Icds v-tangible-fixed-assets

ICDS V- Tangible Fixed Assets
P. Sai Varun
2nd Year Intern
M/s SBS and Company LLP
saivarunp@sbsandco.com
040-4018 3366 (119)
By
SBS Hyderabad
17th November, 2018

saivarunp@sbsandco.com www.sbsandco.com +040-4018 3366 (119)2
 Introduction of ICDS
 Applicability of ICDS
 Scope
 Identification of tangible assets
 Components of Actual cost
 Special cases
 Inclusions and Exclusions
 Self-constructed tangible fixed asset
 Non-monetary consideration
 Improvements and Repairs
 Joint ownership and Joint cost
 Transitional provisions
 Differences between ICDS V, AS-10 and Ind-AS-16
Topics to be covered

 Section 145(2) of the Income Tax Act,1961(“the Act”) grants power to Central Government to
notify Income Computation Disclosure Standards.
 10 ICDS were notified by Central Government on 31stMarch,2015. However, they are made
applicable from the Assessment Year 2017 -18.
 ICDS are not for maintenance of books of accounts, they are only for purpose of income
 Computation &
 Disclosure (Notification S.O.892(E) dated 31.03.2015)
Note: In the case of conflict between the provisions of the Act and the ICDS, the provisions of the
Act shall prevail to that extent.
Introduction of ICDS

Assessee having
income from PGBP
or other sources
Mercantile system
of accounting &
Individuals or HUF
Tax audit not
applicable
Not Applicable
Tax audit
applicable
Applicable
Any other
assessee
Applicable
Cash system of
accounting
Not applicable
Applicability of ICDS
following

 The main object of this ICDS is that, an expenditure incurred in connection with a Tangible Fixed
Asset is to be capitalised or is to be treated as a revenue expenditure.
 ICDS V covers assets being land, building, machinery, plant or furniture held with the intention
of being used for the purpose of producing or providing goods or services and not held for sale
in the normal course of business.
 Since this ICDS deals with tangible fixed assets, intangible assets are not covered under this
ICDS for determination of actual cost of asset.
Scope

 Asset for the purpose of administrative purposes is covered under the ICDS.
 Asset for the rental purposes:
Scope
such rental
income is taxable
under
Income from
Business or other
sources
Covered under
this ICDS
Income from
House property
Not covered
under this ICDS

 No monetary threshold is prescribed for an asset to be recognised as tangible fixed asset. It is
recognised if asset is beneficial for an entity which lasts over period of time.
 Stand-by equipment and servicing equipment are to be capitalised and spares are to be
capitalised if they are expected to be used for a long period.
Identification of tangible assets

 The actual cost of an acquired tangible fixed asset shall comprise of
 Purchase price
 Import duties and other taxes (which are not subsequently recovered)
 Any other expense which is directly attributable for making asset ready to use.
 Borrowing cost which is recognised as per ICDS- IX.
Note: Any trade discounts need to reduced from actual cost.
Components of Actual cost

 Actual cost in case of certain circumstances like merger, amalgamation, re-acquisition , gift etc
need to recognised as per section 43(1) of the Act.
 In case of demerger or amalgamation – cost carrying by amalgamating company.
 In case of gift – cost to previous owner less depreciation.
 In case purchased through cash – not considered for actual cost.
 In case earlier used for scientific research – cost less availed deduction u/s 35 of the Act.
 Stock converted to asset- FMV on date of conversion.
 Previously owned such asset and re-acquired – actual cost when previously purchased less depreciation
 Grant or reimbursement from government – reduced from actual cost.
For reference
Special cases
Section 43

 Actual cost doesn’t include initial estimate of dismantling cost and cost for removing the item
and restoring the site.
 In case payment done for the asset acquired beyond the normal credit terms , then interest
paid for such credit is added to asset.
 If a subsidy or grant receivable by an assessee from government which is related to acquisition
of an asset, then the grant shall be reduced from the written down value of block of assets to
which such asset belongs to in accordance with ICDS-VII Government grants.
Inclusions and Exclusions

 If an asset is acquired from country outside India then exchange fluctuation araised while
payment to concerned party is to be increased or decreased from actual cost of the asset in
accordance with ICDS-VI Effects of changes in foreign exchange rates.
 Administrative and general overhead are need to be included in the cost of asset if such
expenditure is directly attributable to asset or bringing it to its working condition.
 Expenditure on test runs, experimental production and any other expenditure related to such
asset till the asset has been ready for commercial production or captive consumption need to
be capitalised.
 If asset used in business after it ceases to be used for scientific research, the amount deduction
claimed under section 35 (1)(iv) of the Act [i.e. 100% deduction in respect of capital expenditure
for scientific research] need to be decreased from Actual cost i.e. Nil .
Inclusions and Exclusions

 In case of self-constructed tangible fixed asset, all the expenditure directly attributable for
construction of such fixed asset need to be capitalised.
Note : Any inter department or inter branch profits need to be eliminated from cost of such asset.
Self-constructed tangible fixed asset

 If an asset is acquired in exchange of other asset, then fair value of asset so acquired shall be
actual cost of asset acquired.
 And same has to be followed if asset belonging to one block of asset is exchanged with an asset
belonging to another block.
Non-monetary consideration

 An Expenditure that increases the future benefits from the existing asset beyond its previously
assessed standard of performance is added to the actual cost. Current repairs are need to be
allowed as revenue expenditure and not to added to the cost of asset.
 An addition or extension which becomes integral part of asset is added to its actual cost and if it
capable of being used even after such asset is disposed off and has separate identity then such
addition need be recognised as a separate asset.
Improvements and Repairs

 In case asset is owned by two or more persons then
its actual cost, depreciation and written down value
need to be bifurcated to them based on proportion
of ownership.
 When several assets are acquired for a consolidated
price then cost need to be proportioned to all assets
on fair basis.
Joint ownership and Joint cost

For an asset
 which is purchased or constructed after 01-04-2016 and
 the acquisition or construction of which commenced on or before the 31-03-2016 but not
completed even after 01-04-2016 should be recognised as per this ICDS.
Note: In recognition of actual cost of an asset which is acquired before 01-04-2016, actual cost
considered in the earlier years is to be taken into account.
Transitional provisions

S.no Points of comparison ICDS-V Tangible
Fixed Assets
AS- 10 Ind AS-16
1 Stand-by equipment and servicing
equipment
Directly to be
recognised as asset
They are recognised
only if they meet
recognition criteria.
They are recognised
only if they meet
recognition criteria.
2 initial estimate of the costs of
dismantling and
removing the item
Doesn’t contain any
such requirement
Need to be
recognised as the
cost of asset
Need to be
recognised as the
cost of asset
3 Payment of interest due to
payment beyond normal credit
terms
Interest need to be
recognised as cost
Interest shall be
capitalised only if it
satisfies AS-16
Interest shall be
capitalised only if it
satisfies Ind AS-23
4 Government grant Grant received shall
be directly reduced
from actual cost of
asset in accordance
with ICDS VII
Same as ICDS grant
shall be reduced
from cost of asset.
Ind AS -16 doesn’t
permits grant to be
directly reduced
from cost of asset.
Differences

S.no Points of comparison ICDS-V Tangible Fixed Assets AS- 10 Ind AS-16
5 Revaluation of tangible
fixed assets and change in
method of depreciation
There is no such provision Deals with
revaluation and
change in method of
depreciation in detail
Deals with
revaluation and
change in method of
depreciation in
detail
6 Non-monetary
consideration
the fair value of the asset so
acquired, shall be its actual
cost.
FMV of the asset
given or FMV of asset
acquired which is
clearly evident
the fair value of the
asset so acquired
and if fair value is
not measurable
then carrying
amount of asset
given up
7 Subsequent expenditure Recognised if increases
future benefits beyond its
previously assessed standard
of performance
Recognised if meets
recognition criteria
Recognised if meets
recognition criteria
Differences

 An assessee(company) Business income of Rs.90,00,000 , during the year assessee purchased a
machinery worth Rs.15,00,000 and its estimated cost of dismantling in future is Rs.2,00,000.
Explanation:
Cost of asset recognised as per Accounting standards is Rs.17,00,000
And depreciation accounted is Rs.1,13,333(Life is 15 years)
And as per Income tax act depreciation @ 15% is Rs.2,55,000
As per ICDS cost of asset is Rs.15,00,000 and accordingly depreciation is Rs.2,25,000
Dismantling cost is treated as expenditure when it actually expended.
Example

 Increase in profit Rs.30,000
Example
Particulars Amount in Rs
Profits from Business 90,00,000
Gross Total Income 90,00,000
Tax on Total income @ 25% 22,50,000
Particulars Amount in Rs
Profit 90,00,000
Increase in profit due to
ICDS
30,000
Gross Total Income 90,30,000
Tax on Total income @ 25% 22,57,500
As per normal calculations As per ICDS

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P. Sai Varun
2nd Year Intern
M/s SBS and Company LLP
saivarunp@sbsandco.com
+040-40183366(119)
SBS Hyderabad
At
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