chairman message...2019/07/01 · ca abhishek sharma, treasurer circ, ca lokesh kasat chairman...

Chairman Message

Our Institute has entered into its 70 year of its foundation.

During this glorious history of the Institute, it has become

the second largest professional body of Chartered

Accountants in the world. The Ahmedabad Branch has also

grown leaps and bounds in these years. We, by the level of

strength of membership, are one of the largest in the entire country and in the Central zone.

The CA Day, 1st of July is celebrated across all the offices of the institute. Jaipur Branch also

celebrates the same with unmatched zeal and enthusiasm. Various events were organized on 1

of July. This included Free Health & Medical Checkup Camp and Art Exhibition.

ICAI Flag hoisting was also organized. Blood donation camp at branch premises was also

organized. In this camp 935 units of blood collected.

Would like to end with a powerful thought – “We take inspiration from our past and

prepare a foundation at the present to ensure a strong future.” In the words of Ralph Waldo

Emerson, “Progress is the activity of today and the assurance of tomorrow.”

With Best Wishes

It gives me immense pleasure to share the July edition of newsletter

of Jaipur Branch.

The future depends on what we do in the present,’’ rightly said

Mahatma Gandhi, which is worth taking note of by Indian

accountancy profession, particularly in the present days of all-out

transition. “Nothing endures but change,” so also said Greek

philosopher Heraclitus. Indian accountancy profession too is on a

turning point. This change encompasses multiple fronts particularly

vis-a-vis technology. In the midst of all-round transition on business

and economic front, the Chartered Accountants are also grappling with hi-tech shift in both

professional and ordinary lives. Technology is transforming finance functions and the role of the

accountant.

In order to make the newsletter more resourceful, we need your support by way of

contribution of updates, useful suggestions, etc. I would request you to send your contributions

on the various topics. We will publish the best contribution at its own discretion.

I extend my sincere gratitude to the Editorial team for their hard work to publish this

newsletter in time.

Happy Reading!

With best regards

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1. Chartered Accountants Day Celebration (1st July 2019)

A. Flag Hoisting: On 1st July at the occasion of CA Day, a flag hoisting programme was organized at the branch.

The Flag of Institute was hoisted at Branch building by CA Lokesh Kasat, Chairman, Jaipur

branch along with managing committee members of the branch and senior members of the

profession at 9:00 a.m. CA Members and CA students were also present on this occasion. The

Chairman and other CA members expressed their views on the occasion. The programme was

convened by CA. Kuldeep Gupta, Secretary, Jaipur Branch. On this occasion CA. Abhishek

Sharma, Treasurer-CIRC, CA Sachin Kumar Jain, RCM & member CICASA-CIRC & CA. Dinesh

Kumar Jain, RCM-CIRC were also present.

B. Blood Donation:

In order to support social cause, Jaipur Branch organized a Mega Blood Donation camp in the

premises of Jaipur branch in association with Santokaba Durlabh ji Memorial Hospital, Jaipur,

Swasthya Kalyan Blood Bank, Jaipur, S K Soni Hospital, Jaipur, Shubham Blood Bank, SMS

Blood Bank & Suman Blood Bank Jaipur. Sh. Jagroop Singh Yadav (IAS), Collector Jaipur was

the Chief Guest. Sh. Gyan Prakash Gupta, District Judge-Jaipur, Sh. Ashok Lahoti, MLA

Sanganer-Jaipur were the special Guest. CA Members their family members and CA students

participated in this blood donation Camp. In this camp 935 units of blood collected. CA. Vijay

Kumar Jain was the Coordinator of this Blood Donation camp.

C. Free Health & Medical Check Up Camp

Jaipur Branch also organized free Health & Medical Check Up Camp in association with B. Lal

Lab, SRL Diagnostics and Prakratik Chikitsalaya. In this camp following checkup were organized.

BP check-up Dietician consultation Blood Sugar check up BMI Check up Physiotherapist consultation Doctors Consultation ECG Eye Dental Dietician

CA Members and students got the benefit of the same.

BRANCH ACTIVITY DURING THE MONTH OF JULY-2019

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D. Art Exhibition

Jaipur Branch also arranged ART EXHIBITION on the occasion of CA Day. In this Exhibition CA

Members & CA Students displayed painting, Sketch, Photography, Draft Designing and may

more items. CA Rohit Pradhan & CA Hemant Singh were the convenors of this exhibition.

BETI BACHAO BETI PADHAO (2.7.2019)

Jaipur Branch of CIRC of ICAI organized a program for BETI BACHAO BETI PADHAO Campaign

on 2nd July, 2019 at Balika Ashram, Gandhi Nagar, Jaipur under the CA Fortnight Celebration. In

this program Jaipur Branch of CIRC of ICAI free distributed Food Items, Cleanness Items etc. in

the Ashram. CA Lokesh Kasat Chairman Jaipur Branch & other Managing Committee Members

were present in the program.

Health Awareness Program with Fortis Hospital, Jaipur (3.7.2019) Jaipur Branch of CIRC of ICAI organized Health Awareness Talk with association of Fortis

Hospital, Jaipur at Training Hall, 1st Floor, Fortis Hospital, Jaipur on 3.7.2019 under the CA

fortnight Celebration. In this program Dr. Amit Kumar Singhal, Consultant – Interventional

Cardiology address the participants on the topic “Healthy Heart Mantra” & Dr. Tushar Kant

Sharma, Consultant – Psychiatry address the participants on the topic “Stress Management” CA

Sunil Agarwal was the convenor of this program. CA Abhishek Sharma, Treasurer CIRC, CA

Lokesh Kasat Chairman Jaipur Branch & CA Kuldeep Gupta, Secretary Jaipur Branch were

present in the program.

Career Counselling Program (4.7.2019)

Jaipur Branch of CIRC of ICAI organized Career Counselling program on 4.7.2019 at Tagore

Public School, Shastri Nagar, Jaipur & Maheshwari public School, Jawahar Nagar, Jaipur under

the CA fortnight Celebration. CA Lokesh kasat, Chairman Jaipur Branch explained in details

about of CA Course Structure and opportunity in Commerce to the participants.

2. Live Budget Telecast (5.7.2019)

Jaipur Branch of CIRC of ICAI made arrangement for viewing live budget at ICAI Bhawan on

5.7.2019 under the CA fortnight Celebration.

3. Tour to Lok Sabha (5.7.2019)

A special tour was organized by Jaipur Branch of CIRC of ICAI at Lok Sabha, New Delhi on

Union Budget Day i.e. 5th July, 2019.

A team of 56 members was constituted and they were present in the parliament at the time

when Hon’ble Finance Minister Mrs. Nirmala Sitharaman was presenting the Union Budget 2019-

20.

CA Lokesh Kasat, Chairman-Jaipur Branch, CA Kuldeep Gupta, Secretary-Jaipur Branch & CA

Sachin Kumar Jain, Regional Council Member, CIRC coordinated this tour.

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Esteem honour was received from Hon’ble Lok Sabha Speaker Shri Om Birla Ji and Shri

Ashok Lahoti Ji, MLA, (Sanganer) Jaipur

4. Half Day Seminar on Discussion On Union Budget (6.7.2019-3CPE)

Jaipur Branch of CIRC of ICAI organized Half Day Seminar on Discussion on Union Budget on

6.7.2019 at ICAI Bhawan, Jaipur under the CA Fortnight Celebration. CA Prakash Sharma,

Central Council Member-ICAI, CA. Sachin Kumar Jain, Regional Council Member & Member

CICASA-CIRC, CA. Lokesh Kasat, Chairman, Jaipur Branch, CA. Kuldeep Gupta, Secretary, Jaipur

Branch & and other Managing Committee Members Jaipur Branch inaugurated the programme

by lighting the lamp. CA Sanjay Jhanwar & Adv. Rahul Lakhwani were the eminent speaker of

this seminar. CA Sanjay Jhanwar discussed related to Direct Tax of the budget and Adv. Rahul

Lakhwani discussed related to Indirect Tax of the budget.

5. Tax Awareness Program at Various Social Areas (7.7.2019)

Jaipur Branch of CIRC of ICAI organized Tax Awareness program on 7.7.2019 at various social

areas of Jaipur under the CA Fortnight Celebration. All the managing Committee participated in

this program. They aware general citizen about tax slabs after presented of union budget 2019-

20.

6. GST Awareness Program (8.7.2019)

Jaipur Branch of CIRC of ICAI organized GST Awareness program on 8.7.2019 at various

Industries of Jaipur under the CA Fortnight Celebration. CA Anil Kumar Yadav, Vice Chairman,

Jaipur Branch explained in details about GST.

7. Half Day Seminar on Analysis on Union Budget 2019-20 (9.7.2019-3CPE)

Jaipur Branch of CIRC of ICAI organized Half Day Seminar on Analysis on Union Budget 2019-

20 on 9.7.2019 at ICAI Bhawan, Jaipur with the association of Federation of Indian

Chambers of Commerce and Industry (FICCI). CA Rajeev Sogani & CA Ujjval Sharma

were the eminent speakers of this seminar. CA Rajeev Sogani delivered the lecture on Analysis

related to Direct Taxes and CA Ujjval Sharma delivered the lecture on Analysis related to

Indirect Taxes. Mr. P K Singh, Principal Commissioner, CGST & Central Excise, Jaipur, Govt. of

Rajasthan was the Chief Guest of this program. CA Prakash Sharma, Central Council Member,

ICAI & CA Sachin Kumar Jain, RCM & Member CICASA-CIRC was also present in the program.

8. Seminar on Recent Changes in Income Tax Forms & Tax Audit Report for CA Students

(16.07.2019)

Jaipur Branch of CIRC of ICAI organized Seminar on Recent Changes in Income Tax

Forms & Tax Audit Report for CA Students on 16th July, 2019 at ICAI Bhawan, Jaipur.

CA. Lokesh Kasat & CA Vijay Kumar Agrawal, Chairman CICASA, Jaipur Branch

inaugurated the programme by lighting the lamp. CA Anoop Bhatia was the eminent

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speaker of the seminar. CA Anoop Bhatia delivered the lecture on above mentioned

subject during the seminar.

9. CA Students’ Talent Search 2019 (19 & 21 July, 2019)

Under the aegis of Board of Studies ICAI, Jaipur Branch of CIRC of ICAI organized CA

STUDENTS’ TALENT SEARCH-2019 for CA Student on 19th & 21st July, 2019 at ICAI Bhawan,

Jaipur. CA. Lokesh Kasat, Chairman, CA. Kuldeep Gupta, Secretary, CA. Vijay Kumar Agrawal,

Chairman CICASA and other Managing Committee Members Jaipur Branch inaugurated the

program (Branch Level) by lighting the lamp.

The following activities in this program:

ELOCUTION CONTEST (19.07.2019)

Elocution Contest (Branch Level) for CA Students organized on 18.07.2019 at Branch premises.

We received 60 entries from the CA Final/ IPCC students. They expressed their views on the

topics given below:-

Clean and Green India – Role of students.

Common defects in the financial statements of corporate entities.

Significant Changes in ITR Forms 2019: Towards increased disclosure requirements.

Artificial Intelligence: Adding unemployment woes?

iT win.

Start-up India: New industry in highly dynamic environment.

Independent Director – A crown of thorns.

CA. Aditi Banthia, CA Rupal Kumbhat & CA Sanjay Kumar Ghiya were the Judges of this

Elocution Contest.

Following contestants were declared winners :-

1. Ms. Yukti Sharma (Final) CRO0575163 2. Mr. Sandrakanti Pandey (IPC) CRO0618336

CA. Lokesh Kasat, Chairman Jaipur Branch, CA Kuldeep Gupta, Secretary & CA. Vijay Kumar

Agrawal, Chairman CICASA Jaipur Branch presented certificates to all the participants and

mementoes to the winners.

Quiz Contest (19.07.2019)

Quiz Contest (Branch Level) organised on 19.07.2019 at Branch Premises. Five teams Viz. A, B,

C, D and E were formed. Team No. E consisting of following participants was declared as the

Winner Team:-

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3. Mr. Akshat Goyal (IPC) CRO0622827 4. Mr. Keshav Khandelwal (FINAL) CRO0591932

CA Sanjay Kumar Maheshwari, CA Kamal Murarka & CA Amit Khandal were the Quiz Master.




Nukkad Drama (21.07.2019)

Nukkad Drema (Branch Level) organized on 21.07.19 at Branch Premises. We received 7 Team

entries (40 participants) from the CA Final/ IPCC students.

Following contestants were declared winners Team :-

1. Mr. Ayush Tibra (Final) CRO 0581386

2. Mr. Hitesh Dixit (Final) CRO 0593630

3. Mr. Vallabh Harsh (Final) CRO 0595110

4. Ms. Nitya Jain (Final) CRO 0602556

5. Mr. Vaibhav Mittal (Final) CRO 0609232

CA Prashant Agrawal, Sh. Raghav Tiwari & CA Saurabh Parasrampuria were the Judges




Instrumental Music (21.07.2019)

Instrumental Music Competition (Branch Level) organized on 21.07.19 at Branch Premises. In

this competition following contestants were declared winners:-

1. Mr. Vishesh Bhagat (Final) CRO0538646

2. Mr. Ankit Soni (Final) CRO0607709

Sh. Kushal Rawat, Sh. Akshay Sharma & CA Vibhor Agrawal were the Judges




Meeting on Compliance for NGO (27.07.2019-2CPE)

Jaipur Branch of CIRC of ICAI organized a S C Meeting on Compliance for NGO on

27.07.2019 at ICAI Bhawan, Jaipur. CA Om Prakash Rupani was the eminent speaker. CA Om

Prakash Rupani delivered the lecture on above subject during the programme. CA Niti Mantri

was the convenor of the meeting.

Designed & Compiled by : ITT Faculties of Jaipur Branch of ICAI

Sanjay Kishore Karni Singh Rathore

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IMPACT OF ADVENT OF IND AS 115 ON ACCOUNTING FOR REAL ESTATE

TRANSACTIONS-LONG TERM LEASE OF LAND

CA. Rupal Kumbhat I. EXECUTIVE SUMMARY:

he Guidance Note on Accounting for Real Estate Transactions(GN)

in the context of Ind AS 18 was an interim measure until Ind AS

115, Revenue from Contract with Customers, would come into

force, hence GN was formulated on the lines of the existing

Guidance Note on Accounting for Real Estate Transactions issued

by ICAI in 2012, incorporating therein the changes required

keeping in view the requirement of Indian Accounting Standards (Ind AS).

Advent of Ind AS 115 ushers in fundamental changes to the revenue

recognition approach vis-a-vis the current practice, in case of real estate

entities including long term land lease, with the withdrawal of GN and Ind AS

115 explicitly excluding lease of land from its ambit. Read on…

II. Background:

The Guidance Note used to recommend the accounting treatment by entities dealing in ‘Real Estate’ as sellers or developers. The term ‘real estate’ therein referred to land as well as buildings and rights in relation thereto and covered- Sale of plots of land (including lease of land on finance lease under Ind AS 17, Leases) without any development and (b) Sale of plots of land (including lease of land on finance lease under Ind AS 17, Leases) with development including development in the form of common facilities like laying of roads, drainage lines and water pipelines, electrical lines, sewage tanks, water storage tanks, sports facilities, gymnasium, club house, landscaping etc. It (GN) stipulated the accounting treatment for Sale of Land or Plots as under:

A. Sale of plots of land without any development Revenue from sale of land or plots should be recognized when all the conditions in paragraph 4.2 of the said GN are met.

B. Sale of developed plots: Where the development activity is significant and if the projects meet the criteria specified in paragraphs 3.3 and 5.1 of the said GN, the percentage completion method is used to account for such sales.

III. Changes ushered in by advent of Ind AS 115:

Consequent to withdrawal of Guidance note on real estate (Ind AS) issues

arises as to how long term lease of land where development activity is

T

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significant shall be accounted for? And how Ind AS 115 or Ind AS 17 will

operate in such cases?

Let’s first examine the constituents of such type of arrangements wherein land is given on long term lease and associated development activity is significant. The customer is required to pay lease premium at the time of execution of lease deed and lease rent on annual basis over a period of say 99 years. The lease premium amount is the market value of developed land that is, it has a component related to development activity, which say, in the given case is not yet completed and lease rent is nominal amount. The lease premium is non-refundable. At the end of the lease term, the lease could be extended for another term or the land could be returned to the government authority. Now in the given type of arrangement wherein land is given on long term lease and has associated significant development activity which is pending completion, there are two constituents: Land & Development activity; Let’s first look at Ind AS 115; “As per Para 5 of Ind AS 115 lease contracts within scope of Ind AS 17, Leases are

specifically excluded from its scope. Therefore such leases shall be accounted for as per

the lease provisions contained in Ind AS 17.”

Para 6 of Appendix C to Ind AS 17 states as under:

Determining whether an arrangement is, or contains, a lease shall be based on

the substance of the arrangement and requires an assessment of whether:

Now the question comes is whether the arrangement of

development activity to be undertaken in future is a

lease or not?

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(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. Applying the above principle to aforesaid arrangement, it can be inferred

that as the development activity is not dependent on the use of the asset

being Land in given case, thus such type of arrangement contain two

components, one which is lease of land and other elements being the

development activity.

Separating payments for the lease from other payments

In such cases para 12 to 14 of Appendix C to Ind AS 17 requires separating

payments for the lease from other payments and stipulates as under:

Para 12: 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. Para 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 (ie the right to use the asset) and exclude payments for other elements in the arrangement (eg for services and the cost of inputs).

Para 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.

In this regard Para 7 of IND AS 115 states as under: 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. (a) If the other Standards specify how to separate and/or initially measure one or more parts of the contract, then an entity shall

first apply the separation and/or measurement requirements in those Standards. An entity shall exclude from the transaction price the amount of the part (or parts) of the contract that are initially measured in accordance with other Standards and shall apply paragraphs 73–86 to allocate the amount of the transaction price that remains (if any) to each performance obligation within the scope of this Standard and to any other parts of the contract identified by paragraph 7(b).

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IV. Accounting Treatment

Let’s now look at how one (landowner-lessor) may account for such transaction of long term lease of land with pending substantial development activity;

Break whole consideration into two parts based on their fair values:

1. Land component: let’s examine the provisions of Ind AS 17 in respect of

classification of such arrangement:

Paragraph 4 of Ind AS 17, Leases, inter alia, provides as follows: “A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not be eventually be transferred. An operating lease is a lease other than a finance lease.” Further, paragraph 15A of Ind AS 17, states as follows:

“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.”

Therefore, one important consideration for evaluating lease of land is that land has an indefinite economic life and it is expected that the value of land generally appreciates.

Paragraphs 10 & 11 of Ind AS 17, Leases state as follows:

Inference: Such transactions may be

accounted for by breaking it into two components:

1. Land Component (To be accounted for as per Ind AS 17)

2. Development Component (To be accounted for as per Ind AS 115)

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“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. 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 equaling 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.”

In case of lease of land for 99 years and above, if it is likely that such leases meet the criteria that 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 then in this case, such lease will be classified as ‘finance lease’. Thus fair value of undeveloped land to be recognised as revenue upfront as per Ind AS 17 for finance lease and subsequently finance income will be recognised.

However, it may also be noted that land normally has an indefinite economic life. Where in substance there is no transfer of risks and

rewards, it should be considered as an operating lease. Accordingly the Land component would be accounted for in the books of the lessor.

2. Development Component: Consideration relatable to Development activity to be treated as per Ind AS 115 as linked to performance obligation to be satisfied over time, provided the criteria specified in Para 35 of the said Ind AS is satisfied, thus revenue to be recognised by measuring progress as per Input method (in other words POCM method as used erstwhile may continue to hold good for development component, if linkable to performance obligation)

Ins AS 115:Reasonable Performance:

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As per Para 44 and 45 of Ind AS 115, 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 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. There is a rebuttable presumption that reasonable measure of progress will be achieved when four conditions already prescribed under erstwhile guidance note will be met. Therefore in case of conditions not met which were prescribed under erstwhile guidance note, entity will recognise revenue at an amount equal to cost incurred.

Journey ahead: Applying the principles enumerated above requires careful examination of context and circumstances of a given arrangement and needs to be assessed 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.

So.

Before filling in the colors of pertinent Ind AS to the slate of context and circumstances of a given arrangement.

AUTHOR CA. Rupal Kumbhat

The Author is a member of ICAI and can be reached at [email protected]

References:

1. Compendium of ITFG Clarification Bulletins 2. Compendium of Ind AS 3. Educational Material on Ind AS

DECLARATION

It is hereby declared that the above article submitted by me is original and is not published/broadcasted/hosted elsewhere including any website. Only references disclosed above are used.

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chairman message...2019/07/01 · ca abhishek sharma, treasurer circ, ca lokesh kasat chairman...

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