INDIAN ACCOUNTING STANDARDS VSIFRS

Accounting

Standard 10

•Fixed Assets

COST COMPONENTS1The cost of an item of fixed asset comprises its purchase price, including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to its working condition for its intended use

2Administration and other general overhead expenses are usually excluded

3If the interval between the date a project is ready to commence commercial production and the date at which commercial production actually begins is prolonged, all expenses incurred during this period are charged to the profit and loss statement.

COST CONSIDERATIONS

Improvements and Repairs• Expenditure that increases the

future benefits from the existing asset is included in the gross book value, e.g an increase in capacity.

• The cost of an extension to an existing asset which is of a capital nature and which becomes an integral part of the existing asset is added to its gross book value.

Retirements & Disposals• An item of fixed asset is

eliminated from the financial statements on disposal.

• Items of fixed assets that have been retired from active use are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements.

Non-monetary Consideration• When a fixed asset is acquired in

exchange for shares, it is usually recorded at the fair market value of the asset or of the securities issued, whichever is more clearly evident.

• When a fixed asset is acquired in exchange for another asset, its cost is usually determined by reference to the fair market value of the consideration given.

Sp

ecial C

ases

•Where an enterprise owns fixed assets jointly, the extent of its share in such assets, and the proportion in the original cost, accumulated depreciation and written down value are stated in the balance sheet.•In the case of fixed assets acquired on hire, such assets are recorded at their cash value, which, if not readily available, is calculated by assuming an appropriate rate of interest.

Sp

ecial Typ

es

•Goodwill, in general, is recorded in the books only when some consideration in money or money’s worth has been paid for it.•As a matter of financial prudence, goodwill is written off over a period.

Disclos

ures

•gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements

•expenditure incurred on account of fixed assets in the course of construction or acquisition

•revalued amounts substituted for historical costs of fixed assets

International Accounting Standard 16

•Property, Plant and Equipment

IAS – 16

Property plant and equipment is initially measured at its cost using the cost model or revaluation model

Depreciation begins when the asset is available for use and continues until the asset is derecognised, even if it is idle

Any claim for compensation from third parties for impairment is included in profit or loss when the claim becomes receivable

The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, any change is accounted for prospectively

AS-10

AS 10 provides that only that expenditure which increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value, e.g., an increase in capacity.

specifically excludes accounting for real estate developers from its scope

IAS-16

Under IAS 16, if subsequent costs are incurred for replacement of a part of an item of fixed assets, such costs are required to be capitalized and simultaneously the replaced part has to be de-capitalized.

does not exclude real estate developers from its scope

IAS-16 AS-10

requires that the cost of major inspections should be capitalised with consequent derecognition of any remaining carrying amount of the cost of the previous inspection.

does not require that the cost of major inspections should be capitalized.

provides that gains arising on derecognition of an item of property, plant and equipment should not be treated as revenue

silent on this aspect.

specifically states that the cost of abnormal amounts of wasted material, labour, or other resources incurred in the construction of an asset is not included in the cost of the asset

while dealing with self-constructed fixed assets does not mention the same.

Accounting

Standard 11

•Foreign Exchange

FEATURES

In order to include foreign currency transactions and foreign operations in the

financial statements, transactions must be

expressed in the enterprise’s reporting currency.

Exchange differences arising on the settlement of monetary items or on reporting an enterprise’s monetary

items at rates different from those at which they were initially recorded during

the period, or reported in previous financial statements, should be

recognised as income or as expenses in the period in which they arise.

An exchange difference results when there is a change in the exchange rate between the

transaction date and the date of settlement of any monetary

items arising from a foreign currency transaction.

The method used to translate the financial statements of a foreign operation depends on the way in

which it is financed and operates in relation to the reporting enterprise. For this purpose, foreign operations

are classified as either “integral foreign operations” or “non-integral

foreign operations”.

INTEGRAL FOREIGN OPERATIONS1The

individual items in the financial statements of the foreign operation are translated as if all its transactions had been entered into by the reporting enterprise itself. The cost and depreciation of tangible fixed assets is translated using the exchange rate at the date of purchase of the asset. The cost of inventories is translated at the exchange rates that existed when those costs were incurred.

2For 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 unreliable.

NIFO1

NIFO generates assets, other sources of income and incurs expenses in local currency .

2

Change in exchange rate leave no direct effect on cash flows of reporting enterprise or on cash flows of NIFO Ex.For Hyundai,its Indian operations are NIFO for accounting purposes in its domicile country(South Korea)

PROCEDURE FOLLOWED IN INCORPORATING FINANCIAL STATEMENTS OF NIFO IN REPORTING

ENTERPRISEAssets and liabilities should be translated at closing rateEx. Goodwill, building, creditors etc.

Income and expenses should be translated at exchange rates prevalent at transaction date

Exchange differences should be transferred in foreign currency translation reserve

Opening net investment in NIFO should be translated at current exchange rate

DISCLOSURESEnterprise’s foreign currency risk management policy

reasons for using different currency from currency of domicile country of reporting enterprise,

the amount of exchange differences included in net

profit or loss of period

AS-11 VS IAS-21

IAS-21 AS-11

excludes from its scope forward exchange contracts and other similar financial instruments., which are treated in accordance with Ind AS 39 Financial Instruments: Recognition and Measurement.

does not make such exclusion.

based on the functional currency approach based on integral foreign operations and non-integral foreign operations approach

presentation currency can be different from local currency and it gives detailed guidance on this

does not explicitly states so

Accounting

Standard 12

•Government Grants

RECOGNITION1Governmen

t grants available to the enterprise are considered for inclusion in accounts:• where

there is reasonable assurance that the enterprise will comply with the conditions attached to them; and

• where such benefits have been earned by the enterprise and it is reasonably certain that the ultimate collection will be made.

2An appropriate amount in respect of such earned benefits, estimated on a prudent basis, is credited to income for the year even though the actual amount of such benefits may be finally settled and received after the end of the relevant accounting period.

METHODS OF PRESENTATION

Under one method, the grant is shown as a deduction from the gross value of the asset concerned in arriving at its

book value. The grant is thus recognised in the profit and

loss statement over the useful life of a depreciable asset by way of a reduced

depreciation charge.

Under the other method, grants related to

depreciable assets are treated as deferred income which is recognised in the

profit and loss statement on a systematic and rational

basis over the useful life of the asset.

REFUND

Sometimes become refundable because certain conditions are not fulfilled. A government grant that becomes refundable is treated as an extraordinary item

The amount refundable is applied first against any unamortised deferred credit remaining in respect of the grant. Otherwise the amount is charged immediately to profit and loss statement.

Grant related to a specific fixed asset is recorded by increasing the book value of the asset or by reducing the capital reserve or the deferred income balance, as appropriate, by the amount refundable

Where a grant becomes refundable, in part or in full, to the government on non-fulfilment of some specified conditions, the relevant amount recoverable by the government is reduced from the capital reserve

AS-12 VS IAS-20IFRS (IAS) Indian Standard

IAS gives an option to measure non-monetary government grants either at their fair value or at nominal value

Ind AS requires measurement of such grants only at their fair value

IAS gives an option to present the grants related to assets, including non-monetary grants at fair value 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

Ind AS requires presentation of such grants in balance sheet only by setting up the grant as deferred income

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 approaches 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.

Company Act

•Revised Schedule VI

LIABILITIES• Change in nomenclature - “Sources of Funds” has been replaced with “Equity &

Liabilities”

• Money received against Share Warrants has been specifically categorised as sub-head under “Shareholders Funds”

• Share Capital – Company would need to show in sub-head à Shares held more than 5% in company along with number of shares

• Under head Reserves and Surplus, new sub-heads have been added i.e. Debenture Redemption Reserve, Revaluation Reserve & Share Option Outstanding Account

• Debit Balance of P&L A/c shall now be shown as negative figure under head Surplus

• Share Application Money pending Allotment shall now be shown separately under Shareholders Funds

• Liabilities will now broadly be classified as• Current Liabilities &• Non Current Liabilities

• Deferred payment liabilities and loans & advances from related parties to be shown separately under head “Long term Borrowings”.

• Provisions to be classified as Short Term Provisions & Long Term Provisions

ASSETS• Change in nomenclature - “Application Of Funds” has been replaced with “Assets”• Fixed Assets to be further classified as

• Tangible• Non-Tangible

• Current Assets are to be shown under separate head.• While calculating “Gross Block” at year end, “Acquisitions through Business Combination” to be

included in computation• Investments carried at other than cost should be separately stated specifying the basis for

valuing them• “Sundry Debtors” have now been named “Trade Receivables”• “Cash and Bank Balances” have now been termed as “Cash and Cash Equivalents”.

Classification under this head has been completely revamped.• Inventories – Goods in transit shall be disclosed under the relevant sub-head of inventories• Misc expenditure (to the extent not written off or adjusted) shall now not be shown separately

under head “Other Current Assets”• The amount of Proposed Dividend to be distributed to shareholders (equity and preference) for

the period and amount per share to be disclosed separately

CHANGES IN PROFIT & LOSS A/C

• Under head “Other Income” -  Net gain/loss on foreign currency translation and transaction (other than finance cost) shall be disclosed separately.

• Employee benefit expense shall disclose additionally expense on account of Employee stock option scheme (ESOP)

• Following shall now be disclosed separately –• Provision for loss of Subsidiary companies• Net loss on sale of Investments• Details of exceptional and extraordinary items• Prior Period items• Adjustment to carrying amount of investments

• A new format has been issued for face reporting of Profit & Loss A/c.

IMPACT OF REVISION IN SCHEDULE VI

The Revised Schedule VI intends to familiarize

companies with Ind-AS/IFRS by using certain

concepts such as current/non-

current classification.

The revised Schedule VI has eliminated the

concept of schedules and such

information will now be provided in

the notes to accounts. This is as

done when applying IFRS.

From now on, the compliance requirements of Act and/or Accounting

standards will prevail over schedule VI.

Better presentation, disclosure is intended to

facilitate better organised data

for users of financial

statement.

THANK YOU!