basis for offsetting unless both of the criteria in paragraph 42 are satisfied. When financial assets and financial liabilities subject to a master netting arrangement are not offset, the effect of the arrangement on an entity's exposure to credit risk is disclosed in accordance with paragraph 36 of Ind AS 107.
[Effective date and transition96. *
96A. *
96B. *
96C. *
97. *
97A. *
97B. *
97C. *
97D. *
97E. *
97F. *
97G. *
97H. *
97I. *
97J. *
97K. *
97L. *
97M. *
97N. *
97O. *
97P. *
* Refer Appendix 197Q. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph AG21 is amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[97R Omitted*97S. Ind AS 116 amended paragraphs AG9 and AG10. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix AApplication GuidanceInd AS 32 Financial Instruments: PresentationThis appendix is an integral part of the Ind AS.AG1 This Application Guidance explains the application of particular aspects of the Standard.AG2 The Standard does not deal with the recognition or measurement of financial instruments. Requirements about the recognition and measurement of financial assets and financial liabilities are set out in Ind AS 109.Definitions (paragraphs 11-14)Financial assets and financial liabilitiesAG3 Currency (cash) is a financial asset because it represents the medium of exchange and is therefore the basis on which all transactions are measured and recognized in financial statements. A deposit of cash with a bank or similar financial institution is a financial asset because it represents the contractual right of the depositor to obtain cash from the institution or to draw a cheque or similar instrument against the balance in favour of a creditor in payment of a financial liability.AG4 Common examples of financial assets representing a contractual right to receive cash in the future and corresponding financial liabilities representing a contractual obligation to deliver cash in the future are:1. [ Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
2. Appendix D, Extinguishing Financial Liabilities with Equity Instruments, contained in Ind AS 109, Financial Instruments.
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 32 and the corresponding International Accounting Standard (IAS) 32, Financial Instruments; Presentation, issued by the International Accounting Standards Board.Comparison with IAS 32, Financial Instruments: Presentation1. As an exception to the definition of 'financial liability' in paragraph 11 (b) (ii), Ind AS 32 considers the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity's own equity instruments is considered an equity instrument if the exercise price is fixed in any currency. This exception is not provided in IAS 32.
2. [ Paragraphs 96-97P and 97R related to Transitional Provisions and Effective date given in IAS 32 have not been given in Ind AS 32, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards and paragraphs related to Effective date are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 32, these paragraph numbers are retained in Ind AS 32.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
3. Different terminology is used, as used in existing laws e.g.,the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss is used instead of 'Statement of comprehensive income'.
4. Requirements regarding presentation of dividends classified as an expense in the separate income statement, where separate income statement is presented, have been deleted. This change is consequential to the removal of option regarding two statement approach in Ind AS 1. Ind AS 1 requires that the components of profit or loss and components of other comprehensive income shall be presented as a part of the statement of profit and loss.
5. The following paragraph numbers appear as 'Deleted' in IAS 32. In order to maintain consistency with paragraph numbers of IAS 32, the paragraph numbers are retained in Ind AS 32:
6. Following references to Illustrative Examples which are not integral part of IAS 32 have not been included in Ind AS 32:
1. The objective of this Standard is to prescribe principles for the determination and presentation of earnings per share, so as to improve performance comparisons between different entities in the same reporting period and between different reporting periods for the same entity. Even though earnings per share data have limitations because of the different accounting policies that may be used for determining 'earnings', a consistently determined denominator enhances financial reporting. The focus of this Standard is on the denominator of the earnings per share calculation.
Scope2. This Indian Accounting Standard shall apply to companies that have issued [ordinary shares] [In Indian context, the term 'ordinary shares' is equivalent to 'equity shares'.] to which Indian Accounting Standards (Ind ASs) notified under the Companies Act apply.
[Refer Appendix 1]3. An entity that discloses earnings per share shall calculate and disclose earnings per share in accordance with this Standard.
4. When an entity presents both consolidated financial statements and separate financial statements prepared in accordance with Ind AS 110, Consolidated Financial Statements, and Ind AS 27, Separate Financial Statements, respectively, 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.
4A. [Refer Appendix 1]
Definitions5. The following terms are used in this Standard with the meanings specified:
Anti-dilution is an increase in earnings per share or a reduction in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.A contingent share agreement is an agreement to issue shares that is dependent on the satisfaction of specified conditions.Contingently issuable ordinary shares are ordinary shares issuable for little or no cash or other consideration upon the satisfaction of specified conditions in a contingent share agreement.Dilution is a reduction in earnings per share or an increase in loss per share resulting from the assumption that convertible instruments are converted, that options or warrants are exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.Options, warrants and their equivalents are financial instruments that give the holder the right to purchase ordinary shares.An ordinary share is an equity instrument that is subordinate to all other classes of equity instruments.A potential ordinary share is a financial instrument or other contract that may entitle its holder to ordinary shares.Put options on ordinary shares are contracts that give the holder the right to sell ordinary shares at a specified price for a given period.6. Ordinary shares participate in profit for the period only after other types of shares such as preference shares have participated. An entity may have more than one class of ordinary shares. Ordinary shares of the same class have the same rights to receive dividends.
7. Examples of potential ordinary shares are:
8. Terms defined in Ind AS 32, Financial Instruments: Presentation, are used in this Standard with the meanings specified in paragraph 11 of Ind AS 32, unless otherwise noted. Ind AS 32 defines financial instrument, financial asset, financial liability and equity instrument, and provides guidance on applying those definitions. Ind AS 113, Fair Value Measurement, defines fair value and sets out requirements for applying that definition.
MeasurementBasic earnings per share9. 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.
10. Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period.
11. The objective of basic earnings per share information is to provide a measure of the interests of each ordinary share of a parent entity in the performance of the entity over the reporting period.
Earnings12. For the purpose of calculating basic earnings per share, the amounts attributable to ordinary equity holders of the parent entity in respect of:
13. All items of income and expense attributable to ordinary equity holders of the parent entity that are recognized in a period, including tax expense and dividends on preference shares classified as liabilities are included in the determination of profit or loss for the period attributable to ordinary equity holders of the parent entity (see Ind AS 1).
14. The after-tax amount of preference dividends that is deducted from profit or loss is:
15. 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 in view of requirements of any law).
16. 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.
17. 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.
18. 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.
Shares19. For the purpose of calculating basic earnings per share, the number of ordinary shares shall be the weighted average number of ordinary shares outstanding during the period.
20. Using the weighted average number of ordinary shares outstanding during the period reflects the possibility that the amount of shareholders' capital varied during the period as a result of a larger or smaller number of shares being outstanding at any time. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period; a reasonable approximation of the weighted average is adequate in many circumstances.
21. Shares are usually included in the weighted average number of shares from the date consideration is receivable (which is generally the date of their issue), for example:
22. Ordinary shares issued as part of the consideration transferred in a business combination are included in the weighted average number of shares from the acquisition date. This is because the acquirer incorporates into its statement of profit and loss the acquiree's profits and losses from that date.
23. 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.
24. 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 (i.e. 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 (i.e. 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.
25. [Refer Appendix 1]
26. The weighted average number of ordinary shares outstanding during the period and for all periods presented shall be adjusted for events, other than the conversion of potential ordinary shares, that have changed the number of ordinary shares outstanding without a corresponding change in resources.
27. Ordinary shares may be issued, or the number of ordinary shares outstanding may be reduced, without a corresponding change in resources. Examples include:
28. In a capitalisation or bonus issue or a share split, ordinary shares are issued to existing shareholders for no additional consideration. Therefore, the number of ordinary shares outstanding is increased without an increase in resources. The number of ordinary shares outstanding before the event is adjusted for the proportionate change in the number of ordinary shares outstanding as if the event had occurred at the beginning of the earliest period presented. For example, on a two-for-one bonus issue, the number of ordinary shares outstanding before the issue is multiplied by three to obtain the new total number of ordinary shares, or by two to obtain the number of additional ordinary shares.
29. 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 recognized.
Diluted earnings per share30. 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.
31. For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordinary equity holders of the parent entity, and the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares.
32. The objective of diluted earnings per share is consistent with that of basic earnings per share-to provide a measure of the interest of each ordinary share in the performance of an entity-while giving effect to all dilutive potential ordinary shares outstanding during the period. As a result:
33. For the purpose of calculating diluted earnings per share, an entity shall adjust profit or loss attributable to ordinary equity holders of the parent entity, as calculated in accordance with paragraph 12, by the after-tax effect of:
34. After the potential ordinary shares are converted into ordinary shares, the items identified in paragraph 33(a)-(c) no longer arise. Instead, the new ordinary shares are entitled to participate in profit or loss attributable to ordinary equity holders of the parent entity. Therefore, profit or loss attributable to ordinary equity holders of the parent entity calculated in accordance with paragraph 12 is adjusted for the items identified in paragraph 33(a)-(c) and any related taxes. The expenses associated with potential ordinary shares include transaction costs and discounts accounted for in accordance with the effective interest method (see Ind AS 109).
35. The conversion of potential ordinary shares may lead to consequential changes in income or expenses. For example, the reduction of interest expense related to potential ordinary shares and the resulting increase in profit or reduction in loss may lead to an increase in the expense related to a non-discretionary employee profit-sharing plan. For the purpose of calculating diluted earnings per share, profit or loss attributable to ordinary equity holders of the parent entity is adjusted for any such consequential changes in income or expense.
Shares36. For the purpose of calculating diluted earnings per share, the number of ordinary shares shall be the weighted average number of ordinary shares calculated in accordance with paragraphs 19 and 26, plus the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares. Dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at the beginning of the period or, if later, the date of the issue of the potential ordinary shares.
37. 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.
38. Potential ordinary shares are weighted for the period they are outstanding. Potential ordinary shares that are canceled 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.
39. The number of ordinary shares that would be issued on conversion of dilutive potential ordinary shares is determined from the terms of the potential ordinary shares. When more than one basis of conversion exists, the calculation assumes the most advantageous conversion rate or exercise price from the standpoint of the holder of the potential ordinary shares.
40. A subsidiary, joint venture or associate may issue to parties other than the parent or investors with joint control of, or significant influence over, the investee potential ordinary shares that are convertible into either ordinary shares of the subsidiary, joint venture or associate, or ordinary shares of the parent or investors with joint control of, or significant influence (the reporting entity) over, the investee. 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.
Dilutive potential ordinary shares41. Potential ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations.
42. An entity uses profit or loss from continuing operations attributable to the parent entity as the control number to establish whether potential ordinary shares are dilutive or anti-dilutive. Profit or loss from continuing operations attributable to the parent entity is adjusted in accordance with paragraph 12 and excludes items relating to discontinued operations.
43. Potential ordinary shares are anti-dilutive when their conversion to ordinary shares would increase earnings per share or decrease loss per share from continuing operations. The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential ordinary shares that would have an anti-dilutive effect on earnings per share.
44. In determining whether potential ordinary shares are dilutive or anti-dilutive, each issue or series of potential ordinary shares is considered separately rather than in aggregate. The sequence in which potential ordinary shares are considered may affect whether they are dilutive. Therefore, to maximise the dilution of basic earnings per share, each issue or series of potential ordinary shares is considered in sequence from the most dilutive to the least dilutive, i.e. dilutive potential ordinary shares with the lowest 'earnings per incremental share' are included in the diluted earnings per share calculation before those with a higher earnings per incremental share. Options and warrants are generally included first because they do not affect the numerator of the calculation.
Options, warrants and their equivalents45. For the purpose of calculating diluted earnings per share, an entity shall assume the exercise of dilutive options and warrants of the entity. The assumed proceeds from these instruments shall be regarded as having been received from the issue of ordinary shares at the average market price of ordinary shares during the period. The difference between the number of ordinary shares issued and the number of ordinary shares that would have been issued at the average market price of ordinary shares during the period shall be treated as an issue of ordinary shares for no consideration.
46. Options and warrants are dilutive when they would result in the issue of ordinary shares for less than the average market price of ordinary shares during the period. The amount of the dilution is the average market price of ordinary shares during the period minus the issue price. Therefore, to calculate diluted earnings per share, potential ordinary shares are treated as consisting of both the following:
47. Options and warrants have a dilutive effect only when the average market price of ordinary shares during the period exceeds the exercise price of the options or warrants (ie they are 'in the money'). Previously reported earnings per share are not retroactively adjusted to reflect changes in prices of ordinary shares.
47A. For share options and other share-based payment arrangements to which Ind AS 102, Share-based Payment, applies, the issue price referred to in paragraph 46 and the exercise price referred to in paragraph 47 shall include the fair value (measured in accordance with Ind AS 102) of any goods or services to be supplied to the entity in the future under the share option or other share-based payment arrangement.
48. Employee share options with fixed or determinable terms and non-vested ordinary shares are treated as options in the calculation of diluted earnings per share, even though they may be contingent on vesting. They are treated as outstanding on the grant date. Performance-based employee share options are treated as contingently issuable shares because their issue is contingent upon satisfying specified conditions in addition to the passage of time.
Convertible instruments49. The dilutive effect of convertible instruments shall be reflected in diluted earnings per share in accordance with paragraphs 33 and 36.
50. Convertible preference shares are anti-dilutive whenever the amount of the dividend on such shares declared in or accumulated for the current period per ordinary share obtainable on conversion exceeds basic earnings per share. Similarly, convertible debt is anti-dilutive whenever its interest (net of tax and other changes in income or expense) per ordinary share obtainable on conversion exceeds basic earnings per share.
51. The redemption or induced conversion of convertible preference shares may affect only a portion of the previously outstanding convertible preference shares. In such cases, any excess consideration referred to in paragraph 17 is attributed to those shares that are redeemed or converted for the purpose of determining whether the remaining outstanding preference shares are dilutive. The shares redeemed or converted are considered separately from those shares that are not redeemed or converted.
Contingently issuable shares52. As in the calculation of basic earnings per share, contingently issuable ordinary shares are treated as outstanding and included in the calculation of diluted earnings per share if the conditions are satisfied (i.e. the events have occurred). Contingently issuable shares are included from the beginning of the period (or from the date of the contingent share agreement, if later). If the conditions are not satisfied, the number of contingently issuable shares included in the diluted earnings per share calculation is based on the number of shares that would be issuable if the end of the period were the end of the contingency period. Restatement is not permitted if the conditions are not met when the contingency period expires.
53. If attainment or maintenance of a specified amount of earnings for a period is the condition for contingent issue and if that amount has been attained at the end of the reporting period but must be maintained beyond the end of the reporting period for an additional period, then the additional ordinary shares are treated as outstanding, if the effect is dilutive, when calculating diluted earnings per share. In that case, the calculation of diluted earnings per share is based on the number of ordinary shares that would be issued if the amount of earnings at the end of the reporting period were the amount of earnings at the end of the contingency period. Because earnings may change in a future period, the calculation of basic earnings per share does not include such contingently issuable ordinary shares until the end of the contingency period because not all necessary conditions have been satisfied.
54. The number of ordinary shares contingently issuable may depend on the future market price of the ordinary shares. In that case, if the effect is dilutive, the calculation of diluted earnings per share is based on the number of ordinary shares that would be issued if the market price at the end of the reporting period were the market price at the end of the contingency period. If the condition is based on an average of market prices over a period of time that extends beyond the end of the reporting period, the average for the period of time that has lapsed is used. Because the market price may change in a future period, the calculation of basic earnings per share does not include such contingently issuable ordinary shares until the end of the contingency period because not all necessary conditions have been satisfied.
55. The number of ordinary shares contingently issuable may depend on future earnings and future prices of the ordinary shares. In such cases, the number of ordinary shares included in the diluted earnings per share calculation is based on both conditions (i.e. earnings to date and the current market price at the end of the reporting period). Contingently issuable ordinary shares are not included in the diluted earnings per share calculation unless both conditions are met.
56. In other cases, the number of ordinary shares contingently issuable depends on a condition other than earnings or market price (for example, the opening of a specific number of retail stores). In such cases, assuming that the present status of the condition remains unchanged until the end of the contingency period, the contingently issuable ordinary shares are included in the calculation of diluted earnings per share according to the status at the end of the reporting period.
57. Contingently issuable potential ordinary shares (other than those covered by a contingent share agreement, such as contingently issuable convertible instruments) are included in the diluted earnings per share calculation as follows:
58. When an entity has issued a contract that may be settled in ordinary shares or cash at the entity's option, the entity shall presume that the contract will be settled in ordinary shares, and the resulting potential ordinary shares shall be included in diluted earnings per share if the effect is dilutive.
59. When such a contract is presented for accounting purposes as an asset or a liability, or has an equity component and a liability component, the entity shall adjust the numerator for any changes in profit or loss that would have resulted during the period if the contract had been classified wholly as an equity instrument. That adjustment is similar to the adjustments required in paragraph 33.
60. For contracts that may be settled in ordinary shares or cash at the holder's option, the more dilutive of cash settlement and share settlement shall be used in calculating diluted earnings per share.
61. An example of a contract that may be settled in ordinary shares or cash is a debt instrument that, on maturity, gives the entity the unrestricted right to settle the principal amount in cash or in its own ordinary shares. Another example is a written put option that gives the holder a choice of settling in ordinary shares or cash.
Purchased options62. Contracts such as purchased put options and purchased call options (ie options held by the entity on its own ordinary shares) are not included in the calculation of diluted earnings per share because including them would be anti-dilutive. The put option would be exercised only if the exercise price were higher than the market price and the call option would be exercised only if the exercise price were lower than the market price.
Written put options63. Contracts that require the entity to repurchase its own shares, such as written put options and forward purchase contracts, are reflected in the calculation of diluted earnings per share if the effect is dilutive. If these contracts are 'in the money' during the period (i.e. the exercise or settlement price is above the average market price for that period), the potential dilutive effect on earnings per share shall be calculated as follows:
64. If the number of ordinary or potential ordinary shares outstanding increases as a result of a capitalisation, bonus issue or share split, or decreases as a result of a reverse share split, the calculation of basic and diluted earnings per share for all periods presented shall be adjusted retrospectively. If these changes occur after the reporting period but before the financial statements are approved for issue, the per share calculations for those and any prior period financial statements presented shall be based on the new number of shares. The fact that per share calculations reflect such changes in the number of shares shall be disclosed. In addition, basic and diluted earnings per share of all periods presented shall be adjusted for the effects of errors and adjustments resulting from changes in accounting policies accounted for retrospectively.
65. An entity does not restate diluted earnings per share of any prior period presented for changes in the assumptions used in earnings per share calculations or for the conversion of potential ordinary shares into ordinary shares.
Presentation66. An entity shall present in the statement of profit and loss basic and diluted earnings per share for profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity and for profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period. An entity shall present basic and diluted earnings per share with equal prominence for all periods presented.
67. Earnings per share is presented for every period for which a statement of profit and loss is presented. If diluted earnings per share is reported for at least one period, it shall be reported for all periods presented, even if it equals basic earnings per share. If basic and diluted earnings per share are equal, dual presentation can be accomplished in one line in the statement of profit and loss.
67A. [Refer Appendix 1]
68. An entity that reports a discontinued operation shall disclose the basic and diluted amounts per share for the discontinued operation either in the statement of profit and loss or in the notes.
68A. [Refer Appendix 1]
69. An entity shall present basic and diluted earnings per share, even if the amounts are negative (i.e. a loss per share).
Disclosure70. An entity shall disclose the following:
71. Examples of transactions in paragraph 70(d) include:
72. Financial instruments and other contracts generating potential ordinary shares may incorporate terms and conditions that affect the measurement of basic and diluted earnings per share. These terms and conditions may determine whether any potential ordinary shares are dilutive and, if so, the effect on the weighted average number of shares outstanding and any consequent adjustments to profit or loss attributable to ordinary equity holders. The disclosure of the terms and conditions of such financial instruments and other contracts is encouraged, if not otherwise required (see Ind AS 107, Financial Instruments: Disclosures).
73. If an entity discloses, in addition to basic and diluted earnings per share, amounts per share using a reported component of the statement of profit and loss other than one required by this Standard, such amounts shall be calculated using the weighted average number of ordinary shares determined in accordance with this Standard. Basic and diluted amounts per share relating to such a component shall be disclosed with equal prominence and presented in the notes. An entity shall indicate the basis on which the numerator(s) is (are) determined, including whether amounts per share are before tax or after tax. If a component of the statement of profit and loss is used that is not reported as a line item in the statement of profit and loss, a reconciliation shall be provided between the component used and a line item that is reported in the statement of profit and loss.
73A. [Refer Appendix 1]
Appendix AApplication guidanceThis appendix is an integral part of the Ind AS.Profit or loss attributable to the parent entityA1 For the purpose of calculating earnings per share based on the consolidated financial statements, profit or loss attributable to the parent entity refers to profit or loss of the consolidated entity after adjusting for non-controlling interests.Rights issuesA2 The issue of ordinary shares at the time of exercise or conversion of potential ordinary shares does not usually give rise to a bonus element. This is because the potential ordinary shares are usually issued for fair value, resulting in a proportionate change in the resources available to the entity. In a rights issue, however, the exercise price is often less than the fair value of the shares. Therefore, as noted in paragraph 27(b), such a rights issue includes a bonus element. If a rights issue is offered to all existing shareholders, the number of ordinary shares to be used in calculating basic and diluted earnings per share for all periods before the rights issue is the number of ordinary shares outstanding before the issue, multiplied by the following factor:| Fair value per share immediately before the exercise of rightsTheoretical ex-rights fair value per share |
1. IAS 33 provides that when an entity presents both consolidated financial statements and separate financial statements, it may give EPS related information in consolidated financial statements only, whereas, the Ind AS 33 requires EPS related information to be disclosed both in consolidated financial statements and separate financial statements.
2. Different terminology is used, as used in existing laws e.g., the term 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'. The words 'approval of the financial statements for issue' have been used instead of 'authorisation of the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period.
3. Paragraph 2 of IAS 33 requires that the entire standard applies to:
4. Paragraph 4 has been modified in Ind AS 33 to clarify that an entity shall not present in separate financial statements, earnings per share based on the information given in consolidated financial statements, besides requiring as in IAS 33, that earnings per share based on the information given in separate financial statements shall not be presented in the consolidated financial statements.
5. In Ind AS 33, a paragraph has been added after paragraph 12 on the following lines:
"Where any item of income or expense which is otherwise required to be recognized in profit or loss in accordance with accounting standards is debited or credited to securities premium account/other reserves, the amount in respect thereof shall be deducted from profit or loss from continuing operations for the purpose of calculating basic earnings per share."6. In Ind AS 33, paragraph 15 has been amended by adding the phrase, 'irrespective of whether such discount or premium is debited or credited to securities premium account in view of requirements of any law' to further clarify that such discount or premium shall also be amortised to retained earnings.
7. Requirements regarding disclosure of amounts per share using a reported component, basic and diluted earnings per share and basic and diluted earnings per share for discontinued operations in the separate income statement, where separate income statement is presented under following paragraphs of IAS 33 have been deleted:
8. Paragraph number 25 appears as 'Deleted' in IAS 33. In order to maintain consistency with paragraph numbers of IAS 33, the paragraph number is retained in Ind AS 33.
Indian Accounting Standard (Ind AS) 34Interim Financial Reporting(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)ObjectiveThe objective of this Standard is to prescribe 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. Timely and reliable interim financial reporting improves the ability of investors, creditors, and others to understand an entity's capacity to generate earnings and cash flows and its financial condition and liquidity.Scope1. This Standard does not mandate which entities should be required to publish interim financial reports, how frequently, or how soon after the end of an interim period. However, Governments, securities regulators, stock exchanges, and accountancy bodies often require entities whose debt or equity securities are publicly traded to publish interim [financial reports] [Unaudited Financial Results required to be prepared and presented under Clause 41 of Listing Agreement with stock exchanges is not an 'Interim Financial Report' as defined in paragraph 4 of this Standard when it reclassifies items in its financial statements in accordance with paragraphs 40A-40D of Ind AS 1.]. This Standard applies if an entity is required or elects to publish an interim financial report in accordance with Indian Accounting Standards (Ind ASs). [Refer Appendix 1]
2. Each financial report, annual or interim, is evaluated on its own for conformity to Ind ASs. 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 Ind ASs if they otherwise do so.
3. If an entity's interim financial report is described as complying with Ind ASs, it must comply with all of the requirements of this Standard. Paragraph 19 requires certain disclosures in that regard.
Definitions4. The following terms are used in this Standard with the meanings specified:
Interim period is a financial reporting period shorter than a full financial year.Interim financial report means a financial report containing either a complete set of financial statements (as described in Ind AS 1, Presentation of Financial Statements, or a set of condensed financial statements (as described in this Standard) for an interim period.Content of an interim financial report5. Ind AS 1 defines a complete set of financial statements as including the following components:
6. In the interest of timeliness and cost considerations and to avoid repetition of information previously reported, an entity may be required to or may elect to provide less information at interim dates as compared with its annual financial statements. This Standard defines the minimum content of an interim financial report as including condensed financial statements and selected explanatory notes. The interim financial report is intended to provide an update on the latest complete set of annual financial statements. Accordingly, it focuses on new activities, events, and circumstances and does not duplicate information previously reported.
7. Nothing in this Standard is intended to prohibit or discourage an entity from publishing a complete set of financial statements (as described in Ind AS 1) in its interim financial report, rather than condensed financial statements and selected explanatory notes. Nor does this Standard prohibit or discourage an entity from including in condensed interim financial statements more than the minimum line items or selected explanatory notes as set out in this Standard. The recognition and measurement guidance in this Standard applies also to complete financial statements for an interim period, and such statements would include all of the disclosures required by this Standard (particularly the selected note disclosures in paragraph 16A) as well as those required by other Ind ASs.
Minimum components of an interim financial report8. An interim financial report shall include, at a minimum, the following components:
8A. [Refer Appendix 1]
Form and content of interim financial statements9. If an entity publishes a complete set of financial statements in its interim financial report, the form and content of those statements shall conform to the requirements of Ind AS 1 for a complete set of financial statements.
10. If an entity publishes a set of condensed financial statements in its interim financial report, those condensed statements shall include, at a minimum, each of the headings and subtotals that were included in its most recent annual financial statements and the selected explanatory notes as required by this Standard. Additional line items or notes shall be included if their omission would make the condensed interim financial statements misleading.
11. In the statement that presents the components of profit or loss for an interim period, an entity shall present basic and diluted earnings per share for that period when the entity is within the scope of Ind AS 33, Earnings per Share.
11A. [Refer Appendix 1]
12. [Refer Appendix 1]
13. [Refer Appendix 1]
14. An interim financial report is prepared on a consolidated basis if the entity's most recent annual financial statements were consolidated statements. The parent's separate financial statements are not consistent or comparable with the consolidated statements in the most recent annual financial report. If an entity's annual financial report included the parent's separate financial statements in addition to consolidated financial statements, this Standard neither requires nor prohibits the inclusion of the parent's separate statements in the entity's interim financial report.
Significant events and transactions15. An entity shall include in its interim financial report an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the entity since the end of the last annual reporting period. Information disclosed in relation to those events and transactions shall update the relevant information presented in the most recent annual financial report.
15A. A user of an entity's interim financial report will have access to the most recent annual financial report of that entity. Therefore, it is unnecessary for the notes to an interim financial report to provide relatively insignificant updates to the information that was reported in the notes in the most recent annual financial report.
15B. The following is a list of events and transactions for which disclosures would be required if they are significant: the list is not exhaustive.
15C. Individual Ind ASs 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.
16.
-18. [Refer Appendix 1]Other Disclosures16A. [ In addition to disclosing significant events and transactions in accordance with paragraphs 15-15C, an entity shall include the following information, in the notes to its interim financial statements or elsewhere in the interim financial report. The following disclosures shall be given either in the interim financial statements or incorporated by cross-reference from the interim financial statements to some other statement (such as management commentary or risk report) that is available to users of the financial statements on the same terms as the interim financial statements and at the same time. If users of the financial statements do not have access to the information incorporated by cross-reference on the same terms and at the same time, the interim financial report is incomplete. The information shall normally be reported on a financial year-to-date basis.] [Substituted by Notification No. G.S.R. 365(E), dated 30.3.2016 (w.e.f. 16.2.2015).]
19. If an entity's interim financial report is in compliance with this Standard, that fact shall be disclosed. An interim financial report shall not be described as complying with Ind ASs unless it complies with all of the requirements of Ind ASs.
Periods for which interim financial statements are required to be presented20. Interim reports shall include interim financial statements (condensed or complete) for periods as follows:
21. For an entity whose business is highly seasonal, financial information for the twelve months up to the end of the interim period and comparative information for the prior twelve-month period may be useful. Accordingly, entities whose business is highly seasonal are encouraged to consider reporting such information in addition to the information called for in the preceding paragraph.
22. [Refer Appendix 1]
Materiality23. In deciding how to recognise, measure, classify, or disclose an item for interim financial reporting purposes, materiality shall be assessed in relation to the interim period financial data. In making assessments of materiality, it shall be recognized that interim measurements may rely on estimates to a greater extent than measurements of annual financial data.
24. Ind AS 1 and Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors, define an item as material if its omission or misstatement could influence the economic decisions of users of the financial statements. Ind AS 1 requires separate disclosure of material items, including (for example) discontinued operations, and Ind AS 8 requires disclosure of changes in accounting estimates, errors, and changes in accounting policies. The two Standards do not contain quantified guidance as to materiality.
25. While judgement is always required in assessing materiality, this Standard bases the recognition and disclosure decision on data for the interim period by itself for reasons of understandability of the interim figures. Thus, for example, unusual items, changes in accounting policies or estimates, and errors are recognized and disclosed on the basis of materiality in relation to interim period data to avoid misleading inferences that might result from non-disclosure. The overriding goal is to ensure that an interim financial report includes all information that is relevant to understanding an entity's financial position and performance during the interim period.
Disclosure in annual financial statements26. If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year but a separate financial report is not published for that final interim period, the nature and amount of that change in estimate shall be disclosed in a note to the annual financial statements for that financial year.
27. Ind AS 8 requires disclosure of the nature and (if practicable) the amount of a change in estimate that either has a material effect in the current period or is expected to have a material effect in subsequent periods. Paragraph 16A(d) of this Standard requires similar disclosure in an interim financial report. Examples include changes in estimate in the final interim period relating to inventory write-downs, restructurings, or impairment losses that were reported in an earlier interim period of the financial year. The disclosure required by the preceding paragraph is consistent with the Ind AS 8 requirement and is intended to be narrow in scope-relating only to the change in estimate. An entity is not required to include additional interim period financial information in its annual financial statements.
Recognition and measurementSame accounting policies as annual28. An entity shall apply the same accounting policies in its interim financial statements as are applied in its annual financial statements, except for accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements. However, the frequency of an entity's reporting (annual, half-yearly, or quarterly) shall not affect the measurement of its annual results. To achieve that objective, measurements for interim reporting purposes shall be made on a year-to-date basis.
29. Requiring that an entity apply the same accounting policies in its interim financial statements as in its annual statements may seem to suggest that interim period measurements are made as if each interim period stands alone as an independent reporting period. However, by providing that the frequency of an entity's reporting shall not affect the measurement of its annual results, paragraph 28 acknowledges that an interim period is a part of a larger financial year. Year-to-date measurements may involve changes in estimates of amounts reported in prior interim periods of the current financial year. But the principles for recognising assets, liabilities, income, and expenses for interim periods are the same as in annual financial statements.
30. To illustrate:
31. Under the Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards (the Framework) issued by the Institute of Chartered Accountants of India, recognition is the 'process of incorporating in the balance sheet or statement of profit and loss an item that meets the definition of an element and satisfies the criteria for recognition'. The definitions of assets, liabilities, income, and expenses are fundamental to recognition, at the end of both annual and interim financial reporting periods.
32. For assets, the same tests of future economic benefits apply at interim dates and at the end of an entity's financial year. Costs that, by their nature, would not qualify as assets at financial year-end would not qualify at interim dates either. Similarly, a liability at the end of an interim reporting period must represent an existing obligation at that date, just as it must at the end of an annual reporting period.
33. An essential characteristic of income (revenue) and expenses is that the related inflows and outflows of assets and liabilities have already taken place. If those inflows or outflows have taken place, the related revenue and expense are recognized; otherwise they are not recognized. The Framework says that 'expenses are recognized in the statement of profit and loss when a decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably... [The] Framework does not allow the recognition of items in the balance sheet which do not meet the definition of assets or liabilities.'
34. In measuring the assets, liabilities, income, expenses, and cash flows reported in its financial statements, an entity that reports only annually is able to take into account information that becomes available throughout the financial year. Its measurements are, in effect, on a year-to-date basis.
35. An entity that reports half-yearly uses information available by mid-year or shortly thereafter in making the measurements in its financial statements for the first six-month period and information available by year-end or shortly thereafter for the twelve-month period. The twelve-month measurements will reflect possible changes in estimates of amounts reported for the first six-month period. The amounts reported in the interim financial report for the first six-month period are not retrospectively adjusted. Paragraphs 16A(d) and 26 require, however, that the nature and amount of any significant changes in estimates be disclosed.
36. An entity that reports more frequently than half-yearly measures income and expenses on a year-to-date basis for each interim period using information available when each set of financial statements is being prepared. Amounts of income and expenses reported in the current interim period will reflect any changes in estimates of amounts reported in prior interim periods of the financial year. The amounts reported in prior interim periods are not retrospectively adjusted. Paragraphs 16A(d) and 26 require, however, that the nature and amount of any significant changes in estimates be disclosed.
Revenues received seasonally, cyclically, or occasionally37. Revenues that are received seasonally, cyclically, or occasionally within a financial year shall not be anticipated or deferred as of an interim date if anticipation or deferral would not be appropriate at the end of the entity's financial year.
38. Examples include dividend revenue, royalties, and Government grants. Additionally, some entities consistently earn more revenues in certain interim periods of a financial year than in other interim periods, for example, seasonal revenues of retailers. Such revenues are recognized when they occur.
Costs incurred unevenly during the financial year39. Costs that are incurred unevenly during an entity's financial year shall be anticipated or deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year.
40. [Refer Appendix 1]
Use of estimates41. The measurement procedures to be followed in an interim financial report shall be designed to ensure that the resulting information is reliable and that all material financial information that is relevant to an understanding of the financial position or performance of the entity is appropriately disclosed. While measurements in both annual and interim financial reports are often based on reasonable estimates, the preparation of interim financial reports generally will require a greater use of estimation methods than annual financial reports.
42. [Refer Appendix 1]
Restatement of previously reported interim periods43. A change in accounting policy, other than one for which the transition is specified by a new Ind AS, shall be reflected by:
44. One objective of the preceding principle is to ensure that a single accounting policy is applied to a particular class of transactions throughout an entire financial year. Under Ind AS 8, a change in accounting policy is reflected by retrospective application, with restatement of prior period financial data as far back as is practicable. However, if the cumulative amount of the adjustment relating to prior financial years is impracticable to determine, then under Ind AS 8 the new policy is applied prospectively from the earliest date practicable. The effect of the principle in paragraph 43 is to require that within the current financial year any change in accounting policy is applied either retrospectively or, if that is not practicable, prospectively, from no later than the beginning of the financial year.
45. 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.
[Effective date and transition46. *
47. *
48. *
49. *
50. *
51. *
52. *
53. *
54. *
* Refer Appendix 155. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph 15B and 16A are amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix AInterim Financial Reporting and ImpairmentThis appendix is an integral part of the Ind AS.Background1. An entity is required to assess goodwill for impairment at the end of each reporting period, and, if required, to recognise an impairment loss at that date in accordance with Ind AS 36. However, at the end of a subsequent reporting period, conditions may have so changed that the impairment loss would have been reduced or avoided had the impairment assessment been made only at that date. This appendix provides guidance on whether such impairment losses should ever be reversed.
2. The appendix addresses the interaction between the requirements of Ind AS 34 and the recognition of impairment losses on goodwill in Ind AS 36, and the effect of that interaction on subsequent interim and annual financial statements.
Issue3. Ind AS 34 paragraph 28 requires an entity to apply the same accounting policies in its interim financial statements as are applied in its annual financial statements. It also states that 'the frequency of an entity's reporting (annual, half-yearly, or quarterly) shall not affect the measurement of its annual results. To achieve that objective, measurements for interim reporting purposes shall be made on a year-to-date basis.'
4. Ind AS 36 paragraph 124 states that 'An impairment loss recognized for goodwill shall not be reversed in a subsequent period.'
5.
-6. [Refer Appendix 1]7. The appendix addresses the following issue:
Should an entity reverse impairment losses recognized in an interim period on goodwill if a loss would not have been recognized, or a smaller loss would have been recognized, had an impairment assessment been made only at the end of a subsequent reporting period?Accounting Principle8. An entity shall not reverse an impairment loss recognized in a previous interim period in respect of goodwill.
9. An entity shall not extend this accounting principle by analogy to other areas of potential conflict between Ind AS 34 and other Indian Accounting Standards.
Appendix BReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.1. Appendix C, Levies, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Appendix 1Note : This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 34 and the corresponding International Accounting Standard (IAS) 34, Interim Financial Reporting, and IFRIC 10, Interim Financial Reporting and Impairment, issued by the International Accounting Standards Board.Comparison with IAS 34, Interim Financial Reporting, and IFRIC 101. With regard to preparation of statement of profit and loss, International Accounting Standard (IAS) 34, Interim Financial Reporting, provides option either to follow single statement approach or to follow two statement approaches. But, Ind AS 34 allows only single statement approach on the lines of Ind AS 1, Presentation of Financial Statements, which also allows only single statement approach. Paragraphs 8A and 11A of IAS 34 which provides the option are deleted. In order to maintain consistency with paragraph numbers of IAS 34, the paragraph numbers are retained in Ind AS 34.
2. Different terminology is used in Ind AS 34 e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of Profit and Loss' is used instead of 'Statement of comprehensive income' or 'Statement of profit or loss and other comprehensive income'.
3. Last sentence of paragraph 1 of IAS 34 is deleted in Ind AS 34 since it is felt that the requirement to present interim financial report should be governed by the relevant law or regulation and not by way of an encouragement through an Accounting Standard.
4. The following paragraph numbers appear as 'Deleted' in IAS 34. In order to maintain consistency with paragraph numbers of IAS 34, the paragraph numbers are retained in Ind AS 34:
5. Paragraph 12 of IAS 34 making reference to Implementation Guidance included in IAS 1 has been deleted in Ind AS 34, as Implementation Guidance is not an integral part of IAS 1. In order to maintain consistency with paragraph numbers of IAS 34, the paragraph number is retained in Ind AS 34.
6. Following paragraphs making references to Illustrative examples which are not integral part of IAS 34 have been deleted in Ind AS 34. The paragraph numbers have been retained in Ind AS 34 in order to maintain consistency with paragraph numbers of IAS 34:
7. [ Paragraphs 46-54 related to effective date have not been included in Ind AS 34 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 34, these paragraph numbers are retained in Ind AS 34.] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 36Impairment of Assets(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and the Standard requires the entity to recognise an impairment loss. The Standard also specifies when an entity should reverse an impairment loss and prescribes disclosures.
Scope2. This Standard shall be applied in accounting for the impairment of all assets, other than:
3. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets, assets arising from employee benefits, or assets classified as held for sale (or included in a disposal group that is classified as held for sale) because Indian Accounting Standards applicable to these assets contain requirements for recognising and measuring these assets.
4. This Standard applies to financial assets classified as:
5. This Standard does not apply to financial assets within the scope of Ind AS 109, or biological assets related to agricultural activity measured at fair value less costs to sell within the scope of Ind AS 41. However, this Standard applies to assets that are carried at revalued amount (i.e. fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses) in accordance with other Ind ASs, such as the revaluation model in Ind AS 16, Property, Plant and Equipment and Ind AS 38, Intangible Assets. The only difference between an asset's fair value and its fair value less costs of disposal is the direct incremental costs attributable to the disposal of the asset.
6. The following terms are used in this Standard with the meanings specified:
Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon.A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.Corporate assets are assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other cash-generating units.Costs of disposal are incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense.Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements, less its residual value.[Depreciation (Amortisation) [In the case of an intangible asset, the term 'amortisation' is generally used instead of 'depreciation'. The two terms have the same meaning.] is the systematic allocation of the depreciable amount of an asset over its useful life.] [Inserted by Notification No. G.S.R. 274(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement.)An impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value in use.Useful life is either:7. Paragraphs 8-17 specify when recoverable amount shall be determined. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. The remainder of this Standard is structured as follows:
8. An asset is impaired when its carrying amount exceeds its recoverable amount. Paragraphs 12-14 describe some indications that an impairment loss may have occurred. If any of those indications is present, an entity is required to make a formal estimate of recoverable amount. Except as described in paragraph 10, this Standard does not require an entity to make a formal estimate of recoverable amount if no indication of an impairment loss is present.
9. An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset.
10. Irrespective of whether there is any indication of impairment, an entity shall also:
11. The ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty before the asset is available for use than after it is available for use. Therefore, this Standard requires an entity to test for impairment, at least annually, the carrying amount of an intangible asset that is not yet available for use.
12. In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a minimum, the following indications:
External sources of information13. The list in paragraph 12 is not exhaustive. An entity may identify other indications that an asset may be impaired and these would also require the entity to determine the asset's recoverable amount or, in the case of goodwill, perform an impairment test in accordance with paragraphs 80-99.
14. Evidence from internal reporting that indicates that an asset may be impaired includes the existence of:
15. As indicated in paragraph 10, this Standard requires an intangible asset with an indefinite useful life or not yet available for use and goodwill to be tested for impairment, at least annually. Apart from when the requirements in paragraph 10 apply, the concept of materiality applies in identifying whether the recoverable amount of an asset needs to be estimated. For example, if previous calculations show that an asset's recoverable amount is significantly greater than its carrying amount, the entity need not re-estimate the asset's recoverable amount if no events have occurred that would eliminate that difference. Similarly, previous analysis may show that an asset's recoverable amount is not sensitive to one (or more) of the indications listed in paragraph 12.
16. As an illustration of paragraph 15, if market interest rates or other market rates of return on investments have increased during the period, an entity is not required to make a formal estimate of an asset's recoverable amount in the following cases:
17. If there is an indication that an asset may be impaired, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value for the asset needs to be reviewed and adjusted in accordance with the Standard applicable to the asset, even if no impairment loss is recognized for the asset.
Measuring recoverable amount18. This Standard defines recoverable amount as the higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use. Paragraphs 19-57 set out the requirements for measuring recoverable amount. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit.
19. It is not always necessary to determine both an asset's fair value less costs of disposal and its value in use. If either of these amounts exceeds the asset's carrying amount, the asset is not impaired and it is not necessary to estimate the other amount.
20. It may be possible to measure fair value less costs of disposal, even if there is not a quoted price in an active market for an identical asset. However, sometimes it will not be possible to measure fair value less costs of disposal because there is no basis for making a reliable estimate of the price at which an orderly transaction to sell the asset would take place between market participants at the measurement date under current market conditions. In this case, the entity may use the asset's value in use as its recoverable amount.
21. If there is no reason to believe that an asset's value in use materially exceeds its fair value less costs of disposal, the asset's fair value less costs of disposal may be used as its recoverable amount. This will often be the case for an asset that is held for disposal. This is because the value in use of an asset held for disposal will consist mainly of the net disposal proceeds, as the future cash flows from continuing use of the asset until its disposal are likely to be negligible.
22. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. If this is the case, recoverable amount is determined for the cash-generating unit to which the asset belongs (see paragraphs 65-103), unless either:
23. In some cases, estimates, averages and computational short cuts may provide reasonable approximations of the detailed computations illustrated in this Standard for determining fair value less costs of disposal or value in use.
Measuring the recoverable amount of an intangible asset with an indefinite useful life24. Paragraph 10 requires an intangible asset with an indefinite useful life to be tested for impairment annually by comparing its carrying amount with its recoverable amount, irrespective of whether there is any indication that it may be impaired. However, the most recent detailed calculation of such an asset's recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period, provided all of the following criteria are met:
25.
-27. [Refer Appendix 1]28. Costs of disposal, other than those that have been recognized as liabilities, are deducted in measuring fair value less costs of disposal. Examples of such costs are legal costs, stamp duty and similar transaction taxes, costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale. However, termination benefits (as defined in Ind AS 19) and costs associated with reducing or reorganising a business following the disposal of an asset are not direct incremental costs to dispose of the asset.
29. Sometimes, the disposal of an asset would require the buyer to assume a liability and only a single fair value less costs of disposal is available for both the asset and the liability. Paragraph 78 explains how to deal with such cases.
Value in use30. The following elements shall be reflected in the calculation of an asset's value in use:
31. Estimating the value in use of an asset involves the following steps:
32. The elements identified in paragraph 30(b), (d) and (e) can be reflected either as adjustments to the future cash flows or as adjustments to the discount rate. Whichever approach an entity adopts to reflect expectations about possible variations in the amount or timing of future cash flows, the result shall be to reflect the expected present value of the future cash flows, i.e. the weighted average of all possible outcomes. Appendix A provides additional guidance on the use of present value techniques in measuring an asset's value in use.
Basis for estimates of future cash flows33. In measuring value in use an entity shall:
34. Management assesses the reasonableness of the assumptions on which its current cash flow projections are based by examining the causes of differences between past cash flow projections and actual cash flows. Management shall ensure that the assumptions on which its current cash flow projections are based are consistent with past actual outcomes, provided the effects of subsequent events or circumstances that did not exist when those actual cash flows were generated make this appropriate.
35. Detailed, explicit and reliable financial budgets/forecasts of future cash flows for periods longer than five years are generally not available. For this reason, management's estimates of future cash flows are based on the most recent budgets/forecasts for a maximum of five years. Management may use cash flow projections based on financial budgets/forecasts over a period longer than five years if it is confident that these projections are reliable and it can demonstrate its ability, based on past experience, to forecast cash flows accurately over that longer period.
36. Cash flow projections until the end of an asset's useful life are estimated by extrapolating the cash flow projections based on the financial budgets/forecasts using a growth rate for subsequent years. This rate is steady or declining, unless an increase in the rate matches objective information about patterns over a product or industry life-cycle. If appropriate, the growth rate is zero or negative.
37. When conditions are favourable, competitors are likely to enter the market and restrict growth. Therefore, entities will have difficulty in exceeding the average historical growth rate over the long term (say, twenty years) for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used.
38. In using information from financial budgets/forecasts, an entity considers whether the information reflects reasonable and supportable assumptions and represents management's best estimate of the set of economic conditions that will exist over the remaining useful life of the asset.
Composition of estimates of future cash flows39. Estimates of future cash flows shall include:
40. Estimates of future cash flows and the discount rate reflect consistent assumptions about price increases attributable to general inflation. Therefore, if the discount rate includes the effect of price increases attributable to general inflation, future cash flows are estimated in nominal terms. If the discount rate excludes the effect of price increases attributable to general inflation, future cash flows are estimated in real terms (but include future specific price increases or decreases).
41. Projections of cash outflows include those for the day-to-day servicing of the asset as well as future overheads that can be attributed directly, or allocated on a reasonable and consistent basis, to the use of the asset.
42. When the carrying amount of an asset does not yet include all the cash outflows to be incurred before it is ready for use or sale, the estimate of future cash outflows includes an estimate of any further cash outflow that is expected to be incurred before the asset is ready for use or sale. For example, this is the case for a building under construction or for a development project that is not yet completed.
43. To avoid double-counting, estimates of future cash flows do not include:
44. Future cash flows shall be estimated for the asset in its current condition. Estimates of future cash flows shall not include estimated future cash inflows or outflows that are expected to arise from:
45. Because future cash flows are estimated for the asset in its current condition, value in use does not reflect:
46. A restructuring is a programme that is planned and controlled by management and materially changes either the scope of the business undertaken by an entity or the manner in which the business is conducted. Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, contains guidance clarifying when an entity is committed to a restructuring.
47. When an entity becomes committed to a restructuring, some assets are likely to be affected by this restructuring. Once the entity is committed to the restructuring:
48. Until an entity incurs cash outflows that improve or enhance the asset's performance, estimates of future cash flows do not include the estimated future cash inflows that are expected to arise from the increase in economic benefits associated with the cash outflow.
49. Estimates of future cash flows include future cash outflows necessary to maintain the level of economic benefits expected to arise from the asset in its current condition. When a cash-generating unit consists of assets with different estimated useful lives, all of which are essential to the ongoing operation of the unit, the replacement of assets with shorter lives is considered to be part of the day-to-day servicing of the unit when estimating the future cash flows associated with the unit. Similarly, when a single asset consists of components with different estimated useful lives, the replacement of components with shorter lives is considered to be part of the day-to-day servicing of the asset when estimating the future cash flows generated by the asset.
50. Estimates of future cash flows shall not include:
51. Estimated future cash flows reflect assumptions that are consistent with the way the discount rate is determined. Otherwise, the effect of some assumptions will be counted twice or ignored. Because the time value of money is considered by discounting the estimated future cash flows, these cash flows exclude cash inflows or outflows from financing activities. Similarly, because the discount rate is determined on a pre-tax basis, future cash flows are also estimated on a pre-tax basis.
52. The estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life shall be the amount that an entity expects to obtain from the disposal of the asset in an arm's length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal.
53. The estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life is determined in a similar way to an asset's fair value less costs of disposal, except that, in estimating those net cash flows:
53A. Fair value differs from value in use. Fair value reflects the assumptions market participants would use when pricing the asset. In contrast, value in use reflects the effects of factors that may be specific to the entity and not applicable to entities in general. For example, fair value does not reflect any of the following factors to the extent that they would not be generally available to market participants:
54. Future cash flows are estimated in the currency in which they will be generated and then discounted using a discount rate appropriate for that currency. An entity translates the present value using the spot exchange rate at the date of the value in use calculation.
Discount rate55. The discount rate (rates) shall be a pre-tax rate (rates) that reflect(s) current market assessments of:
56. A rate that reflects current market assessments of the time value of money and the risks specific to the asset is the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that the entity expects to derive from the asset. This rate is estimated from the rate implicit in current market transactions for similar assets or from the weighted average cost of capital of a listed entity that has a single asset (or a portfolio of assets) similar in terms of service potential and risks to the asset under review. However, the discount rate(s) used to measure an asset's value in use shall not reflect risks for which the future cash flow estimates have been adjusted. Otherwise, the effect of some assumptions will be double-counted.
57. When an asset-specific rate is not directly available from the market, an entity uses surrogates to estimate the discount rate. Appendix A provides additional guidance on estimating the discount rate in such circumstances.
Recognising and measuring an impairment loss58. Paragraphs 59-64 set out the requirements for recognising and measuring impairment losses for an individual asset other than goodwill. Recognising and measuring impairment losses for cash-generating units and goodwill are dealt with in paragraphs 65-108.
59. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss.
60. An impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard (for example, in accordance with the revaluation model in Ind AS 16). Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard.
61. An impairment loss on a non-revalued asset is recognized in profit or loss. However, an impairment loss on a revalued asset is recognized in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same asset. Such an impairment loss on a revalued asset reduces the revaluation surplus for that asset.
62. When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an entity shall recognise a liability if, and only if, that is required by another Standard.
63. After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
64. If an impairment loss is recognized, any related deferred tax assets or liabilities are determined in accordance with Ind AS 12 by comparing the revised carrying amount of the asset with its tax base.
Cash-generating units and goodwill65. Paragraphs 66-108 and Appendix C set out the requirements for identifying the cash-generating unit to which an asset belongs and determining the carrying amount of, and recognising impairment losses for, cash-generating units and goodwill.
Identifying the cash-generating unit to which an asset belongs66. If there is any indication that an asset may be impaired, recoverable amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, an entity shall determine the recoverable amount of the cash-generating unit to which the asset belongs (the asset's cash-generating unit).
67. The recoverable amount of an individual asset cannot be determined if:
| Example |
| A mining entity ownsa private railway to support its mining activities. The privaterailway could be sold only for scrap value and it does notgenerate cash inflows that are largely independent of the cashinflows from the other assets of the mine.It is not possible to estimate therecoverable amount of the private railway because its value inuse cannot be determined and is probably different from scrapvalue. Therefore, the entity estimates the recoverable amount ofthe cash-generating unit to which the private railway belongs,i.e. the mine as a whole. |
68. As defined in paragraph 6, an asset's cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Identification of an asset's cash-generating unit involves judgement. If recoverable amount cannot be determined for an individual asset, an entity identifies the lowest aggregation of assets that generate largely independent cash inflows.
| Example |
| A bus companyprovides services under contract with a municipality thatrequires minimum service on each of five separate routes. Assetsdevoted to each route and the cash flows from each route can beidentified separately. One of the routes operates at asignificant loss.Because the entity does not have the optionto curtail any one bus route, the lowest level of identifiablecash inflows that are largely independent of the cash inflowsfrom other assets or groups of assets is the cash inflowsgenerated by the five routes together. The cash-generating unitfor each route is the bus company as a whole. |
69. Cash inflows are inflows of cash and cash equivalents received from parties external to the entity. In identifying whether cash inflows from an asset (or group of assets) are largely independent of the cash inflows from other assets (or groups of assets), an entity considers various factors including how management monitors the entity's operations (such as by product lines, businesses, individual locations, districts or regional areas) or how management makes decisions about continuing or disposing of the entity's assets and operations.
70. If an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a cash-generating unit, even if some or all of the output is used internally. If the cash inflows generated by any asset or cash-generating unit are affected by internal transfer pricing, an entity shall use management's best estimate of future price(s) that could be achieved in arm's length transactions in estimating:
71. Even if part or all of the output produced by an asset or a group of assets is used by other units of the entity (for example, products at an intermediate stage of a production process), this asset or group of assets forms a separate cash-generating unit if the entity could sell the output on an active market. This is because the asset or group of assets could generate cash inflows that would be largely independent of the cash inflows from other assets or groups of assets. In using information based on financial budgets/forecasts that relates to such a cash-generating unit, or to any other asset or cash-generating unit affected by internal transfer pricing, an entity adjusts this information if internal transfer prices do not reflect management's best estimate of future prices that could be achieved in arm's length transactions.
72. Cash-generating units shall be identified consistently from period to period for the same asset or types of assets, unless a change is justified.
73. If an entity determines that an asset belongs to a cash-generating unit different from that in previous periods, or that the types of assets aggregated for the asset's cash-generating unit have changed, paragraph 130 requires disclosures about the cash-generating unit, if an impairment loss is recognized or reversed for the cash-generating unit.
Recoverable amount and carrying amount of a cash-generating unit74. The recoverable amount of a cash-generating unit is the higher of the cash-generating unit's fair value less costs of disposal and its value in use. For the purpose of determining the recoverable amount of a cash-generating unit, any reference in paragraphs 19-57 to 'an asset' is read as a reference to 'a cash-generating unit'.
75. The carrying amount of a cash-generating unit shall be determined on a basis consistent with the way the recoverable amount of the cash-generating unit is determined.
76. The carrying amount of a cash-generating unit:
77. When assets are grouped for recoverability assessments, it is important to include in the cash-generating unit all assets that generate or are used to generate the relevant stream of cash inflows. Otherwise, the cash-generating unit may appear to be fully recoverable when in fact an impairment loss has occurred. In some cases, although some assets contribute to the estimated future cash flows of a cash-generating unit, they cannot be allocated to the cash-generating unit on a reasonable and consistent basis. This might be the case for goodwill or corporate assets such as head office assets. Paragraphs 80-103 explain how to deal with these assets in testing a cash-generating unit for impairment.
78. It may be necessary to consider some recognized liabilities to determine the recoverable amount of a cash-generating unit. This may occur if the disposal of a cash-generating unit would require the buyer to assume the liability. In this case, the fair value less costs of disposal (or the estimated cash flow from ultimate disposal) of the cash-generating unit is the price to sell the assets of the cash-generating unit and the liability together, less the costs of disposal. To perform a meaningful comparison between the carrying amount of the cash-generating unit and its recoverable amount, the carrying amount of the liability is deducted in determining both the cash-generating unit's value in use and its carrying amount.
| Example |
| A company operates amine in a country where legislation requires that the owner mustrestore the site on completion of its mining operations. The costof restoration includes the replacement of the overburden, whichmust be removed before mining operations commence. A provisionfor the costs to replace the overburden was recognized as soon asthe overburden was removed. The amount provided was recognized aspart of the cost of the mine and is being depreciated over themine's useful life. The carrying amount of the provision forrestoration costs is Rs. 500, which is equal to the present valueof the restoration costs.The entity is testingthe mine for impairment. The cash-generating unit for the mine isthe mine as a whole. The entity has received various offers tobuy the mine at a price of around Rs. 800. This price reflectsthe fact that the buyer will assume the obligation to restore theoverburden. Disposal costs for the mine are negligible. The valuein use of the mine is approximately Rs. 1,200, excludingrestoration costs. The carrying amount of the mine is Rs. 1,000.The cash-generating unit's fair value lesscosts of disposal is Rs. 800. This amount considers restorationcosts that have already been provided for. As a consequence, thevalue in use for the cash-generating unit is determined afterconsideration of the restoration costs and is estimated to be Rs.700 (Rs. 1,200 less Rs. 500). The carrying amount of thecash-generating unit is Rs. 500, which is the carrying amount ofthe mine (Rs. 1,000) less the carrying amount of the provisionfor restoration costs (Rs. 500). Therefore, the recoverableamount of the cash-generating unit exceeds its carrying amount. |
79. For practical reasons, the recoverable amount of a cash-generating unit is sometimes determined after consideration of assets that are not part of the cash-generating unit (for example, receivables or other financial assets) or liabilities that have been recognized (for example, payables, pensions and other provisions). In such cases, the carrying amount of the cash-generating unit is increased by the carrying amount of those assets and decreased by the carrying amount of those liabilities.
GoodwillAllocating goodwill to cash-generating units80. For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer's cash-generating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall:
81. Goodwill recognized in a business combination is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill does not generate cash flows independently of other assets or groups of assets, and often contributes to the cash flows of multiple cash-generating units. Goodwill sometimes cannot be allocated on a non-arbitrary basis to individual cash-generating units, but only to groups of cash-generating units. As a result, the lowest level within the entity at which the goodwill is monitored for internal management purposes sometimes comprises a number of cash-generating units to which the goodwill relates, but to which it cannot be allocated. References in paragraphs 83-99 and Appendix C to a cash-generating unit to which goodwill is allocated should be read as references also to a group of cash-generating units to which goodwill is allocated.
82. Applying the requirements in paragraph 80 results in goodwill being tested for impairment at a level that reflects the way an entity manages its operations and with which the goodwill would naturally be associated. Therefore, the development of additional reporting systems is typically not necessary.
83. A cash-generating unit to which goodwill is allocated for the purpose of impairment testing may not coincide with the level at which goodwill is allocated in accordance with Ind AS 21, The Effects of Changes in Foreign Exchange Rates, for the purpose of measuring foreign currency gains and losses. For example, if an entity is required by Ind AS 21 to allocate goodwill to relatively low levels for the purpose of measuring foreign currency gains and losses, it is not required to test the goodwill for impairment at that same level unless it also monitors the goodwill at that level for internal management purposes.
84. If the initial allocation of goodwill acquired in a business combination cannot be completed before the end of the annual period in which the business combination is effected, that initial allocation shall be completed before the end of the first annual period beginning after the acquisition date.
85. In accordance with Ind AS 103, Business Combinations, if the initial accounting for a business combination can be determined only provisionally by the end of the period in which the combination is effected, the acquirer:
86. If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of shall be:
| Example |
| An entity sells forRs. 100 an operation that was part of a cash-generating unit towhich goodwill has been allocated. The goodwill allocated to theunit cannot be identified or associated with an asset group at alevel lower than that unit, except arbitrarily. The recoverableamount of the portion of the cash-generating unit retained is Rs.300.Because the goodwill allocated to thecash-generating unit cannot be non-arbitrarily identified orassociated with an asset group at a level lower than that unit,the goodwill associated with the operation disposed of ismeasured on the basis of the relative values of the operationdisposed of and the portion of the unit retained. Therefore, 25per cent of the goodwill allocated to the cash-generating unit isincluded in the carrying amount of the operation that is sold. |
87. If an entity reorganises its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has been allocated, the goodwill shall be reallocated to the units affected. This reallocation shall be performed using a relative value approach similar to that used when an entity disposes of an operation within a cash-generating unit, unless the entity can demonstrate that some other method better reflects the goodwill associated with the reorganised units.
| Example |
| Goodwill hadpreviously been allocated to cash-generating unit A. The goodwillallocated to A cannot be identified or associated with an assetgroup at a level lower than A, except arbitrarily. A is to bedivided and integrated into three other cash-generating units, B,C and D.Because the goodwill allocated to A cannot benon-arbitrarily identified or associated with an asset group at alevel lower than A, it is reallocated to units B, C and D on thebasis of the relative values of the three portions of A beforethose portions are integrated with B, C and D. |
88. When, as described in paragraph 81, goodwill relates to a cash-generating unit but has not been allocated to that unit, the unit shall be tested for impairment, whenever there is an indication that the unit may be impaired, by comparing the unit's carrying amount, excluding any goodwill, with its recoverable amount. Any impairment loss shall be recognized in accordance with paragraph 104.
89. If a cash-generating unit described in paragraph 88 includes in its carrying amount an intangible asset that has an indefinite useful life or is not yet available for use and that asset can be tested for impairment only as part of the cash-generating unit, paragraph 10 requires the unit also to be tested for impairment annually.
90. A cash-generating unit to which goodwill has been allocated shall be tested for impairment annually, and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the goodwill allocated to that unit shall be regarded as not impaired. If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity shall recognise the impairment loss in accordance with paragraph 104.
91.
-95. [Refer Appendix 1]Timing of impairment tests96. The annual impairment test for a cash-generating unit to which goodwill has been allocated may be performed at any time during an annual period, provided the test is performed at the same time every year. Different cash-generating units may be tested for impairment at different times. However, if some or all of the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, that unit shall be tested for impairment before the end of the current annual period.
97. If the assets constituting the cash-generating unit to which goodwill has been allocated are tested for impairment at the same time as the unit containing the goodwill, they shall be tested for impairment before the unit containing the goodwill. Similarly, if the cash-generating units constituting a group of cash-generating units to which goodwill has been allocated are tested for impairment at the same time as the group of units containing the goodwill, the individual units shall be tested for impairment before the group of units containing the goodwill.
98. At the time of impairment testing a cash-generating unit to which goodwill has been allocated, there may be an indication of an impairment of an asset within the unit containing the goodwill. In such circumstances, the entity tests the asset for impairment first, and recognises any impairment loss for that asset before testing for impairment the cash-generating unit containing the goodwill. Similarly, there may be an indication of an impairment of a cash-generating unit within a group of units containing the goodwill. In such circumstances, the entity tests the cash-generating unit for impairment first, and recognises any impairment loss for that unit, before testing for impairment the group of units to which the goodwill is allocated.
99. The most recent detailed calculation made in a preceding period of the recoverable amount of a cash-generating unit to which goodwill has been allocated may be used in the impairment test of that unit in the current period provided all of the following criteria are met:
100. Corporate assets include group or divisional assets such as the building of a headquarters or a division of the entity, EDP equipment or a research centre. The structure of an entity determines whether an asset meets this Standard's definition of corporate assets for a particular cash-generating unit. The distinctive characteristics of corporate assets are that they do not generate cash inflows independently of other assets or groups of assets and their carrying amount cannot be fully attributed to the cash-generating unit under review.
101. Because corporate assets do not generate separate cash inflows, the recoverable amount of an individual corporate asset cannot be determined unless management has decided to dispose of the asset. As a consequence, if there is an indication that a corporate asset may be impaired, recoverable amount is determined for the cash-generating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of this cash-generating unit or group of cash-generating units. Any impairment loss is recognized in accordance with paragraph 104.
102. In testing a cash-generating unit for impairment, an entity shall identify all the corporate assets that relate to the cash-generating unit under review. If a portion of the carrying amount of a corporate asset:
103. [Refer Appendix 1]
Impairment loss for a cash-generating unit104. An impairment loss shall be recognized for a cash-generating unit (the smallest group of cash-generating units to which goodwill or a corporate asset has been allocated) if, and only if, the recoverable amount of the unit (group of units) is less than the carrying amount of the unit (group of units). The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order:
105. In allocating an impairment loss in accordance with paragraph 104, an entity shall not reduce the carrying amount of an asset below the highest of:
106. If it is not practicable to estimate the recoverable amount of each individual asset of a cash-generating unit, this Standard requires an arbitrary allocation of an impairment loss between the assets of that unit, other than goodwill, because all assets of a cash-generating unit work together.
107. If the recoverable amount of an individual asset cannot be determined (see paragraph 67):
| Example |
| A machine hassuffered physical damage but is still working, although not aswell as before it was damaged. The machine's fair value lesscosts of disposal is less than its carrying amount. The machinedoes not generate independent cash inflows. The smallestidentifiable group of assets that includes the machine andgenerates cash inflows that are largely independent of the cashinflows from other assets is the production line to which themachine belongs. The recoverable amount of the production lineshows that the production line taken as a whole is not impaired.Assumption 1:budgets/forecasts approved by management reflect no commitment ofmanagement to replace the machine.The recoverableamount of the machine alone cannot be estimated because themachine's value in use:(a)may differ from its fair value less costs of disposal; and(b)can be determined only for the cash-generating unit to which themachine belongs (the production line).The productionline is not impaired. Therefore, no impairment loss is recognizedfor the machine. Nevertheless, the entity may need to reassessthe depreciation period or the depreciation method for themachine. Perhaps a shorter depreciation period or a fasterdepreciation method is required to reflect the expected remaininguseful life of the machine or the pattern in which economicbenefits are expected to be consumed by the entity.Assumption 2:budgets/forecasts approved by management reflect a commitment ofmanagement to replace the machine and sell it in the near future.Cash flows from continuing use of the machine until its disposalare estimated to be negligible.The machine's value in use can be estimatedto be close to its fair value less costs of disposal. Therefore,the recoverable amount of the machine can be determined and noconsideration is given to the cash-generating unit to which themachine belongs (i.e. the production line). Because the machine'sfair value less costs of disposal is less than its carryingamount, an impairment loss is recognized for the machine. |
108. After the requirements in paragraphs 104 and 105 have been applied, a liability shall be recognized for any remaining amount of an impairment loss for a cash-generating unit if, and only if, that is required by another Indian Accounting Standard.
Reversing an impairment loss109. Paragraphs 110-116 set out the requirements for reversing an impairment loss recognized for an asset or a cash-generating unit in prior periods. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. Additional requirements for an individual asset are set out in paragraphs 117-121, for a cash-generating unit in paragraphs 122 and 123 and for goodwill in paragraphs 124 and 125.
110. An entity shall assess at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset.
111. In assessing whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased, an entity shall consider, as a minimum, the following indications:
External sources of information112. Indications of a potential decrease in an impairment loss in paragraph 111 mainly mirror the indications of a potential impairment loss in paragraph 12.
113. If there is an indication that an impairment loss recognized for an asset other than goodwill may no longer exist or may have decreased, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value may need to be reviewed and adjusted in accordance with the Indian Accounting Standard applicable to the asset, even if no impairment loss is reversed for the asset.
114. An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall, except as described in paragraph 117, be increased to its recoverable amount. That increase is a reversal of an impairment loss.
115. A reversal of an impairment loss reflects an increase in the estimated service potential of an asset, either from use or from sale, since the date when an entity last recognized an impairment loss for that asset. Paragraph 130 requires an entity to identify the change in estimates that causes the increase in estimated service potential. Examples of changes in estimates include:
116. An asset's value in use may become greater than the asset's carrying amount simply because the present value of future cash inflows increases as they become closer. However, the service potential of the asset has not increased. Therefore, an impairment loss is not reversed just because of the passage of time (sometimes called the 'unwinding' of the discount), even if the recoverable amount of the asset becomes higher than its carrying amount.
Reversing an impairment loss for an individual asset117. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognized for the asset in prior years.
118. Any increase in the carrying amount of an asset other than goodwill above the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognized for the asset in prior years is a revaluation. In accounting for such a revaluation, an entity applies the Indian Accounting Standard applicable to the asset.
119. A reversal of an impairment loss for an asset other than goodwill shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Indian Accounting Standard (for example, the revaluation model in Ind AS 16). Any reversal of an impairment loss of a revalued asset shall be treated as a revaluation increase in accordance with that other Indian Accounting Standard.
120. A reversal of an impairment loss on a revalued asset is recognized in other comprehensive income and increases the revaluation surplus for that asset. However, to the extent that an impairment loss on the same revalued asset was previously recognized in profit or loss, a reversal of that impairment loss is also recognized in profit or loss.
121. After a reversal of an impairment loss is recognized, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
Reversing an impairment loss for a cash-generating unit122. A reversal of an impairment loss for a cash-generating unit shall be allocated to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets. These increases in carrying amounts shall be treated as reversals of impairment losses for individual assets and recognized in accordance with paragraph 119.
123. In allocating a reversal of an impairment loss for a cash-generating unit in accordance with paragraph 122, the carrying amount of an asset shall not be increased above the lower of:
124. An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
125. Ind AS 38, Intangible Assets, prohibits the recognition of internally generated goodwill. Any increase in the recoverable amount of goodwill in the periods following the recognition of an impairment loss for that goodwill is likely to be an increase in internally generated goodwill, rather than a reversal of the impairment loss recognized for the acquired goodwill.
Disclosure126. An entity shall disclose the following for each class of assets:
127. A class of assets is a grouping of assets of similar nature and use in an entity's operations.
128. The information required in paragraph 126 may be presented with other information disclosed for the class of assets. For example, this information may be included in a reconciliation of the carrying amount of property, plant and equipment, at the beginning and end of the period, as required by Ind AS 16.
129. An entity that reports segment information in accordance with Ind AS 108, shall disclose the following for each reportable segment:
130. An entity shall disclose the following for an individual asset (including goodwill) or a cash-generating unit, for which an impairment loss has been recognized or reversed during the period:
131. An entity shall disclose the following information for the aggregate impairment losses and the aggregate reversals of impairment losses recognized during the period for which no information is disclosed in accordance with paragraph 130:
132. An entity is encouraged to disclose assumptions used to determine the recoverable amount of assets (cash-generating units) during the period. However, paragraph 134 requires an entity to disclose information about the estimates used to measure the recoverable amount of a cash-generating unit when goodwill or an intangible asset with an indefinite useful life is included in the carrying amount of that unit.
133. If, in accordance with paragraph 84, any portion of the goodwill acquired in a business combination during the period has not been allocated to a cash-generating unit (group of units) at the end of the reporting period, the amount of the unallocated goodwill shall be disclosed together with the reasons why that amount remains unallocated.
Estimates used to measure recoverable amounts of cash-generating units containing goodwill or intangible assets with indefinite useful lives134. An entity shall disclose the information required by (a)-(f) for each cash-generating unit (group of units) for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit (group of units) is significant in comparison with the entity's total carrying amount of goodwill or intangible assets with indefinite useful lives:
135. If some or all of the carrying amount of goodwill or intangible assets with indefinite useful lives is allocated across multiple cash-generating units (groups of units), and the amount so allocated to each unit (group of units) is not significant in comparison with the entity's total carrying amount of goodwill or intangible assets with indefinite useful lives, that fact shall be disclosed, together with the aggregate carrying amount of goodwill or intangible assets with indefinite useful lives allocated to those units (groups of units). In addition, if the recoverable amounts of any of those units (groups of units) are based on the same key assumption(s) and the aggregate carrying amount of goodwill or intangible assets with indefinite useful lives allocated to them is significant in comparison with the entity's total carrying amount of goodwill or intangible assets with indefinite useful lives, an entity shall disclose that fact, together with:
136. The most recent detailed calculation made in a preceding period of the recoverable amount of a cash-generating unit (group of units) may, in accordance with paragraph 24 or 99, be carried forward and used in the impairment test for that unit (group of units) in the current period provided specified criteria are met. When this is the case, the information for that unit (group of units) that is incorporated into the disclosures required by paragraphs 134 and 135 relate to the carried forward calculation of recoverable amount.
[Refer Appendix 1][Transition provisions and effective date138. *
139. *
140. *
140A. *
140B. *
140C. *
140D. *
140E. *
140F. *
140G. *
140H. *
140I. *
140J. *
140K. *
* Refer Appendix140L. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph 2 is amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix AUsing present value techniques to measure value in useThis appendix is an integral part of the Ind AS. It provides guidance on the use of present value techniques in measuring value in use. Although the guidance uses the term 'asset', it equally applies to a group of assets forming a cash-generating unit.The components of a present value measurementA1 The following elements together capture the economic differences between assets:| Present value of Rs. 1,000 in 1 year at 5% | Rs. 952.38 | |
| Probability | 10.00% | Rs. 95.24 |
| Present value of Rs. 1,000 in 2 years at 5.25% | Rs. 902.73 | |
| Probability | 60.00% | Rs. 541.64 |
| Present value of Rs. 1,000 in 3 years at 5.50% | Rs. 851.61 | |
| Probability | 30.00% | Rs. 255.48 |
| Expected present value | Rs. 892.36 |
1. Appendix A Intangible Assets-Web site Costs contained in Ind AS 38, Intangible Assets.
2. Appendix A Changes in Existing Decommissioning, Restoration and Similar Liabilities contained in Ind AS 16, Property, Plant and Equipment.
Appendix CImpairment testing cash-generating units with goodwill and non-controlling interestsThis appendix is an integral part of the Ind AS.C1 In accordance with Ind AS 103, the acquirer measures and recognises goodwill as of the acquisition date as the excess of (a) over (b) below:1. Paragraph 2(f) is deleted in Ind AS 36 as Ind AS 40 requires cost model. To maintain consistency with IAS 36, this paragraph number has been retained. Further, for this reason, paragraph 5 of Ind AS 36 has been modified by deleting reference to fair value measurement of investment property.
2. The transitional provisions given in IAS 36 have not been given in Ind AS 36, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
3. Different terminology is used, as used in existing laws e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
4. Following Paragraphs have been deleted as a consequence of Ind AS 113, Fair Value Measurement. However, the paragraph numbering has been retained to make it consistent with paragraph numbering of IAS 36:
5. Paragraphs 91-95 appear as 'Deleted' in IAS 36. In order to maintain consistency with paragraph numbers of IAS 36, the paragraph numbers are retained in Ind AS 36.
6. Following references to Illustrative Examples which are not integral part of IAS 36 have not been included in Ind AS 36:
7. Following paragraphs making references to Illustrative examples which are not integral part of IAS 36 have been deleted in Ind AS 36. The paragraph numbers have been retained in Ind AS 36 in order to maintain consistency with paragraph numbers of IAS 36:
8. [ Paragraphs 138 to 140K related to effective date have not been included in Ind AS 36 as these are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 36, these paragraph numbers are retained in Ind AS 36.] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 37Provisions, Contingent Liabilities and Contingent Assets(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles).ObjectiveThe objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to enable users to understand their nature, timing and amount.Scope1. This Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except:
2. This Standard does not apply to financial instruments (including guarantees) that are within the scope of Ind AS 109, Financial Instruments.
3. Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. This Standard does not apply to executory contracts unless they are onerous.
4. [Refer Appendix 1]
5. [ When another Standard deals with a specific type of provision, contingent liability or contingent asset, an entity applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on:
6. [ ***] [Omitted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
7. This Standard defines provisions as liabilities of uncertain timing or amount. The term 'provision' is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard.
8. Other Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requires capitalisation of the costs recognized when a provision is made.
9. This Standard applies to provisions for restructurings (including discontinued operations). When a restructuring meets the definition of a discontinued operation, additional disclosures may be required by Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations.
Definitions10. The following terms are used in this Standard with the meanings specified:
A provision is a liability of uncertain timing or amount.A liability is a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits.An obligating event is an event that creates a legal or constructive obligation that results in an entity having no realistic alternative to settling that obligation.A legal obligation is an obligation that derives from:11. Provisions can be distinguished from other liabilities such as trade payables and accruals because there is uncertainty about the timing or amount of the future expenditure required in settlement. By contrast:
12. In a general sense, all provisions are contingent because they are uncertain in timing or amount. However, within this Standard the term 'contingent' is used for liabilities and assets that are not recognized because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. In addition, the term 'contingent liability' is used for liabilities that do not meet the recognition criteria.
13. This Standard distinguishes between:
14. A provision shall be recognized when:
15. In rare cases, it is not clear whether there is a present obligation. In these cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the end of the reporting period.
16. In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a lawsuit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an entity determines whether a present obligation exists at the end of the reporting period by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the reporting period. On the basis of such evidence:
17. A past event that leads to a present obligation is called an obligating event. For an event to be an obligating event, it is necessary that the entity has no realistic alternative to settling the obligation created by the event. This is the case only:
18. Financial statements deal with the financial position of an entity at the end of its reporting period and not its possible position in the future. Therefore, no provision is recognized for costs that need to be incurred to operate in the future. The only liabilities recognized in an entity's balance sheet are those that exist at the end of the reporting period.
19. It is only those obligations arising from past events existing independently of an entity's future actions (i.e. the future conduct of its business) that are recognized as provisions. Examples of such obligations are penalties or clean-up costs for unlawful environmental damage, both of which would lead to an outflow of resources embodying economic benefits in settlement regardless of the future actions of the entity. Similarly, an entity recognises a provision for the decommissioning costs of an oil installation or a nuclear power station to the extent that the entity is obliged to rectify damage already caused. In contrast, because of commercial pressures or legal requirements, an entity may intend or need to carry out expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a certain type of factory). Because the entity can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognized.
20. An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the obligation is owed-indeed the obligation may be to the public at large. Because an obligation always involves a commitment to another party, it follows that a management or board decision does not give rise to a constructive obligation at the end of the reporting period unless the decision has been communicated before the end of the reporting period to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will discharge its responsibilities.
21. An event that does not give rise to an obligation immediately may do so at a later date, because of changes in the law or because an act (for example, a sufficiently specific public statement) by the entity gives rise to a constructive obligation. For example, when environmental damage is caused there may be no obligation to remedy the consequences. However, the causing of the damage will become an obligating event when a new law requires the existing damage to be rectified or when the entity publicly accepts responsibility for rectification in a way that creates a constructive obligation.
22. Where details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted as drafted. For the purpose of this Standard, such an obligation is treated as a legal obligation. Differences in circumstances surrounding enactment make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted.
Probable outflow of resources embodying economic benefits23. For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of [this Standard] [The interpretation of 'probable' in this Standard as 'more likely than not' does not necessarily apply in other Indian Accounting Standards.], an outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e. the probability that the event will occur is greater than the probability that it will not. Where it is not probable that a present obligation exists, an entity discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 86).
24. Where there are a number of similar obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognized (if the other recognition criteria are met).
Reliable estimate of the obligation25. The use of estimates is an essential part of the preparation of financial statements and does not undermine their reliability. This is especially true in the case of provisions, which by their nature are more uncertain than most other items in the balance sheet. Except in extremely rare cases, an entity will be able to determine a range of possible outcomes and can therefore make an estimate of the obligation that is sufficiently reliable to use in recognising a provision.
26. In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognized. That liability is disclosed as a contingent liability (see paragraph 86).
Contingent liabilities27. An entity shall not recognise a contingent liability.
28. A contingent liability is disclosed, as required by paragraph 86, unless the possibility of an outflow of resources embodying economic benefits is remote.
29. Where an entity is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability. The entity recognises a provision for the part of the obligation for which an outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made.
30. Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).
Contingent assets31. An entity shall not recognise a contingent asset.
32. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the entity. An example is a claim that an entity is pursuing through legal processes, where the outcome is uncertain.
33. Contingent assets are not recognized in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.
34. A contingent asset is disclosed, as required by paragraph 89, where an inflow of economic benefits is probable.
35. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognized in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, an entity discloses the contingent asset (see paragraph 89).
MeasurementBest estimate36. The amount recognized as a provision shall be the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.
37. The best estimate of the expenditure required to settle the present obligation is the amount that an entity would rationally pay to settle the obligation at the end of the reporting period or to transfer it to a third party at that time. It will often be impossible or prohibitively expensive to settle or transfer an obligation at the end of the reporting period. However, the estimate of the amount that an entity would rationally pay to settle or transfer the obligation gives the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.
38. The estimates of outcome and financial effect are determined by the judgement of the management of the entity, supplemented by experience of similar transactions and, in some cases, reports from independent experts. The evidence considered includes any additional evidence provided by events after the reporting period.
39. Uncertainties surrounding the amount to be recognized as a provision are dealt with by various means according to the circumstances. Where the provision being measured involves a large population of items, the obligation is estimated by weighting all possible outcomes by their associated probabilities. The name for this statistical method of estimation is 'expected value'. The provision will therefore be different depending on whether the probability of a loss of a given amount is, for example, 60 per cent or 90 per cent. Where there is a continuous range of possible outcomes, and each point in that range is as likely as any other, the mid-point of the range is used.
| Example |
| An entity sells goodswith a warranty under which customers are covered for the cost ofrepairs of any manufacturing defects that become apparent withinthe first six months after purchase. If minor defects weredetected in all products sold, repair costs of Rs. 1 millionwould result. If major defects were detected in all productssold, repair costs of Rs. 4 million would result. The entity'spast experience and future expectations indicate that, for thecoming year, 75 per cent of the goods sold will have no defects,20 per cent of the goods sold will have minor defects and 5 percent of the goods sold will have major defects. In accordancewith paragraph 24, an entity assesses the probability of anoutflow for the warranty obligations as a whole.The expected value ofthe cost of repairs is:(75% of nil) + (20% of 1m) + (5% of 4m) = Rs.400,000 |
40. Where a single obligation is being measured, the individual most likely outcome may be the best estimate of the liability. However, even in such a case, the entity considers other possible outcomes. Where other possible outcomes are either mostly higher or mostly lower than the most likely outcome, the best estimate will be a higher or lower amount. For example, if an entity has to rectify a serious fault in a major plant that it has constructed for a customer, the individual most likely outcome may be for the repair to succeed at the first attempt at a cost of Rs 1,000, but a provision for a larger amount is made if there is a significant chance that further attempts will be necessary.
41. The provision is measured before tax, as the tax consequences of the provision, and changes in it, are dealt with under Ind AS 12.
Risks and uncertainties42. The risks and uncertainties that inevitably surround many events and circumstances shall be taken into account in reaching the best estimate of a provision.
43. Risk describes variability of outcome. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgements under conditions of uncertainty, so that income or assets are not overstated and expenses or liabilities are not understated. However, uncertainty does not justify the creation of excessive provisions or a deliberate overstatement of liabilities. For example, if the projected costs of a particularly adverse outcome are estimated on a prudent basis, that outcome is not then deliberately treated as more probable than is realistically the case. Care is needed to avoid duplicating adjustments for risk and uncertainty with consequent overstatement of a provision.
44. Disclosure of the uncertainties surrounding the amount of the expenditure is made under paragraph 85(b).
Present value45. Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation.
46. Because of the time value of money, provisions relating to cash outflows that arise soon after the reporting period are more onerous than those where cash outflows of the same amount arise later. Provisions are therefore discounted, where the effect is material.
47. The discount rate (or rates) shall be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) shall not reflect risks for which future cash flow estimates have been adjusted.
Future events48. Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.
49. Expected future events may be particularly important in measuring provisions. For example, an entity may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognized reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence as to the technology that will be available at the time of the clean-up. Thus it is appropriate to include, for example, expected cost reductions associated with increased experience in applying existing technology or the expected cost of applying existing technology to a larger or more complex clean-up operation than has previously been carried out. However, an entity does not anticipate the development of a completely new technology for cleaning up unless it is supported by sufficient objective evidence.
50. The effect of possible new legislation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what legislation will demand and of whether it is virtually certain to be enacted and implemented in due course. In many cases sufficient objective evidence will not exist until the new legislation is enacted.
Expected disposal of assets51. Gains from the expected disposal of assets shall not be taken into account in measuring a provision.
52. Gains on the expected disposal of assets are not taken into account in measuring a provision, even if the expected disposal is closely linked to the event giving rise to the provision. Instead, an entity recognises gains on expected disposals of assets at the time specified by the Standard dealing with the assets concerned.
Reimbursements53. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset. The amount recognized for the reimbursement shall not exceed the amount of the provision.
54. In the statement of profit and loss, the expense relating to a provision may be presented net of the amount recognized for a reimbursement.
55. Sometimes, an entity is able to look to another party to pay part or all of the expenditure required to settle a provision (for example, through insurance contracts, indemnity clauses or suppliers' warranties). The other party may either reimburse amounts paid by the entity or pay the amounts directly.
56. In most cases the entity will remain liable for the whole of the amount in question so that the entity would have to settle the full amount if the third party failed to pay for any reason. In this situation, a provision is recognized for the full amount of the liability, and a separate asset for the expected reimbursement is recognized when it is virtually certain that reimbursement will be received if the entity settles the liability.
57. In some cases, the entity will not be liable for the costs in question if the third party fails to pay. In such a case the entity has no liability for those costs and they are not included in the provision.
58. As noted in paragraph 29, an obligation for which an entity is jointly and severally liable is a contingent liability to the extent that it is expected that the obligation will be settled by the other parties.
Changes in provisions59. Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed.
60. Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as borrowing cost.
Use of provisions61. A provision shall be used only for expenditures for which the provision was originally recognized.
62. Only expenditures that relate to the original provision are set against it. Setting expenditures against a provision that was originally recognized for another purpose would conceal the impact of two different events.
Application of the recognition and measurement rulesFuture operating losses63. Provisions shall not be recognized for future operating losses.
64. Future operating losses do not meet the definition of a liability in paragraph 10 and the general recognition criteria set out for provisions in paragraph 14.
65. An expectation of future operating losses is an indication that certain assets of the operation may be impaired. An entity tests these assets for impairment under Ind AS 36, Impairment of Assets.
Onerous contracts66. If an entity has a contract that is onerous, the present obligation under the contract shall be recognized and measured as a provision.
67. Many contracts (for example, some routine purchase orders) can be canceled without paying compensation to the other party, and therefore there is no obligation. Other contracts establish both rights and obligations for each of the contracting parties. Where events make such a contract onerous, the contract falls within the scope of this Standard and a liability exists which is recognized. Executory contracts that are not onerous fall outside the scope of this Standard.
68. This Standard defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.
69. Before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets dedicated to that contract (see Ind AS 36).
Restructuring70. The following are examples of events that may fall under the definition of restructuring:
71. A provision for restructuring costs is recognized only when the general recognition criteria for provisions set out in paragraph 14 are met. Paragraphs 72-83 set out how the general recognition criteria apply to restructurings.
72. A constructive obligation to restructure arises only when an entity:
73. Evidence that an entity has started to implement a restructuring plan would be provided, for example, by dismantling plant or selling assets or by the public announcement of the main features of the plan. A public announcement of a detailed plan to restructure constitutes a constructive obligation to restructure only if it is made in such a way and in sufficient detail (i.e. setting out the main features of the plan) that it gives rise to valid expectations in other parties such as customers, suppliers and employees (or their representatives) that the entity will carry out the restructuring.
74. For a plan to be sufficient to give rise to a constructive obligation when communicated to those affected by it, its implementation needs to be planned to begin as soon as possible and to be completed in a time frame that makes significant changes to the plan unlikely. If it is expected that there will be a long delay before the restructuring begins or that the restructuring will take an unreasonably long time, it is unlikely that the plan will raise a valid expectation on the part of others that the entity is at present committed to restructuring, because the time frame allows opportunities for the entity to change its plans.
75. A management or board decision to restructure taken before the end of the reporting period does not give rise to a constructive obligation at the end of the reporting period unless the entity has, before the end of the reporting period:
76. Although a constructive obligation is not created solely by a management decision, an obligation may result from other earlier events together with such a decision. For example, negotiations with employee representatives for termination payments, or with purchasers for the sale of an operation, may have been concluded subject only to board approval. Once that approval has been obtained and communicated to the other parties, the entity has a constructive obligation to restructure, if the conditions of paragraph 72 are met.
77. In some countries, the ultimate authority is vested in a board whose membership includes representatives of interests other than those of management (e.g. employees) or notification to such representatives may be necessary before the board decision is taken. Because a decision by such a board involves communication to these representatives, it may result in a constructive obligation to restructure.
78. No obligation arises for the sale of an operation until the entity is committed to the sale, i.e. there is a binding sale agreement.
79. Even when an entity has taken a decision to sell an operation and announced that decision publicly, it cannot be committed to the sale until a purchaser has been identified and there is a binding sale agreement. Until there is a binding sale agreement, the entity will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment, under Ind AS 36. When a sale is only part of a restructuring, a constructive obligation can arise for the other parts of the restructuring before a binding sale agreement exists.
80. A restructuring provision shall include only the direct expenditures arising from the restructuring, which are those that are both:
81. A restructuring provision does not include such costs as:
82. Identifiable future operating losses up to the date of a restructuring are not included in a provision, unless they relate to an onerous contract as defined in paragraph 10.
83. As required by paragraph 51, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring.
Disclosure84. For each class of provision, an entity shall disclose:
85. An entity shall disclose the following for each class of provision:
86. Unless the possibility of any outflow in settlement is remote, an entity shall disclose for each class of contingent liability at the end of the reporting period a brief description of the nature of the contingent liability and, where practicable:
87. In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfil the requirements of paragraphs 85(a) and (b) and 86(a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a single class amounts relating to normal warranties and amounts that are subject to legal proceedings.
88. Where a provision and a contingent liability arise from the same set of circumstances, an entity makes the disclosures required by paragraphs 84-86 in a way that shows the link between the provision and the contingent liability.
89. Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent assets at the end of the reporting period, and, where practicable, an estimate of their financial effect, measured using the principles set out for provisions in paragraphs 36-52.
90. It is important that disclosures for contingent assets avoid giving misleading indications of the likelihood of income arising.
91. Where any of the information required by paragraphs 86 and 89 is not disclosed because it is not practicable to do so, that fact shall be stated.
92. In extremely rare cases, disclosure of some or all of the information required by paragraphs 84-89 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.
[Transitional Provisions93. *
94. *
Effective date95. *
96. *
97. *
98. *
99. *
100. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraph 5 is amended and paragraph 6 is deleted. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[101 Omitted*102. Ind AS 116, amended paragraph 5. An entity shall apply that amendment when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Appendix ARights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation FundsThis Appendix is an integral part of the Ind AS.Background1. The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as 'decommissioning funds' or 'funds', is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as 'decommissioning'.
2. Contributions to these funds may be voluntary or required by regulation or law. The funds may have one of the following structures:
3. Such funds generally have the following features:
4. This Appendix applies to accounting in the financial statements of a contributor for interests arising from decommissioning funds that have both of the following features:
5. A residual interest in a fund that extends beyond a right to reimbursement, such as a contractual right to distributions once all the decommissioning has been completed or on winding up the fund, may be an equity instrument within the scope of Ind AS 109 and is not within the scope of this Appendix.
Issues6. The issues addressed in this Appendix are:
7. The contributor shall recognise its obligation to pay decommissioning costs as a liability and recognise its interest in the fund separately unless the contributor is not liable to pay decommissioning costs even if the fund fails to pay.
8. The contributor shall determine whether it has control or joint control of, or significant influence over, the fund by reference to Ind AS 110, Consolidated Financial Statements, Ind AS 111, Joint Arrangements, and Ind AS 28, Investments in Associates and Joint Ventures. If it does, the contributor shall account for its interest in the fund in accordance with those Standards.
9. If a contributor does not have control or joint control of, or significant influence over, the fund, the contributor shall recognise the right to receive reimbursement from the fund as a reimbursement in accordance with Ind AS 37. This reimbursement shall be measured at the lower of:
10. When a contributor has an obligation to make potential additional contributions, for example, in the event of the bankruptcy of another contributor or if the value of the investment assets held by the fund decreases to an extent that they are insufficient to fulfil the fund's reimbursement obligations, this obligation is a contingent liability that is within the scope of Ind AS 37. The contributor shall recognise a liability only if it is probable that additional contributions will be made.
Disclosure11. A contributor shall disclose the nature of its interest in a fund and any restrictions on access to the assets in the fund.
12. When a contributor has an obligation to make potential additional contributions that is not recognized as a liability (see paragraph 10), it shall make the disclosures required by paragraph 86 of Ind AS 37.
13. When a contributor accounts for its interest in the fund in accordance with paragraph 9, it shall make the disclosures required by paragraph 85(c) of Ind AS 37.
Appendix B[Liabilities arising from Participating in a Specific Market-Waste Electrical and Electronic Equipment] [This Appendix is in the context of European Union. However, if similar regulations exist in other countries including India the principles as enunciated in this Appendix shall apply.]This Appendix is an integral part of the Ind AS.Background1. Paragraph 17 of Ind AS 37 specifies that an obligating event is a past event that leads to a present obligation that an entity has no realistic alternative to settling.
2. Paragraph 19 of Ind AS 37 states that provisions are recognized only for 'obligations arising from past events existing independently of an entity's future actions'.
3. The European Union's Directive on Waste Electrical and Electronic Equipment (WE&EE), which regulates the collection, treatment, recovery and environmentally sound disposal of waste equipment, has given rise to questions about when the liability for the decommissioning of WE&EE should be recognized. The Directive distinguishes between 'new' and 'historical' waste and between waste from private households and waste from sources other than private households. New waste relates to products sold after 13 August 2005. All household equipment sold before that date is deemed to give rise to historical waste for the purposes of the Directive.
4. The Directive states that the cost of waste management for historical household equipment should be borne by producers of that type of equipment that are in the market during a period to be specified in the applicable legislation of each Member State (the measurement period). The Directive states that each Member State shall establish a mechanism to have producers contribute to costs proportionately 'e.g. in proportion to their respective share of the market by type of equipment.'
5. Several terms used in this Appendix such as 'market share' and 'measurement period' may be defined very differently in the applicable legislation of individual Member States. For example, the length of the measurement period might be a year or only one month. Similarly, the measurement of market share and the formulae for computing the obligation may differ in the various national legislations. However, all of these examples affect only the measurement of the liability, which is not within the scope of this Appendix.
Scope6. This Appendix provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under the EU Directive on WE&EE in respect of sales of historical household equipment.
7. This Appendix addresses neither new waste nor historical waste from sources other than private households. The liability for such waste management is adequately covered in Ind AS 37. However, if, in national legislation, new waste from private households is treated in a similar manner to historical waste from private households, the principles of this Appendix apply by reference to the hierarchy in paragraphs 10-12 of Ind AS 8. The Ind AS 8 hierarchy is also relevant for other regulations that impose obligations in a way that is similar to the cost attribution model specified in the EU Directive.
Issue8. This Appendix determines in the context of the decommissioning of WE&EE what constitutes the obligating event in accordance with paragraph 14(a) of Ind AS 37 for the recognition of a provision for waste management costs:
• the manufacture or sale of the historical household equipment?• participation in the market during the measurement period?• the incurrence of costs in the performance of waste management activities?Accounting Principles9. Participation in the market during the measurement period is the obligating event in accordance with paragraph 14(a) of Ind AS 37. As a consequence, a liability for waste management costs for historical household equipment does not arise as the products are manufactured or sold. Because the obligation for historical household equipment is linked to participation in the market during the measurement period, rather than to production or sale of the items to be disposed of, there is no obligation unless and until a market share exists during the measurement period. The timing of the obligating event may also be independent of the particular period in which the activities to perform the waste management are undertaken and the related costs incurred.
Appendix CLeviesThis Appendix is an integral part of the Ind AS.Background1. A Government may impose a levy on an entity. An issue arises when to recognise a liability to pay a levy that is accounted for in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.
Scope2. This Appendix addresses the accounting for a liability to pay a levy if that liability is within the scope of Ind AS 37. It also addresses the accounting for a liability to pay a levy whose timing and amount is certain.
3. This Appendix does not address the accounting for the costs that arise from recognising a liability to pay a levy. Entities should apply other Standards to decide whether the recognition of a liability to pay a levy gives rise to an asset or an expense.
4. For the purposes of this Appendix, a levy is an outflow of resources embodying economic benefits that is imposed by Governments on entities in accordance with legislation (i.e. laws and/or regulations), other than:
5. A payment made by an entity for the acquisition of an asset, or for the rendering of services under a contractual agreement with a Government, does not meet the definition of a levy.
6. An entity is not required to apply this Appendix to liabilities that arise from emissions trading schemes.
Issues7. To clarify the accounting for a liability to pay a levy, this Appendix addresses the following issues:
8. The obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation. For example, if the activity that triggers the payment of the levy is the generation of revenue in the current period and the calculation of that levy is based on the revenue that was generated in a previous period, the obligating event for that levy is the generation of revenue in the current period. The generation of revenue in the previous period is necessary, but not sufficient, to create a present obligation.
9. An entity does not have a constructive obligation to pay a levy that will be triggered by operating in a future period as a result of the entity being economically compelled to continue to operate in that future period.
10. The preparation of financial statements under the going concern assumption does not imply that an entity has a present obligation to pay a levy that will be triggered by operating in a future period.
11. The liability to pay a levy is recognized progressively if the obligating event occurs over a period of time (i.e. if the activity that triggers the payment of the levy, as identified by the legislation, occurs over a period of time). For example, if the obligating event is the generation of revenue over a period of time, the corresponding liability is recognized as the entity generates that revenue.
12. If an obligation to pay a levy is triggered when a minimum threshold is reached, the accounting for the liability that arises from that obligation shall be consistent with the principles established in paragraphs 8-14 of this Appendix (in particular, paragraphs 8 and 11). For example, if the obligating event is the reaching of a minimum activity threshold (such as a minimum amount of revenue or sales generated or outputs produced), the corresponding liability is recognized when that minimum activity threshold is reached.
13. An entity shall apply the same recognition principles in the interim financial report that it applies in the annual financial statements. As a result, in the interim financial report, a liability to pay a levy:
14. An entity shall recognise an asset if it has prepaid a levy but does not yet have a present obligation to pay that levy.
Appendix DReferences to matters contained in other Indian Accounting StandardsThis Appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and makes references to Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.1. The transitional provisions given in IAS 37 and IFRIC 5 and IFRIC 6 have not been given in Ind AS 37, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
2. Different terminology is used in this standard, e.g., term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss is used instead of 'Statement of comprehensive income'. Words 'approval of the financial statements for issue have been used instead of 'authorisation of the financial statements for issue' in the context of financial statements considered for the purpose of events after the reporting period.
3. [ The following paragraph numbers have been omitted in IAS 37. In order to maintain consistency with paragraph numbers of IAS 37, the paragraph numbers are retained in Ind AS 37:
4. [ Paragraphs 93-99 and 101 related to Transitional Provisions and Effective date given in IAS 37 have not been given in Ind AS 37, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards and paragraph related to Effective date are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 37, these paragraph numbers are retained in Ind AS 37.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Indian Accounting Standard (Ind AS) 38Intangible Assets(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)Objective1. The objective of this Standard is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Standard. This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. The Standard also specifies how to measure the carrying amount of intangible assets and requires specified disclosures about intangible assets.
Scope2. This Standard shall be applied in accounting for intangible assets, except:
3. 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:
4. Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both intangible and tangible elements should be treated under Ind AS 16, Property, Plant and Equipment, or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset.
5. This Standard applies to, among other things, expenditure on advertising, training, start-up, research and development activities. Research and development activities are directed to the development of knowledge. Therefore, although these activities may result in an asset with physical substance (e.g. a prototype), the physical element of the asset is secondary to its intangible component, i.e. the knowledge embodied in it.
6. [ Rights held by a lease under licensing agreements for items such as motion picture films, video recordings, plays, manuscripts, patents and copyrights are within the scope of this Standard and are excluded from the scope of Ind AS 116.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
7. Exclusions from the scope of a Standard may occur if activities or transactions are so specialised that they give rise to accounting issues that may need to be dealt with in a different way. Such issues arise in the accounting for expenditure on the exploration for, or development and extraction of, oil, gas and mineral deposits in extractive industries and in the case of insurance contracts. Therefore, this Standard does not apply to expenditure on such activities and contracts. However, this Standard applies to other intangible assets used (such as computer software), and other expenditure incurred (such as start-up costs), in extractive industries or by insurers.
7AA. The amortisation method specified in this Standard does not apply to an entity that opts to amortise the intangible assets arising from service concession arrangements in respect of toll roads recognized in the financial statements for the period ending immediately before the beginning of the first Ind AS reporting period as per the exception given in paragraph D22 of Appendix D to Ind AS 101.
Definitions8. The following terms are used in this Standard with the meanings specified:
Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.An asset is a resource:9. Entities frequently expend resources, or incur liabilities, on the acquisition, development, maintenance or enhancement of intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licences, intellectual property, market knowledge and trademarks (including brand names and publishing titles). Common examples of items encompassed by these broad headings are computer software, patents, copyrights, motion picture films, customer lists, mortgage servicing rights, fishing licences, import quotas, franchises, customer or supplier relationships, customer loyalty, market share and marketing rights.
10. Not all the items described in paragraph 9 meet the definition of an intangible asset, i.e. identifiability, control over a resource and existence of future economic benefits. If an item within the scope of this Standard does not meet the definition of an intangible asset, expenditure to acquire it or generate it internally is recognized as an expense when it is incurred. However, if the item is acquired in a business combination, it forms part of the goodwill recognized at the acquisition date (see paragraph 68).
Identifiability11. The definition of an intangible asset requires an intangible asset to be identifiable to distinguish it from goodwill. Goodwill recognized in a business combination is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. The future economic benefits may result from synergy between the identifiable assets acquired or from assets that, individually, do not qualify for recognition in the financial statements.
12. An asset is identifiable if it either:
13. An entity controls an asset if the entity has the power to obtain the future economic benefits flowing from the underlying resource and to restrict the access of others to those benefits. The capacity of an entity to control the future economic benefits from an intangible asset would normally stem from legal rights that are enforceable in a court of law. In the absence of legal rights, it is more difficult to demonstrate control. However, legal enforceability of a right is not a necessary condition for control because an entity may be able to control the future economic benefits in some other way.
14. Market and technical knowledge may give rise to future economic benefits. An entity controls those benefits if, for example, the knowledge is protected by legal rights such as copyrights, a restraint of trade agreement (where permitted) or by a legal duty on employees to maintain confidentiality.
15. An entity may have a team of skilled staff and may be able to identify incremental staff skills leading to future economic benefits from training. The entity may also expect that the staff will continue to make their skills available to the entity. However, an entity usually has insufficient control over the expected future economic benefits arising from a team of skilled staff and from training for these items to meet the definition of an intangible asset. For a similar reason, specific management or technical talent is unlikely to meet the definition of an intangible asset, unless it is protected by legal rights to use it and to obtain the future economic benefits expected from it, and it also meets the other parts of the definition.
16. An entity may have a portfolio of customers or a market share and expect that, because of its efforts in building customer relationships and loyalty, the customers will continue to trade with the entity. However, in the absence of legal rights to protect, or other ways to control, the relationships with customers or the loyalty of the customers to the entity, the entity usually has insufficient control over the expected economic benefits from customer relationships and loyalty for such items (e.g. portfolio of customers, market shares, customer relationships and customer loyalty) to meet the definition of intangible assets. In the absence of legal rights to protect customer relationships, exchange transactions for the same or similar non-contractual customer relationships (other than as part of a business combination) provide evidence that the entity is nonetheless able to control the expected future economic benefits flowing from the customer relationships. Because such exchange transactions also provide evidence that the customer relationships are separable, those customer relationships meet the definition of an intangible asset.
Future economic benefits17. The future economic benefits flowing from an intangible asset may include revenue from the sale of products or services, cost savings, or other benefits resulting from the use of the asset by the entity. For example, the use of intellectual property in a production process may reduce future production costs rather than increase future revenues.
Recognition and measurement18. The recognition of an item as an intangible asset requires an entity to demonstrate that the item meets:
19. Paragraphs 25-32 deal with the application of the recognition criteria to separately acquired intangible assets, and paragraphs 33-43 deal with their application to intangible assets acquired in a business combination. Paragraph 44 deals with the initial measurement of intangible assets acquired by way of a Government grant, paragraphs 45-47 with exchanges of intangible assets, and paragraphs 48-50 with the treatment of internally generated goodwill. Paragraphs 51-67 deal with the initial recognition and measurement of internally generated intangible assets.
20. The nature of intangible assets is such that, in many cases, there are no additions to such an asset or replacements of part of it. Accordingly, most subsequent expenditures are likely to maintain the expected future economic benefits embodied in an existing intangible asset rather than meet the definition of an intangible asset and the recognition criteria in this Standard. In addition, it is often difficult to attribute subsequent expenditure directly to a particular intangible asset rather than to the business as a whole. Therefore, only rarely will subsequent expenditure-expenditure incurred after the initial recognition of an acquired intangible asset or after completion of an internally generated intangible asset-be recognized in the carrying amount of an asset. Consistently with paragraph 63, subsequent expenditure on brands, mastheads, publishing titles, customer lists and items similar in substance (whether externally acquired or internally generated) is always recognized in profit or loss as incurred. This is because such expenditure cannot be distinguished from expenditure to develop the business as a whole.
21. An intangible asset shall be recognized if, and only if:
22. An entity shall assess the probability of expected future economic benefits using reasonable and supportable assumptions that represent management's best estimate of the set of economic conditions that will exist over the useful life of the asset.
23. An entity uses judgement to assess the degree of certainty attached to the flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial recognition, giving greater weight to external evidence.
24. An intangible asset shall be measured initially at cost.
Separate acquisition25. Normally, the price an entity pays to acquire separately an intangible asset will reflect expectations about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in paragraph 21(a) is always considered to be satisfied for separately acquired intangible assets.
26. In addition, the cost of a separately acquired intangible asset can usually be measured reliably. This is particularly so when the purchase consideration is in the form of cash or other monetary assets.
27. The cost of a separately acquired intangible asset comprises:
28. Examples of directly attributable costs are:
29. Examples of expenditures that are not part of the cost of an intangible asset are:
30. Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an intangible asset are not included in the carrying amount of that asset. For example, the following costs are not included in the carrying amount of an intangible asset:
31. Some operations occur in connection with the development of an intangible asset, but are not necessary to bring the asset to the condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the development activities. Because incidental operations are not necessary to bring an asset to the condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognized immediately in profit or loss, and included in their respective classifications of income and expense.
32. If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price equivalent. The difference between this amount and the total payments is recognized as interest expense over the period of credit unless it is capitalised in accordance with Ind AS 23, Borrowing Costs.
Acquisition as part of a business combination33. In accordance with Ind AS 103, Business Combinations, if an intangible asset is acquired in a business combination, the cost of that intangible asset is its fair value at the acquisition date. The fair value of an intangible asset will reflect market participants' expectations at the acquisition date about the probability that the expected future economic benefits embodied in the asset will flow to the entity. In other words, the entity expects there to be an inflow of economic benefits, even if there is uncertainty about the timing or the amount of the inflow. Therefore, the probability recognition criterion in paragraph 21(a) is always considered to be satisfied for intangible assets acquired in business combinations. If an asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. Thus, the reliable measurement criterion in paragraph 21(b) is always considered to be satisfied for intangible assets acquired in business combinations.
34. In accordance with this Standard and Ind AS 103, an acquirer recognises at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognized by the acquiree before the business combination. This means that the acquirer recognises as an asset separately from goodwill an in-process research and development project of the acquiree if the project meets the definition of an intangible asset. An acquiree's in-process research and development project meets the definition of an intangible asset when it:
35. If an intangible asset acquired in a business combination is separable or arises from contractual or other legal rights, sufficient information exists to measure reliably the fair value of the asset. When, for the estimates used to measure an intangible asset's fair value, there is a range of possible outcomes with different probabilities that uncertainty enters into the measurement of the asset's fair value.
36. An intangible asset acquired in a business combination might be separable, but only together with a related contract, identifiable asset or liability. In such cases, the acquirer recognises the intangible asset separately from goodwill, but together with the related item.
37. The acquirer may recognise a group of complementary intangible assets as a single asset provided the individual assets have similar useful lives. For example, the terms 'brand' and 'brand name' are often used as synonym for trademarks and other marks. However, the former are general marketing terms that are typically used to refer to a group of complimentary assets such as a trademark (or service mark) and its related trade name, formulas, recipes and technological expertise.
38.
-41. [Refer Appendix 1]Subsequent expenditure on an acquired in-process research and development project42. Research or development expenditure that:
43. Applying the requirements in paragraphs 54-62 means that subsequent expenditure on an in-process research or development project acquired separately or in a business combination and recognized as an intangible asset is:
44. [ In some cases, an intangible asset may be acquired free of charge, or for nominal consideration, by way of a Government grant. This may happen when a Government transfers or allocates to an entity intangible assets such as airport landing rights, licences to operate radio or television stations, import licences or quotas or rights to access other restricted resources. In accordance with Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance, an entity may choose to recognise both the intangible asset and the grant initially at fair value. If an entity chooses not to recognise the asset initially at fair value, the entity recognises the asset initially at a nominal amount (the other treatment permitted by Ind AS 20) plus any expenditure that is directly attributable to preparing the asset for its intended use.] [Substituted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
45. One or more intangible assets may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an intangible asset is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.
46. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:
47. Paragraph 21(b) specifies that a condition for the recognition of an intangible asset is that the cost of the asset can be measured reliably. The fair value of an intangible asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident.
Internally generated goodwill48. Internally generated goodwill shall not be recognized as an asset.
49. In some cases, expenditure is incurred to generate future economic benefits, but it does not result in the creation of an intangible asset that meets the recognition criteria in this Standard. Such expenditure is often described as contributing to internally generated goodwill. Internally generated goodwill is not recognized as an asset because it is not an identifiable resource (i.e. it is not separable nor does it arise from contractual or other legal rights) controlled by the entity that can be measured reliably at cost.
50. Differences between the fair value of an entity and the carrying amount of its identifiable net assets at any time may capture a range of factors that affect the fair value of the entity. However, such differences do not represent the cost of intangible assets controlled by the entity.
Internally generated intangible assets51. It is sometimes difficult to assess whether an internally generated intangible asset qualifies for recognition because of problems in:
52. To assess whether an internally generated intangible asset meets the criteria for recognition, an entity classifies the generation of the asset into:
53. If an entity cannot distinguish the research phase from the development phase of an internal project to create an intangible asset, the entity treats the expenditure on that project as if it were incurred in the research phase only.
Research phase54. No intangible asset arising from research (or from the research phase of an internal project) shall be recognized. Expenditure on research (or on the research phase of an internal project) shall be recognized as an expense when it is incurred.
55. In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Therefore, this expenditure is recognized as an expense when it is incurred.
56. Examples of research activities are:
57. An intangible asset arising from development (or from the development phase of an internal project) shall be recognized if, and only if, an entity can demonstrate all of the following:
58. In the development phase of an internal project, an entity can, in some instances, identify an intangible asset and demonstrate that the asset will generate probable future economic benefits. This is because the development phase of a project is further advanced than the research phase.
59. Examples of development activities are:
60. To demonstrate how an intangible asset will generate probable future economic benefits, an entity assesses the future economic benefits to be received from the asset using the principles in Ind AS 36, Impairment of Assets. If the asset will generate economic benefits only in combination with other assets, the entity applies the concept of cash-generating units in Ind AS 36.
61. Availability of resources to complete, use and obtain the benefits from an intangible asset can be demonstrated by, for example, a business plan showing the technical, financial and other resources needed and the entity's ability to secure those resources. In some cases, an entity demonstrates the availability of external finance by obtaining a lender's indication of its willingness to fund the plan.
62. An entity's costing systems can often measure reliably the cost of generating an intangible asset internally, such as salary and other expenditure incurred in securing copyrights or licences or developing computer software.
63. Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognized as intangible assets.
64. Expenditure on internally generated brands, mastheads, publishing titles, customer lists and items similar in substance cannot be distinguished from the cost of developing the business as a whole. Therefore, such items are not recognized as intangible assets.
Cost of an internally generated intangible asset65. The cost of an internally generated intangible asset for the purpose of paragraph 24 is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria in paragraphs 21, 22 and 57. Paragraph 71 prohibits reinstatement of expenditure previously recognized as an expense.
66. The cost of an internally generated intangible asset comprises all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by management. Examples of directly attributable costs are:
67. The following are not components of the cost of an internally generated intangible asset:
| Example illustrating paragraph 65 |
| An entity isdeveloping a new production process. During 20X5, expenditureincurred was Rs.1,000, of which Rs.900 was incurred before 1December 20X5 and Rs.100 was incurred between 1 December 20X5 and31 December 20X5. The entity is able to demonstrate that, at 1December 20X5, the production process met the criteria forrecognition as an intangible asset. The recoverable amount of theknow-how embodied in the process (including future cash outflowsto complete the process before it is available for use) isestimated to be Rs.500.At the end of20X5, the production process is recognized as an intangible assetat a cost of Rs.100 (expenditure incurred since the date when therecognition criteria were met, i.e. 1 December 20X5). The Rs.900expenditure incurred before 1 December 20X5 is recognized as anexpense because the recognition criteria were not met until 1December 20X5. This expenditure does not form part of the cost ofthe production process recognized in the balance sheet.During 20X6,expenditure incurred is Rs.2,000. At the end of 20X6, therecoverable amount of the know-how embodied in the process(including future cash outflows to complete the process before itis available for use) is estimated to be Rs.1,900.At the end of 20X6, the cost of theproduction process is Rs.2,100 (Rs.100 expenditure recognized atthe end of 20X5 plus Rs.2,000 expenditure recognized in 20X6).The entity recognises an impairment loss of Rs.200 to adjust thecarrying amount of the process before impairment loss (Rs.2,100)to its recoverable amount (Rs.1,900). This impairment loss willbe reversed in a subsequent period if the requirements for thereversal of an impairment loss in Ind AS 36 are met. |
68. Expenditure on an intangible item shall be recognized as an expense when it is incurred unless:
69. In some cases, expenditure is incurred to provide future economic benefits to an entity, but no intangible asset or other asset is acquired or created that can be recognized. In the case of the supply of goods, the entity recognises such expenditure as an expense when it has a right to access those goods. In the case of the supply of services, the entity recognises the expenditure as an expense when it receives the services. For example, expenditure on research is recognized as an expense when it is incurred (see paragraph 54), except when it is acquired as part of a business combination. Other examples of expenditure that is recognized as an expense when it is incurred include:
69A. An entity has a right to access goods when it owns them. Similarly, it has a right to access goods when they have been constructed by a supplier in accordance with the terms of a supply contract and the entity could demand delivery of them in return for payment. Services are received when they are performed by a supplier in accordance with a contract to deliver them to the entity and not when the entity uses them to deliver another service, for example, to deliver an advertisement to customers.
70. Paragraph 68 does not preclude an entity from recognising a prepayment as an asset when payment for goods has been made in advance of the entity obtaining a right to access those goods. Similarly, paragraph 68 does not preclude an entity from recognising a prepayment as an asset when payment for services has been made in advance of the entity receiving those services.
Past expenses not to be recognized as an asset71. Expenditure on an intangible item that was initially recognized as an expense shall not be recognized as part of the cost of an intangible asset at a later date.
Measurement after recognition72. An entity shall choose either the cost model in paragraph 74 or the revaluation model in paragraph 75 as its accounting policy. If an intangible asset is accounted for using the revaluation model, all the other assets in its class shall also be accounted for using the same model, unless there is no active market for those assets.
73. A class of intangible assets is a grouping of assets of a similar nature and use in an entity's operations. The items within a class of intangible assets are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements representing a mixture of costs and values as at different dates.
Cost model74. After initial recognition, an intangible asset shall be carried at its cost less any accumulated amortisation and any accumulated impairment losses.
Revaluation model75. After initial recognition, an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. For the purpose of revaluations under this Standard, fair value shall be measured by reference to an active market. Revaluations shall be made with such regularity that at the end of the reporting period the carrying amount of the asset does not differ materially from its fair value.
76. The revaluation model does not allow:
77. [ The revaluation model is applied after an asset has been initially recognised at cost. However, if only part of the cost of an intangible asset is recognised as an asset because the asset did not meet the criteria for recognition until part of the way through the process (see paragraph 65), the revaluation model may be applied to the whole of that asset. Also, the revaluation model may be applied to an intangible asset that was received by way of a Government grant and recognised at a nominal amount (see paragraph 44).] [Substituted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
78. It is uncommon for an active market to exist for an intangible asset, although this may happen. For example, in some jurisdictions, an active market may exist for freely transferable taxi licences, fishing licences or production quotas. However, an active market cannot exist for brands, newspaper mastheads, music and film publishing rights, patents or trademarks, because each such asset is unique. Also, although intangible assets are bought and sold, contracts are negotiated between individual buyers and sellers, and transactions are relatively infrequent. For these reasons, the price paid for one asset may not provide sufficient evidence of the fair value of another. Moreover, prices are often not available to the public.
79. The frequency of revaluations depends on the volatility of the fair values of the intangible assets being revalued. If the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is necessary. Some intangible assets may experience significant and volatile movements in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for intangible assets with only insignificant movements in fair value.
80. When an intangible asset is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:
81. If an intangible asset in a class of revalued intangible assets cannot be revalued because there is no active market for this asset, the asset shall be carried at its cost less any accumulated amortisation and impairment losses.
82. If the fair value of a revalued intangible asset can no longer be measured by reference to an active market, the carrying amount of the asset shall be its revalued amount at the date of the last revaluation by reference to the active market less any subsequent accumulated amortisation and any subsequent accumulated impairment losses.
83. The fact that an active market no longer exists for a revalued intangible asset may indicate that the asset may be impaired and that it needs to be tested in accordance with Ind AS 36.
84. If the fair value of the asset can be measured by reference to an active market at a subsequent measurement date, the revaluation model is applied from that date.
85. If an intangible asset's carrying amount is increased as a result of a revaluation, the increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus. However, the increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss.
86. If an intangible asset's carrying amount is decreased as a result of a revaluation, the decrease shall be recognized in profit or loss. However, the decrease shall be recognized in other comprehensive income to the extent of any credit balance in the revaluation surplus in respect of that asset. The decrease recognized in other comprehensive income reduces the amount accumulated in equity under the heading of revaluation surplus.
87. The cumulative revaluation surplus included in equity may be transferred directly to retained earnings when the surplus is realised. The whole surplus may be realised on the retirement or disposal of the asset. However, some of the surplus may be realised as the asset is used by the entity; in such a case, the amount of the surplus realised is the difference between amortisation based on the revalued carrying amount of the asset and amortisation that would have been recognized based on the asset's historical cost. The transfer from revaluation surplus to retained earnings is not made through profit or loss.
Useful life88. An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if finite, the length of, or number of production or similar units constituting, that useful life. An intangible asset shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
89. The accounting for an intangible asset is based on its useful life. An intangible asset with a finite useful life is amortised (see paragraphs 97-106), and an intangible asset with an indefinite useful life is not (see paragraphs 107-110).
90. Many factors are considered in determining the useful life of an intangible asset, including:
91. The term 'indefinite' does not mean 'infinite'. The useful life of an intangible asset reflects only that level of future maintenance expenditure required to maintain the asset at its standard of performance assessed at the time of estimating the asset's useful life, and the entity's ability and intention to reach such a level. A conclusion that the useful life of an intangible asset is indefinite should not depend on planned future expenditure in excess of that required to maintain the asset at that standard of performance.
92. Given the history of rapid changes in technology, computer software and many other intangible assets are susceptible to technological obsolescence. Therefore, it will often be the case that their useful life is short. Expected future reductions in the selling price of an item that was produced using an intangible asset could indicate the expectation of technological or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset.
93. The useful life of an intangible asset may be very long or even indefinite. Uncertainty justifies estimating the useful life of an intangible asset on a prudent basis, but it does not justify choosing a life that is unrealistically short.
94. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the entity expects to use the asset. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is evidence to support renewal by the entity without significant cost. The useful life of a reacquired right recognized as an intangible asset in a business combination is the remaining contractual period of the contract in which the right was granted and shall not include renewal periods.
95. There may be both economic and legal factors influencing the useful life of an intangible asset. Economic factors determine the period over which future economic benefits will be received by the entity. Legal factors may restrict the period over which the entity controls access to these benefits. The useful life is the shorter of the periods determined by these factors.
96. Existence of the following factors, among others, indicates that an entity would be able to renew the contractual or other legal rights without significant cost:
97. The depreciable amount of an intangible asset with a finite useful life shall be allocated on a systematic basis over its useful life. Amortisation shall begin when the asset is available for use, i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognized. The amortisation method used shall reflect the pattern in which the asset's future economic benefits are expected to be consumed by the entity. If that pattern cannot be determined reliably, the straight-line method shall be used. The amortisation charge for each period shall be recognized in profit or loss unless this or another Standard permits or requires it to be included in the carrying amount of another asset.
98. A variety of amortisation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. The method used is selected on the basis of the expected pattern of consumption of the expected future economic benefits embodied in the asset and is applied consistently from period to period, unless there is a change in the expected pattern of consumption of those future economic benefits.
98A. There is a rebuttable presumption that an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate. The revenue generated by an activity that includes the use of an intangible asset typically reflects factors that are not directly linked to the consumption of the economic benefits embodied in the intangible asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed. This presumption can be overcome only in the limited circumstances:
98B. In choosing an appropriate amortisation method in accordance with paragraph 98, an entity could determine the predominant limiting factor that is inherent in the intangible asset. For example, the contract that sets out the entity's rights over its use of an intangible asset might specify the entity's use of the intangible asset as a predetermined number of years (i.e. time), as a number of units produced or as a fixed total amount of revenue to be generated. Identification of such a predominant limiting factor could serve as the starting point for the identification of the appropriate basis of amortisation, but another basis may be applied if it more closely reflects the expected pattern of consumption of economic benefits.
98C. In the circumstance in which the predominant limiting factor that is inherent in an intangible asset is the achievement of a revenue threshold, the revenue to be generated can be an appropriate basis for amortisation. For example, an entity could acquire a concession to explore and extract gold from a gold mine. The expiry of the contract might be based on a fixed amount of total revenue to be generated from the extraction (for example, a contract may allow the extraction of gold from the mine until total cumulative revenue from the sale of gold reaches Rs.2 billion) and not be based on time or on the amount of gold extracted. In another example, the right to operate a toll road could be based on a fixed total amount of revenue to be generated from cumulative tolls charged (for example, a contract could allow operation of the toll road until the cumulative amount of tolls generated from operating the road reaches Rs.100 million). In the case in which revenue has been established as the predominant limiting factor in the contract for the use of the intangible asset, the revenue that is to be generated might be an appropriate basis for amortising the intangible asset, provided that the contract specifies a fixed total amount of revenue to be generated on which amortisation is to be determined.
99. Amortisation is usually recognized in profit or loss. However, sometimes the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the amortisation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the amortisation of intangible assets used in a production process is included in the carrying amount of inventories (see Ind AS 2, Inventories).
Residual value100. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless:
101. The depreciable amount of an asset with a finite useful life is determined after deducting its residual value. A residual value other than zero implies that an entity expects to dispose of the intangible asset before the end of its economic life.
102. An estimate of an asset's residual value is based on the amount recoverable from disposal using prices prevailing at the date of the estimate for the sale of a similar asset that has reached the end of its useful life and has operated under conditions similar to those in which the asset will be used. The residual value is reviewed at least at each financial year-end. A change in the asset's residual value is accounted for as a change in an accounting estimate in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors.
103. The residual value of an intangible asset may increase to an amount equal to or greater than the asset's carrying amount. If it does, the asset's amortisation charge is zero unless and until its residual value subsequently decreases to an amount below the asset's carrying amount.
Review of amortisation period and amortisation method104. The amortisation period and the amortisation method for an intangible asset with a finite useful life shall be reviewed at least at each financial year-end. If the expected useful life of the asset is different from previous estimates, the amortisation period shall be changed accordingly. If there has been a change in the expected pattern of consumption of the future economic benefits embodied in the asset, the amortisation method shall be changed to reflect the changed pattern. Such changes shall be accounted for as changes in accounting estimates in accordance with Ind AS 8.
105. During the life of an intangible asset, it may become apparent that the estimate of its useful life is inappropriate. For example, the recognition of an impairment loss may indicate that the amortisation period needs to be changed.
106. Over time, the pattern of future economic benefits expected to flow to an entity from an intangible asset may change. For example, it may become apparent that a diminishing balance method of amortisation is appropriate rather than a straight-line method. Another example is if use of the rights represented by a licence is deferred pending action on other components of the business plan. In this case, economic benefits that flow from the asset may not be received until later periods.
Intangible assets with indefinite useful lives107. An intangible asset with an indefinite useful life shall not be amortised.
108. In accordance with Ind AS 36, an entity is required to test an intangible asset with an indefinite useful life for impairment by comparing its recoverable amount with its carrying amount
109. The useful life of an intangible asset that is not being amortised shall be reviewed each period to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in an accounting estimate in accordance with Ind AS 8.
110. In accordance with Ind AS 36, reassessing the useful life of an intangible asset as finite rather than indefinite is an indicator that the asset may be impaired. As a result, the entity tests the asset for impairment by comparing its recoverable amount, determined in accordance with Ind AS 36, with its carrying amount, and recognising any excess of the carrying amount over the recoverable amount as an impairment loss.
Recoverability of the carrying amount-impairment losses111. To determine whether an intangible asset is impaired, an entity applies Ind AS 36. That Standard explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset and when it recognises or reverses an impairment loss.
Retirements and disposals112. An intangible asset shall be derecognized:
113. [ The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised (unless Ind AS 116 requires otherwise on a sale and leaseback). Gains shall not be classified as revenue.
114. The disposal of an intangible asset may occur in a variety of ways (e.g. by sale, by entering into a finance lease, or by donation). The date of disposal of an intangible asset is the date that the recipient obtains control of that asset in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115, Revenue from Contracts with Customers. Ind AS 116 applies to disposal by a sale and leaseback.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
115. If in accordance with the recognition principle in paragraph 21 an entity recognises in the carrying amount of an asset the cost of a replacement for part of an intangible asset, then it derecognises the carrying amount of the replaced part. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or internally generated.
115A. In the case of a reacquired right in a business combination, if the right is subsequently reissued (sold) to a third party, the related carrying amount, if any, shall be used in determining the gain or loss on reissue.
116. [ The amount of consideration to be included in the gain or loss arising from the derecognition of an intangible asset is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
117. Amortisation of an intangible asset with a finite useful life does not cease when the intangible asset is no longer used, unless the asset has been fully depreciated or is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105.
DisclosureGeneral118. An entity shall disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets:
119. A class of intangible assets is a grouping of assets of a similar nature and use in an entity's operations. Examples of separate classes may include:
120. An entity discloses information on impaired intangible assets in accordance with Ind AS 36 in addition to the information required by paragraph 118(e)(iii)-(v).
121. Ind AS 8 requires an entity to disclose the nature and amount of a change in an accounting estimate that has a material effect in the current period or is expected to have a material effect in subsequent periods. Such disclosure may arise from changes in:
122. An entity shall also disclose:
123. When an entity describes the factor(s) that played a significant role in determining that the useful life of an intangible asset is indefinite, the entity considers the list of factors in paragraph 90.
Intangible assets measured after recognition using the revaluation model124. If intangible assets are accounted for at revalued amounts, an entity shall disclose the following:
a. by class of intangible assets:125. It may be necessary to aggregate the classes of revalued assets into larger classes for disclosure purposes. However, classes are not aggregated if this would result in the combination of a class of intangible assets that includes amounts measured under both the cost and revaluation models.
Research and development expenditure126. An entity shall disclose the aggregate amount of research and development expenditure recognized as an expense during the period.
127. Research and development expenditure comprises all expenditure that is directly attributable to research or development activities (see paragraphs 66 and 67 for guidance on the type of expenditure to be included for the purpose of the disclosure requirement in paragraph 126).
Other information128. An entity is encouraged, but not required, to disclose the following information:
129. *
130. *
130A. *
130B. *
130C. *
130D. *
130E. *
130F. *
130G. *
130H. *
130I. *
130J. *
* Refer Appendix 1130K. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 3,114,116 and in Appendix A paragraph 6 are amended. An entity shall apply those amendments when it applies Ind AS 115.] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
[130L Ind AS 116 amended paragraphs 3, 6, 113 and 114. An entity shall apply those amendments when it applies Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Appendix AIntangible Assets-Web Site CostsThis appendix is an integral part of the Ind AS.Issue1. An entity may incur internal expenditure on the development and operation of its own web site for internal or external access. A web site designed for external access may be used for various purposes such as to promote and advertise an entity's own products and services, provide electronic services, and sell products and services. A web site designed for internal access may be used to store company policies and customer details, and search relevant information.
2. The stages of a web site's development can be described as follows:
3. Once development of a web site has been completed, the Operating stage begins. During this stage, an entity maintains and enhances the applications, infrastructure, graphical design and content of the web site.
4. When accounting for internal expenditure on the development and operation of an entity's own web site for internal or external access, the issues are:
5. This Appendix does not apply to expenditure on purchasing, developing, and operating hardware (e.g. web servers, staging servers, production servers and Internet connections) of a web site. Such expenditure is accounted for under Ind AS 16. Additionally, when an entity incurs expenditure on an Internet service provider hosting the entity's web site, the expenditure is recognized as an expense under paragraph 88 of Ind AS 1 and the Framework for the Preparation and Presentation of Financial Statements in accordance with Indian Accounting Standards issued by The Institute of Chartered Accountants of India when the services are received.
6. [ Ind AS 38 does not apply to intangible assets held by an entity for sale in the ordinary course of business (see Ind AS 2 and Ind AS 115) or leases of intangible assets accounted for in accordance with Ind AS 116. Accordingly, this Appendix does not apply to expenditure on the development or operation of a web site (or web site software) for sale to another entity or that is accounted for in accordance with Ind AS 116.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Accounting Principles7. An entity's own web site that arises from development and is for internal or external access is an internally generated intangible asset that is subject to the requirements of Ind AS 38.
8. A web site arising from development shall be recognized as an intangible asset if, and only if, in addition to complying with the general requirements described in paragraph 21 of Ind AS 38 for recognition and initial measurement, an entity can satisfy the requirements in paragraph 57 of Ind AS 38. In particular, an entity may be able to satisfy the requirement to demonstrate how its web site will generate probable future economic benefits in accordance with paragraph 57 (d) of Ind AS 38 when, for example, the web site is capable of generating revenues, including direct revenues from enabling orders to be placed. An entity is not able to demonstrate how a web site developed solely or primarily for promoting and advertising its own products and services will generate probable future economic benefits, and consequently all expenditure on developing such a web site shall be recognized as an expense when incurred.
9. Any internal expenditure on the development and operation of an entity's own web site shall be accounted for in accordance with Ind AS 38. The nature of each activity for which expenditure is incurred (e.g. training employees and maintaining the web site) and the web site's stage of development or post-development shall be evaluated to determine the appropriate accounting treatment. For example:
10. A web site that is recognized as an intangible asset under paragraph 8 of this Appendix shall be measured after initial recognition by applying the requirements of paragraphs 72-87 of Ind AS 38. The best estimate of a web site's useful life should be short.
Appendix BReferences to matters contained in other Indian Accounting StandardsThis appendix is an integral part of the Ind AS.This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 38, Intangible Assets.1. [ Appendix D, Service Concession Arrangements contained in Ind AS 115, Revenue from Contracts with Customers. [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
2. Appendix E, Service Concession Arrangements: Disclosures contained in Ind AS 115, Revenue from Contracts with Customers.]
[***] [Omitted '3. Appendix C, Determining whether an Arrangement contains a Lease, contained in Ind AS 17, Leases' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]4. Appendix B, Stripping Costs in the Production Phase of a Surface Mine, contained in Ind AS 16, Property, Plant and Equipment.
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 38 and the corresponding International Accounting Standard (IAS) 38, Intangible Assets, and SIC 32, Intangible Assets-Web Site Costs, issued by the International Accounting Standards Board.Comparison with IAS 38, Intangible Assets and SIC 321. [ ***.] [Omitted by Notification No. G.S.R. 903(E), dated 20.9.2018 (w.e.f. 16.2.2013).]
2. [ Paragraphs 129 to 130J related to transitional provisions and effective date have not been included in Ind AS 38 as transitional provisions given in IAS 38 have not been given in Ind AS 38, since all transitional provisions related to Ind ASs, wherever considered appropriate, have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, Firsttime Adoption of International Financial Reporting Standards and paragraphs related to Effective date are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 38, these paragraph numbers are retained in Ind AS 38.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
3. Different terminology is used in this standard, e.g., the term 'balance sheet' is used instead of 'Statement of financial position' and 'Statement of profit and loss' is used instead of 'Statement of comprehensive income'.
4. Paragraph 7AA has been inserted to scope out the entity that opts to amortise the intangible assets arising from service concession arrangements in respect of toll roads recognized in the financial statements for the period ending immediately before the beginning of the first Ind AS reporting period as per the exception given in paragraph D22 of Appendix D to Ind AS 101.
5. Following Paragraph numbers appear as 'Deleted' in IAS 38. In order to maintain consistency with paragraph numbers of IAS 38, the paragraph number have been retained in Ind AS 38.
6. Following references to Illustrative Examples which are not integral part of IAS 38 or SIC 32 have not been included in Ind AS 38:
1. The objective of this Standard is to prescribe the accounting treatment for investment property and related disclosure requirements.
Scope2. This Standard shall be applied in the recognition, measurement and disclosure of investment property.
[***] [Omitted '3.' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]4. This Standard does not apply to:
5. The following terms are used in this Standard with the meanings specified:
Carrying amount is the amount at which an asset is recognized in the balance sheet.Cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognized in accordance with the specific requirements of other Ind ASs, e.g. Ind AS 102, Share-based Payment.Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement).[Investment property is property (land or a building-or part of a building-or both) held (by the owner or by the lessee as a right-of-use asset) to earn rentals or for capital appreciation or both, rather than for:6. [Refer Appendix 1]
7. [ Investment property is held to earn rentals or for capital appreciation or both. Therefore, an investment property generates cash flows largely independently of the other assets held by an entity. This distinguishes investment property from owner-occupied property. The production or supply of goods or services (or the use of property for administrative purposes) generates cash flows that are attributable not only to property, but also to other assets used in the production or supply process. Ind AS 16 applies to owned owner-occupied property and Ind AS 116 applies to owner-occupied property held by a lessee as a right-of-use asset.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
8. The following are examples of investment property:
9. The following are examples of items that are not investment property and are therefore outside the scope of this Standard:
10. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), an entity accounts for the portions separately. If the portions could not be sold separately, the property is investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes.
11. In some cases, an entity provides ancillary services to the occupants of a property it holds. An entity treats such a property as investment property if the services are insignificant to the arrangement as a whole. An example is when the owner of an office building provides security and maintenance services to the lessees who occupy the building.
12. In other cases, the services provided are significant. For example, if an entity owns and manages a hotel, services provided to guests are significant to the arrangement as a whole. Therefore, an owner-managed hotel is owner-occupied property, rather than investment property.
13. It may be difficult to determine whether ancillary services are so significant that a property does not qualify as investment property. For example, the owner of a hotel sometimes transfers some responsibilities to third parties under a management contract. The terms of such contracts vary widely. At one end of the spectrum, the owner's position may, in substance, be that of a passive investor. At the other end of the spectrum, the owner may simply have outsourced day-to-day functions while retaining significant exposure to variation in the cash flows generated by the operations of the hotel.
14. Judgement is needed to determine whether a property qualifies as investment property. An entity develops criteria so that it can exercise that judgement consistently in accordance with the definition of investment property and with the related guidance in paragraphs 7-13. Paragraph 75(c) requires an entity to disclose these criteria when classification is difficult.
14A. Judgement is also needed to determine whether the acquisition of investment property is the acquisition of an asset or a group of assets or a business combination within the scope of Ind AS 103, Business Combinations. Reference should be made to Ind AS 103 to determine whether it is a business combination. The discussion in paragraphs 7-14 of this Standard relates to whether or not property is owner-occupied property or investment property and not to determining whether or not the acquisition of property is a business combination as defined in Ind AS 103. Determining whether a specific transaction meets the definition of a business combination as defined in Ind AS 103 and includes an investment property as defined in this Standard requires the separate application of both Standards.
15. In some cases, an entity owns property that is leased to, and occupied by, its parent or another subsidiary. The property does not qualify as investment property in the consolidated financial statements, because the property is owner-occupied from the perspective of the group. However, from the perspective of the entity that owns it, the property is investment property if it meets the definition in paragraph 5. Therefore, the lessor treats the property as investment property in its individual financial statements.
Recognition[16 An owned investment property shall be recognised as an asset when, and only when:17. An entity evaluates under this recognition principle all its investment property costs at the time they are incurred. These costs include costs incurred initially to acquire an investment property and costs incurred subsequently to add to, replace part of, or service a property.
18. Under the recognition principle in paragraph 16, an entity does not recognise in the carrying amount of an investment property the costs of the day-to-day servicing of such a property. Rather, these costs are recognized in profit or loss as incurred. Costs of day-to-day servicing are primarily the cost of labour and consumables, and may include the cost of minor parts. The purpose of these expenditures is often described as for the 'repairs and maintenance' of the property.
19. Parts of investment properties may have been acquired through replacement. For example, the interior walls may be replacements of original walls. Under the recognition principle, an entity recognises in the carrying amount of an investment property the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of this Standard.
[19A An investment property held by a lessee as a right-of-use asset shall be recognised in accordance with Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Measurement at recognition20. [ An owned investment property shall be measured initially at its cost. Transaction costs shall be included in the initial measurement.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
21. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. Directly attributable expenditure includes, for example, professional fees for legal services, property transfer taxes and other transaction costs.
22. [Refer Appendix 1]
23. The cost of an investment property is not increased by:
24. If payment for an investment property is deferred, its cost is the cash price equivalent. The difference between this amount and the total payments is recognized as interest expense over the period of credit.
[***] [Omitted '25 and 26' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]27. One or more investment properties may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an investment property is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired asset is measured in this way even if an entity cannot immediately derecognise the asset given up. If the acquired asset is not measured at fair value, its cost is measured at the carrying amount of the asset given up.
28. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:
29. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If the entity is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident.
29A. [ An investment property held by a lessee as a right-of-use asset shall be measured initially at its cost in accordance with Ind AS 116.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
Measurement after recognitionAccounting policy30. An entity shall adopt as its accounting policy the cost model prescribed in paragraph 56 to all of its investment property.
31. [Refer Appendix 1]
32. This Standard requires all entities to measure the fair value of investment property, for the purpose of disclosure even though they are required to follow the cost model. An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued.
32A.
-32C. [Refer Appendix 1]Fair value measurement33.
-35. [Refer Appendix 1]36.
-39. [Refer Appendix 1]40. When measuring the fair value of investment property in accordance with Ind AS 113, an entity shall ensure that the fair value reflects, among other things, rental income from current leases and other assumptions that market participants would use when pricing investment property under current market conditions.
40A. [ When a lessee measures fair value of an investment property that is held as a right-of-use asset, it shall measure the right-of-asset, and not the underlying property at fair value.] [Inserted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
41. [Refer Appendix 1]
42.
-47. [Refer Appendix 1]48. In exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the variability in the range of reasonable fair value measurements will be so great, and the probabilities of the various outcomes so difficult to assess, that the usefulness of a single measure of fair value is negated. This may indicate that the fair value of the property will not be reliably measurable on a continuing basis (see paragraph 53).
49.
-52. [Refer Appendix 1]Inability to measure fair value reliably53. There is a rebuttable presumption that an entity can reliably measure the fair value of an investment property on a continuing basis. However, in exceptional cases, there is clear evidence when an entity first acquires an investment property (or when an existing property first becomes investment property after a change in use) that the fair value of the investment property is not reliably measurable on a continuing basis. This arises when, and only when, the market for comparable properties is inactive (e.g. there are few recent transactions, price quotations are not current or observed transaction prices indicate that the seller was forced to sell) and alternative reliable measurements of fair value (for example, based on discounted cash flow projections) are not available. If an entity determines that the fair value of an investment property under construction is not reliably measurable but expects the fair value of the property to be reliably measurable when construction is complete, it shall measure the fair value of that investment property either when its fair value becomes reliably measurable or construction is completed (whichever is earlier). If an entity determines that the fair value of an investment property (other than an investment property under construction) is not reliably measurable on a continuing basis, the entity shall make the disclosures required by paragraphs 79(e)(i), (ii) and (iii).
53A. Once an entity becomes able to measure reliably the fair value of an investment property under construction for which the fair value was not previously measured, it shall measure the fair value of that property. Once construction of that property is complete, it is presumed that fair value can be measured reliably. If this is not the case, in accordance with paragraph 53, the entity shall make the disclosures required by paragraphs 79(e)(i), (ii) and (iii).
53B. The presumption that the fair value of investment property under construction can be measured reliably can be rebutted only on initial recognition. An entity that has measured the fair value of an item of investment property under construction may not conclude that the fair value of the completed investment property cannot be measured reliably.
54. In the exceptional cases when an entity is compelled, for the reason given in paragraph 53, to make the disclosures required by paragraphs 79(e)(i), (ii) and (iii), it shall determine the fair value of all its other investment property, including investment property under construction. In these cases, although an entity may make the disclosures required by paragraphs 79(e)(i), (ii) and (iii) for one investment property, the entity shall continue to determine the fair value of each of the remaining properties for disclosure required by paragraph 79(e).
55. If an entity has previously measured the fair value of an investment property, it shall continue to measure the fair value of that property until disposal (or until the property becomes owner-occupied property or the entity begins to develop the property for subsequent sale in the ordinary course of business) even if comparable market transactions become less frequent or market prices become less readily available.
Cost model56. [ After initial recognition, an entity shall measure investment property:
57. [ An entity shall transfer a property to, or from, investment property when, and only when, there is a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. In isolation, a change in management's intentions for the use of a property does not provide evidence of a change in use. Examples of evidence of a change in use include:
58. [ When an entity decides to dispose of an investment property without development, it continues to treat the property as an investment property until it is derecognised (eliminated from the balance sheet) and does not reclassify it as inventory. Similarly, if an entity begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property and is not reclassified as owner-occupied property during the redevelopment.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
59. Transfers between investment property, owner-occupied property and inventories do not change the carrying amount of the property transferred and they do not change the cost of that property for measurement or disclosure purposes.
60.
-65. [Refer Appendix 1]Disposals66. An investment property shall be derecognized (eliminated from the balance sheet) on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal.
67. [ The disposal of an investment property may be achieved by sale or by entering into a finance lease. The date of disposal for investment property that is sold is the date the recipient obtains control of the investment property in accordance with the requirements for determining when a performance obligation is satisfied in Ind AS 115. Ind AS 116 applies to a disposal effected by entering into a finance lease and to a sale and leaseback.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
68. If, in accordance with the recognition principle in paragraph 16, an entity recognises in the carrying amount of an asset the cost of a replacement for part of an investment property, it derecognises the carrying amount of the replaced part. A replaced part may not be a part that was depreciated separately. If it is not practicable for an entity to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.
[69. Gains or losses arising from the retirement or disposal of investment property shall be determined as the difference between the net disposal proceeds and the carrying amount of the asset and shall be recognised in profit or loss (unless Ind AS 116 requires otherwise on a sale and leaseback) in the period of the retirement or disposal.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]70. [ The amount of consideration to be included in the gain or loss arising from the derecognition of an investment property is determined in accordance with the requirements for determining the transaction price in paragraphs 47-72 of Ind AS 115. Subsequent changes to the estimated amount of the consideration included in the gain or loss shall be accounted for in accordance with the requirements for changes in the transaction price in Ind AS 115.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
71. An entity applies Ind AS 37 or other Standards, as appropriate, to any liabilities that it retains after disposal of an investment property.
72. Compensation from third parties for investment property that was impaired, lost or given up shall be recognized in profit or loss when the compensation becomes receivable.
73. Impairments or losses of investment property, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:
74. [ The disclosures below apply in addition to those in Ind AS 116. In accordance with Ind AS 116, the owner of an investment property provides lessors' disclosures about leases into which it has entered. A lessee that holds an investment property as a right-of-use asset provides lessees' disclosures as required by Ind AS 116 and lessors' disclosures as required by Ind AS 116 for any operating leases into which it has entered.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
75. An entity shall disclose:
76.
-78. [Refer Appendix 1]79. In addition to the disclosures required by paragraph 75, an entity shall disclose:
80. *
81. *
82. *
83. *
84. *
84A. *
[Ind AS 11684B. An entity applying Ind AS 116, and its related amendments to this Standard, for the first time shall apply the transition requirements in Appendix C of Ind AS 116 to its investment property held as right-of- use asset.] [Inserted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Transfers of investment property84C. Transfers of Investment Property (Amendments to Ind AS 40), amended paragraphs 57-58. An entity shall apply those amendments to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments (the date of initial application). At the date of initial application, an entity shall reassess the classification of property held at that date and, if applicable, reclassify property applying paragraphs 7-14 to reflect the conditions that exist at that date.
84D. Notwithstanding the requirements in paragraph 84C, an entity is permitted to apply the amendments to paragraphs 57-58 retrospectively in accordance with Ind AS 8 if, and only if, that is possible without the use of hindsight.
84E. If, in accordance with paragraph 84C, an entity reclassifies property at the date of initial application, the entity shall:
85. *
85A. *
85B. *
85C. *
85D. *
85E. As a consequence of issuance of Ind AS 115, Revenue from Contracts with Customers, paragraphs 3(b), 9, 67and 70 are amended. An entity shall apply those amendments when it applies Ind AS 115.
[85F Ind AS 116, amended the scope of Ind AS 40 by defining investment property to include both owned investment property and property held by a lessee as a right-of-use asset. Ind AS 116 amended paragraphs 5, 7, 8, 9, 16, 20, 56, 67, 69 and 74, added paragraphs 19A, 29A, 40A and 84B and its related heading and deleted paragraphs 3, 25 and 26. An entity shall apply those amendments when it applies Ind AS 116.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]* Refer Appendix 185G. Transfers of Investment Property (Amendments to Ind AS 40), amended paragraphs 57-58 and added paragraphs 84C-84E. An entity shall apply those amendments for annual periods beginning on or after 1st April, 2018.] [Substituted by Notification No. G.S.R. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]
Appendix 1Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 40 and the corresponding International Accounting Standard (IAS) 40, Investment Property, issued by the International Accounting Standards Board.Comparison with IAS 40, Investment Property1. [ IAS 40 permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40 permits only the cost model. The following paragraphs of IAS 40 which deal with fair value model have been deleted in Ind AS 40. In order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40:
2. The transitional provisions given in IAS 40 have not been included in Ind AS 40 since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.
3. IAS 40 requires disclosure of fair values of investment property when cost model is used. Since this requirement is retained in Ind AS 40, paragraphs 53, 53A, 53B, 54 and 55 and certain other paragraphs of IAS 40 have been modified. The modifications include deletion of reference to use of cost model when fair value measurement is unreliable.
[***] [Omitted '4' by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]5. [ As a result of prohibition of use of fair value model in Ind AS 40, there are some modifications in the wording of paragraphs 30 and 32 (Accounting policy), heading above paragraph 33 ('Fair value measurement' instead of 'Fair value model'), paragraph 40A, paragraph 56, paragraph 59 (deletion of portion relating to fair value model), paragraph 68 (deletion of a portion dealing with fair value model), heading above paragraph 74 (deletion of the heading 'Fair value model and cost model'), paragraph 75(a) (disclosure of accounting policy), heading above paragraph 76 (deletion of the heading 'Fair value model'), heading above paragraph 79 (deletion of the heading 'Cost model') and paragraph 79 (deletion of the words ' that applies the cost model in paragraph 56') as compared to the wording used in IAS 40.] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]
6. Different terminology is used in this Standard e.g., the term 'balance sheet' is used instead of 'Statement of financial position'.
7. [ The following paragraphs appear as 'Deleted' in IAS 40. In order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40:
8. [ Paragraphs 80 to 84A of IAS 40 which deals with the transitional provisions have not been included in Ind AS 40 as all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. Paragraphs 85 to 85D in IAS 40 have not been included in Ind AS 40 as these paragraphs relate to effective date which are not relevant in Indian context. However, in order to maintain consistency with paragraph numbers of IAS 40, the paragraph numbers are retained in Ind AS 40.
[***] [Inserted by Notification No. 310(E), dated 28.3.2018 (w.e.f. 16.2.2015).]] [Substituted by Notification No. G.S.R. 273(E), dated 30.3.2019 (w.e.f. 16.2.2015).]Indian Accounting Standard (Ind AS) 41Agriculture(The Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.ObjectiveThe objective of this Standard is to prescribe the accounting treatment and disclosures related to agricultural activity.Scope1. This Standard shall be applied to account for the following when they relate to agricultural activity:
2. This Standard does not apply to:
3. This Standard is applied to agricultural produce, which is the harvested produce of the entity's biological assets, at the point of harvest. Thereafter, Ind AS 2 Inventories or another applicable Standard is applied. Accordingly, this Standard does not deal with the processing of agricultural produce after harvest; for example, the processing of grapes into wine by a vintner who has grown the grapes. While such processing may be a logical and natural extension of agricultural activity, and the events taking place may bear some similarity to biological transformation, such processing is not included within the definition of agricultural activity in this Standard.
4. The table below provides examples of biological assets, agricultural produce, and products that are the result of processing after harvest:
| Biological assets | Agricultural produce | Products that are the result of processingafter harvest |
| Sheep | Wool | Yarn, carpet |
| Trees in a timber plantation | Felled Trees | Logs, lumber |
| Dairy Cattle | Milk | Cheese |
| Pigs | Carcass | Sausages, cured hams |
| Cotton plants | Harvested cotton | Thread, clothing |
| Sugarcane | Harvested cane | Sugar |
| Tobacco plants | Picked leaves | Cured tobacco |
| Tea bushes | Picked leaves | Tea |
| Grape vines | Picked grapes | Wine |
| Fruit trees | Picked fruit | Processed fruit |
| Oil palms | Picked fruit | Palm oil |
| Rubber trees | Harvested latex | Rubber products |
| Some plants, for example, tea bushes, grape vines,oil palms and rubber trees, usually meet the definition of abearer plant and are within the scope of Ind AS 16. However, theproduce growing on bearer plants, for example, tea leaves,grapes, oil palm fruit and latex, is within the scope of Ind AS41. |