IND AS Guide by CA H.Anand

(1)Basic introduction
(2)Roadmap of Ind AS
(3)Name of Ind AS , IFRS/IAS and AS
(4)Important provisions of Ind AS
(5)Objective type questions on Ind AS

(1) Basic Introduction of Ind AS
 Ind-AS are IFRS converged standards issued by Central
Government of India through Ministry of Corporate
Affairs( MCA) under the supervisions and control of
Accounting standard board (ASB) of ICAI and in
consultation with National Advisory Committee on
Accounting Standards ( NACAS) now National Financial
Reporting Authority (NFRA)
 Ind-AS are named and numbered in the same way as
the corresponding IFRS/IAS for ease of reference.

Some important points regarding Ind-AS
 Law overrides Ind-AS
 Ind AS applicable on material items only
 Ind-AS applicable both on SFS and CFS
 Partial adoption of Ind-AS is not allowed
 One Ind-AS applied/adopted, after that back out /withdraw
not allowed
 Ind-AS shall be applicable on Group( Holding, subsidiary,
Associates and Joint Ventures)

Carve-in /Carve-out in Ind-AS
 Government of India in consultation with ICAI decided to converge and not to adopt
IFRS/IAS issued by IASB/IASC.
 The decision of convergence rather than adoption was taken after detail analysis of
IFRS/IAS requirements and extensive discussion with various stakeholders
 Accordingly , while formulating IFRS-converged Ind-AS, efforts have been made to keep
these standards , as far as possible, in line with the corresponding IFRS/IAS and departures
have been made where considered absolutely essential . Such changes may divided into
the following three categories:
(i) Terminology related changes
(ii)Carve -Outs
(iii)Carve –Ins

(i)Terminology changes
(ii)Various terminology changes have been made to make it consistent with the terminology
used in Indian law eg Statement of profit and loss in place of Statement of Comprehensive
income and balance sheet in place of Statement of financial position.
(ii) Carve outs
Certain changes have been made considering the economic environment of India, which is
different as compare to the economic environment of developed countries which has been
considered while making IFRS/IAS. The differences which are in deviation to the accounting
principles and practices stated in IFRS, are commonly known as Carve-Outs. It may be noted
that removal of options in accounting principles & practices in Ind AS vis-à-vis IFRS, in order to
maintain the consistency & comparability of the financial statements , shall not be treated as
Carve-Outs
(iii) Carve-Ins
If there is no guidelines under IFRS for any particular transaction or event, then the guidelines
provided under Ind-AS is known as Carve-Ins.

Jul-14
Speech of Finance Minister of India late shree Arun Jaitely regarding commitment of Govt. for IFRS converged
Ind-AS
16-12-2005
MCA issued roadmap for Ind-AS on companies ( other than banking, insurance & NBFCs) through Ind-AS
Rules 2015 ( amended in 2016, 2017, 2018, 2019 & 2020)
18-01-2016
MCA issued a press released regarding applicability of Ind-AS on Banking companies, Insurance companies &
NBFC
11-02-2016
RBI issued a notification for applicability of Ind-AS on all schedule commercial banks( excluding regional rural
bank). Till date Ind-AS not applicable on bank
01-03-2016
IRDA issued a notification for applicability of Ind-AS on insurance companies( till date Ind-AS not applicable
on insurance sector )
30-03-2016
MCA issued Ind AS amendment rules 2016 and made a roadmap for NBFCs
24-07-2020
MCA made amendment in Companies Ind-AS rules 2015 keeping in view the current business environment
casued by COVID-19. COVID-19 has not only affected the health of people across the global it has also caused
severe disturbances in the global economic environment which has consequential impact on financial
statement and reporting

Roadmap for Ind-AS for companies ( other
than Banking/Insurance/NBFCs)
Voluntary Phase From 1/4/2015
Mandatory Phase I From 1/4/2016
Mandatory Phase II From 1/4/2017 and
onwards

Voluntary Phase-1/4/2015 ( FY 2015-16)
Whether company ( other than banking, insurance and NBFCs) voluntary
adopted Ind-AS?
If answer is yes apply Ind-AS( copy of IFRS/IAS subject to some modifications) as
per Companies Ind-AS Rules 2015 on entire group ie Holding, subsidiary,
Associates and Joint Ventures with comparatives of previous year. It may be
noted that transitional date will be the first day of previous year.
Note: Transitional date is the date when we moves from AS to Ind-AS
IF answer is NO, apply AS as per companies AS Rules 2006. AS rules 2006 are
copy of ICAI AS subject to some minor changes

Mandatory Phase I ( 1/4/2016) FY 2016-17
Whether Net worth of company ( whether listed or unlisted) on 31/3/2014 or at
the end of latter year is Rs. 500 crore or more
If answer is yes apply Ind-AS as per Companies Ind-AS Rules 2015 on entire
group ie Holding, subsidiary, Associates and Joint Ventures with comparatives of
previous year. It may be noted that transitional date will be the first day of
previous year.
IF answer is NO, apply AS as per companies AS Rules 2006 unless company
voluntary adopted Ind AS as per Ind AS Rule 2015

Mandatory Phase II ( 1/4/2017) FY 2017-18
For Companies ( other than those already covered under Voluntary Phase 1( 1/4/2015) or Mandatory
phase I ( 1/4/2016)
Whether company is listed or in the process of listing on stock exchange in India or outside india (
other than SME exchanges)
Note: SME exchange is a stock exchange dedicated for trading of shares /securities of SMEs who
otherwise find it difficult to get listed on main stock exchange. It may be noted that companies listed in
SME exchanges can adopt Ind AS voluntary.
If answer is yes apply Ind-AS as per Companies Ind-AS Rules 2015 on entire group ie Holding,
subsidiary, Associates and Joint Ventures with comparatives of previous year. It may be noted that
transitional date will be the first day of previous year.
IF answer is NO, then check whether net worth of such unlisted company is Rs. 250 crore or more ?
If answer in Yes apply Ind AS( 2015 rules) and if answer is NO then apply AS ( 2006 Rule) unless
company voluntary adopt Ind AS( 2015 rules)

Net Worth as per section 2(57) of companies Act 2013
Paid up capital ( equity and preference)
Add: Reserves made out of profits
Add: Security premium
Add: Profit and loss ( Cr. Balance)
Less: Profit and loss ( Dr. Balance)
Less: Fictitious assets( Share issue exp, underwriting comm.
Preliminary exp, deferred revenue exp. Etc)

Important note for net worth
(1) Following reserves shall not be taken in to account while calculating net
worth
(i) Reserves created out of revaluation of assets
(ii) Reserves created under amalgamation
(iii) Reserves created out of written back of depreciation
(2) Calls in arrear shall be deducted while calculating paid up capital.
(3) Calls in advances will be ignore for net worth
(4) ESOP reserve is required to be included while calculating the net worth of
companies as it is created out of profit and loss and finally transferred to
share capital/security premium/general reserve as appropriate.

Roadmap of Ind-AS for NBFCs
Voluntary Phase Not allowed
Mandatory Phase I From 1/4/2018
Mandatory Phase II 1/4/2019 and onwards

Roadmap for Scheduled Commercial Banks ( excluding
Regional Rural Banks)
Schedule Commercial Bank excluding Regional Rural banks
were initially required to implement Ind-AS from 1/4/2018. RBI
deferred the implementation of Ind-AS by one year i.e from
1/4/2019 onwards. But latter on RBI further deferred the
implementation of Ind-AS till further notice. Voluntary
adoption of Ind-AS not allowed for banks, so Bank is using ICAI
AS till the implementation of Ind-AS

Roadmap for Insurance companies
The Insurance Regulatory & Development Authority
(IRDA) has deferred the date of implementation of Ind-
AS for insurance sector till further notice .Voluntary
adoption of Ind-AS not allowed for Insurance companies.
Insurance sector is waiting of Ind AS 117 which is under
process for Insurance business.

list of Ind-AS vis a Vis Corresponding AS/GN
S.no Ind-AS Ind-AS Title
AS/GN
number AS/GN Title
1 101
FIRST TIME ADOPTION OF INDIAN
ACCOUNTING STANDARDS NO NO
2 102SHARE BASED PAYMENTS GN-18
GUIDANCE NOTES ON
ACCOUNTING FOR EMPLOYEES
SHARE BASED PAYMENTS
3 103BUSINESS COMBINATIONS AS-14
ACCOUNTING FOR
AMALGAMATIONS
4 104Insurance contract NO NO
5 105
NON CURRENT ASSETS HELD FOR
SALES & DISCONTINUED OPERATIONS AS-24 DISCONTINUING OPERATIONS
6 106
Exploration for and Evaluation of Mineral
Resources NO NO
7 107
FINANCIAL INSTRUMENTS-
DISCLOSURES NO NA
8 108OPERATING SEGMENTS AS-17 SEGMENT REPORTING
9 109FINANCIAL INSTRUMENTS NO NA
10 110
CONSOLIDATED FINANCIAL
STATEMENTS AS-21
CONSOLIDATED FINANCIAL
STATEMENTS

AS/GN
number AS/GN Title
11 111JOINT ARRANGEMENTS AS-27
FINANCIAL REPORTING OF
INTEREST IN JOINT VENTURES
12 112
DISCLOSURE OF INTERESTS IN
OTHER ENTITIES NO NA
13 113FAIR VALUE MEASUREMENT NO NA
14 114Regulatory Deferral Accounts NO NO
15 115
REVENUE FROM CONTRACTS WITH
CUSTOMERS AS-9 REVENUE RECOGNITIONS
16 116Leases AS-19 Leases
17 1
PRESENTATION OF FINANCIAL
STATEMENTS AS-1
DISCLOSURE OF ACCOUTING
POLICIES
18 2INVENTORIES AS-2 VALUATION OF INVENTORIES
19 7STATEMENT OF CASH FLOW AS-3 CASH FLOW STATEMENT
20 8
ACCOUNTING POLICIES, CHANGES
IN ACCOUNTING ESTIMATES &
ERRORS AS-5
NET PROFIT OR LOSS FOR THE
PERIOD, PRIOR PERIOD ITEMS &
CHANGE IN ACCOUNTING POLICES

AS/GN
number AS/GN Title
21 10
EVENTS AFTER THE REPORTING
PERIOD AS-4
CONTINGENCY & EVENTS OCCURING
AFTER THE BALANCE SHEET DATE
22 12INCOME TAXES AS-22 ACCOUTING FOR TAXES ON INCOME
23 16PROPERTY PLANT & EQUIPMENTS AS-10 PROPERTY PLANT & EQUIPMENTS
24 19EMPLOYEES BENEFITS AS-15 EMPLOYEES BENEFITS
25 20
ACCOUNTING FOR GOVERNMENT
GRANT AND DISCLOSURE OF
GOVERNMENT ASSISTANCE AS-12
ACCOUNTING FOR GOVERNMENT
GRANTS
26 21
THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES AS-11
THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES
27 23BORROWING COSTS AS-16 BORROWING COSTS
28 24RELATED PARTY DISCLOSURES AS-18 RELATED PARTY DISCLOSURES
29 27SEPARATE FINANCIAL STATEMENTS NO NA
30 28
INVESTMENT IN ASSOCIATES AND
JOINT VENTRURES AS-23
ACCOUNTING FOR INVESTMENT IN
ASSCOATES IN CONSOLIDATED
FINANCIAL STATEMENTS

AS/GN
numbe
r AS/GN Title
31 29
FINANCIAL REPORTING IN
HYPERINFLATIONARY
ECONOMIES NO NA
32 32
FINANCIAL INTRUMENTS-
PRESENTATION NO NA
33 33EARING PER SHARE AS-20 EARNING PER SHARE
34 34
INTERIM FINANCIAL
REPORTING AS-25 INTERIM FINANIAL REPORTING
35 36IMPAIRMENT OF ASSETS AS-28 IMPAIRMENT OF ASSETS
36 37
PROVISIONS, CONTINGENT
LIABILITIES & CONTINGENT
ASSETS AS-29
PROVISIONS, CONTINGENT
LIABLITIES & CONTINGENT
ASSETS
37 38INTANGIBLE ASSETS AS-26 INTANGIBLE ASSETS
38 40INVESTMENT PREPERTY AS-13 ACCOUNTING FOR INVESTMENT
39 41AGRUCULTURE NO NA

Ind AS 1: Presentation of
Financial Statements

Topic no 1: COMPLETE SET OF FINANCIAL STATEMENTS
A complete set of financial statements comprises:
(i) a balance sheet as at the end of the period;
(ii) a statement of profit and loss for the period;
(iii) statement of changes in equity for the period;
(iv) a statement of cash flows for the period;
(iv) notes, comprising significant accounting policies and other explanatory information;
(vi) comparative information in respect of the preceding period;
(vii) a balance sheet as at the beginning of the preceding period when an entity applies
an accounting policy retrospectively or makes a retrospective restatements of items in
its financial statements, or when it reclassifies items in its financial statements.

Topic no 1: COMPLETE SET OF FINANCIAL STATEMENTS
Important note:
 An entity shall present a single statement of profit and loss, with profit or
loss and other comprehensive income presented in two sections. The
sections shall be presented together, with the profit or loss section
presented first followed directly by the other comprehensive income
section.

Important note
An entity shall present, as a minimum:
 2 Balance Sheets
 2 Statement of Profit and Loss
 2 Statement of Cash Flows
 2 Statement of Changes in Equity and Related
Notes.

Carve Out
As per IFRS/IAS
IAS 1 requires that in case of a loan liability, if any condition of the
loan agreement which was classified as non -current is breached
on or before the reporting date, such loan liability should be
classified as current, even if the breach is rectified after the
balance sheet date.

Carve Out
Para 74 of Ind AS 1: Presentation of Financial Statements clarifies that where there is a
breach of a material provision of a long-term loan arrangement on or before the end
of the reporting period with the effect that the liability becomes payable on demand
on the reporting date, the entity does not classify the liability as current, if the lender
agreed, after the reporting period and before the approval of the financial statements
for issue, not to demand payment as a consequence of the breach.
Para 75 of Ind AS 1: Presentation of Financial statements further clarifies that an entity
classifies the liability as non current if the lender agreed by the end of reporting period
to provide a period of grace ending at least twelve months after the reporting date , with
in which the entity can rectify the breach and during which the lender cannot demand
immediate repayment.

Para 3 of Ind AS 10: Event after the reporting period are those events , favourable and unfavourable
, that occur between the end of the reporting period and the date when the financial statements are
approved by the Board of Director in case of company. Two types of events can be identified :
( i) Those that providing evidence of the conditions that existed at the end of reporting period (
adjusting events)
(ii) Those that are indicative of conditions that arose after the reporting period ( non adjusting events)
Notwithstanding anything contained above, where there is a breach of a material provisions of a long
term loan arrangement on or before the end of the reporting period with the effect that the liability
becomes payable on demand on the reporting date, the agreement by lender before the approval of
the financial statements, to not demand payment as a consequences of the breach , shall be
considered as adjusting events

Reason
Under Indian banking system, a long-term loan agreement generally contains a large
number of conditions. Some of these conditions are substantive, such as, recalling
the loan in case interest is not paid, and some conditions are procedural and not
substantive, such as, submission of insurance details where the entity has taken the
insurance but not submitted the details to the lender at the end of the reporting
period. Generally, customer-banker relationships are developed whereby in case of
any procedural breach, a loan is generally not recalled. Also, in many cases, a breach
is rectified after the balance sheet date and before the approval of financial
statements. Carve out has been made as it is felt that if the breach is rectified after the
balance sheet date and before the approval of the financial statements, it would be
appropriate that the users are informed about the true nature of liabilities being non-
current liabilities and not current liabilities.

General features of financial statements
(i) Presentation of true and fair view and compliance with Ind AS
(ii) Going concern
(iii) Accrual base of accounting
(iv)Materiality & Aggregation
(v) Offsetting( as permitted by other Ind AS eg DTA and DTL)
(vi)Frequency of reporting( at least annually)
(vii)Comparative information
(viii)Consistency of presentation

MCQ Ind AS 1
Q 1: As per Ind AS 1, a complete set of financial statements do not
comprise:
(a) Balance sheet
(b) Statement of change in equity
(c) Notes and other explanatory information
(d) Director’s report.

MCQ Ind AS 1
Q 2: An entity whose financial statement comply with Ind AS shall
make an ……….. Statement of such compliance in the notes
(a) Explicit and reserved
(b) Implicit and unreserved
(c) Explicit and unreserved.
(d) Implicit and reserved

MCQ Ind AS 1
Q 3: As per Ind AS 1, an entity is not allowed to offset assets and
liabilities or income and expenses . This statement is:
(a) Completely true
(b) Completely false
(c) Partially true, offsetting is allowed if required or permitted by an Ind AS
(d) Partially false, offsetting is not allowed if stated by an Ind AS

Inventories are assets:
i. held for sale in the ordinary course of
business; (Finished Goods)
ii. in the process of production for such sale;
or (Work in progress)
iii. In the form of materials or supplies to be
consumed in the production process or in
the rendering of services. (Raw material &
consumables )

Measurement of Inventories
Inventories shall be measured at the lower of
COST & NET REALISABLE VALUE(NRV)

A. Cost of Inventories
Cost of Inventories comprises:
i. all costs of purchase;
ii. costs of conversion; and
iii. Other cost incurred in bringing
the inventories to their present
location & condition

(i) Cost of purchase
The costs of purchase of inventories include:
a) the purchase price( net of trade discount &
Rebates),
b) import duties and other taxes (non refundable),
c) transport, freight , carriage, cartage, handling cost,
loading, unloading, transit insurance and
d) other costs directly attributable to the acquisition
of finished goods, materials and services.

(ii) Special case when inventory is
acquired in deferred payment basis:
An entity may acquire inventories on deferred
settlement terms. When the arrangement
effectively contains a financing element, that
element, for example a difference between the
purchase prices for normal credit terms and the
amount paid, is recognized as interest expense
over the period of financing

Q 1: Which of the following cost is excluded
from cost of inventory as per Ind AS 2
(a) Sales commission.
(b)Direct labour cost
(c)Factory rent and utilities
(d)Factory overheads based on normal
capacity.

Q 2: Allocation of fixed production overheads
to the cost of conversion of items of inventory
should be based on ……… production
cacapity
(a) Actual
(b)Normal.
(c)Abnormal
(d)estimated

Q 3: Which of the following cost formula is
not allowed under Ind AS 2
(a) FIFO
(b)LIFO.
(c)Weighted average
(d)Special identification method

Ind AS 7: Statement of Cash flow

Introduction of Ind AS 7
(i) Balance sheet show the financial position at particular date. Accrual concept is being followed
while preparing balance sheet of entity.
(ii) Statement of profit and loss show the performance of entity during the reporting period. It is
also prepared as per accrual concept of accounting.
(iii) The statement of cash flows includes only inflows and outflows of cash and cash equivalents;
it excludes transactions that do not affect cash receipts and payments.The information on cash
flows is useful in assessing sources of generating and deploying cash and cash equivalents
during the reporting period. The statement of cash flows can be used for comparison with
earlier reporting periods of the same entity as well as comparison with other entities for the
same reporting period.
(iv) Ind AS 7, Statement of Cash Flows, prescribes principles and guidance on preparation and
presentation of cash flows of an entity from operating activities, investing activities an d
financing activities for a reporting period.
(v) An entity shall prepare a statement of cash flows in accordance with the requirements of this
Standard and shall present it as an integral part of its financial statements for each period

Format of Statement of Cash flow
Particulars Amount (`)
Cash flow from Operations Activities +/-
Cash flow from Investing Activities +/-
Cash flow from Financing Activities +/-
Net Cash Generated during the year +/-
Add: Cash and Cash Equivalents at the beginning of the year +/-
Cash and Cash Equivalents at the end of theyear (which will be +/-
Tallied with the cash and cash equivalents given in the balance
sheet)

Important Definitions
The following terms are used in this Standard with the meanings
specified:
1. Cash comprises cash on hand and demand deposits.
2. Cash equivalents are short-term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
3. Cash flows are inflows and outflows of cash and cash equivalents.
4. Operating activities are the principal revenue-producing activities
of the entity and other activities that are not investing or financing
activities.
5. Investing activities are the acquisition and disposal of long-term
assets and other investment not included in cash equivalents.

Q 1: Which of the following is not the feature of
cash
(a) Cash in hand
(b) Demand deposit
(c) Cash at bank
(d) None of the above

Q 2: According to Ind AS 7, bank overdrafts which
are repayable on demand are forming part of an
entity’s cash management are considered as:
(a) Operating activities
(b)Cash and cash equivalent.
(c)Financing activity
(d)Investing activity

Q 3: The accountant of the company has classified
separately the cash flow from extraordinary items
as arising from operating, investing and financing
activities which preparing the statement of cash
flow. He is of the view that this is acceptable
treatment under Ind AS 7
(a) True
(b) False.

Ind AS 8: Accounting Policies, Changes
in Account estimates & Errors

Particular Guidelines to be followed
(1) Accounting policies( meaning,
selection and changes)
Ind AS 8
(2) Change in Accounting
Estimates
Ind AS 8
(3) Errors Ind AS 8
(4) Extraordinary items No concept
(5) Exceptional items Ind AS 1

CONCEPTS
1. Accounting Polices
- Meaning of Accounting Polices
- Selection of Accounting polices
- Changes in Accounting polices
2. Accounting Estimates
- What are accounting estimates
- Changes in accounting estimates
3. Errors
- Meaning of accounting errors
- Accounting treatment of errors

CONCEPT no 1: Accounting policies
Meaning of Accounting Polices
Accounting polices are
Specific principles,
Bases,
Conventions ,
Rules and practices ,
Adopted by the enterprises in preparing and presenting financial statements

CONCEPT no 1: Accounting polices
- Selection of accounting polices
Rank 1: Followed rules of Ind AS if any
Rank 2: Use management judgement if no Ind AS keeping in view the following two
Reliable and relevance:
- Faithful representation
- Substance over form
- Prudence
- Neutrality
- completeness

Important note: In making judgement as per ranking 2, management should
consider:
- Ind AS dealing with similar and related transactions
- Guidelines given by Framework
- Recent pronouncement of IASB
- Accepted industry practice

Change in Accounting policy
The same accounting policies must be followed from one period to the next period(
concept of consistency). However an entity shall change accounting polices in the
following cases only:
(i) If change in Ind AS
(ii) If change would result better presentation of Financial statements
The following are not changes in Accounting policies:
(i) The first time application of an accounting policy to newly occurring item is not a
change in accounting policy.
(ii) The application of an accounting policy for transaction/event that differ in
substance from those previously occurring

Concept 2: Accounting Estimates
Meaning of Accounting Estimates
Some times some components of financial statement cannot be measured with precision and
can only be estimated eg provision for doubtful debt, provision for warranty cost, provisions
for loss, useful life of asset, scrap value, useful life of asset etc. Accounting estimates are
based on the latest available information. The use of reasonable estimates is an essential part of the
preparation of financial statements and does not undermine their reliability.
Change in Accounting Estimates
Accounting estimates are revised/change as a result of new information or new development
or new experience or change in circumstances on which estimate was based.
Effects of change in accounting estimates
A change in accounting estimates is recognized prospectively ie in the current period

Concept 2: Accounting Estimates
Important notes regarding change in accounting estimates
(i) An estimate may need revision if changes occur in the circumstances on which the estimate was based
or as a result of new information or more experience. By its nature, the revision of an estimate does not
relate to prior periods and is not the correction of an error.
(ii) A change in the measurement basis applied is a change in an accounting policy, and is not a change in
an accounting estimate. When it is difficult to distinguish a change in an accounting policy from a
change in an accounting estimate, the change is treated as a change in an accounting estimate. It may
be noted that change in method of depreciation shall be treated as change in accounting estimates as
per Ind AS 16-PPE

Concept 3: Errors
Meaning of Errors
Priors period errors are errors committed in earlier year but discovered in current year. Eg
mathematical mistake, misinterpretation of facts, frauds, oversights etc. Definition of Priors
period item as prescribed in Ind AS 8 is as under:
Prior period errors are omissions from, and misstatements in, the entity‘s financial statements for one or more prior
periods arising from a failure to use, or misuse of, reliable information that:
(a) was available when financial statements for those periods were approved for issue; and
(b) could reasonably be expected to have been obtained and taken into account in the preparation and presentation
of those financial statements. Such errors include the effects of mathematical mistakes, mistakes in applying
accounting policies, oversights or misinterpretations of facts, and fraud.
Effect of rectification of errors
. Prior period amount are restated as if the error had never occurred. The error and the effect
of its correction on financial statement are disclosed.
Limitation of retrospective restatement
When it is impracticable to determine the cummulative effect, at the beginning of current year,
the entity shall restate the comparative information to correct the errors prospectively from
the earliest date practicable.

Q 1: While selecting an accounting policy an entity
should always review:
(a) Ind AS
(b) Pronouncements of International accounting standards
boards
(c) Conceptual framework only
(d) All of the above

Q 2: Change in the method of depreciation shall be
accounted …………….. In accordance with Ind AS 8
(a) As a change in accounting policy
(b) As a change in accounting estimates.
(c) As a correction of error
(d) As per management discretion

Q 3: As per Ind AS 8, prior period errors shall be
corrected:
(a) Prospectively
(b) Retrospectively
(c) Prospectively with disclosure

Ind AS 10: Events after the
reporting period

Events after the reporting period
Events after the reporting period are those events, favourable and
unfavourable, that occur between the end of the reporting period and
the date when the financial statements are approved by the Board
of Directors (in case of a company) and by the corresponding
approving authority (in case of any other entity) for issue.

Type of Events
The ‘events after the reporting period’ are classified into two
categories
(i) Adjusting Events: Adjusting events are those that provide
evidence of conditions that existed at the end of the reporting
period (adjusting events after the reporting period); and
(ii) Non Adjusting Events: Non-adjusting events are those that are
indicative of conditions that arose after the reporting period (non-
adjusting events after the reporting period).

Concept 6: Carve out/Long term loan arrangement
Notwithstanding anything contained in the definition of adjusting events and
non-adjusting events in Ind AS 10, where there is a breach of a material
provision of a long- term loan arrangement on or before the end of the
reporting period with the effect that the liability becomes payable on
demand on the reporting date, the agreement by lender before the approval of
the financial statements for issue, to not demand payment as a consequence
of the breach, shall be considered as an adjusting event.

Q 1: the financial statements of A ltd for FY 2020-21
were approved by the board on 24th may 2021. the
management discovered a major fraud and decided
to reopen the books of account. The financial
statements are subsequently approved by board
on 31st may 2021. what is the date of approval for
issue as per Ind AS 10
(a) 24th may 2021
(b) 31st may 2021.
(c) Either a or b
(d) Neither a nor b

Q 2: Discovery of Fraud or error after the financial
statement for issue but before approval by the
shareholders need to be:
(a) Adjusted
(b) Disclosed
(c) None of the above
(d) Adjusted if the impact of fraud or error is
certain.

Topic no 1: Introduction
Note on temporary difference: As Ind AS 12 follows the balance sheet
approach for the income tax accounting and therefore, it defines the
temporary differences with respect to the balance sheet items ie asset or
liabilities. These difference occur when the items of revenue or expenses are
included in both accounting profit and taxable profit, but not for the same
accounting period. For example, interest revenue received in arrear and
included in the accounting profit on the basis of accrual say in 2017-18,
however it may be included in taxable income in 2018-19 when it was actually
received( cash basis) . In the long run the total taxable profit and total
accounting profit will be the same except for some exceptions( permanent
differences). It is to be noted that in Ind AS 12, there is no term like
permanent differences. Temporary difference orginate in one period and are
capable of reversal in on or more subsequent periods. Deferred tax is the tax
attributable to such temporary differences . If temporary difference are taxable
temporary difference generate DTL and if these are deductable temporary
differences generate DTA.

(2) Nine Important Definitions
i. Accounting profit is profit or loss for a period before deducting tax expense( calculated as per
Ind AS).
ii. Taxable profit (tax loss) is the profit (loss) for a period, computed as per the income tax act,
upon which income taxes are payable (recoverable).
iii.
Tax expense (tax income) is the aggregate amount included in the determination of profit or
loss for the period in respect of current tax and deferred tax.
iv. Current tax is the amount of income taxes payable (recoverable) in respect of the taxable
profit (tax loss) for a period.
v. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect
of taxable temporary differences( AS 22 use word timing difference).
vi. Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of:
i. deductible temporary differences;
ii. the carry forward of unused tax losses; and
iii. the carry forward of unused tax credits.

vii. Temporary differences are differences between the carrying amount of
an asset or liability in the balance sheet and its tax base.
viii. Temporary differences may be either:
• taxable temporary differences, which are temporary differences that
will result in taxable amounts in determining taxable profit (tax loss) of
future periods when the carrying amount of the asset or liability is
recovered or settled; or
• deductible temporary differences, which are temporary differences
that will result in amounts that are deductible in determining taxable
profit (tax loss) of future periods when the carrying amount of the asset
or liability is recovered or settled.
ix. The tax base of an asset or liability is the carrying amount to that asset
or liability for tax purposes

Q 1: As per ind as 12, a taxable temporary
difference generates
(1) Deferred tax liabilities.
(2) Deferred tax assets
(3) Tax income
(4) Tax expenses

Q 2: Temporary differences are differences
between the carrying amount of an asset or liability
in the
(1) Accounting and taxable profit
(2) Balance sheet and tax base.
(3) Accounting and tax base
(4) None of the above

Q 3:A ltd borrowed Rs. 10000000 from state bank of india onn
1/4/2018 for the period of three years. The bank has charged
processing fees on such loan amounting to rs. 200000. No
interest was repayable on loan but the amount repayable as on
31st march 2021 will be Rs. 13043800 as per loan agreement. This
equates to an effective rate of 10%. As per income tax act, a
deduction of Rs. 3043800 will be claimed when the loan was
repaid as on 31st march 2021. Tax rate is 30%. What will be the
implication of DTA or DTL as on 31 march 2019
(a) DTA of Rs. 234000.
(b) DTL of Rs. 234000
(c) DTA of Rs. 304380
(d) DTL of Rs. 304380

Ind AS 16-Property, Plant &
Equipments

Definition of PPE
Property plant & Equipment are tangible
items that:
( a) are held for use in the production or supply
of goods or services, for rental to others, or for
administrative purposes; and
(b) are expected to be used during more than one
period.

General Recognition criteria
The cost of an item of property, plant and
equipment shall be recognised as an asset if,
and only if:
(i) it is probable that future economic benefits
associated with the item will flow to the
entity; and
(ii) The cost of the item can be measured
reliably.

Conclusion:
If four conditions satisfied then the asset
will be treated PPE
(i) Tangible asset
(ii) Held for use in production, services,
administrative purpose, distribution
purpose, rental purpose ( DURING
MORE THAN ONE PERIOD)
(iii) Future economic benefit are expected to
flow to the enterprises
(iv) Cost can be measured reliably

Important note regarding definition of PPE
and Recognition criteria
(i) Applicability of Different Ind AS on building
• Building held for use in production
• Building held for use in administration
• Building held for use for selling
department/Marketing agents
• Building held for use in providing services
• Building held for sale
• Building held for rental income
• Building held for capital appreciation
• Building originally held for use/rental purpose
but now held for sale

Recognition of spare parts, stand by
equipments( kept in hand to ensure smooth
running of activities) & Servicing equipments
Items such as spare parts, stand-by equipment and
servicing equipment are recognised in accordance with
this Ind AS when they meet the definition of property,
plant and equipment. Otherwise, such items are
classified as inventory.

Out of scope
Ind AS 16 not applicable in the following cases
(i) Biological assets( living plants eg cotton plants,
tobacco plant, sugarcane plant, wheat, rice etc &
Living animals eg cow diary farm, sheeps, poultary
farm ) other than Bearer plants eg apple trees, Mango
trees, coconut trees. Hence Ind AS 16 is applicable on
bearer plants
(ii) Wasting assets eg mineral oil, ores
(iii)Retired assets held for sale( Ind AS 105-Non current
asset held for sale and discontinued operations)
Note : Ind AS 16 is applicable on PPE used to develop or
maintain the asset described in (i) and (ii) above

Topic no 4: Initial Recognition of PPE
An item of property, plant and equipment that qualifies
for recognition as an asset should be initially measured
at its cost.
Cost of PPE can be measured at the time of initial
recognition under the following four cases
(i) Acquired from open market
(ii) Self construction
(iii)Exchange
(iv)Hire purchase acquisition

Model for Presentation
An entity shall choose either the cost model or the revaluation model as its
accounting policy and shall apply that policy to an entire class of property, plant
and equipment.
After recognition as an asset, an item of property, plant and equipment shall be
carried at its cost less any accumulated depreciation and any accumulated
impairment losses
After recognition as an asset, an item of property, plant and equipment whose fair
value can be measured reliably is 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 are required to be
carried out 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.

Q 1:……… is an amount at which an asset is
recognized after deducting any accumulated
depreciation and accumulated impairment loss
(a) Carrying amount
(b) Residual value
(c) Fair value
(d) Impairment amount

Q 2: How to value an item of property , plant and
equipment acquired in exchange in an arm’s length
commercial transaction
(a) Carrying value.
(b) Present value
(c) Residual value
(d) Fair value

Q 3: what are the various method suggested for
subsequent measurement as per ind as 16
(1) Fair value model or cost model
(2) Cost model or revaluation model.
(3) Fair value model or present value model
(4) Market price model or fair value model

Scope of Ind AS 19
 This Standard shall be applied by an employer in accounting for all employee benefits other than benefits to
which Ind AS 102, Share-based Payment, is applicable (e.g. Employees Stock Option Plans).
 Employee benefits to which this Standard applies include those provided
1. under formal plans/agreements between an entity and its individual employees/group of employees/their
representatives,
2. as required by law or as required by any type of industry arrangements whereby an entity is required to
contribute to any nation/state/industry or other multi-employer plans; or
3. by those informal practices that give rise to a constructive obligation. Informal practices give rise to a
constructive obligation where the entity has no realistic alternative but to pay employee benefits.
Example of a constructive obligation - Where a change in the entity’s informal practices would cause unacceptable
damage to its relationship with employees

Concept no 3: Employee Benefits
(1) Employee benefits include:
(i) short employee benefits,
(ii) post-employment benefits,
(iii) other long term employee benefits and
(iv) termination benefits.
All these categories have different characteristics and hence the
Standard has specified separate accounting requirements for
each such category.

(2) Employee benefits include benefits provided
either to
 employees; or
 their dependents/Beneficiaries

(3) Employee benefits may be settled by payments (or the provision of
goods or services) made either
 directly to the employees; or
 their spouses; or
 their children; or
 their other dependants; or
 others, such as insurance companies/Trusts/EPF department.

(4) An employee may provide services to an entity on a
 full-time; or
 part-time; or
 permanent; or
 Casual/temporary basis.
Note: For the purpose of this Standard, employees include directors and other management personnel.

A: Short term employee benefits
( i) Meaning of STEB: Employee benefits ( other than termination
benefits) that are expected to be settled wholly before 12 months after
the end of annual reporting period in which the employee render the
related service.
STEB may be divided in to the following four categories
(i) Regular period benefits( Salary /wages, social security
contributions)
(ii) Paid annual leave & paid sick leave
(iii)Profit sharing & Bonus
(iv) Non monetary benefits( medical facility, housing facility, education
facility, car facility, free or subsidized goods or services)

A: Short term employee benefits
(ii) Recognition of Short term employee benefits
Accounting for short term benefits has two characteristics:
(a) short-term benefits are measured on an undiscounted basis; and
(b) they don’t involve any actuarial valuation for their measurement.
The undiscounted amount of short-term employee benefits expected to be paid
in exchange for that service shall be recognised:
(a) as a liability (accrued expense), after deducting any amount already paid.
If the amount already paid exceeds the undiscounted amount of the benefits,
an entity shall recognise that excess as an asset (prepaid expense) to the
extent that the prepayment will lead to, for example, a reduction in future
payments or a cash refund; and
(b) as an expense, if it doesn’t form part of the cost of an asset as per any
other Ind AS (e.g. Ind AS 2, Inventories or Ind AS 16 Property, Plant and
equipments

Types of Post employment benefits/Long term Benefits
(1) Defined Contribution plan
(2) Defined benefits plan

1. defined contribution plans
(a) The entity’s legal or constructive obligation is limited to the amount that it agrees to contribute to
the fund.
(b) As a result of this, actuarial risk (which means that benefits will be less than expected) and
investment risk (that assets invested will be insufficient to meet expected benefits) fall, in
substance on the employee (and not on the entity).
Example: Contribution of EPF, ESI, contribution to insurance company/Trust for retirement
benefits/Insurance
2. Under defined benefit plans
(a) The entity’s obligation is to provide the agreed benefits employees; and
(b) Actuarial risk (that benefits will cost more than expected) and investment risk fall, in substance, on
the entity (and not on the employee like in the case of defined contribution plan).
(c.) Thus, if actuarial or investment experience are worse than expected, the entity’s obligation may
be increased.
Example: Gratuity, fixed amount after the retirement or after continuing services for certain period etc.

ACCOUNTING FOR DEFINED CONTRIBUTION PLANS
 The reporting entity’s obligation for each period is determined by the
amounts to be contributed for that period.
 No actuarial assumptions are required to measure the obligation or
the expense and there is no possibility of any actuarial gain or loss.
 The obligations are measured on an undiscounted basis , however
discounting is done where the obligation falls due after twelve months
after the end of the annual reporting period in which the employees
render the related service.

Accounting for Defined benefits plan
Accounting for defined benefit plans is complex because -
 actuarial assumptions are required to measure the obligation and the
expense;
 there is a possibility of actuarial gains and losses;
 the obligations are measured on a discounted basis because they may
be settled many years after the employees render the related service

Q 1: Ind AS 19 employees benefits does not cover
casual or temporary employees
(a) True
(b) False

Q 2: Which of the following amount should not be
recognized in profit and loss in relation to defined
benefit plan
(a) Current service cost
(b) Actuarial gain and loss
(c) Both above

Ind AS 20: Accounting for
Government Grant &
Disclosure of Government
Assistance

Definition of Government( State/Central/Local
Bodies/foreign Govt) grants are assistance by government
in the form of transfers of resources to an entity in return for
past or future compliance with certain conditions relating to
the operating activities of the entity.
They exclude those forms of government assistance which
cannot reasonably have a value placed upon them and
transactions with government which cannot be
distinguished from the normal trading transactions of the
entity.
Government grants are sometimes called by other names
such as subsidies, subventions, or premiums.

Scope of Ind AS 20:
(1) Monetary Grant
(i) Monetary Grant for Assets
(ii) Monetary Grant for Revenue Expenses
(iii)Monetary Grant for setup of new Business in
prescribed Area
(2) Non Monetary Grant
(i) For Assets
(ii) Forgivable loans( New concept as per Ind AS 20)

RECOGNITION OF GOVERNMENT GRANTS
Initial recognition of Grant should be made on accrual basis only when there is reasonable
assurance that
(a) the entity will comply with the conditions attaching to them; and
(b) the grants will be received.
A government grant is not recognised until there is reasonable assurance that the entity will
comply with the conditions attaching to it, and that the grant will be received. Receipt of a grant
does not of itself provide conclusive evidence that the conditions attaching to the grant have
been or will be fulfilled
Journal entry
Grant Receivable
To Government Grant

ACCOUNTING OF GOVERNMENT GRANT
There are two approaches to the accounting of government
grant: „capital approach‟ or „income approach‟. Under
capital approach, a grant is recognised outside profit or loss,
i.e., grant is credited directly to equity whereas under the
income approach grant is recognised in profit or loss over
one or more periods.
The Standard rejects the capital approach and prescribes
only the income approach

Basic Principle:
Thus, government grants should be recognised in profit or loss on a
systematic basis over the periods in which the entity recognises as
expenses the related costs for which the grant is intended to
compensate.
In most cases the periods over which an entity recognises the costs
or expenses related to a government grant are readily
ascertainable. Thus grants in recognition of specific expenses are
recognised in profit or loss in the same period as the relevant
expenses. Similarly, grants related to depreciable assets are
usually recognised in profit or loss over the periods and in the
proportions in which depreciation expense on those assets is
recognized.

Accounting for Government Grant
Case 1- Monetary Grant
Case 2: Non Monetary Grant

Monetary Grant related with assets
(a) Depreciable assets( PPE, Intangible asset)
Initial recognition
Option 1: Deferred it and amortized in the statement of profit and loss over
the period and in the proportions in which depreciation expenses on those
asset is recognized.
Option 2: Reduced it from the Cost of asset and charged depreciation on
the net cost of asset after adjustment of Grant

Case study:A fixed asset was purchased for Rs.
10 lacs. Government grant received towards it
amounted to Rs. 4 lacs. Show the accounting if it
is a depreciable asset with Rs. 2 lacs residual
value and four year useful life. The company
adopts straight line method for depreciation.
Also make accounting entries in the books of
company if grant is refunded at the beginning of
second year.

(b) Monetary Grant related with Non depreciable asset
If there is no condition then transfer to profit and loss
immediately however if there is condition then deferred and
amortized it over the period that bear the cost of meeting the
obligation

(ii) Monetary Grant related with expenses
Without condition: Transfer to statement of profit and loss
With condition: deferred and amortized over the period of
fulfillment of conditions attached with the grant( matching
concept)

Q1: Ind AS 20 is applicable to Government Grant
received for agriculture
(a) True
(b) False.

Q2: What dies the term “ Government means in the
context of accounting for government grant
(a) Government
(b) Government agencies
(c) Similar bodies whether local national or
international
(d) All of the above.

Ind AS 21: The Effects of
changes in Foreign exchange
rates

(1) Objective of Ind AS 21:
The objective of the Standard is to address the accounting for foreign
activities which include:
• transactions in foreign currencies; or
• foreign operations.
Considering that an entity may present its financial statements in a
foreign currency, the Standard also seeks to prescribe how to
translate financial statements into a presentation currency.
In this context, the Standard defines foreign currency as a
currency other than the functional currency of the entity.

(2) Important definition
1. Functional currency is the currency of the primary economic environment in
which the entity operates.
In this regard, the primary economic environment will normally be the one in
which it primarily generates and expends cash i.e. it operates. The functional
currency is normally the currency of the country in which the entity is located.
It might, however, be a different currency.
1. Foreign operation has been defined as an entity that is a subsidiary,
associate, joint venture or branch of a reporting entity, the activities of which
are based or conducted in a country or currency other than those of the
reporting entity.
2. Presentation currency is the currency in which the financial statements are
presented, the presentation currency may be different from the entity’s
functional currency.

4. Spot exchange rate is the exchange
rate for immediate delivery.
5. Closing rate is the spot exchange rate
at the end of the reporting period.
6. Exchange difference is the difference
resulting from translating a given number
of units of one currency into another
currency at different exchange rates.

(3) 9 Nine important notes for Functional Currency
(i) An entity measures its assets, liabilities, equity, income and expenses in its functional currency
(ii) All transactions in currencies other than the functional currency are foreign currency
transactions.
(iii) Ind AS 21 requires each entity to determine its functional currency.
(iv) In determining its functional currency, an entity emphasises the currency that determines the
pricing of the transactions that it undertakes, rather than focusing on the currency in which those
transactions are denominated.
(v) The following are the factors that may be considered in determining an appropriate functional
currency (Primary indicators):
(a) the currency:
i. that mainly influences sales prices for its goods and services. This will often be the currency
in which sales prices are denominated and settled; and
ii. of the country whose competitive forces and regulations mainly determine the sales prices of
its goods and services.
(b) the currency that mainly influences labour, material and other costs of providing goods and
services. This will often be the currency in which these costs are denominated and settled.

(vi) Other factors that may provide supporting
evidence to determine an entity’s functional currency
are (Secondary indicators):
(a) the currency in which funds from financing activities
(i.e. issuing debt and equity instruments) are
generated; and
(b) the currency in which receipts from operating
activities are usually retained.

(vii) If an entity is a foreign operation, additional factors are set out in this Standard which should be
considered to determine whether its functional currency is the same as that of the reporting entity of which
it is a subsidiary, branch, associate or joint venture:
(a) Whether the activities of foreign operations are carried out as an extension of that reporting entity, rather
than being carried out with a significant degree of autonomy;
An example of the former is when the foreign operation only sells goods imported from the reporting entity
and remits the proceeds to it.
An example of the latter is when the foreign operations accumulates cash and other monetary items, incurs
expenses, generates income and arranges borrowings, all substantially in its local currency.
(b) Whether the transactions with the reporting entity are a high or a low proportion of the foreign operation’s
activities;
(c,) Whether cash flows from the activities of the foreign operations directly affect the cash flows of the
reporting entity and are readily available for remittance to it.
(d) Whether cash flows from the activities of the foreign operation are sufficient to service existing and
normally expected debt obligation without funds being made available by the reporting entity.
These factors also demonstrate whether the entity is integral to the reporting entity or not. In practice, the
functional currency of a foreign operation that is integral to the parent / reporting entity will usually be the
same as that of the parent / reporting entity.

(viii) Determining an entity’s functional currency depends on the facts and
circumstances.
(ix) When the above indicators are mixed and the functional currency is not
obvious, the management will be required to use its judgement to determine the
functional currency that most faithfully represents the economic effects of the
underlying transactions, events and conditions. As part of this approach,
management has to give priority to the primary indicators before considering the
other indicators, which are designed to provide additional supporting evidence to
determine an entity’s functional currency.

Q 1: The currency of the primary economic
environment in which the entity operates is called
as
(a) Functional currency
(b) Foreign currency
(c) Reporting currency
(d) Presentation currency

Q 2: AB Inc, a USA based company has a subsidiary in
India SG ltd. The subsidiary assembles all goods in india
using a combination of locally sourced material and
material manufactured by AB inc. All goods are tahen
exported and sold in south Africa, based on selling price
decided by AB inc and influenced by indian market. The
company has a loan from an indian bank. What will be
the functional currency of SG ltd
(a) INR.
(b) US$
(c) South affrican Rand®
(d) None

CONCEPTS
1.Core Principle of Ind AS 23-Borrowing cost
The core principle of Ind AS 23 states that:
(i) Borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying asset
are included in the cost of that asset i.e. must be
capitalised.
(ii) Other borrowing costs are recognised as an expense in
the period in which they are incurred

Definition of Borrowing Cost
Borrowing Cost are interest and other costs that an entity
incurs in connection with the borrowing of funds. Borrowing
costs may include:
 interest expense calculated using the effective interest
rate method as described in Ind AS 109 Financial
Instruments;
 interest in respect of lease liabilities recognized in
accordance with Ind AS 116, Leases; and
 exchange differences arising from foreign currency
borrowings to the extent that they are regarded as an
adjustment to interest costs

Note on effective rate of interest( N:
As per Ind AS 23, interest on borrowed fund must be calculated using
effective rate of interest method. There may be some expenses at the time
of arrangement of borrowed funds or at the time of repayment of
borrowed fund. For example, commission, commitment fees, discount on
issue of debentures, underwriting commission , stamp duty,premium on
redemption of debentures. All these expenses shall be taken into account
while calculating effective rate of interest, in fact due to these expenses
the effective interest rate is increased as compare to the actual interest
rate.

1]
Case study on effective rate of interest
X ltd issue 10% debentures on dated 1/4/2018. The detail is as under:
No of debenture: 10000
Issue price per debenture: 98
Face value per debenture: 100
Redemption after five year at premium of 5%
Underwriting commission: 2.50% on face value
Calculate effective rate of interest and prepared debentures accounts for
five years.

Q 1: Borrowing cost that are directly attributable to the
………. Of a qualifying asset form part of the cost of that
asset
(a)Acquisition
(b)Constrution
(c)Production
(d)All of the above

Q 2 : How to treat the borrowing cost incurred during the
extended period in which an entity suspends active
development of a qualifying asset
(a)Capitalized
(b)Expensed
(c)Charged to statement of changes in equity
(d)None of the above

Ind AS 24: Related Party
Disclosures

CONCEPTS
1. Introduction of Ind AS 24
2. Important terms used in Ind AS 24
3. Related party transaction
4. Identification of related parties
5. Related Party Disclosures

CONCEPT NO 1: Introduction of Ind AS-24
 Users are entitled to believe that all the transactions of an
entity are at “ARM’s LENGTH”.
 Arm’s length transaction is a business deal in which both
parties of transactions act independently. The concept of an
arm’s length transaction assures that both parties in the deal
are acting in their own self interest and are not subject to any
pressure from the other party. It also assures users that there
is no collusion between the buyer and seller.

CONCEPT NO 1: Introduction of Ind AS 24
 Sometimes business transactions between RELATED PARTIES
lose the feature and character of the arm’s length
transactions. Hence disclosure of related party transaction is
essential for proper understanding of financial performance
and financial position of enterprises.

CONCEPT NO 2: Important terms used in Ind AS
24
1. Holding & Subsidiary Company
If an entity CONTROL other entity then controlling entity is known as
Holding company and the entity to whom holding company control is
known as subsidiary company. Control means power to Govern the
decision of other entity ie acquisition of more than 50% equity shares
of other entity. The meaning of control will be discussed in detail under
Ind AS 110: Consolidated Financial Statements
2. Fellow Subsidiary
Subsidiaries under common control is known as Fellow subsidiaries

24
3. Significant influence means power to participate in
operating/financial decisions of the entity but not controlling
power eg acquisition of 20% or more equity shares but up to
50%.
4. Associates: If an entity enjoy significant influence over the
other entity then such other entity is considered as associates of
the investor company.
5. Joint Venture is an economic activity which is undertaken by
two or more enterprises subject to the joint control . The entities
which exercise joint control are known as joint venturer/Co
venturers

24
6. Key management personal: A person who is excercising three
powers at any level in company is known as key management
personal. Such three powers are Planning, Directing and
Controlling. Designation of a person is not important but the
exercise of three powers is important. A non executive director
can also be considered as KMP if he/she is enjoying three
powers.
7. Close members of a family of a person: Close member of the
family of a person are those family members who may be
expected to influence or be influenced by, that person in their
dealing with entity including:

CONCEPT NO 2: Important terms used in Ind AS 24
(i) That person’s children
(ii) That person’s spouse
(iii) That person’s domestic partner
(iv) That person’s brother
(v) That person’s sister
(vi) That person’s father
(vii) That person’s mother
(viii)Children of that person’s spouse
(ix) Children of that person’s domestic partner
(x) Dependent of that person
(xi) Dependent of that person’s spouse
(xii) Dependent of that person’s domestic partner

CONCEPT NO 2: Important terms used in Ind AS 24
8: Related party: is a person or an entity that is related to the reporting enterprises
9 Reporting entity: is an entity that is preparing its financial statement
Important note: The Standard clarifies that in considering each possible related party relationship, the attention
should be directed to the substance of the relationship

CONCEPT NO 3: Related party transactions
1. A related party transaction is a transfer of resources, services or obligations between a
reporting entity and a related party, regardless of whether a price is charged.
Examples
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) commitments to do something if a particular event occurs or does not occur in the future,
including executory contracts1 (recognised and unrecognised);
(j) settlement of liabilities on behalf of the entity or by the entity on behalf of that related party; and
(k) management contracts including for deputation of employees.

CONCEPT NO 4: Identification of related parties
Case no 1: If related party is a person
Case no 2: If related party is an entity

(i) If a person control reporting enterprises
Ans: The controlling person and his/her close member of family shall be
reported as Related party of reporting enterprises
Mr X purchase 60% voting power of A ltd then Mr X and his close family
members shall be treated as related party of A Ltd
(ii) If a person is enjoying significant influence over reporting enterprises
Mr X purchase 20% or more voting power but up to 50% of A ltd then
Mr X and his close family members shall be treated as related party of A
ltd

(iii) If reporting enterprises is a joint venture of a person
Ans: The Venturer and his/her close family member shall be reported as
related party for joint venture
Mr X and Mr Y are co venture of A ltd then co venturers and his/her
family members shall be reported as related party for reporting
enterprises ie A ltd. However it may be noted that co venturers shall not
be considered as related party for each other.
(iv) If person is a Key Management in a company then such person and
his/her close family members shall be considered as related party of
company.

(v) If any person is a key management in parent company of reporting
enterprises( subsidiary company then such person along with his/her
close family members shall be considered as related party of subsidiary
company.
When person made related party relationship between the entities
(a) If a person enjoy control in one enterprises and he/she enjoys
significant influence in other enterprises then the enterprises in which
such person is common shall also be considered as related party to
each other

Mr X purchase 60% voting power of A ltd and 25% voting power of B ltd
then A ltd and B ltd shall be considered as related party to each other.
(b) If one person control one enterprises and also control other
enterprises then enterprises in which such person is common, shall be
treated as related party. For examples Mr X purchase 75% voting power
of A ltd and 80% voting power of B ltd , then A ltd and B ltd shall be
considered as related party for each other.
(c.) If one person enjoying control in enterprises but he/she is key
management of other enterprises.

It may be noted that if Mr X is KMP of A ltd and KMP of B ltd
then A ltd and B ltd shall not be considered as related party
since at least one side control is necessary. It may also be noted
that if Mr X enjoying significant influence in A ltd and also
significant influence in B ltd then also A ltd and B ltd shall not
be considered as related party.It may further be noted that if Mr
X is KMP of A ltd and enjoying significant influence in B ltd then
also A ltd and B ltd shall not be considered as related party.

(d) One person exercising control over one enterprises and
his/her close family is KMP of other enterprises
(e) One person exercising control over one enterprises and
his/her family members exercising significant influence over
other enterprises
It may be noted that if one person exercising SI or KMP of an
entity and that person/close family member exercising SI or
KMP of other entity, the such two entities shall not be
considered as related party.

Case 2: Related party in form of entities
(i) All the companies in the same group are to be considered
as related party to each other.( This covers Holding,
subsidiary and fellow subsidiary)
Note : Same group means group of holding and subsidiaries
company whether direct or indirect

(ii) If an entity has an associates or joint venture then they
will be considered as related party( this covers Associates
and joint ventures)
Note: It may be noted that Co-Venturers and Co-associates
are not related parties.

(iii) If a member in the same group has an associates or
joint venture then all entities in the group shall be
considered as related party for such an associates or joint
venture.

(iv) If an entity is common in two joint venture then joint
venture will be related party in which such entity is
common.

(v) If an entity has an associates and a joint venture then
associates and joint venture shall be related party for each
other.

Q 1: Mr Z is having control over the company “Alpha”. Mr
Y is the grandfather of Mr Z and Mr X is the son of Mr Y.
Alpha is the reporting entity. Who is related party to
company alpha
(a)Mr X.
(b)Mr X and Mr Y
(c)Mr Y
(d)None of the above

Q 2: According to Ind AS 24, in considering each possible
related party relationship attention is directed to the:
(a)Substance of the relationship
(b)Legal form of the relation ship
(c)Substance and not merely the legal form of the
relationship.
(d)None

CONCEPTS
1. Introduction
2. Basic Earning per share
3. How to calculate Profit/loss attributable to equity
shareholders
4. How to calculate weighted average number of equity shares
5. Diluted Earning per share

(1) This standard prescribed the principles for determination and
presentation of Earning per share.
(2) This will help the users for making comparison of enterprises with
other enterprises for same period before making rational decision.
(3) This will also help users for making comparative analysis of same
enterprises for the different financial year for checking the growth of
enterprises.
(4) Earning per share is a financial ratio indicating the amount of profit
or loss for the period attributable to each equity share

(5) EPS may be of two types -Basic EPS and Diluted EPS
(6) Both EPS are required to be disclosed on the face of statement of profit
and loss
(7) As per Schedule III, Division II, Statement of profit and los requires
Disclosure of :
(i) Basic EPS and Diluted EPS from continuing operations
(ii) Basic EPS and Diluted EPS from discontinued operations
(iii)Basic EPS and Diluted EPS from all operations
(8) In case of loss, negative EPS should be disclosed
(9) EPS is calculated for the period and not as on date. Hence time weight
on number of shares outstanding during the year is relevant for
calculation of EPS.

(10)If no discontinued operations then two EPS required to be disclosed Basic EPS and
Diluted EPS however in case of discontinued operations, six EPS required to be disclosed(
three basic and three diluted)
(11) EPS is calculated only for ordinary share/Equity share
(12) If preference share are redeemable & preference dividend is mandatory ( says Rs. 10 per
share per annumn)then such dividend will be treated as financial liability
(13) If preference shares are redeemable & preference dividend is not mandatory but
discretionary , the preference dividend shall not be treated as liability but such dividend will
be deducted from PAT as per following rules:
(i) If preference shares are commulative- deduct whether declared or not( but it will not be
adjusted again in year of actual declaration)
(ii) If preference shares are non communicative- deduct only when it has been declared.
It means if dividend is mandatory then deduct under heading finance cost on yearly basis and
if non mandatory but commutative then deduct from PAT on annual basis.

CONCEPT NO 2: Basic Earning per share
Basic Earning per share is calculated as under:
Net profit/Loss attributable to equity share holder( concept no 3)
Weighted average number of ordinary share outstanding during
the period ( concept no 4)

CONCEPT NO 3: How to calculate profit/loss attributable to
equity shareholders
Note no 1: Transfer to reserves are not relevant for EPS whether free or
statutory reserve
Note no 2: Prior period items/Errors and exceptional items must be adjusted
while calculating PAT.
Note no 3: only profit & loss part of statement of profit and loss is relevant
for EPS , OCI part is not relevant for EPS.

CONCEPT NO 3: How to calculate profit/loss
attributable to equity shareholders
Note no 4( v imp): As per the provision of Ind AS 33, preference
dividend on preference share capital will be considered using
effective rate method( ie implicit rate of return/internal rate of
return) instead of actual dividend rate. However Corporate dividend
tax liability shall be taken on actual basis. It may also be noted
that Ind AS 23: Borrowing cost also following the technique of
effective rate instead of actual rate. The technique of effective rate is
originally given under Ind AS 109: Financial instruments

Case study on note no 4 ie effective rate of preference dividend
Preference share capital: Rs. 1000000( face value)
Issue term : at premium 5%
IRR: 10%
Actual rate of dividend: 8%
Redemption term: at premium of 10%.
Calculate the preference dividend relevant for EPS for first and
second year.

Note no 5: If premium or discount take place at the time of buy back of
preference share due to early redemption, then the difference between
payment and carrying amount of preference share capital will be
adjusted while calculating earning available for equity shareholders as
an income or expenses even if such income or expenses is adjusted
with reserves of company. It may further be noted that premium on
routine redemption is already adjusted while calculating effective rate
of dividend, hence will not be adjusted on actual basis.

Note no 6:Equity dividend and CDT on equity dividend is not
relevant for EPS hence the same may be ignore.
Note 7: If Profit after tax is given in the questions and questions is
silent then we may assume that profit has been correctly calculated
as per the provisions of companies act and Ind AS hence assume
all the relevant adjustment have already been made in PAT.

Note 8: An entity that has preference shares in issue, will
classify those shares as financial liabilities or equity in
accordance with the principles under Ind AS 32. An adjustment
is required to the profit or loss for the period, to arrive at the
profit or loss attributable to ordinary equity holders for the
purpose of calculating EPS, if preference shares are classified
as equity. Any dividends and other appropriations would be
debited directly to equity under Ind AS 32. Any dividends or other
appropriations for preference shares classified as liabilities
should be accounted for as finance costs in arriving at profit or
loss for the period. No adjustment is required for the purpose of
calculating EPS.

Note 9: The amount of dividends declared in respect of the year should be
deducted in arriving at the profit attributable to ordinary shareholders for
preference dividends that are non-cumulative.
Note 10:The dividend for the period should be taken into account, whether or
not it has been declared for cumulative preference dividends. If an entity is
unable to pay or declare a cumulative preference dividend, the undeclared
amount of the cumulative preference dividend should still be deducted in
arriving at earnings for the purpose of the EPS calculation. The amount paid
is not deducted in arriving at earnings for the purpose of the EPS calculation
in the period in which arrears of cumulative preference dividends are paid.

Note 11: Early conversion of convertible preference shares may be
induced by an entity through favourable changes to the original
conversion terms or the payment of additional consideration. The
excess of the fair value of the ordinary shares or other consideration
paid over the fair value of the ordinary shares issuable under the
original conversion terms is a return to the preference shareholders
and is deducted in calculating profit or loss attributable to ordinary
equity holders of the entity.
Note 12: Preference shares may be repurchased under an entity’s
tender offer to the holders. The excess of the fair value of the
consideration paid to the preference shareholders over the carrying
amount of the preference shares represents a return to the holders of
the preference shares and a charge to retained earnings for the
entity. This amount is deducted in calculating profit or loss
attributable to ordinary equity holders of the entity.

Note 13: Preference shares that provide for a low initial
dividend to compensate an entity for selling the preference
shares at a discount, or an above-market dividend in later
periods to compensate investors for purchasing preference
shares at a premium, are sometimes referred to as
increasing rate preference shares. Any original issue
discount or premium on increasing rate preference shares
is amortised to retained earnings using the effective
interest method and treated as a preference dividend for
the purposes of calculating earnings per share (irrespective
of whether such discount or premium is debited or credited
to securities premium account in view of requirements of
any law).

Q 1: Which of the following is not an example
of potential ordinary share
(a) Convertible debt
(b) Share warrant
(c) Contingent share
(d) Non convertible preference share
.

Q 2: share issued in exchange for settlement
of a liability are included the Weighted average
number of equity share from the:
(1) Date that interest ceases to accrue
(2) Settlement date.
(3) Acquisition date
(4) Any of the above.
.

Ind AS 34: Interim Financial
Reporting(IFR)

Topics/Concepts
1. Introduction of IFR
2. Form and contents of IFR
3. Guidelines for preparation of IFR

1. Introduction of IFR
Ind AS 34 does not mandate to prepare IFR. If IFR is required to be
prepared as per the provisions for Law/Regulation, then such IFR shall
be prepared as per the provisions of Ind AS 34 eg SEBI required every
listed company to submit quarterly IFR. It may also be noted that if a
company prepared IFR voluntary( unlisted company), then such
company shall also followed Ind AS 34 as applicable.

IFR shall includes , at minimum, the following:
(i) A condensed Balance sheet
(ii) A condensed statement of profit and loss
(iii) A condensed statement of cash flow
(iv) A condensed statement of change in equity
(v) Condensed notes to Accounts
- IFR shall included headings and sub totals included in the most recent annual financial
statements, addition line item may also be included if their omission would make their
condensed IFR misleading. Further Basic and diluted EPS shall also be presented as per Ind
AS 33.
- However company may present completed set of financial statement as per Ind AS 1 on
quarterly basis if it desired.

Comparatives for IFR
Balance sheet:
As at the end of current IFR period and comparatives balance sheet as
at the end of immediately preceding financial year.
Statement of profit and loss
For the current interim period( with comparative of previous year
corresponding interim period)
For year to date( cumulative) with comparative of previous year
corresponding year to date.

Comparatives for IFR
Statement of cash flow
Year to date with comparative year to date of immediately preceding
year
Statement of change in equity
Year to date with comparative year to date of immediately preceding
year

3. Guidelines for IFR
1. Same accounting policies as used in annual financial statements, if company want to
change, then the same will also be change in the annual financial statements.
2. As per Ind AS 34 the income and expense should be recognised when they are earned
and incurred respectively.The costs should be anticipated or deferred only when:
(i) it is appropriate to anticipate or defer that type of cost at the end of the financial
year, and
(ii) costs are incurred unevenly during the financial year of an enterprise.
Examples of unevenly expenditure- advertisement, research, training expenditure etc
Hence Expenses should not be deferred for the purpose of matching with income during
seasonal period. And the same may be deferred only when if such type of expenditure are
allowed to be deferred assuming that interim period ending period is the end of financial
year. ( if assume that first quarter ending period ie 30th June assuming that it is end of
financial year and then think that whether such cost is allowed to be deferred to next
financial year as per the provisions of relevant Ind AS.

Example of unevenly expenditure- advertisement, training, research expenditure , donation
Comment whether following accounting treatment is correct as per ind as 34
(i) Training expenses incurred in the first quarter will be allocated equally over the four quarter because the benefit is spread over the entire year.
(ii) Training expenses expected to be incurred in the last quarter will be estimated and equally allocated to all the four quarter
(iii) A donation of Rs. 10 lacs is expected to be made in the second quarter, provision will be made in the first quarter.
(iv) 70% of the clients revenue comes in the second quarter. The client want to spread this revenue to all the four quarter, else the quarterly accounts will fluctuate significantly.
(v) A major repair is planned of the plant in the fourth quarterly. The estimated repair expenditure will be accounted for in the first quarter itself.
(vi) Over the years the client has been unfailingly giving bonus to staff in the third quarter. This has become its constructive obligation. The client does not wish to charge a
proportionate amount of bonus in the current quarter.
Note on bonus to employees: A bonus is anticipated for the interim reporting purpose if and only if :
(i) The bonus is a legal obligation or past practice would make the bonus a constructive obligation for which enterprises has no alternative but to make such payment and
(ii) A reliable estimate of the obligation can be made.
(vii) Salary for the entire year is paid in the first quarter of FY 2020-21, the entire salary is booked in the first quarter.
(viii) Huge Advertisement expenditure incurred in the first quarter and entity allocated this expenditure in the four quarter on some rational basis.
(ix) Advanced payment for advertisement in the first quarter , advertisement to be done in the third quarter of FY. The entity charge expenditure in the first quarter.
(x) Advanced payment for advertisement in the first quarter of FY 2020-21, the advertisement to be done in the FY 2021-22
Ans: all accounting policies are wrong

3. Interim period income tax expense is accrued using the tax rate that
would be applicable to expected total annual earnings, that is, the
estimated average annual effective income tax rate applied to the pre-
tax income of the interim period. Income taxes are assessed on an
annual basis. Interim period income tax expense is calculated by
applying to an interim period’s pre-tax income the tax rate that would be
applicable to expected total annual earnings, that is, the estimated
average annual effective income tax rate. if different income tax rates
apply to different categories of income (such as capital gains or income
earned in particular industries), to the extent practicable a separate
rate is applied to each individual category of interim period pre-tax
income

Q 1: Company A has reported ` 60,000 as pre tax profit in first quarter and expects a loss of ` 15,000
each in the subsequent quarte` It has a corporate tax slab of 20 percent on the first ` 20,000 of annual
earnings and 40 per cent on all additional earnings. Calculate the amount of tax to be shown in each
quarter.
Q 2: ABC Ltd. presents interim financial report quarterly. On 1.4.20X1, ABC Ltd. has carried forward
loss of ` 600 lakhs for income-tax purpose for which deferred tax asset has not been recognized. ABC
Ltd. earns ` 900 lakhs in each quarter ending on 30.6.20X1, 30.9.20X1, 31.12.20X1 and 31.3.20X2
excluding the carried forward loss. Income-tax rate is expected to be 40%. Calculate the amount of tax
expense to be reported in each quarter.

Q 3
Innovative Corporation Private Limited (or “ICPL”) is dealing in seasonal product and the sales
pattern of the product, quarter wise is as under during the financial year 20X1-20X2:
Qtr. I Qtr. II Qtr. III Qtr. IV
ending 30 June ending 30
September
ending 31 December ending 31 March
10% 10% 60% 20%
Particulars Amounts (in crore)
Sales 70
Employees benefits expenses 25
Administrative and other expenses 12
Finance cost 4
ICPL while preparing interim financial report for first quarter wants to defer ` 16 crores expenditure to third
quarter on the argument that third quarter is having more sales therefore third quarter should be debited
by more expenditure. Considering the seasonal nature of business and that the expenditures are uniform
throughout all quarte`
Calculate the result of first quarter as per Ind AS 34 and comment on the company’s view

Q 4: ABC Limited manufactures automobile parts. ABC Limited has shown a net profit of `
20,00,000 for the third quarter of 20X1.
Following adjustments are made while computing the net profit:
(i) Bad debts of ` 1,00,000 incurred during the quarter. 50% of the bad debts have been
deferred to the next quarter.
(ii) Additional depreciation of ` 4,50,000 resulting from the change in the method of
depreciation.
(iii) Exceptional loss of ` 28,000 incurred during the third quarter. 50% of exceptional loss
have been deferred to next quarter.
(iv) ` 5,00,000 expenditure on account of administrative expenses pertaining to the third
quarter is deferred on the argument that the fourth quarter will have more sales; therefore
fourth quarter should be debited by higher expenditure. The expenditures are uniform
throughout all quarters.
Ascertain the correct net profit to be shown in the Interim Financial Report of third quarter to be
presented to the Board of Directors.

Q 5: Company A expects to earn ` 15,000 pre-tax profit
each quarter and has a corporate tax slab of 20 percent
on the first ` 20,000 of annual earnings and 40 per cent
on all additional earnings. Actual earnings match
expectations. Calculate the amount of income tax to be
shown in each quarter.

Q 6: Narayan Ltd. provides you the following information and asks you to calculate the tax expense
for each quarter, assuming that there is no difference between the estimated taxable income and the
estimated accounting income:
Estimated Gross Annual Income 33,00,000
(inclusive of Estimated Capital Gains of ` 8,00,000)
Estimated Income of Quarter I is ` 7,00,000, Quarter II is ` 8,00,000, Quarter III (including Estimated
Capital Gains of ` 8,00,000) is ` 12,00,000 and Quarter IV is ` 6,00,000
Tax Rates: On Capital Gains 12%
On Other Income: First ` 5,00,000 30%
Balance Income· 40%

Q 7: An entity reports quarterly, earns ` 1,50,000 pre-tax profit in the
first quarter but expects to incur losses of ` 50,000 in each of the three
remaining quarte` The entity operates in a jurisdiction in which its
estimated average annual income tax rate is 30%.
The management believes that since the entity has zero income for
the year, its income -tax expense for the year will be zero. State
whether the management’s views are correct or not? If not, then
calculate the tax expense for each quarter as well as for the year
as per Ind AS 34.

Solution: As per Ind AS 34 ‘Interim financial reporting’, income tax expense is recognised in each interim
period based on the best estimate of the weighted average annual income tax rate expected for the full
financial year.
Accordingly, the management’s contention that since the net income for the year will be zero no income tax
expense shall be charged quarterly in the interim financial report, is not correct. Since the effective tax rate
or average annual income tax rate is already given in the question as 30%, the income tax expense will be
recognised in each interim quarter basedon this rate only. The following table shows the correct income tax
expense to be reported each quarter in accordance with Ind AS 34:
Period Pre-tax earnings
(in `)
Effective tax rate Tax expense (in
`)
First Quarter 1,50,000 30% 45,000
Second Quarter (50,000) 30% (15,000)
Third Quarter (50,000) 30% (15,000)
Fourth Quarter (50,000) 30% (15,000)
Annual 0 0

Q 8: Due to decline in market price in second quarter, Happy India Ltd. incurred an inventory loss.
The Market price is expected to return to previous levels by the end of the year. At the end of
year, the decline had not reversed. When should the loss be reported in interim statement of profit
and loss of Happy India Ltd.?
Ans: Loss should be recongised in the second quarter of the year.

Q 9: Fixed production overheads for the financial year is ` 10,000. Normal expected production for the year,
after considering planned maintenance and normal breakdown, also considering the future demand of the
product is 2,000 MT. It is considered that there are no quarterly / seasonal variations. Therefore, the normal
expected production for each quarter is 500 MT and the fixed production overheads for the quarter are `
2,500.
Actual production achieved Quantity (In MT)
First quarter 400
Second quarter 600
Third quarter 500
Fourth quarter 400
Total 1,900
Presuming that there are no quarterly / seasonal variation, calculate the allocation of fixed
production overheads for all the four quarters as per Ind AS 34 read with Ind AS 2

Q 1: Ind as 34 mandates the following in
relation to interim financial reporting
(a) Which entities should publish IFR
(b) How frequency it should publich
(c) How soon it should publish after the end of
reporting period
.

Q 2: The standard defines Interim financial
report as a financial report for an interim
period that contains a set of …… financial
statement
(a) Complete
(b) Condensed
(c) Complete of condensed.
.

Ind AS 36: Impairment of Asset

Target of Ind AS 36: Impairment of Asset
A: Impairment of Individual asset
(i) Impairment of individual asset
(ii) Reversal of Impairment loss
(iii) Out of scope
(iv) Indication of impairment
(v) Concept of cash flow
(vi) Concept of fair value
B: Impairment of Group of Assets i.e Cash generating units(
CGUs)
(i) Impairment of Cash Generating units
(ii) Reversal of impairment of CGUs
(iii) Treatment of Goodwill
(iv) Treatment of corporate assets/HO Assets
C: Miscellaneous points

Target of Ind AS 36: Impairment of Asset
A: Impairment of Individual asset
(i) Impairment of individual asset
As per Ind AS 36, impairment means reduction in the value of asset.
Whenever carrying amount of asset exceeds the recoverable amount,
the difference in known as impairment loss.
Impairment loss=Carrying amount less Recoverable amount

Carrying amount
Carrying amount means book value/Balance sheet value of asset
after deducting accumulated depreciation & accumulated impairment
loss on the date of impairment
Recoverable amount=
Net fair value( net of disposal cost) or Value in use( PV of future
expected cash flow)
Which ever is higher

Journal entries in the books of companies
Impairment loss A/c Dr
To provision for impairment loss
Statement of profit and loss Dr
To impairment loss
It may be noted that in future depreciation will be changed on revised
carrying amount.

(ii) Reversal of impairment loss
(!)The increased carrying amount of an asset other then goodwill attributable to a
reversal of an impairment loss shall not exceed the carrying amount that would
have been determined (net of amortisation or depreciation) had no impairment
loss been recognised for the asset in prior years. Any increase in excess of this
amount would be a revaluation and would be accounted for under the appropriate
Standard (e.g. Ind AS 16 Property, Plant and Equipment).
(2) A reversal of an impairment loss for an asset other than goodwill is recognised
immediately in profit or loss, unless the asset is carried at revalued amount in
accordance with another Indian Accounting Standard. Any reversal of an
impairment loss of a revalued asset shall be treated as a revaluation increase in
accordance with that other Indian Accounting Standard.
(3) A reversal of an impairment loss on a revalued asset is recognised in other
comprehensive income and increases the revaluation surplus for that asset. However, to
the extent that an impairment loss on the same revalued asset was previously recognised
in profit or loss, a reversal of that impairment loss is also recognised in profit or loss.
(4) After a reversal of an impairment loss is recognised, the depreciation (amortisation)
charge for the asset is adjusted in future periods to allocate the asset’s revised carrying
amount, less its residual value (if any), on a systematic basis over its remaining useful life.

Case study 1:
Cost of asset on 1/4/2017: Rs. 10000
Estimated useful life: 10 years
Salvage value : Nil
Recoverable amount as on 31/3/2018-Rs. 7000
Recoverable amount as on 31/3/2020-Rs. 9000
Calculate impairment loss in 2017-18 and reversal of impairment loss in 2019-20

Important note
Impairment loss will be adjusted with revaluation surplus on priority
basis and the balances of loss of any will be transferred to statement
of profit and loss

(iii) Out of scope
Assets out of scope of Ind AS 36
(i) Inventories ( Ind AS 2)
(ii) Investment held for retirement of employees ( Ind AS 19-Employee
benefits)
(iii) Deferred tax assets( Ind AS 12-Income tax)
(iv) Biological asset measured at Fair value less cost to sell( Ind AS 41)
(v) Financial instruments( Ind AS 109)
(vi) Non current asset held for sale( Ind AS 105)
(vii)Contract assets ( Ind AS 115)

(iv) Indication of Impairment
An entity shall assess at the end of each reporting period whether there is
any indication that an asset may be impaired. If any such indication exists,
the entity is required to estimate the recoverable amount of the asset. The
indication can be divided into the following two categories
(1) External indicators( from market)
(2) Internal indicators( judgement of management)

(1) External indicator
(i) Technology changes
(ii) Increase in discounting factor
(iii) Legal restrictions/Government restrictions regarding use of asset
(iv) Decrease in market price
(2) Internal indicator
(i) Physical damage
(ii) Poor maintenance policy
(iii) Shortage of skilled staff
(iv) Cash flow is less than expected

Important points:
(i) Impairment loss will be checked only when indicators exists
(ii) Indicators does not mean there is always impairment loss
(iii) There will be annual test of following three assets whether
indicator exist or not
(a) Goodwill acquired under business combination ( Ind AS 103)
(b) Intangible asset not in use
(c) Intangible asset having unlimited useful life.

(v) Concept of Cash flow
Value in use= Expected cash flowX PV factor
Case 1: if cash flow estimate in range says 5000-7000 then
Take average Rs. 6000
Case 2: if probability factor is given in Q, then apply that factor while
calculating expected cash flow.
Year Cash flow Probability Expected cash
flow
Cash flow 1 40000 60% 24000
Cash Flow 2 60000 80% 48000
Cash flow 3 70000 90% 63000

Case 3: asset located in foreign country
Expected cash flow= Foreign currency cash flow X exchange rate on
the date when impairment loss is calculated
Case 4: Projections should cover a maximum period of five years, unless a
longer period can be justified.
As per Ind AS 36, and enterprises should not estimate cash flow
beyond 5 years. It means if useful life of asset is higher than five year
then salvage value should also be assumed at the end of five year.
If more than 5 year cash flow is given in question, then follow
Question

Case 5: PV factor should be based on Weighted average cost of capital
of company , however if WACC is not available then incremental
borrowing rate of company may be taken as discounting factor.

(vi) Concept of Fair value
Recoverable amount= net fair value or value in use which ever is
higher
Net fair value
(i) Recent transaction price ( first preference)
(ii) Check active market
If above two not available then ignore net fair value and calculate
Recoverable amount on the basis of value in use only.

Q 1: Which of the following is not covered by
Ind AS 36
(a) Deferred tax asset
(b) Inventory
(c) Financial asset
(d) All of the above
.

Q 2: Recoverable amount of an asset of cash
generating unit is
(a) Higher of fair value less cost of disposal
and value in use.
(b) Lower of net realizable value and cost
(c) Higher of fair value and value in use
(d) Higher of market value and value in use
.

Ind AS 37: Provisions,
Contingent Liabilities and
Contingent Assets

CONCEPTS
1. Introduction of Ind AS 37
2. Scope and out of scope
3. Important terms used in Ind AS 37
4. Provisions
5. Contingent Liabilities
6. Contingent assets
7. Miscellanesous points

Concept 1: Introduction of Ind AS 37
Ind AS 37 deals with recognition/Measurement/Disclosure for the following
three:
(i) Provisions( related with increase in liabilities and not related with
decrease in assets)
(ii) Contingent liabilities &
(iii) Contingent assets

IND AS Guide by CA H.Anand

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