GSTIndAS Edition 3, Feb 17

GSTIndAS
#Self Learning
GSTIndAS
#Self Learning
This is not just the collection of good thoughts on the subject GSTIndAS, but also an effort to start with a
new of way of learning and we call it Self Learning.
Insights:
 Team Spirit & Team Work
 Budget 2017-Highlights
 Latest Provisions under GST
 Overview of Model GST Law
 Coverage of complex topics under
IndAS
 New Topics
3rd Edition, Feb 17

2 | G S T I n d A S
Acknowledgement
First edition of the booklet was issued just after the launch of the group
GSTIndAS.
This issue being the third booklet in the series which includes more updations,
diversified topics and better presentations in terms of quality of content
offerings;
GST & IndAS both reflects something new and thus we call this as
CELEBRATE THE CHANGE.
All beautiful work does start from the scratch and to bring it in perfect shape
much efforts are required, here we extend our heartfelt thanks to
Ms. Nandini Taneja for her selfless service and editing the entire worksheet.
In the designing part a special thank is to be made to Mr. Sharad Dixit for his
excellent contribution in designing the cover and the structure of booklets.
Any product would be wasteful if it doesn’t reach the person for which it is
designed in particular, for this reason a thank is to be made to
Mr. Prateek Mohan Sharma for assisting in this role
A special thank is to be made to those who have came forward for sharing their
knowledge for this good cause.
And last but not the least, the person who is assisting us by not just his active
contribution but also through his guidance being CA Vineet Singhal.
We would like to extend our heartfelt thank to all of you.
CA HIMANSHU RASTOGI

3 | G S T I n d A S
ABOUT GSTIndAS
This country in which we live has given many brilliant minds for which we
don't even need to give any introduction.
We all know that in today's era, everything is linked with money &
education industry is no more an exception.
Coaching institutes, training institutes etc. are not only spoon feeding
monotonic knowledge but also forcing a rigid way of thinking which retards
development creating the atmosphere of fear WHICH NEEDS A CHANGE.
Here comes the role of our ancient scholars, the 'Eklavya' who set a great
example of self-learning, overcoming every difficulty coming on his way of
learning with a desire of becoming an expert in archery, and he did it.
That is what we want to do with this GSTIndAS; a new start to the
beginning that was made by our ancient tutors, start reading the content
and the knowledge is all yours.
We call this concept as Self Learning and this booklet is a part of that
motive.
Thank you,
Happy Learning..!!
With Regards
CA HIMANSHU RASTOGI

4 | G S T I n d A S
INSIDE
Team work & Team Spirit.......................................................................................5
Budget Highlights 2017 ................................................................................... 7
Supply under GST.................................................................................................14
Payment of Tax in GST .................................................................................. 18
Entire Overview of Revised Model GST Law ............................................................ 27
Other Comprehensive Income wrt IND AS 16 .................................................. 34
IndAS 32, 107 & 109 Financial Instruments ................................................ ...38
Due Diligence .............................................................................................. ...52

5 | G S T I n d A S
TEAM WORK & TEAM SPIRIT
INSPIRATIONAL
NANDINI TANEJA
NEW DELHI
NANDINITANEJA25@GMAIL.COM
“Alone we can do so little, together we can do so much!” –
Helen Keller
Together we shall all rise and achieve milestones that no individual can
aspire to attain; with this I have summed up the collective philosophy that our
group believes in.
Team work and Team spirit are indispensible elements in the journey of
success. The strength of the team lies in its members and their collective efforts
to attain the team’s objective. A good team is one where each member
compensates what the other member lacks. Thus, it is the positive thrust that
drives the team forward.
Cricket World Cup 2011, the moment of glory for every Indian was because of
TEAM INDIA playing well all throughout the tournament. No doubt that there
was abundance of brilliance and talent from across the globe, but it was the
team effort that our team displayed which brought us the title of ‘CHAMPIONS!’
Working together in a team teaches us to be patient, more compassionate,
makes us realize our shortcomings and acts as a catalyst in personality
development and character formation. Individual acts bring glory whereas
collective efforts bring greatness! A good leader is one who knows how to work
in a team and how to bring the best out of each team member. Thus, a good
leader is in all probability the best team member.
Team-work is taught from a schooling basis because a child must know how to
work with others and how to take the right decisions. This is one of the most
vital soft skills that you can ever teach a child. This will later help in their
future lives when they play for a basketball team or attend a group discussion
in an interview for their dream job. Teamwork helps us to enhance the skills
hidden within us. It makes sure that we are involved with everyone and hold
everyone together in a tight knot.

6 | G S T I n d A S
Very often we come across team players who are ready to work in hand in hand
with others. Such people have this special skill to motivate and encourage their
fellow mates, and bring the shy ones forward.
We are proud to be a part of a team that believes in working and growing
together. Each member compensates and compliments the attributes of
the others. We are hopeful that together as a team we will achieve the
goals that we have set. We believe in the ideology of LEARNING,
TEACHING & SHARING. As a cohesive force our team will reach great
heights.
This third edition of the series is a collective effort of all team members
who have provided valuable inputs. We are overwhelmed with the
response that we received from all our readers and are privileged to
acknowledge the reach that our efforts have attained in such a short span
of time.

BUDGET 2017
SIGNIFICANT HIGHLIGHTS
CA DIWAKAR JHA
GHAZIABAD
DIWAKARJHA4@GMAIL.COM
Making India Globally Viable……
A BASIC QUESTION:
Let’s suppose in a section it is written that this section is applicable from
01/04/2012, then what does it mean?
The answer is that this section is applicable from assessment year: 2012-13 and
not from previous year: 2012-13, as lawmakers never talk in terms of previous
year, they always talk in terms of assessment year.
INCOME TAX RATES:
In the case of every individual (being less than age of 60 years) or Hindu
undivided family or every association of persons or body of individuals, or every
artificial juridical person, the rates of income tax are as follows:
For individuals who are age of 60 years or more but less than 80 years, the rates
are as follows:
The reason for dropping tax rate from 10% to 5% is to ensure more compliance
regarding return filing, as the finance minister termed the nation as non-
compliant nation, which is true in every term. Due to this rate drop, the people
will get encouraged to file the return and ultimately the tax bracket will get
broader.
Total Income Tax Rate
Upto Rs. 250000/- NIL
Rs. 250001 to Rs. 500000/- 5%
Rs. 500001 to Rs. 1000000/- 20%
Above Rs. 1000000/- 30%
Total Income Tax Rate
Upto Rs. 300000/- NIL
Rs. 300001 to Rs. 500000/- 5%
Rs. 500001 to Rs. 1000000/- 20%
Above Rs. 1000000/- 30%

8 | G S T I n d A S
RATIONALIZATION OF REBATE U/S 87A:
In view of proposed rationalization of tax rates for individuals in the income slab
of Rs. 2,50,000 to Rs. 5,00,000, section 87A is amended to reduce the maximum
amount of rebate available under this section from existing Rs. 5,000 to Rs.
2,500. It is also proposed to provide that this rebate shall be available to only
resident individuals whose total income does not exceed Rs. 3,50,000.
The reason for this amendment is to meet out a part of shortfall in revenue
collection by the Government due to lowering of income tax rates of various
assessees.
LOWERING TAX RATES FOR MICRO, SMALL & MEDIUM ENTERPRISES:
The income tax rate of corporate assessees having turnover upto Rs. 50 crores
has been dropped from 30% to 25%. This move is welcomed by the corporate
sector with open arms. The effect of this amendment will be as follows:
 96% of the total companies registered in India will get benefit due to this
amendment.
 It will provide Micro, Small & Medium Enterprises a level playing field with
foreign companies as the cost of goods and services supplied will be lower.
 India’s corporate tax rate (i.e. 34.608%) is much higher than average @ 18%
of the rest of the world, so it’s a step towards bridging that gap and
bringing India on the same level with that of world.
SURCHARGES:
The amount of income tax shall be increased by surcharge in the case of every
individual or Hindu undivided family or every association of persons or body of
individuals, whether incorporated or not by following rates:
Where total income exceeds Rs. 50,00,000 but does not exceed Rs. 1 crore :
Surcharge @ 10% of tax
Where total income exceeds Rs. 1 crore : Surcharge @ 15% of tax
All the remaining rates of surcharge have been kept same.
The reason for the increase in surcharge rate as aforementioned is to
recover more amount from the people of richer category so as to
compensate the revenue losses on account of drops in income tax rates.
INCENTIVE FOR INVESTMENT IN IMMOVABLE PROPERTY:
The existing provision of the Act provide for concessional rate of tax and also
indexation of capital gains arising from transfer of long term capital asset. With a
view to promote the real-estate sector and to make it more attractive for
investment, it is proposed to amend section 2(42A) of the Act so as to reduce the
period of holding from the existing 36 months to 24 months in case of immovable
property, being land or building or both, to qualify as long term capital asset.
SHIFTING BASE YEAR FROM 1981 TO 2001:

9 | G S T I n d A S
In Section 55, the assessee has following 2 options to arrive at cost of acquisition
for assets purchased prior to 01/04/1981:
 Either to take actual cost as cost of acquisition or
 To take fair market value as on 01/04/1981 as cost of acquisition.
Due to some practical reasons, the second option is more appealing to the
assessees as using this option cost of acquisition generally comes higher, but
then a problem arises that how to calculate the fair market value of the asset as
on 01/04/1981 precisely.
So, to tackle this very problem, there is an amendment in Section 55, so as to
provide that the assessee will have following 2 options to arrive at cost of
acquisition for assets purchased prior to 01/04/2001:
 Either to take actual cost as cost of acquisition or
 To take fair market value as on 01/04/2001 as cost of acquisition.
On the similar lines as earlier, the cost of improvements incurred prior to
01/04/2001 shall be ignored totally.
EXPANDING THE SCOPE OF LONG TERM BONDS U/S 54EC:
The existing provision provides that capital gain to the extent of Rs. 50 lakhs
arising from the transfer of a long-term capital asset shall be exempt if the
assessee invests the whole or any part of capital gains in certain specified bonds,
within the specified time. Currently, investment in bond issued by the National
Highway Authority of India or by the Rural Electrification Corporation Limited is
eligible for exemption under this section.
In order to widen the scope of the section which may raise fund by issue of bonds
eligible for exemption under section 54EC, it is proposed to amend section 54EC
so as to provide that investment in any bond redeemable after three years
which has been notified by the Government in this behalf.
The reason for this amendment is to promote investment in the notified long term
bonds.
INSERTION OF NEW SECTION 50CA:
Under the existing provisions of the Act, income chargeable under the head
“Capital Gains” is computed by taking into the account the amount of the full
value of consideration received or accrued on transfer of a capital asset. In order
to ensure that the full value of consideration is not understated, the Act also
contained provisions for deeming of stamp duty value as full value of
consideration for transfer of immovable property in certain cases.
In order to rationalize the provisions relating to deeming of full value of
consideration for computation of income under the head “Capital Gains”, it is
proposed to insert a new section 50CA to provide that where consideration for
transfer of a share of a company (other than quoted share) is less than the fair
market value (FMV) of such share, the FMV shall be deemed to be the full value

10 | G S T I n d A S
of consideration for the purposes of computing income under the head “Capital
Gains”. In short, the crux is as follows:
 Section is applicable on sale of unquoted shares where sales consideration
is less than FMV,
 FMV shall be deemed as full value of consideration for the purpose of
calculating capital gains.
MEASURES TO ENSURE TIMELY RETURNS (INSERTION OF
SECTION 234F):
In order to ensure that return is filed within due date, it is proposed to insert a
new section 234F in the Act to provide that a fee for delay in furnishing of return
shall be levied for assessment year 2018-19 and onwards where the return is not
filed within the due dates specified for filing of return u/s 139(1). The proposed
fee structure is as follows:
 A fee of five thousand rupees shall be payable, if the return is furnished
after the due date but on or before the 31st day of December of the
assessment year;
 A fee of ten thousand rupees shall be payable in other cases.
However, in a case where the total income does not exceed five lakh rupees, it is
proposed that the fee amount shall not exceed one thousand rupees.
The fee as aforementioned is to be deposited prior to return filing and
consequentially section 140A is to be amended.
The reason for insertion of this section is to ensure timely returns and to distress
department from last day hassles.
CONVERSION OF PREFERENCE SHARES INTO EQUITY
SHARES:
In order to provide tax neutrality to the conversion of preference share of a
company into equity share of that company, section 47 has been amended to
provide that the conversion of preference share of a company into equity share
shall not be regarded as transfer.
Consequential amendments are also proposed in section 49 and section 2(42A) in
respect of cost of acquisition and period of holding.
The reason for this amendment is that the startup investors prefer to invest in
convertible preference shares in initial stages to be assured about returns, later
on they convert into equity, but at present this conversion gets taxed and hence
the investors get demoralized to invest in start ups, which ultimately becomes
the reason for failure of the start ups. Now when the conversion will not be
considered as transfer, the investors will get motivated to invest in convertible
preference shares first and then convert those into equity shares.

ENABLING OF FILING OF FORM 15G/15H FOR COMMISSION
PAYMENTS SPECIFIED UNDER SECTION 194D:
Section 194D of the Act provides for TDS @ 5% for payments in nature of
insurance commission beyond a threshold limit of Rs. 15,000 per year. Further,
section 197A provides that tax shall not be deducted; if the recipient of certain
payments furnishes a self-declaration in Form 15G/15H declaring that tax on his
estimated total income of relevant previous year will be nil.
In order to reduce compliance burden in the case of individuals and HUFs, it is
proposed to amend section 197A so as to make them eligible for filing self-
declaration in Form 15G/15H for non-deduction of tax at source in respect of
insurance commission referred to in section 194D.
RESTRICTION ON CASH TRANSACTIONS:
In order to achieve the mission of the Government to move towards a less cash
economy to reduce generation and circulation of black money, it is proposed to
insert section 269ST in the Act to provide that no person shall receive an
amount of three lakh rupees or more-
 In aggregate from a person in a day;
 In respect of a single transaction; or
 In respect of transactions relating to one event or occasion from a person,
otherwise than by an account payee cheque or account payee bank draft or use of
electronic clearing system through a bank account.
The restriction shall not apply to Government, any banking company, post office
savings bank or co-operative bank.
With insertion of section 271DA in the Act to provide for levy of penalty on a
person who receives a sum in contravention of the provisions of the section
269ST. The penalty is proposed to be 100% of the amount received.
MEASURES TO DISCOURAGE CASH PAYMENTS:
Existing provision of section 40A(3) disallows any expenditure in respect of which
payment or aggregate of payments made to a person in a day, otherwise than by
account payee cheque drawn on a bank or account payee bank draft, exceeds
twenty thousand rupees, shall not be allowed as a deduction.
Further, section 40A(3A) also provides for deeming payments as profits if
expenditure is incurred in a particular year but the payment is made in
subsequent year of a sum exceeding twenty thousand rupees otherwise than by
account payee cheque drawn on a bank or a account payee bank draft.
In order to disincentivize cash transactions, it is proposed

 to replace Rs. 20,000 by Rs. 10,000 in both the sub-sections
aforementioned and
 to expand the specified mode of payment and include the use of
electronic clearing system through a bank account as an acceptable
mode.
DISCOURAGING CASH DONATIONS:
Under section 80G, deduction is not allowed in respect of donation made of
any sum exceeding Rs. 10,000, if it is paid in cash.
In order to provide cash less economy and transparency, section 80G is
amended to replace Rs. 10,000 by Rs. 2,000.
So, now donation made in excess of Rs. 2,000 in cash will not be allowed as
deduction.
MEASURES FOR PROMOTING DIGITAL PAYMENTS IN CASE OF
SMALL UNORGANIZED BUSINESSES:
The provisions of section 44AD provide for presumptive income in case of eligible
assessees carrying out eligible businesses. Under this scheme, assessee engaged
in eligible business having total turnover or gross receipts upto Rs. 2 crores
rupees in a previous year, a sum equal to or more than 8% of total turnover or
gross receipts, as declared by assessee is deemed to be profits and gains from
business or profession.
In order to promote digital transactions and to encourage small unorganized
business to accept digital payments, section 44AD is amended to reduce the
existing rate of 8% to 6% in respect of amount of total turnover or gross
receipts received through banking channels. For remaining turnover or receipts
the existing rate of 8% shall continue to apply.
PENALTY FOR FURNISHING INCORRECT INFORMATION IN
STATUTORY REPORT OR CERTIFICATE:
In order to ensure that the person furnishing report or certificate undertakes due
diligence before making such certification, a new section 271J is inserted so as to
provide that if an accountant or a merchant banker or a registered valuer,
furnishes incorrect information in a report or certificate under any provisions of
the Act or rules made thereunder, the Assessing Officer or the Commissioner
(Appeals) may direct him to pay a sum by way of penalty of ten thousand
rupees for each report or certificate by way of penalty.
No penalty shall be imposed if reasonable causes were there.
This section is applicable retrospectively w.e.f. 01/04/2017.

RESTRICTION ON SET-OFF OF LOSS UNDER THE HEAD “HOUSE
PROPERTY”:
Section 71 of the Act relates to set off of loss from one head against income from
another. In line with the international best practices and to collect revenue
upfront, it is proposed to insert sub-section (3A) in the said section to provide
that set-off of loss under the head “Income from House Property” against any
other of income shall be restricted to two lakh rupees for any assessment year.
However, the unabsorbed loss shall be allowed to be carried forward for set off in
subsequent years in accordance with the existing provisions of the Act.
EXEMPTION U/S 10(38):
At present, the income arising from a transfer of long term capital asset, being
listed equity share or unit of equity oriented mutual fund, is exempt from tax if
transaction of sale is undertaken on or after 01/10/2014 and securities
transaction tax (STT) is charged on the transaction.
The misuse of this section was noticed as certain unaccounted income was
declared as exempt by entering into sham transactions. With a view to prevent
this abuse, it is proposed to amend section 10(38) to provide that exemption
under this section for income arising on transfer of equity share shall be available
only if acquisition of share is chargeable to STT.
However this condition is not applicable in genuine cases like acquisition of
shares in IPO, FPO, bonus or right issue by listed company etc.
EXTENDING PERIOD FOR CLAIMING DEDUCTION BY START-
UPS:
An eligible startup shall be allowed deduction @ 100% of profits and gains
derived from eligible business for 3 consecutive assessment years out of 7
assessment years (instead of 5 assessment years as of now)
The amendment is made due to the fact that start-ups may take time to derive
profit out of their business, and extending the option period will benefit them.

SUPPLY
UNDER GOODS & SERVICES TAX
MOHIT GUPTA
NEW DELHI
MOHIT.GUPTA363@GMAIL.COM
INTRODUCTION:
GST or Goods and Services Tax is a domestic trade tax that will be levied in the
form of a value added tax on all goods and services.
In harmony with current tax practices followed throughout the world, concept of
‘consumption based taxation’ would usher in GST in India. Simultaneously, more
than dozen major taxes under present indirect taxation like Central Excise,
Service Tax, and VAT etc. would be subsumed under ambit of GST resulting in an
altogether different taxable event as well.
TAXABLE EVENT:
Determination of the taxable event in any tax law is of utmost importance as the
levy of tax is based on occurrence of that event. Charge of tax is created on basis
of that event only. Taxable events in some of the present laws are as follows:
S. No. Tax Taxable event
1. Service Tax Provision of Service
2. Excise Duty Manufacture
3. VAT Intra-state sale of goods
4. CST Inter-state sale of goods
As it is apparent from above discussion that every law has its own taxable event.
Due to dozens of indirect tax laws in the country, dozens of different taxable
events are present today which is a very hectic task for a business enterprise. The
concept of ‘Supply’ is bedrock of the anticipated GST architecture and also an
altogether different concept from present regime. Thus, the continuous watch and
compliance required for keeping track of various tax trigger points in present
regime would vanish in GST. Consequently, the term ‘supply’ shall be utmost
important under GST regime.
SUPPLY - MODEL GST LAW:
Section 3 of the Revised Model GST Law provides the definition of term ‘Supply’.
Despite being the first and most important step under GST regime, the Model
GST Law has chosen to define supply in an inclusive manner instead of an
exhaustive manner! Thus, it might result in ambiguity regarding term ‘supply’
and its complete scope. It is paramount here to note that the term ‘includes’ is

generally used to expand the meaning of a particular word and to clarify position
of some litigative items.
Section 3(1) of Model GST Law contains the definition of supply. It defines supply
as:
3(1) Supply includes—
(a) All forms of supply of goods and/or services such as sale, transfer, barter,
exchange, license, rental, lease or disposal made or agreed to be made for a
consideration by a person in the course or furtherance of business,
(b) Importation of services, for a consideration whether or not in the course or
furtherance of business, and
(c) A supply specified in Schedule I, made or agreed to be made without a
consideration.
From the above definition it can be seen that the term ‘supply’ basically includes
all variants of term sale and provision of service etc. Also, import of all services
whether for commercial or personal purpose have been included in the term
‘supply’.
Some transactions have been kept outside the scope of term ‘supply’ as per
Section 3(3) like services by Employees, Court, Foreign Diplomatic Mission, in
relation to funeral etc. Also some services of government have been exempted.
SUPPLY WITHOUT CONSIDERATION:
In present law, whether it is Service Tax or VAT, a particular transaction is
taxable only when there is some consideration against a sale/service. However, in
GST there is a concept of ‘Supply without Consideration’ which is entirely new to
Indian indirect taxation system. As given in Section 3(1) (c) above, a supply given
in Schedule I would be treated as a supply even if it is done without
consideration. Schedule I is reproduced below:
1. Permanent transfer/disposal of business assets where input tax credit has
been availed on such assets.
2. Supply of goods or services between related persons, or between distinct
persons as specified in section 10, when made in the course or furtherance of
business.
3. Supply of goods—
a. by a principal to his agent where the agent undertakes to supply such
goods on behalf of the principal, or
b. by an agent to his principal where the agent undertakes to receive
such goods on behalf of the principal.
4. Importation of services by a taxable person from a related person or from any
of his other establishments outside India, in the course or furtherance of
business.

One clause which is going to have a very major impact is point no. 2 under which
all supplies between related parties and supplies between different departments
of a business (in different states) would be taxed in GST even if without
consideration. Other clauses are also going to have major impact on some
particular businesses.
It is going to pose a challenge to recognize all these transactions since even
consideration is not required in these transactions to attract chargeability under
GST. Other major issue is of valuation as valuation principles would have to be
specified in the law.
SPECIAL TYPES OF SUPPLY:
Multi-tier rate structure has been proposed in GST. Due to multiple rates, a
problem arises when 2 or more goods/services are supplied together which
attracts different rates of tax. GST Law also has provisions regarding this matter.
It defines two special kinds of supply – ‘composite supply’ and ‘mixed supply’
under Section 2 as:
(27) “composite supply” means a supply made by a taxable person to a recipient
comprising two or more supplies of goods or services, or any combination thereof,
which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business, one of which is a principal supply;
Illustration: Where goods are packed and transported with insurance, the supply of
goods, packing materials, transport and insurance is a composite supply and
supply of goods is the principal supply.
(66) “mixed supply” means two or more individual supplies of goods or services, or
any combination thereof, made in conjunction with each other by a taxable person
for a single price where such supply does not constitute a composite supply;
Illustration: A supply of a package consisting of canned foods, sweets, chocolates,
cakes, dry fruits, aerated drink and fruit juices when supplied for a single price is a
mixed supply. Each of these items can be supplied separately and is not dependent
on any other. It shall not be a mixed supply if these items are supplied separately.
The treatment of these transactions would be done as per Section 3(5) as under:
3(5) (a) a composite supply comprising two or more supplies, one of which is a
principal supply, shall be treated as a supply of such principal supply;
(b) a mixed supply comprising two or more supplies shall be treated as supply of
that particular supply which attracts the highest rate of tax.
MISCELLANEOUS:
The line of differentiation between ‘goods’ and ‘services’ is getting blurred and distinction
is almost impossible in certain transactions. Their different classification is also
necessary in GST because of different provisions of goods and services in some places.
Some specific transactions are given in Schedule II which are deemed as ‘supply of

goods’ or ‘supply of services’. Traditionally litigative transactions like works contract,
transfer of right to use any goods, construction etc. have been categorized as ‘supply of
service’ and thus ending litigation in these areas. From close perusal it can be seen that
all transactions which are treated as ‘supply of service’ in Schedule II are closely based
on transactions given in Section 66E of Finance Act, 1994 also known as list of ‘deemed
service’ under Service Tax law.
CONCLUSION:
The term supply is basic concept under GST law on which various other provisions like
time of supply, place of supply, type of supply are defined in the Model GST Law. Thus,
determination of scope of supply is not only important for defining taxable event but also
it forms the basis for various other provisions under the GST Law. Further, Supply is
going to be altogether a new concept in the indirect taxation, far away from manufacture,
provision of service or sale. This concept will change the citus of taxation from ‘origin’ to
‘destination’. In short, this new taxable event would bring a very huge and drastic change
in the indirect taxation system of India.

PAYMENT OF TAX
HIMADRI MANIAR
AHEMDABAD
HIMADRIMANIAR@GMAIL.COM
INTRODUCTION:
Goods & Service tax is introduced to remove the partialities, infirmities and
problems of current indirect taxation system. In the current indirect tax
structure, the primary issue is cascading effect of taxes which increases
distribution and production cost of goods and services. GST plans to remove such
inequity in the system by introducing electronic ledger system.
On the Common portal for GST, Electronic Tax Liability Register, Electronic Cash
Ledger and Electronic Credit Ledger will be maintained.
Electronic Tax Liability Register records all the liabilities of a taxable person
under the GST Act. Electronic Cash Ledger operates like an e-wallet where the
cash payments are stored to discharge tax and other liabilities. Similarly,
Electronic Credit Ledger records input tax credit of taxes paid (CGST, SGST &
IGST) which can be utilized against our tax liability.
CHAPTER- IX PAYMENT OF TAX:
Chapter- IX of the Revised Draft Model GST law containing section 44, 45 and 46
of deals with Payment of Tax in GST.
Section 44: Payment of tax, interest, penalty and other amounts
(A) Electronic Tax Liability Register
 All liabilities of a taxable person under this Act shall be recorded and
maintained in an Electronic Tax Liability Register maintained in Form
GST PMT-1 on the Common Portal.

 The Electronic Tax Liability Register of a registered taxable person shall
be debited by:
The amount payable towards tax, interest, late fee or any other
amount payable
 as per the return filed by the said person;
 as determined by a proper officer in pursuance of any
proceeding under the Act.
The amount of tax and interest payable as a result of mismatch
under section 29 or section 29A or section 43C; or
Any amount of interest that may accrue from time to time.
 At the time of payment of every liability by a registered taxable person,
the Electronic Tax Liability Register shall be credited.
(B) Electronic Cash Ledger
 The Electronic Cash Ledger is equivalent to the concept of e-wallet and
Paytm wallet. In Paytm, the amount is deposited in Paytm wallet
through online transfer, after which Paytm cash can be utilized for
many purposes.
 Similarly, through approved methods, amount is deposited in the wallet
which is reflected in the Electronic Cash Ledger. Such amount can be
then utilized to pay any liability incurred under the GST Act.
 Such Electronic Cash Ledger shall be maintained in Form GST PMT-3
for each registered taxable person on the Common Portal.

 Every deposit made towards tax, interest, penalty, fee or any other
amount by a taxable person shall be made by following modes only.
 OTC means
 OTC payment is allowed through authorized banks only for deposit up
to Rs. 10,000/- per challan per tax period.
 The above restriction of OTC payment is not applicable to deposit made
by:
Internet Banking
Debit/ Credit Card
NEFT/ RTGS
Over the Counter payment (OTC)
OTC includes
Cash
Demand
Draft
Cheque

Government Departments or any person notified by Board/
Commissioner;
Proper officer authorized to recover outstanding dues from any
person, whether registered or not, including recovery made
through attachment or sale of movable or immovable properties;
Proper officer authorized for the amounts collected during any
investigation or enforcement activity or any ad hocdeposit.
 The process to deposit amount in Electronic Cash Ledger is as follows:

 The date of credit to the account of the appropriate Government in the
authorized bank shall be deemed to be the date of deposit in the
electronic cash ledger.
 Where a taxable person has claimed refund of any amount from the
electronic cash ledger, the said amount shall be debited to the electronic
cash ledger.
 The amount available in the electronic cash ledger may be used for
making any payment towards tax, interest, penalty, fees or any
other amount payable under the provisions of the Act.
(C) Electronic Credit Ledger
 The input tax credit as self-assessed in the return of a taxable person
shall be credited to his electronic credit ledger which shall be
maintained digitally in Form GST PMT-2 on the Common Portal.
Form
GST
PMT-4
• A registered taxable person, or any other person on
his behalf, shall generate a challan in FORM GST
PMT-4 on the Common Portal and enter the details of
the amount to be deposited. Such challan shall be
valid for 15 days only.
Mandat
e+
Challan
• For NEFT or RTGS mode of payment from any bank, the
mandate form shall be generated along with the challan and
the same shall be submitted to the bank from where the
payment is to be made. Mandate shall be valid for 15 days
from date of challan generation.
CIN
• On successful credit of the amount to the concerned
government A/c, a Challan Identification Number (CIN) will be
generated by the collecting Bank and the same shall be
indicated in the challan.
CIN
Failure
• If the bank A/c is debited but no CIN is generated, then the
said person may represent electronically in FORM GST PMT-
6 through the Common Portal to the Bank or electronic
gateway.
ECL
• On receipt of CIN from the authorized Bank, the said amount
shall be credited to the electronic cash ledger of the registered
taxable person.

 The electronic credit ledger shall be
Credited- By every claim of input tax credit under the Act.
Debited- By the extent of discharge of any liability under the Act
and by the refund claimed from any unutilized amount in the
ledger.
 If the refund filed for unutilized credit available in the ledger is rejected,
either fully or partly, the amount debited to the extent of rejection, shall
be re-credited to the electronic credit ledger by the proper officer by an
order made in Form GST PMT-2A.
 The amount available in the electronic credit ledger may be used for
making any payment towards output tax payable under the provisions of

the Act. It means that any penalty, interest, fees or any other amount due
cannot be paid using credit available in electronic credit ledger.
 A unique identification number shall be generated at the Common Portal
for each debit or credit to the electronic cash or credit ledger.
 The unique identification number relating to discharge of any liability shall
be indicated in the corresponding entry in the electronic tax liability
register.
(D) Utilization of Input Tax Credit
Credit Available IGST CGST SGST
Credit Utilization
sequence
IGST CGST SGST
CGST IGST IGST
SGST SGST CGST
 Cross utilization of SGST & CGST credit is not allowed as both are
different taxes.
 IGST can be utilized to pay all the tax liabilities as it is amalgamation of
CGST and SGST.
 IGST can be 1st utilized against IGST only. If any credit still remains,
then it can be utilized to pay CGST and then SGST.
(E) Duty Liability Discharge Order
 Every taxable person shall discharge his tax and other dues under
this Act or the rules made there under in the following order:
I. Self-assessed tax, and other dues related to returns of
previous tax periods;
II. Self-assessed tax, and other dues related to return of current
tax period;
III. Any other amount payable under the Act or the rules made
there under including the demand determined under section
66 or 67.
 It is assumed under this Act that any person who is liable to pay tax
has passed on the entire tax incidence to the recipient of goods
and/or services.
• Tax payable under GST Act. It does
not include interest, fee and penalty.
Tax Dues
• Interest, penalty, fee or any other
amount payable under the Act.
Other Dues

SECTION 45: INTEREST ON DELAYED PAYMENT OF TAX
 Every person liable to pay tax in accordance with the provisions of the Act
or rules made there under,
 who fails to pay the tax or any part thereof
 to the account of the Central or a State Government
 within the period prescribed, shall on his own,
 for the period for which the tax or any part thereof remains unpaid,
 pay interest at such rate as may be notified,
 on the recommendation of the Council, by the Central or a State
Government.
Interest is also payable if a taxable person
 makes an undue or excess claim of input tax credit; or
 makes an undue or excess reduction in output tax liability.
The interest shall be calculated from the first day on whichsuch tax was due
to be paid.
SECTION 46: TAX DEDUCTION AT SOURCE:
Deductor:
(a) A department or establishment of the Central or State
Government;
(b) Local authority;
(c) Governmental agencies;
(d) Persons notified by Central or State Government on
recommendation of Council.
Deductee:
Supplier of taxable goods and/or services notified by the
Central or a State Government on the recommendations
of the GST Council.
Transaction Value: Total value of such supply under a contract, exceeds Rs.5
lakh.
TDS Rate: 1% of from the payment made or credited to the supplier
excluding the tax indicated in the invoice.
Payment period: Within 10 days after the end of the month in which
deduction is made.
Interest on late
payment of TDS
If the Deductor fails to pay TDS to appropriate
government account, then he shall be liable to interest as
per Section 45(1) along with the amount of TDS.
Issuance of
certificate
Deductor shall furnish to the deductee a certificate
mentioning therein the contract value, rate of deduction,
amount deducted, amount paid to the appropriate
Government
Time limit to issue
certificate
Within 5 days of crediting the amount so deducted to the
appropriate Government,

Penalty for late or
non-issuance of
certificate
Rs. 100/- per day after expiry of 5 days until the failure is
rectified limited to maximum Rs. 5000/-
Credit of TDS The TDS deducted and deposited to government will be
reflected in electronic cash ledger of the deductee.

OVERVIEW OF ENTIRE REVISED MODEL GST LAW
NOV 2016 VERSION
VANSHAJ AGGARWAL
NEW DELHI
VANSHAJ.SRA@GMAIL.COM
Indirect taxes in India have driven businesses to restructure and model their supply
chain and systems owing to multiplicity of taxes and costs involved. With hopes that
the Goods and Services Tax (GST) will see the light of the day, the way India does
business will change forever
Total tax collection in India (direct & indirect), currently stands at Rs 14.6 lakh crore,
of which almost 34 per cent comprises indirect taxes, with Rs 2.8 lakh crore coming
from excise and Rs 2.1 lakh crore from service tax. With the implementation of the
GST, the entire indirect tax system in India is expected to evolve.
The tax revenue mix can change as per the economic condition of the country. In
developing countries, indirect taxes comprise a higher share of total taxes; in
developed countries, their contribution is significantly lower
NEED OF GST:
1. Tax Cascading: Tax cascading occurs under both Centre and State taxes.
The most significant contributing factor to tax cascading is the partial
coverage by Central and State taxes.
2. Lack of Uniformity and Rates: Present VAT structure across the States
lacks uniformity, which is not restricted only to the rates of tax, but also
extends to procedures and, sometimes, to the definitions, computation and
exemptions.
3. Interpretational Issues: Another problem arises in respect of
interpretation of various provisions and determining the category of the
commodities. We find a significant number of litigation surrounding this
issue only. To decide whether an activity is sale or works contract; sale or
service, is not free from doubt in many cases.
4. Complexity in determining the nature of transaction –Sale vs.
Service: The distinctions between goods and services found in the Indian
Constitution have become more complex. Today, goods, services, and other
types of supplies are being packaged as composite bundles and offered for
sale to consumers under a variety of supply-chain arrangements. Under
the current division of taxation powers in the Constitution, neither the
Centre nor the States can apply the tax to such bundles in a seamless
manner.
5. Complexities in Administration: Compounding the structural or design
deficiencies of each of the taxes is the poor or archaic infrastructure for
their administration. Taxpayer services, which are a lynchpin of a
successful self-assessment system, are virtually nonexistent or grossly
inadequate under both Central and State administrations.

BACKGROUND OF GST:
Period Milestones
June 2016 Draft law passed
August –
September 2016
The Constitution Amendment Bill was
passed and states approved it
September 2016 Formation of GST Council
January 2017 Passage of IGST, CGST and SGST law
January – June
2017
GSTN infrastructure – testing and
training
July 2017 Implementation of GST
RATES OF GST AS PROPOSED:
Rates Items
0% Essential Foods, Medicines, Services
5% Precious Metals, Common use items
12% Standard rate for services and goods (other than those
covered under 18% rate)
18% Standard rate for services and goods
28% Demerit goods, additional cess to be imposed on luxury
goods
PROPOSED GST MODEL:
1. Dual GST: Dual GST signifies that GST will be levied by both the centre
and states, on supply of goods and services. Under the constitution,
presently the taxing powers are split between the centre and states. Under
GST, the power to tax on supply of all goods and services will be vested in
the hands of both the centre and the states. Considering the dual taxation
power to tax transaction under GST, the structure is referred to as dual
GST.
2. Subsuming almost all indirect taxes: GST should subsume all major
indirect taxes levied by the Central Government i.e. central excise, customs
and service tax and majority of taxes levied by the State Government i.e.
VAT, luxury tax, entertainment tax, etc. The following taxes are subsumed
within GST:
Centre Taxes State Taxes
Excise Duty State VAT/Sales Tax
Additional duties of Excise Central Sales Tax
Excise Duty levied under Medicinal
and Toiletries Preparation Act
Entertainment Tax (not levied by
local bodies)
Additional duties of custom (CVD &
SAD)
Luxury Tax
Service Tax Entry Tax

Surcharges and cesses on central
taxes
Surcharges and cesses on state
taxes
3. IGST: Under this model the Centre would levy the IGST which would be
approximately CGST plus SGST on all inter-state transactions of taxable
goods & services and imports. Inter-state seller would pay IGST on value
addition after adjusting IGST, CGST and SGST on purchases. The
exporting state would transfer to the state the credit of SGST used on
payment of IGST.
4. Credit Scheme: GST will be levied on supply of goods and services and the
dealer will be allowed credit for the GST paid on purchases. The credit
would be seamless except that the credit of CGST paid will not be allowed
for set-off against SGST payable and vice-versa.
IMPORTANT POINTS ABOUT GST:
Registration: There is no concept of centralized registration in GST, a supplier
having branches in different states will have to take separate registration in those
states. There is a concept of business vertical wise registration within state.
Returns: In GST, separate returns are to be filed for:
 Inward supplies
 Outward supplies
 Consolidated return of outward and inward supplies
 ISD return
 Annual return
 Return by non-resident taxpayers TDS return
 Return for composition scheme dealers
 First return
 Final return
So, we can notice an increase in compliance work as from 2 returns in service tax
law to minimum of 37 returns are to be filed in GST era.
Input Tax Credit: The suppliers are allowed to take credit for the taxes paid on
inward supplies if these are related to business activities. No input tax credit is
allowed for the inward supplies which are used in exempted supplies, but credit
is available if zero-rated supplies are made.
Accounts and records: The accounts and records are to be maintained for 60
months from the last date of filing of annual return at the registered principal
place of business. Accounts and records can be kept and maintained in electronic
form. In case of multiple states, related records to be maintained at concerned
premises as there in no concept of centralized accounting in GST.
Refunds: The time limit for refund is two years from relevant date. There is a
provision stating that80% of the refund will be sanctioned provisionally and
transferred to assessee online and the remaining 20% is subject to verification of
documents by officer.
Invoice/Debit Note/Credit Note: The details and particulars are same as in
Service Tax laws. Debit Note/ Credit Note is to be issued before 30th September of
following year or date of filing of annual return whichever is earlier. Details of
Debit Note/ Credit Note is to be shown in return.

Audits: Three types of audits are mentioned in GST Act, which are as follows:
 Special Audits
 Departmental Audits
 CAG Audits
Departmental audit is to be taken at assessees’ premises. Time limit for audit is 3
months plus extension of 3 months in certain cases. The audit report is
mandatorily to be forwarded to assessee.
Assessments: The following types of assessments are prescribed in GST:
 Self Assessments
 Provisional Assessments
 Best Judgment Assessments
 Summary Assessments
Time limits for these assessments are yet not prescribed.
Time of supply: In GST the time of supply will be the invoice date (last date on
which invoice was to be issued) or payment dates whichever is earlier. It is same
as in service tax law as of now.
Value of supply: Value will take same as the transaction value (transaction
between non-related parties and price is the sole consideration. Reimbursement
of expenses incurred in the course of sale of goods or provision of services are
taxable.
COMPARISON OF GST AND SERVICE TAX:
A brief comparison of prior service tax with the proposed GST law can be drawn
under various domain including Revenue consideration, valuation and more
which are discussed:
Particulars GST Service Tax
Revenue
Exports Exempt Exempt
Domestic Chargeable to CGST and SGST
or IGST
Chargeable to Service tax ,
Swachh Bharat Cess (SBC), and
Krishi Kalyan Cess (KKC)
Domestic
Procurement
of
Services
CGST , IGST and SGST will be
Creditable
VAT – Cost
CST – Cost / Refundable
Entry Tax / Octroi / LBT - Cost
Payments Monthly Monthly / Quarterly
Imports IGST – Creditable Service Tax (paid under RCM) –
Creditable,
SBC – Not Creditable
KKC – Creditable & utilize
against KKC liability only
Valuation At transaction value -Concept of Pure Agent
-Taxability of reimbursements
are always doubtful
-Separate Valuation Rules are
prescribed.

Exemptions No Exemption Many exemptions
IMPACT AREA UNDER GST:
 Greater Compliances – 37 Returns, 36 refund applications
 Change with Technology – Data recording, processing, MIS reports etc.
 Cenvat Credit – Inter-adjustment of credits are allowed
 Other impact:
o Costing – Tax on branch transfer, State taxes on services.
o Contractual clauses – Restructuring of tax clauses, revision of
contract pricing
o Taxation – Transition aspects, multiple returns
o IT – Invoicing & accounting, Integration with GST
o Supply chain – Sourcing, inventory, distribution & management
o Pricing – Review of margins, decision on pass of benefits etc.
o Others – Working capital/cash flow analysis, location analysis,
business operating models.
GEARING UP FOR THE GST:
Initial efforts
 Revision of chart of accounts

Updation of master data.
 Configuration/re-configuration of accounting software.
Going Forward
 Accounting and books as per new law.
 Reconciliations and report generation between entities and verticals,
between inward and outward supply.

ROADMAP FOR GST, HOW GST TO BE IMPLEMENTED?
WHY THE BUSINESS PROCESSES NEEDS TO BE CHANGE?
1. Three Taxes - CGST, SGST, IGST – Inter-adjustment not allowed between
CGST and SGST.
2. Multiple Registration / Business Vertical wise Registration .
3. Branch-wise Accounting.
4. Registration wise credit not available – CGST and SGST of different states
are not allowed to adjust against each other.
5. Procurement Policies – Goods and Services – Taking care into availability of
credit.
6. Need to distinguish between B2B and B2C transactions in software for
better compliances.
TRANSITIONAL PROVISION:
Areas Provisions
Underlying Stock Allowed to be carry forward in GST
Cenvat Credit Allowed as CGST
Registration Provisional RC issued. It is valid for
six months. Validity can be extended
on the recommendation of GST
Council.
VAT Credit Allowed as SGST
Un availed CENVAT /VAT on
Capital Goods
Allowed as CGST / SGST in GST laws
Unclaimed duties / taxes by
unregistered person
Allowed as CGST / SGST within one
year from date of Invoice. These input
supplies should be used in providing
output supplies under GST law

Pending Refund Claims Amount must be refunded in
accordance with the provisions of
repealing
Act
Pending Demands/Litigations Decided in accordance with the
provisions of repealing act
FRESH CONCEPTS INTRODUCED IN GST:
Anti Profiteering – Benefits of tax exemptions or lower rates must be pass on to
the consumer. Prices should be reduce to that extent
Compliance Rating – Every assessee assign a GST compliance rating on the
basis of his compliance record.
Matching of Input Tax Credit – In GST Era, first outward return is filed & then
inward return is filed. Credit is available only if the taxes are paid and reflected
by supplier in its outward return.
E-Commerce For effective control and better tax collection, e-commerce
operators have to collect 1% tax on net supplies.
Supply – In GST era, sale of services and goods are known as supply of services
and goods.
Information Return – Certain assessee have to file return for specific
information with the government.
ISSUES AND CONCERNS IN GST:
Including other issues, major concern in a broader sense can be categorized as
under:
1. No area based exemption
2. Higher Tax Rates
3. Tax on Branch Transfers
4. Reduction in Threshold Limits
5. Multiple Registrations
6. Robust Accounting – State-wise
7. Higher Taxes – No concept of tax exemption forms
8. Contracts and Agreements – Have to undergone a change
9. Up gradation of Software.
10. Supplies without consideration attracts GST

OTHER COMPREHENSIVE INCOME WRT INDAS 16
UNDER INDIAN ACCOUNTING STANDARDS
CA VINEET SINGHAL
NEW DELHI
VINEETRGSINGHAL@GMAIL.COM
(Recommendation: Read with IndAS 16 as shared in Edition-II by YASH
PRIYADARSHI: WWW.Slideshare.net/GSTIndAS )
Other comprehensive income comprises items of income and expenses (including
reclassification adjustments) that are not recognized in profit or loss as required
or permitted by other IndAS.
The components of other comprehensive income include:
(a) changes in revaluation surplus (see IndAS 16 Property, Plant and
Equipment and IndAS 38) Intangible Assets);
Lets Discuss Significance of OCI in IndAS 16 Property, Plant & Equipment (1st part
of Line Item of OCI), in a simple find tool search “OCI” has been used at 8 instances
in IndAS 16
IND AS 16
MEASUREMENT AFTER RECOGNITION (PARAGRAPH 29):
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
IndAS 16 gives an option for following Cost Model or Revaluation Model for a class
of asset
REVALUATION MODEL (PARAGRAPH 31):
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
PARAGRAPH 39:
If an asset’s carrying amount is increased as a result of a revaluation, the
increase shall be recognised 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 recognised in profit or loss
Upward Revaluation
Increase will be recognized in OCI, subject to previous revaluation decreases
through P/L .
PARAGRAPH 40:
If an asset’s carrying amount is decreased as a result of a revaluation, the
decrease shall be recognised in profit or loss. However, the decrease shall be
recognised in other comprehensive income to the extent of any credit balance
existing in the revaluation surplus in respect of that asset. The decrease
recognised in other comprehensive income reduces the amount accumulated in
equity under the heading of revaluation surplus.
Downward Revaluation
Decrease will be recognized in P/L, subject to previous revaluation increases
through OCI.
APPENDIX A
CHANGES IN EXISTING 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/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.
Decommissioning cost is to be estimated and valued while valuing the asset, (Refer
Example 1)
ISSUE:
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:
a) a change in the estimated outflow of resources embodying economic
benefits (e.g. cash flows) required to settle the obligation
b) a change in the current market-based discount rate as defined in
paragraph 47 of Ind AS 37 (this includes changes in the time value of
money and the risks specific to the liability); and

c) an increase that reflects the passage of time (also referred to as the
unwinding of the discount)
Three cases are mentioned above
 Change in cost of decommission
 Change in discounting rate
 Unwinding of discount-periodic unwinding of discount is charged to P&l as
finance cost(the discount that is already applied to present value decrease
with passage of time)
Extract from IndAS text
Accounting Principles, Para 6
If the related asset is measured using the revaluation model:
(a) changes in the liability alter the revaluation surplus or deficit previously
recognized on that asset, so that:
(i) a decrease in the liability shall (subject to (b)) be recognized in other
comprehensive income and increase the revaluation surplus within equity,
except that it shall be recognised in profit or loss to the extent that it
reverses a revaluation deficit on the asset that was previously recognised in
profit or loss;
Point (b) taken up with point (i) for better understanding
(b) In the event that a decrease in the liability exceeds the carrying amount
that would have been recognized had the asset been carried under the cost
model, the excess shall be recognized immediately in profit or loss
A decrease in liability will generally be recognized in OCI, subject to any previous
decrease in value of asset through P/L
However, OCI can only take up amount limited to changes over and above had
asset been valued at cost
Difference will be taken to P/L
(Refer example 2)
(ii) an increase in the liability shall be recognized in profit or loss, except that it
shall be recognized in other comprehensive income and reduce the revaluation
surplus within equity to the extent of any credit balance existing in the
revaluation surplus in respect of that asset.
An increase in liability will generally be recognized in P/L , subject to any previous
increase in value of asset through OCI
(b). Already taken up above

(c) a change in the liability is an indication that the asset may have to be revalued
in order 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.
Any such revaluation shall be taken into account in determining the amounts to
be recognized in profit or loss or in other comprehensive income under (a). If a
revaluation is necessary, all assets of that class shall be revalued
If Fair value of the asset and the carrying amount are likely to differ materially,
then also, Change in liability will be taken to P/L or OCI as already discussed
(d) Ind AS 1 requires disclosure in the statement of profit and loss of each
component of other comprehensive income or expense. In complying with this
requirement, the change in the revaluation surplus arising from a change in the
liability shall be separately identified and disclosed as such.
Entry to OCI due to change in decommissioning has to be shown separately in OCI
DISCLOSURE:
The financial statements shall disclose, for each class of property, plant and
equipment:
(iv) Increase or decrease resulting from revaluations under Paragraphs 31, 39 and
40 and from impairment losses recognised or reversed in other comprehensive
income in accordance with Ind AS 36;
Disclosure should be made for recognition or reversal of revaluation through OCI
Example 1
Consider an example of a mine. One will have to dig the mine deep enough so that
the mine is ready for production and ore can be extracted. Further Digging will also
take place as the ore is continuously extracted. Whilst in the first case, the site
restoration obligation will be capitalized as PPE, in the latter case the site
restoration obligation will form part of the cost of producing inventories
Example 2
Let us assume that an asset’s revalued amount is INR 1000 and there is reduction
in the liability related to this asset by INR 600, if the entity would have followed the
cost model, the carrying value of the asset (after deprecation) would have been only
INR 400, In this case , the entity will adjust 400 towards reduction of liability from
the revaluation surplus and the remaining 200 will be recognized as income in P &
L.

INDAS 32, 107,109-FINANCIAL INSTRUMENTS
PRESENTATIONS, RECOGNITION & DISCLOSURES
ITTI JAIN
NEW DELHI
ITTI.JAIN2009@GMAIL.COM
STANDARDS DEALING WITH FINANCIAL INSTRUMENTS UNDER
IND AS:
Under Ind AS, 3 Standards deal with accounting for financial instruments.
 Ind AS 32 Financial Instruments: Presentation deals with the presentation
and classification of financial instruments as financial liabilities or equity
and set out the requirements regarding offset of financial assets and
financial liabilities in the balance sheet.
 Ind AS 107 Financial Instruments: Disclosures sets out the disclosures
required in respect of financial instruments.
 Ind AS 109 Financial Instruments contains guidance on the recognition ,
derecognition, classification and measurement of financial instruments ,
including impairment and hedge accounting
At the outset, it may noted that fair value of financial instruments should be
determined in accordance with the principles in Ind AS 113 Fair Value
Measurement.
MEANING OF FINANCIAL INSTRUMENTS:
Financial instruments are contracts that give rise to financial assets for one party
and financial liabilities or equity instruments to another party.
POINT TO BE NOTED
 There must be a contract (written/oral).
 There must be financial asset with corresponding financial lab. / Equity
instruments.
Trade receivables and payables, bank loans and overdrafts, issued debts, equity
and preference shares, investments in securities (e.g. Shares and bonds), and
various derivatives are just some of the examples of financial instruments.
WHAT IS FINANCIAL ASSETS?
Are “Assets” which qualify any of the following:-
 Cash
 Investment in equity Instruments
 “Contractual” Rights to receive cash/other financial assets from another
entity e.g. Trade debtor, bills receivables or invest, in convertible
debentures.
 “Contractual” Right to receive cash/other financial asset in potentially
favourable conditions e.g. Derivatives (forward, options, and swaps).
 Contracts which will be/ may be settled in company's own shares, which is
non-derivative and variable number of shares will be received.

WHAT ARE FINANCIAL LIABILITIES?
Are “Liabilities” which qualify any of the following:-
 “Contractual” obligation- to deliver cash/other financial assets from
another entity e.g. Trade creditor, bills payable, Redeemable debentures.
 “Contractual” obligation- to deliver cash/other financial asset in potentially
favourable conditions e.g. Derivatives.
 Contracts obligation- to be settled in company's own equity shares, which
is non-derivative and variable number of shares to be issued
 Derivatives of own shares.
CLASSIFICATION OF FINANICIAL INSTRUMENTS
 PRIMARY FINANCIAL INSTRUMENTS e.g. are Receivable , Payables
 DERIVATIVE FINAINCIAL INSTRUMENTS e.g. are forward, future, options,
interest rate/ currency swaps etc.
Non Financial Instruments are prepaid expenses, inventory, property, plant and
equipment, intangible assets, advance given/ received goods and services,
deferred revenue, warranty obligations, income taxes, and operating leases, gold.
Equity Instruments: any contract that evidences a residual interest in the
entity's assets after deducting all liabilities. Eg. Non-Puttable shares,
Warrants/Written call option that allow the holder to purchase a fixed number of
non - puttable ordinary shares for a fixed amount of cash / another financial
asset.
CONDITIONS FOR EQUITY INSTRUMENTS:
IINNSSTTRRUUMMEENNTTSS CCLLAASSSSIIFFIICCAATTIIOONN
Puttable Instruments /
instruments imposing obligation to
deliver pro data share in Net Asset
only on Liquidation
[see next point]
If instrument specific and issuer
specific condition are met, classified
as equity instrument. If not
satisfied, it is classified as financial
liability
Preference Shares that provides for
redemption on specific date option
of the holder
Financial Liability, since the Issuer
has obligation to transfer Financial
asset to the holder.
Preference Share that provides for
redemption at the option of Issuer/
Non -Redeemable Pref. Share
Classification is based on other
rights that attach to then, and
substance of contractual
arrangements.

Cumulative / Non cumulative Pref.
shares, the distributions of the
Issuers
Equity Instruments
Q1) What is Puttable / Pro data?
1. A Puttable Financial Instrument includes a contractual obligation for the
issuer to repurchase / redeem that instrument in cash/ another financial
asset on exercise of the put.
2. Pro-data share = Entity’s Net Asset on liquidation x No. of units held by holder
Total Number of Units
Q2) What is instrument specific condition for equity instruments?
1. Holder is entitled for a pro-data share of the entity's Net Asset on Liquidation,
2. Puttable Instrument is subordinate to all other classes of Instrument, i.e.-
a. It has no priority over other claims to the assets on liquidation and,
b. Does not require to be converted to another Instruments before it is in the
Subordinate class
3. All Instruments in the class have identical features.
Q3) What are issuer specific conditions for equity instruments?
Issuer must have no other Financial Instrument/ Contract that has-
(a)Total cash flows substantially based on-
-Profit/loss,
-Change in the recognized Net Asset
-change in the Fair Value of the recognized and unrecognized Net Asset of the
entity (excluding any effects of such Instruments)
(b) The entity of substantially restricting / fixing the residual return to the
puttable instrument holders.
Note. If the entity cannot carry out the above tests, the puttable instruments are
classified as financial liability.
CLASSIFICATION OF FINANCIAL ASSETS:
 Financial Assets measured at Amortised Cost,
 Financial Assets measured at Fair value Through Profit or Loss(FVTPL)
 Financial Assets measured at Fair value Through Other Comprehensive
Income (FVTOCI)
CLASSIFICATION OF FINANCIAL LIABILITY:
 Fair value Through Profit or Loss(FVTPL)
 Amortised Cost
CLASSIFICATION OF FINANCIAL DERIVATIVES:

 As Financial Assets would be measured at Fair value Through Profit or Loss
(FVTPL) only.
CRITERIA FOR CLASSIFICATION:
Entity shall classify Financial Assets depending upon the following criteria and
options elected by it –
 Entity’s Business Model (BM) for managing the Financial Assets, and
 Contractual Cash Flow Characteristics (CCFC) of the Financial Assets.
Business Model (BM).
Entity assesses whether its Financial Assets meet the conditions on the
basis of Business Model as determined by its Key Managerial Personnel
(KMP). [As defined in Ind AS 24 Related Party Disclosures]
DETERMINATION OF BM:
1. Entity’s Business Model is determined at a level that reflects how groups of
Financial Assets are managed together to achieve a particular business
objective.
2. BM does not depend on Management’s intentions for an Individual
Instrument. So, it is not an Instrument– by–Instrument Approach to
classification, and should be determined on a higher level of aggregation.
3. It refers to how an Entity manages its Financial Assets in order to generate
Cash Flows, i.e. it determines whether Cash Flows will result from
collecting Contractual Cash Flows, selling Financial Assets or both. This
assessment is not performed on the basis of scenarios that the Entity does
not reasonably expect to occur, such as so called Worst / Stress Case
Scenarios.
4. Example: If an Entity expects that it will sell a particular Portfolio of
Financial Asset only in a Stress Case Scenario, that scenario would not
affect the Entity‘s Assessment of BM for those Assets if the Entity
reasonably expects that such a scenario will not occur.
5. If Cash Flows are realized in a way that is different from the Entity’s
expectations at the date of assessment of BM, it is not (a) Prior Period
Error, or (b) change the classification of the remaining Financial Assets
held in that BM. Example: Entity sells more or fewer Financial Assets than
it expected when it classified the Assets.
6. However, when an Entity assesses BM for newly originated / purchased
Fin. Assets, it must consider information about how CF were realised in the
past, along with all other relevant information
7. BM is a matter of fact and not merely an assertion. Entity will need to use
judgment when it assesses its BM for managing Financial Assets and that
assessment is not determined by a single factor or activity. Instead, the
Entity must consider all relevant evidence that is available at the date of
the assessment. Such relevant evidence includes, but is not limited to:

How the Performance of BM and Financial Assets held within that BM are
evaluated and reported to the Entity‘s KMP,
Risks that affect its performance & the way in which those risks are managed,
and
How Managers of the Business are compensated (Example: Whether the
Compensation is based on the Fair Value of the Assets managed or on the
Contractual Cash Flows collected).
BUSINESS MODEL TYPES:
1. Hold to collect Contractual Cash Flows (CCF),
2. Hold to collect Contractual Cash Flows (CCF) and Selling Financial Assets,
3. Other Business Models.
Contractual Cash Flow Characteristic (CCFC) Test
1. Entity should classify Financial Assets on the basis of CCFC, if it is held
within a BM whose objective is –
a. To hold the Assets to collect CCF, or
b. Achieved by both collecting CCF and selling Financial Assets.
2. To do so, an Entity has to determine whether the Asset‘s Contractual Cash
Flows are Solely Payments of Principal and Interest (SPPI) on the Principal
Amount outstanding.
3. CCF that is SPPI on the principal amount outstanding is consistent with a
Basic Lending Arrangement. In such arrangement, consideration for the
Time Value of Money and Credit Risk are typically the most significant
elements of interest.
Solely Payment of Principal and Interest (SPPI)
If there are repayments of Principal, Interest consists of consideration for –
a) Time Value of Money,
b) Credit Risk associated with the Principal amount outstanding during a
particular period of time, and
c) For other Basic Lending Risks and Costs,
d) As well as a Profit Margin.
CLASSIFICATION OF DEBT INSTRUMENTS (FINANCIAL ASSETS):
SSiittuuaattiioonn CCllaassssiiffiiccaattiioonn
1. If Conditions of CCFC Test is fulfilled, BM
test will be applied –
Amortised Cost
(a)Held to collect Contractual Cash Flows FVTOCI (with Recycling)
(b)Results in collecting CCF and selling
Financial Assets
FVTPL

(c)If above conditions are not satisfied or
FVTPL Option is selected
FVTPL
2. If conditions of CCFC Test is not fulfilled FVTPL
CLASSIFICATION OF EQUITY (FINANCIAL ASSETS):
Situation (CCFC Test will not
apply)
Classification
1. If it is held for trading FVTPL
2. If it is not held for trading and
FVTOCI Option is selected
FVTOCI (with Recycling)
3. If it is not held for trading and
FVTOCI Option is not selected
FVTPL
INITIAL RECOGNITION:
AAsssseettss // LLiiaabbiilliittiieess TTiimmee ooff IInniittiiaall RReeccooggnniittiioonn
Receivables / Payables When the Entity becomes a party to
the Contract and has a legal right to
receive or a legal obligation to pay
cash.
Firm Commitment to Buy / Sell
Goods / Service
When one of parties has performed,
e.g. Entity that places order
recognizes the Liability only when
the Goods are shipped / delivered
Forward Contract Commitment Date, Not on the
Settlement Date
Option Contracts When the Holder / Writer becomes a
Party to the Contract.
Planned Future Transactions Not Assets / Liabilities, since Entity
has not become a Party to it

Regular Way Purchase or Sale Trade Date / Settlement Date
Accounting.
• Trade Date Accounting
1. Timing: Date in which an Entity commits itself to purchase / sell an Asset.
2. Recognition:
a. Buyers’ Book: Asset to be Received & Liability to pay.
b. Sellers’ Book: Gain / Loss on Disposal & Receivable.
3. De-recognition: Asset on Trade Date
Note: Interest accrues on Asset & corresponding Liability only on the
Settlement Date when title passes.
• Settlement Date Accounting
1. Timing: Date in which an Asset is delivered to / by an Entity.
2. Recognition:
(a) Buyers’ Book: Asset on the day it is received.
(b) Sellers’ Book: Gain / Loss from the Buyer for Payment.
3. De-recognition: Asset on the day in which it is delivered.
Note: Change in Fair Value of Asset from Trade to Settlement Date shall be
accounted in the same way as it accounts for Acquired Asset.
• Measurement (Not apply for Trade Receivables)
Entity shall measure a Financial Asset / Liability (except FVTPL) at its Fair
Value plus / minus Transaction Costs directly attributable to its acquisition /
issue. Hence, Transaction Costs are –
a. Fin. Instr. measured at FVTPL: Charged to P&L, i.e. not added to Fair
Value at Initial Recognition,
b. Fin. Assets at FVTOCI / Amortized Cost: Added to Initial Recognition
Amount,
c. Fin. Liab. At mortised Cost: Deducted from Amount of Liability
originally recognized.
Note: Transaction Costs on Disposal / Transfer are not included in
measurement of all Categories of Financial Assets / Liabilities. They are
charged to Profit and Loss.
WHAT IS FAIR VALUE?
(a) Best evidence of the Fair Value of a Financial Instrument at initial recognition
is normally the Transaction Price i.e. Fair Value of Consideration given/ received.
(b) If –
• Fair Value differs from the Transaction Price, and
• Fair Value is evidenced by a Quoted Price in an
Active market for an identical Asset / Liability or
Based on a Valuation technique that uses only data
From observable markets.
Difference between Fair
Value at initial
recognition and the
Transaction Price is
recognized as a Gain/
Loss

(c) In all other cases, Fair Value is adjusted to defer the difference between the
Fair Value at initial recognition and the Transaction Price i.e. Transaction Price is
treated as Fair Value.
MEASUREMENT OF FINANCIAL ASSET:
• Financial Asset (Debt Instrument only) shall be measured at Amortized
Cost, if –
• It is held within a BM whose objective is to hold it to collect
Contractual Cash Flows
(CCF),
• Contractual terms give rise on specified dates to Cash Flows that are SPPI
on Principal outstanding
Financial Asset (Debt & Equity) shall be measured at FVTOCI, if –
• It is held within a BM whose objective is achieved by both collecting
CCF & selling Fin. Assets, and
• Contractual terms give rise on specified dates to Cash Flows that are
SPPI on Principal outstanding
• Financial Asset shall be measured at FVTPL if it is not measured at above.
(Residuary Category)
MEASUREMENT OF FINANCIAL LIABILITY:
An Entity shall classify all Financial Liabilities as subsequently measured at
Amortized Cost, except Financial Guarantee Contracts, Commitments to provide
Loan at a below Market Interest Rate, Contingent Consideration recognized by an
Acquirer in a Business Combination
OPTION TO FVTPL (FINANCIAL ASSETS):
Entity may, at initial recognition, irrevocably designate a Financial Asset as
measured at FVTPL, if doing so eliminates or significantly reduces Measurement
/ Recognition Inconsistency (called Accounting Miss–match) that would otherwise
arise from measuring them / recognizing their Gains & Losses on different basis.
OPTION TO FVTPL (FINANCIAL LIABILITIES):
Entity may, at initial recognition, irrevocably designate a Financial Liability as
measured at FVTPL, if –
a) It eliminates or significantly reduces Measurement / Recognition
Inconsistency (referred as Accounting Mismatch) that would otherwise arise
from measuring them / recognizing their Gains & Losses on different basis.
b) Group of Financial Assets / Liabilities is managed and its performance is
evaluated on a Fair Value basis, in accordance with a documented Risk
Management or Investment Strategy and information about the group is
provided internally on that basis to the entity’s Key Management Personnel.

RECLASSIFICATION:
Only when an Entity changes it’s BM for managing Fin. Assets, it shall re–classify
all affected Fin. Assets prospectively. Such changes are determined by Entity’s
Senior Management as a result of external / internal changes and must be
significant to its operation and demonstrable to external parties. BM Change will
occur only when it either begins or ceases to perform an activity that is
significant to its operations.
CHANGE IN BM:
The following are considered as a change in Business Model –
1. Acquisition / Disposal / Termination of a Business Line.
2. Entity has Commercial Loans Portfolio which it holds to sell in Short Term.
It acquires a Company having a BM that holds Loans to collect Contractual
Cash Flows. Commercial Loans Portfolio is no longer for sale. It is now
managed together with the acquired loans and all are held to collect CCF.
3. Financial Services Firm decides to shut down its Retail Mortgage Business.
It no longer accepts new business and it is actively marketing its Mortgage
Loan Portfolio for sale.
NOT A CHANGE IN BM:
The following are not considered as a change in Business Model –
1. Change in intention related to particular Fin. Assets, even in case of
significant change in market,
2. Temporary disappearance of a particular market for Financial Assets,
3. Transfer of Financial Assets between parts of the Entity with different BM.
DISCLOSURES – RECLASSIFICATION:
1. Date of Reclassification,
2. Detailed explanation of change in BM and a qualitative description of its
effect on Fin. Statements,
3. Amount re–classified into and out of each category.
DERECONGITION:
1. Entity shall derecognize a Financial Asset only when the Contractual rights
to the Cash Flows from the Financial Asset expire.
2. Entity shall derecognize a Financial Liability only when it is extinguished,
i.e. when the obligation specified in the contract is discharged or cancelled
or expires.
3. On Derecognition, Amount recognized in P&L A/c = Carrying Amount on
De–recognition – [Consideration received + New Asset Obtained – New
Liability Assumed]

EXCHANGE/MODIFICATION EXCHANGE:
Exchange between Existing Borrower and Lender of Debt Instruments with
substantially different terms or substantial modification of the terms of an
existing Financial Liability shall be accounted for as an extinguishment of
Original Financial Liability and recognition of New Financial Liability.
IMPAIRMENT:
Entity shall recognize a Loss Allowance for expected Credit Losses on –
a) Financial Asset that is measured at Amortized Cost or FVTOCI,
b) Lease Receivable,
c) Contract Asset,
d) Loan Commitment,
e) Financial Guarantee Contract to which the impairment requirements apply.
EMBEDDED DERIVATIVE:
a) Component of a Hybrid Contract that also includes a Non–Derivative
Host, with the effect that some of the Cash Flows of the Combined
Instrument vary in a way similar to a Stand–Alone Derivative.
b) However, a Derivative that is attached to a Financial Instrument but
is contractually transferred independently of that Instrument, or has
a different counterparty is not an Embedded Derivative but a
Separate Fin. Instrument.
Examples
Contract Host Contract Embedded
Derivative
Leases with
Contingent Rent
Annual Lease Rental
Payments
Contingent Rent
Forex Construction
Contracts
Construction
Contract
Changes in Foreign
Exchange Rate
ACCOUNTING OF EMBEDDED DERIVATIVE SITUATION:
SSiittuuaattiioonn TTrreeaattmmeenntt
(a) Host Contract is an Asset
within the scope of this AS
Apply Classification &
Measurement Rules to the entire
Hybrid Contract
(b) Host Contract is not an Asset,
Contract will give rise to
Standalone Derivative if
separated, & Not closely related
Split the contract and account
for Embedded Derivative
separately

to Host Contract
(c) Any one of the conditions not
satisfied
No need of segregating the
Contract & accounting separately
TREASURY SHARES (OWN EQUITY INSTRUMENT):
• Entity‘s own Equity Instrument are not recognized as Fin. Asset regardless of
the reason for which they are re–acquired. If an Entity re–acquires its own
Equity, they shall be deducted from Equity.
• No Gain / Loss shall be recognized in Profit / Loss on the purchase, sale,
issue or cancellation.
• Treasury Shares may be acquired and held by Entity / other Members of the
Group. Consideration paid or received shall be recognized directly in Equity.
• Exception: When an Entity holds its own Equity on behalf of others, there is
an agency relationship. They are not included in Balance Sheet. Example:
Bank holding its own Equity on behalf of Client.
TREATMENT:
• Amount of Treasury Shares held is disclosed separately in Balance Sheet /
Notes as per Ind AS 1.
• Entity should provide disclosure as per Ind AS 24, if it re–acquires its own
Equity from Related Parties.
INTEREST, DIVIDENDS, LOSSES AND GAINS:
IItteemmss TTrreeaattmmeenntt:: RReeccooggnniizzeedd
1. Interest, Dividends, Losses and Gains relating to a
Financial Instrument or a component that is Financial
Liability
In Profit & Loss A/c
2. Distributions to holders of Equity Instrument Directly in Equity
3.Transaction Costs of an Equity Transaction As deduction from Equity
4. Income Tax relating to distributions to holders and
Transaction Costs of an Equity Transaction
As deduction from Equity

DEFAULTS & BREACHES:
For Loans Payable recognized at the end of the Reporting Period, an Entity shall
disclose –
• Details of any defaults during the period of Principal, Interest, Sinking Fund,
or Redemption terms,
• Carrying Amount of the Loans Payable in default at the end of the Reporting
period, and
• Whether the default was remedied, or the terms of the Loans payable were re–
negotiated before the Financial Statements were approved for issue.
OFFSETTING FINANCIAL ASSET AND LIABILITY:
Financial Asset and Liability shall be offset and the Net Amount presented only
when an Entity –
(a) Has a legally enforceable right to set off the recognized amounts currently, and
(b)Intends to settle on Net bases, or to realize the Asset and settle the Liability
simultaneously.
OBJECTIVE OF HEDGE ACCOUNTING:
To represent in the Financial Statements, the effect of an Entity’s Risk
Management Activities to manage Exposures arising from particular risks that
could affect Profit or Loss or Other Comprehensive Income. Entity’s Risk
Management Activities use Financial Instruments to manage Exposures.
IDENTIFYING AND DESIGNATING HEDGED ITEM:
Hedged Item can be a single item or a group of items of the following –
(a) Recognized Asset / Liability,
(b) Unrecognized Firm Commitment,
(c) Forecast Transaction, and
(d) Net Investment in a Foreign Operation.
CONDITIONS FOR HEDGED ITEM:
• Hedged Item must be reliably measurable.
• If a Hedged Item is a Forecast Transaction, it must be highly probable
DESIGNATION OF HEDGING INSTRUMENT:
HHeeddggiinngg IInnssttrruummeenntt CCoonnddiittiioonn
(a) Derivative measured at FVTPL It cannot be designated for some Written
Options.

(b) Non–Derivative Financial Asset /
Liability measured at FVTPL
Non–Derivative Financial Liability for
which the amount of change in Fair
Value attributable to changes in its
Credit risk is presented in Other
Comprehensive Income cannot be
designated.
CONDITIONS FOR HEDGING INSTRUMENT:
• Only Contracts with Party external to Reporting Entity can be designated as a
Hedging Instrument.
• Foreign Currency Risk Component of Investment in an Equity Instrument
measured at FVTOCI cannot be designated as a Hedging Instrument for Hedge
of Foreign Currency Risk.
QUALIFYING CRITERIA FOR HEDGE ACCOUNTING:
1. Hedging relationship consists only of Eligible Hedging Instruments and
Eligible Hedged Items.
2. At the inception of Hedging relationship, there is a formal designation and
documentation of Hedging relationship and the Entity’s Risk Management
Objective and Hedging Strategy.
3. It meets all of the following Hedge Effectiveness requirements –
• There is an economic relationship between the Hedged Item and the
Hedging Instrument,
• Effect of Credit Risk does not dominate the value changes that result from
that economic relationship,
• Hedge Ratio = Ratio resulting from the Quantity of Hedged Item and
Hedging Instrument.
TYPES OF HEDGING RELATIONSHIP:
a. Fair Value Hedge: Hedge of the exposure to changes in Fair Value of
Hedged Item attributable to a particular risk and could affect Profit or Loss.
b. Cash Flow Hedge: Hedge of the exposure to variability in Cash Flows of
Hedged Item attributable to a particular risk and could affect Profit or Loss.
c. Hedge of Net Investment in a Foreign Operations, including a Hedge of a
Monetary Item.
FAIR VALUE HEDGE ACCOUNTING:
GGaaiinn // LLoossss oonn AAccccoouunntteedd iinn
(a) Hedging Instrument OCI, if the Hedging Instrument hedges
an Equity Instrument measured at
FVTOCI. Otherwise in P&L.

(b) Hedged Item being a Financial
Asset measured at FVTOCI
Profit and Loss (P&L)
(c) Hedged Item being Equity
Instrument measured at FVTOCI
Other Comprehensive Income (OCI)
(d) Hedged Item being
Unrecognized Firm Commitment
Cumulative change its Fair Value is
recognized as an asset or liability with
a corresponding gain or loss recognized
in P&L
CASH FLOW HEDGE ACCOUNTING:
1. Separate Cash Flow Hedge Reserve A/c is adjusted to the lower of the
following
a. Cumulative Gain / Loss on the Hedging Instrument from inception of the
Hedge,
b. Cumulative Change in Fair Value of the Hedged Item from inception of the
Hedge.
2. Portion of Gain / Loss on the Hedging Instrument that is determined to be an
effective Hedge shall be recognized in Other Comprehensive Income.
3. Remaining Gain / Loss is hedge ineffectiveness that shall be recognized in
profit or loss.
HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS:
IItteemmss RReeccooggnniizzeedd
Portion of Gain / Loss on Hedging Instrument that is determined
to be an Effective Hedge
In OCI
Ineffective Portion In P&L
DISCLOSURES:
Entity shall apply Disclosure requirements for those Risk Exposures that an
Entity hedges and for which it elects to apply Hedge Accounting. Hedge
Accounting Disclosures shall provide information about –
a. Entity’s Risk Management Strategy and how it is applied to manage risk,
b. How Entity’s hedging activities may affect the amount, timing &
uncertainty of its future Cash Flows,
c. Effect that Hedge Accounting has had on Balance Sheet, P&L and
Statement of Changes in Equity.

DUE DILIGENCE
LET’S MAKE THINGS BETTER, BRIGHT & CLEAR
TUSHAR GUPTA
NEW DELHI
TUSHKIGUPTA@LIVE.COM
Due Diligence – Let’s make things Better, Bright & Clear
Since! You would heard many definitions on Due Diligence like it is an art to
carry investigation, collecting information and stuff like that. Let me explain you
in simple words.
When we seek a bride/groom for ourselves or children or brothers/sisters, we
evaluate the other party. Like to his whereabouts & other aspects. That’s
nothing but due diligence. We analyse on different features... Similarly when
you want to invest in a company, you will be diligent that is the investment
feasible. Is it profitable?? You will be worried until you make a profitable
investment. You will Google about the company for hours. You will contact your
expert friends. And after long investigation, You Will Invest!!
And Yes! That’s what called Due Diligence.
Due Diligence involves investigative process
that identifies hidden strength and
weaknesses in a business transaction,
which helps in evaluation of business
transaction.
Due diligence is used to evaluate a business
opportunity. The term due diligence
describes a general duty to exercise care in
any transaction. As such, it spans
investigation into all relevant aspects of the
past, present and predictable future of the
business of a target company.
Objective of Due Diligence & Why do we
conduct due diligence?

1. To protect frauds and misrepresentations because dealings are not always
straight forward and obvious.
2. To conduct a SWOT analysis to identify the strength and uncover threats and
weaknesses.
3. Bridge the gap between existing and expecting.
4. To take smooth/ accurate action or decision.
5. To enhance the confidence of Stakeholders.
6. To forecast the future performance of an organization by analyzing the
potential risks and threats.
7. To ascertain the appropriate purchase price & and the method of payment.
8. To evaluate the condition of the physical plant and equipment; as well as other
tangible and intangible Assets. To help in identifying liabilities, negotiate a
lower price; avoid lawsuits and costly mistakes and top of all to make good
business and financial decisions.
FINANCIAL DUE DILIGENCE:
A quotation of Kautailya quoted by Honourable Finance Minister in his budget
speech that, “A King shall be diligent in foreseeing the possibilities of
calamities, try to avert them before they arise, overcome those which
happen, remove obstructions to economic activity and prevent the loss of
revenue to the state...”
Investor needs to be the same King. As Finance being the backbone of any
individual or organisation whether investing or taking over any business,
financial due diligence is a must go step. It provides peace of mind to both
corporate and financial buyers by analyzing and validating all the financial,
commercial, operational and strategic assumption being made.
Establishing financial due diligence involves analysing the ratios, analysing the
trends of previous years for profits and only after evaluating these financial
factors, decisions can be taken.
It includes review of accounting policies, review of accounting policies, review of
internal audit procedures, quality & sustainability of earnings and cash flow,
condition and value of assets, potential undisclosed liabilities, tax implications of
deal structures, examination of information systems to establish the reliability of
financial information, internal control systems etc& matter that might increase
the risk of the investment.
Example: While acquiring a business or investing in any company, financial due
diligence should be taken regarding the following items appearing in Balance
Sheet:
 Verifying that Assets are not over-stated
 Analysing that depreciation is not over charged
 Analysing the transactions in Bank Accounts
 Identifying the availability of cash as stated in Financials
 Identifying that current liabilities are not under stated.
 Gross Margins and EBITDA analysis.
 Review of Internal Control and MIS systems
 Management & Employees and their Relationship.

CRUCIAL FACTORS TO BE CONSIDERED WHILE CONDUCTING
DUE DILIGENCE:
Be prepared with:
1. A detailed listing of the exact due diligence steps to follow
2. A checklist of everything to complete in each due diligence area
3. Specific due diligence tasks that need to be completed
4. All of the materials you need from the seller before you start
5. Allow yourself time and Internet Research
6. Information from vendors and customers
PROCESS OF CONDUCTING DUE DILIGENCE:
 Planning
o Study Scope and Core areas
o Appointment of the team w.r.t. their Skills and expertise
o Clear and definite mandate
o Defining the time schedules- how to deal with challenges within
agreed time frame with available resources
o Timely communication of information requirements (Due Diligence
Checklist)
 Data Collection
o Research for data could be either qualitative or quantitative
o One on one interviews with management from the target company
o Data room and access to the room
o Sources: Internet, Competitors, Industry associations, Regulatory
organizations and databases which will include searches of public
registers, Customers, Vendors etc.
 Data Analysis
o Understanding everything you can about the company
o It should be done keeping in mind the objectives of Due Diligence
o The analysis of due diligence findings is generally a weighing of a
variety of factors in order to determine whether team should give a
positive recommendation.
 Preparation of Due Diligence Report
o A summary of the scope of the review
o A list of all the information disclosed by investigations
o An analysis of the documentation and information revealed
o An executive summary which outlines the legal issues identified and
advises on the legal implications of proceeding with the transaction
(Risks and Liabilities)
o Highlight the material issues arising from the due diligence review
and advice on the factors influencing the price to be paid
HOW TO GO ABOUT IT?
While conducting my first due diligence, I was not ease. I was not sure whether
due diligence is Audit or Forensic Audit. Then gradually I Understood by practice

and experience, Due Diligence lies somewhat between Financial Audit and
Forensic Audit. You should not stuck while conducting one, here is what to do
and how to do?
1. Overview – Why selling?
2. Studying the Market Capitalization of the Company
3. Revenue, Profit and Margin Trends are analyzed via Common Size Analysis
4. Detailed Competitors and Industries Research reports are studied and
compared
5. Valuation Multiples helps us to built insights over financials and
projections
6. Management and Share Ownership, background check and changes
7. Examination of Balance Sheet
8. Stock Price History (if any)
9. Expectations & Risks
CONCLUSION:
In Today’s era, parking money at the right place is the major decision. And
therefore before relying on any company what we need is due diligence. Due
Diligence is conducted to know whether the company we are investing in or
acquiring thereon is fulfilling the necessary compliances and to know that
whether the decision would be feasible.
Obviously there is the temptation to sit back and smile.... But there’s so much at
stake, we have to do our due diligence.

KNOW MORE ABOUT US:
How this content is generated is a great example of what can be done through
what we do, we have decided to re-ignite the young brain and energetic youth of
this country and inspire them to do something on their own,
This is just a beginning to the great start that we all need,
To know more about GSTIndAS,
Contact:
Prateek Mohan Sharma - 9811435863
Be in touch (Facebook): https://www.facebook.com/GSTIndAS
Mail us at: Mail.GSTIndAS@gmail.com
Read all previous edition online: http://www.slideshare.net/GSTIndAS
With Regards
CA HIMANSHU RASTOGI
Hrastogi92@gmail.com
9958853024
Disclaimer:
This publication has been carefully prepared, but should be seen as general guidance only. You should
not act or refrain from acting, based upon the information contained in this presentation, without
obtaining specific professional advice. Please contact the persons listed in the publication to discuss
these matters in the context of your particular circumstances. GSTIndAS nor the related person make
any representation or warranty, expressed or implied, as to the accuracy, reasonableness or
completeness of the information contained in the publication. All such parties and entities expressly
disclaim any and all liability for or based on or relating to any information contained herein, or error,
or omissions from this publication or any loss incurred as a result of acting on information in this
presentation, or for any decision based on it.
PRICE—000/-

GSTIndAS Edition 3, Feb 17

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