This document provides examples of accounting treatment for staff loans and advances and security deposits under Indian GAAP and Ind-AS.
For staff loans, Ind-AS requires recognizing the loan at fair value on initial recognition with the difference between transaction value and fair value treated as prepaid employee benefit expense amortized over the loan period. Interest is calculated using the effective interest rate method.
For security deposits given, Ind-AS requires recognizing at fair value on initial recognition with the difference amortized as rent expense. Interest income is recognized annually using the effective interest method.
Overview of Companies (Auditor’s Report) Order 2020
TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,PART II, SECTION 3, SUB-SECTION (ii)]MINISTRY OF CORPORATE AFFAIRS
CONTENTS
1) BACKGROUND OF SECTION 143 OF COMPANIES ACT 2013
2) REQUIREMENT OF CARO
3) NON APPLICABILITY OF CARO 2020 TO CERTAIN COMPANIES
3) MATTERS TO BE INCLUDED IN THE AUDITORS REPORT
4) DESCRIPTION OF EACH PARAGRAPH TO BE INCLUDED IN CARO 2020
Presentation on vouching and verification for the benefit of B Com financial Audit students, topics covered are vouching of revenue items , verification and valuation of capital expenditure, receipts and valuation and verification of inventory
Key Takeaways:
Enhanced reporting requirements in CARO, 2020
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Comparison between CARO, 2020 and CARO, 2016
Overview of Companies (Auditor’s Report) Order 2020
TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,PART II, SECTION 3, SUB-SECTION (ii)]MINISTRY OF CORPORATE AFFAIRS
CONTENTS
1) BACKGROUND OF SECTION 143 OF COMPANIES ACT 2013
2) REQUIREMENT OF CARO
3) NON APPLICABILITY OF CARO 2020 TO CERTAIN COMPANIES
3) MATTERS TO BE INCLUDED IN THE AUDITORS REPORT
4) DESCRIPTION OF EACH PARAGRAPH TO BE INCLUDED IN CARO 2020
Presentation on vouching and verification for the benefit of B Com financial Audit students, topics covered are vouching of revenue items , verification and valuation of capital expenditure, receipts and valuation and verification of inventory
Key Takeaways:
Enhanced reporting requirements in CARO, 2020
Significant changes in CARO, 2020
Matters specified in Auditor's report
Comparison between CARO, 2020 and CARO, 2016
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The Company Act 1994
The Bank Company Act 1991 (Amendment up to 2018)
The Securities and Exchange Rules ,1987
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International Accounting Standard (IAS) as adopted by the ICAB
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1. 1- Treatment of Staff Loans & Advances
2- Fair valuation of Security Deposits
(Financial Instruments)
2. Example on Staff Loans and Advances
ABC Ltd. advances to their employees for purchase of house.
Assuming repaid in 5 equal instalment.
Rate of loan is 7.5%
Current bank rate for housing loans is 10%.
Amount of advance Rs. 2,00,000/-
EMI Rs. 49,430/- per Year
Specify the accounting treatment as per Indian GAAP and Ind-
AS
3. Transaction Accounting with Indian
GAAP
Accounting with Ind-AS
Recognition of Staff
Advance at transaction
date
Loan will be recognised in
books at 2,00,000/-
Loan will be recognised in
books at 1,87,379/-
calculated using EIR
method
Recognition of Interest
Income
It should be booked as
calculated @ 7.5%
It should be booked as
calculated @ 10%
Treatment of difference
between transaction value
and fair value
Not Applicable Difference of Rs 12,621/-
shall be amortised over 5
years as employee benefit
expenses as per col. 8 in
table. Till the time amount
is fully amortised, the
amount shall be presented
as prepaid employee
benefit expenses in the
balance sheet.
4. Calculation of Interest Income in Indian GAAP and
IND AS
Amount O/s
Interest
Income
Installment
Effective
Amount
O/s
Interest
Income
Installment
0 200,000 - 0 187,379 12,621
1 200,000 15,000 49430 187,379 18,738 49,430 (3,738)
2 165,570 12,418 49430 156,687 15,669 49,430 (3,251)
3 128,558 9,642 49430 122,926 12,293 49,430 (2,651)
4 88,770 6,658 49430 85,788 8,579 49,430 (1,921)
5 45,997 3,433 49430 44,937 4,494 49,430 (1,061)
India GAAP Ind AS
Employee
Benefits
Year
Effective Interest Rate Method
Year Cash Flow PVF @ 10%
Discounted
Cash Flow
1 49430 0.90909091 44,936
2 49430 0.82644628 40,851
3 49430 0.7513148 37,137
4 49430 0.68301346 33,761
5 49430 0.62092132 30,692
187,379
5. Journal Entries To be Recorded
IGAAP
1- On recognition
Staff Loans and adv. Dr. 200,000
To Bank 200,000
2- On 31-March
Staff Loans & Adv. Dr. 15,000
To Interest Inc. 15,000
3- Interest Income A/C Dr. 15,000
To P& L 15,000
4- On Instalment Received
Bank A/C Dr. 49,430
To Staff Loans & Adv. 49430
Ind AS
1- On recognition
Staff Loans and adv. Dr. 187,379
Deferred Exp. Dr 12,621
To Bank 200,000
2- On 31-March
Staff Loans & Adv. Dr. 18,738
To Interest Income 18,738
3- Interest Income A/C Dr. 18,738
To P& L 18,738
4- Employee Exp. Dr. 3,738
To Deferred Exp. 3.738
5- On Instalment Received
Bank A/C Dr. 49,430
To Staff Loans & Adv. 49430
6. Example on Security Deposits (Assets)
A Ltd given a security deposit against office taken on Rent of
Rs 2 lacs on 01.04.2016 to XYZ ltd, which is receivable after 5
years in single instalment.
Specify the accounting treatment as per Indian GAAP and Ind-
AS
7. Transaction Accounting with Indian GAAP Accounting with Ind-AS
Recognition of Security
deposit at transaction
date
It will be recognised in
books at 2,00,000/-
It will be recognised in
books at 124,184 (fair
Value)
Recognition of Interest
Income
Not Applicable It should be booked at 10%
(assumed) 12,418
Treatment of difference
between transaction value
and fair value
Not Applicable Difference of Rs 75,816
shall be amortised over 5
years as Rent Expenses. Till
the time amount is fully
amortised, the amount
shall be presented as
prepaid Rent in the balance
sheet.
8. Calculation of Interest Income and Rent Expenses in
IND AS
Opening
Balance
Interest
Income
Amount
Received
Closing
Balance
Opening
Balance
Rent
Expenses
Closing
Balance
1 1,24,184 12,418 - 1,36,602 75,816 15,163 60,653
2 1,36,602 13,660 - 1,50,263 60,653 15,163 45,490
3 1,50,263 15,026 - 1,65,289 45,490 15,163 30,326
4 1,65,289 16,529 - 1,81,818 30,326 15,163 15,163
5 1,81,818 18,182 2,00,000 (0) 15,163 15,163 -
Security Deposit (at Amortised Cost) Prepaid Expenses
Year
Calculation of fair Value
Year Cash Flow PVF @ 10%
Discounted
Cash Flow
1 0 0.91 -
2 0 0.83 -
3 0 0.75 -
4 0 0.68 -
5 200000 0.62 1,24,184
1,24,184
9. Journal Entries To be Recorded
IGAAP
1- On recognition
Security Deposits Dr. 200,000
To Bank 200,000
2- On 31-March-2016
No Entry
3- On Receiving
Bank A/C Dr. 2,00,000
To Security Deposit 2,00,000
Ind AS
1- On recognition
Security Deposits Dr. 124,184
Prepaid Exp. Dr 75,816
To Bank 200,000
2- On 31-March-2016
Security Deposit Dr. 12,418
To Interest Income 12,418
3- Rent Expenses Dr. 15,163
To Prepaid Exp. 15,163
4- On Receiving
Bank A/C Dr. 2,00,000
To Security Deposits 2,00,000
10. 2- Example on Security Deposits
(Liabilities)
XYZ given a security deposit of Rs 5 lacs on 01.04.2016 to A
LTD, which is payable after 5 years in single instalment.
Specify the accounting treatment as per Indian GAAP and Ind-
AS
11. Transaction Accounting with Indian GAAP Accounting with Ind-AS
Recognition of Security
deposit at transaction
date
It will be recognised in
books at 5,00,000/-
It will be recognised in
books at 3,10,461 (fair
Value)
Recognition of Interest
cost
Not Applicable It should be booked at 10%
(assumed) 31,046
Treatment of difference
between transaction value
and fair value
Not Applicable Difference of Rs 1,88,539
shall be amortised over 5
years as other income. Till
the time amount is fully
amortised, the amount
shall be presented as
deferred Income in the
balance sheet.
12. Calculation of Interest Cost and other income in IND
AS
Opening
Balance
Interest
cost
Amount
Received
Closing
Balance
Opening
Balance
Other
Income
Closing
Balance
1 3,10,461 31,046 - 3,41,507 1,89,539 37,908 1,51,631
2 3,41,507 34,151 - 3,75,658 1,51,631 37,908 1,13,723
3 3,75,658 37,566 - 4,13,224 1,13,723 37,908 75,816
4 4,13,224 41,322 - 4,54,546 75,816 37,908 37,908
5 4,54,546 45,454 5,00,000 (0) 37,908 37,908 -
Security Deposit (at Amortised Cost) Deferred Income
Year
Calculation of fair Value
Year Cash Flow PVF @ 10%
Discounted
Cash Flow
1 0 0.91 -
2 0 0.83 -
3 0 0.75 -
4 0 0.68 -
5 500000 0.62 3,10,461
3,10,461
13. Journal Entries To be Recorded
IGAAP
1- On recognition
Bank A/C Dr. 5,00,000
To Security Deposit 5,00,000
2- On 31-March-2016
No Entry
3- On Payament
Security Deposits Dr. 500,000
To Bank 500,000
Ind AS
1- On recognition
Bank A/C Dr. 5,00,000
To Security Deposit 3,10,461
To Deferred Income 1,89,539
2- On 31-March-2016
Interest Cost Dr. 31,046
To Security Deposit 31,046
3- Deferred Income Dr. 37,908
To Other Income 37,908
4- On Payament
Security Deposits Dr. 500,000
To Bank 500,000
