we'll conference for yet another section

of India yesterday we have seen the

world view of Indian Accounting

Standards and its applicability and

today the second of its series is

presentation of financial statements as

per in days this is covered by means of

India's one and we should also have a

quick look on schedule three the

Companies Act 2013 because the format of

the financial statement has been

prescribed by that particular schedule

and accordingly every company which is

preparing the financial statement as per

india's should also ensure compliance

with the format given in schedule three

to the Companies Act so let's go into

the standard the overall consideration

for preparation of a financial statement

as you are aware that every company

prepares the financial statement on a

going concern assumption that means the

company is not planning to curtail its

operations on a significant basis or the

company is not planning to shut down its

operations within the next twelve months

from the end of the reporting period

this is the basic assumption and

fundamental assumption in preparation of

the financial statement in case if this

going concern assumption is disturbed by

means of facts and circumstances of the

case the financial statement cannot be

prepared on a going concern assumption

that means it cannot be presented on the

normal historical cost convention plus

the fair value measurement acid meant it

is required by the standards it has to

be prepared on a liquidation basis

that's the reason why this going concern

assumption is very important as an

auditor this going concern assumption is

assuming further significance because

the ASIS 700 revised specifically

requires

an auditor to comment it is separate

paragraph is there any material

uncertainty relating to going concern if

so how it has been considered in the

preparation of the financial statement

so the fundamental assumption in the

financial statement is going concerned

it goes without saying

because double-entry bookkeeping is

being maintained accrual basis of

accounting is an important aspect every

accounting standards are driven by the

concept of materiality trivial items are

can be aggregated and presented as a

single line item on the concept of

materiality so that the financial

statement will contain only relevant and

reliable information rather than giving

excessive information if the concept of

materiality is ignored and due to that

there is no aggregation of items to be

shown on the financial statements

another important aspect in dias is

talking about is that whether an asset

and a liability or an income or

expenditure should be shown on a gross

basis or it should be given on a net

basis that's what we call it as an

offsetting for example I have a

financial asset I also have a financial

liability both of them are covered by

India's 1 0 name can I show on a net

basis in in simple terms I have trade

receivable as well as trade payable if I

knit it off the net to trade receivable

shows a debit balance can I show that

the standard is very categorical that

unless the company has a legal right to

set off

it is not possible for them to set up

and the preparation of the financial

statements requires a consistent

application of the applicable accounting

standards so India should be

consistently applied for the preparation

and also the way in which the

presentation and disclosures made how it

has been classified and presented in the

previous year whether that has been

shown again in the consistent manner in

the current year or it has been

reclassified if it is a reclassified

what is the additional requirement that

is also coming as part of that he may

amend that every financial statement

should have a comparative statement that

means the company should have at least

one year comparative for the user to

understand what is the current yet

number and what was in the previous year

so that he can make a relationship out

of what is the variance and whether the

variance has been supported by the facts

and circumstances relating to the

particular company so the comparative

information is always a crucial aspect

for understanding the financial

statement one of the very very important

point as far as the EDS is concerned is

that the company has to make an explicit

and unreserved compliance of India which

is applicable for the particular company

and if that particular compliant

statement has not been made it has been

mentioned in the standard that the

standard the financial statements are

not considered to be an India's

financial statement so compliance within

days without any reservation and that

the compliance should be made explicit

as part of the notes and accounts is an

important aspect of the financial

statement as you aware that India is

concentrating on the balance sheet

approach how the asset or a liability is

fairly presented and if there is a

change in the value of the asset and

liability what is a consequential impact

on the profit and loss account is what

India is looking for whereas under igap

we normally go by the profit and loss

account approach what is the income or

expenditure to be recognized and what is

the corresponding asset or liability

which we should consider that is the

mean part if that is the biggest to

change which we have to see when we are

comparing India's with a gap so we are

going for a balance sheet approach under

it is whereas it's just a P&L approach

under eye gap this is the overall

conservation when your finance company

prepares its financial statement

according to India's now let's move on

to understand what is the linkage

between India's one and the schedule

three to the Companies Act 2013 for you

our understanding is one under IFRS is

also talking about preparation and

presentation of financial statements

under IFRS but it never gave any

specific format for the balance sheet

profit and loss account cash flow

statement statement of changes in equity

or notes on accounts it is only giving

you illustrative items to be covered in

the balance sheet P&L etcetera whereas

here the Indians has been notified under

Section 133 of the Companies Act 2013

and accordingly the preparation of the

financial statement should also be in

line with radial 3 2 the Companies Act

2013 if you recollect that normal

companies to whom Indians are not

applicable will prepare as per division

1 of schedule 3 so division 1 applicable

to normal companies to whom India is not

at all applicable in case if these

companies of normal companies when I am

using the word normal companies I am NOT

considering specific industry specific

companies for example npf say I am NOT

considering here normal companies to

whom India's is applicable are supposed

to prepare as per division 2 of schedule

we will discuss the format of division 2

in this presentation throughout because

in days one is talking about

presentation of financial statement and

the format has been prescribed by

division two of schedule three and

thirdly if it is an end EFC to whom

Indian is applicable then division 3 of

module 3 is applicable for this

particular presentation I am using the

format given for normal companies and

not for mbf C's maybe as part of this

series I will take one session on

industry specific standards and industry

specific issues and at that time maybe I

will cover division 3 of schedule 3

which is for NBF sees adopting India's

having seen that there is a linkage

between in ds1 and the format of

schedule three division 2 let us go into

the components which has been prescribed

for a financial statement and of course

it is not something new majority of us

already knew this and even students will

also understand this that we are

preparing this financial statements and

the components of financial statement

from time immemorial there are some

small changes which we will see in the

slides to come balance sheet is the

first component of financial statement

and of course the second one is

statement of profit and loss third is

the statement of cash flows fourth is

the new element under India's idea we

just prepared balance sheet statement of

profit and loss statement of cash flows

and notes and accounts and of course we

have notes on a constant early days as

well but an important or a new element

which comes in is statement of changes

in equity under India's you will see

each of these components at

and also discuss the practical issues

which may arise when we prepared the

financial statements of the components

of financial statement under India's one

important aspect the Norman clay Chur

used to buy I forests under is one for

the components of financial statements

are little different for example the

balance sheet is considered a statement

of financial position so that means it's

talks about what is the position has on

a particular date the statement of

profit and loss account is called a

statement of financial performance so

what is the performance of the company

during the year or during the period a

statement of cash flows remaining the

same statement of changes in equity

remaining the same notes and accounts

remaining the same so by using a

different nomenclature like balance

sheet or statement of profit and loss

code are we are deviating completely

from IFRS the answer is no because IASB

has permeated the company the countries

to use different nomenclature which

might have been used by them as long as

it continues to give the same

understanding of these specific

components of financial statement so for

our discussion we will only have what is

the name Naaman Fletcher or name which

has been used commonly under inlays

another important aspect which we have

to consider is that the standard says

all the components of the financial

statement must be presented with equal

prominence what does it mean for example

my balance sheet is very strong so I

give the balance sheet in a different

prominence maybe I have highlighted I

have given in a different font and I

have given in a large font size etcetera

whereas my performance during the year

is not great and my statement of profit

last count shows some sort of losses or

something like that so if a company

thinks that by giving in a smaller font

or in a different format without any

highlights it can do that so here my

understanding of this is all the

components of the financial statement

must be presented with the equal

prominence that means everything should

be presented equally with the same

prominence you cannot have highlight for

one component and you should not do it

without any highlight for the other

conference so it should have prominence

in fact I used to tell my team when you

are having the financial statement under

in days in Excel format please ensure to

the when you are sitting in a page set

up for the purposes of printing and give

this same size for example 80% of the

phenomena the excel sheet should be

printed maintain that 80% for balance

sheet profit and loss cone cash flow

statement notes on accounts changes on

equity etcetera etcetera so that's a way

in which we are taking more conservative

approach because of this particular

statement let's move on to the balance

sheet under India's

interestingly the format of the balance

sheet under India is not different

with that of a company which is not

following I get when I'm saying the

format of the balance sheet and just

trying to say that the format requires

the assets to be disclosed as

non-current asset and current asset the

liability should be disclosed as non

current liabilities current liabilities

and equity this is normal requirement

which has to be done for the purposes of

presentation of a balance sheet as I

told already in ds1 is not at all

talking about the format of the

financial statement a format actually

comes from schedule 3 to the Companies

Act 2013 so when we are saying the

format is coming from schedule 3 to the

Companies Act the important aspect which

I have to see is that whether the format

is in accordance with the requirement

given for Indies companies that is what

we have said deficient for you to

understand I just opened a financial

statement especially balance sheet to

understand how the structure comes in

with respect to asset side as well as

the liability side as per schedule 3

Division 2 applicable to normal Indian

companies this is an Excel spreadsheet

which has been prepared for one of the

client which is a publicly listed entity

and accordingly sharing this doesn't

this information is already available

and accordingly you can understand that

how the financial statements are

structured let me just take you through

the front balance sheet if you see the

balance sheet says that it is a balance

sheet prepared and it starts with assets

normally under Schedule three applicable

to normal companies under igap you might

have seen that the share capital comes

as the first item in the balance sheet

whereas here the assets are present

first and that to non-current asset and

then current asset and according to the

various requirements current and

non-current asset then the total assets

there is a subtotal of non-current asset

and subtotal of current assets and then

goes to your total asset then comes what

we call the liability side or maybe I

should use the word he could be and

liability side so the equity comes first

and interesting lis you can see equity

share capital is shown separately other

equities shown separately let us

understand this little bit later and

total equity is shown as a subtotal then

you have liabilities under liabilities

you have non current liabilities which

again have a subtotal and you have

current liabilities which also has a

subtotal then the total liabilities has

a subtotal then the total equity and

liabilities has an overall total let us

take a quick view of the various

components of the real various line

items of this assets and liability

statement for example if you see that if

I am talking about a balance sheet what

does it mean I am talking about balance

sheet with non-current asset so we

should understand what do you mean by

current asset and what do you mean by

non current asset so we will discuss

further in this and interestingly the

financial statement has been given with

two comparators

March 31st 2019 March 31st 2018 and as

well as you have April 1 2017 there is a

reason behind this for the first time

adopted the comparatives for the date of

transition is also required to be given

so this is the first year of compliance

with in days

one of the company so naturally they are

supposed to give the third balance sheet

we will discuss the about the third

balance sheet and using the word third

balance sheet we will understand what

you mean by third balance sheet when we

are talking about the notes on accounts

and the presentation of financial

statement within the non-current I said

if you see property plant equipment

capital work in progress and of course

this company doesn't have intangible

assets otherwise it might have come then

the third important category comes as a

financial asset in igap there is no

concept of financial asset it simply

goes with investments loans or maybe it

says current assets and non current

assets under that you show investments

loans other non-current asset here

whatever assets which are covered by

needs of in days 1:09 financial

statements should be given based on the

date of their expected realization if it

is a non current in classification and

we'll come to that non current

classification a little later that's the

reason why I don't wanted to use the

exact definition now for the time being

you assume that if it is a non current

asset and covered by India's 1:09

financial instrument within that what is

the subcategory

investments loans other financial assets

has to be given by the company and then

again comes other non-current asset

which is not falling into any of the

previous category then the subtotal with

respect to current assets you might have

seen that inventory comes under current

assets again financial asset we just

considered as current in nature it also

comes under this particular category so

again here investments tradable cash and

cash equivalents and bank balances other

than the above the trade receivable can

be both current as well as non current

investments can be both current or

non-current

we will see that little later when we

are looking into the decision tree

relating to current asset

cash and cash equalent as defined by

India's seven will be presented here any

bank balances which are not considered

as cash and cash equivalent and are

considered as current in nature should

be presented as a separate line item

bank balances other than about so

normally what will come here if you have

cash and cash equivalent under that you

have cash balance you have balances in

current account or deposit accounts

which are having original maturity of

three months meaning I have deposited in

June expected to mature within three

months from June then that item is

considered as cash and cash equivalent

suppose I have put a fixed deposit no

encumbrance no lien marked but that will

not have original maturity of three

months it will be maturing after three

months but before twelve months from the

end of the previous year or the end of

the financial year it will be considered

as bank balances other than MO and

cannot be included at the cash and cash

equivalents OH in simple terms fix the

deposit having original maturity of

three months can be cash and cash

equivalent all other bank deposits will

be bank balances other than above if it

is maturing within twelve months from

the end of the accounting period or if

it is going to be realized after twelve

months it will go to other bank balances

under non-current asset okay this is to

understand this classification like that

loan can also be current portion non

current portion we will see what is that

the residual category is other non other

current assets so the subtotal has also

been seen the total of non current

assets and current assets is what we are

seeing as the total for the asset side

of the balance sheet now we go to the e

equity and liability side of the balance

sheet equity is nothing but

the shareholders funds whatever is the

funds contributed by the shareholder and

whatever is attributable to the

shareholders at the time and the company

goes for liquidation those items are

considered as part of equity now why I

am showing equity share capital

separately and other equities separately

for the time being we will not get into

a hurry on preference shares just have

it in your mind preference shares are

considered as financial liability and

not share capital under in days as per

in days 1:09 when I am taking a session

on in days 1:09 financial instruments I

will discuss the other classification of

preference shares like redeemable

preference shares convertible preference

shares cumulative preferences etcetera

we'll discuss that later what do you

mean by other equity you remember that

one of the component of the financial

statement under industry said it's a

statement of changes in equity the

statement of changes in equity is

nothing but a combined statement of

share capital and all the reserves and

surplus attributable to the shareholders

for example if I have the balance in

profit or loss code it will go to other

equity if I have other comprehensive

income a new concept which I am using I

will explain that during the course of

this explanation for statement of profit

Alaska other comprehensive income

balance if any that will be shown as

part of the other equity that could be

compound financial instrument like

convertible preference shares or

convertible debentures there is an

equity portion is also available

according to in days 32 then that equity

portion will be part of the other equity

so accept equity share capital all other

items will be forming part of

other equity and the sum total of this

equity share capital and everybody will

normally flow from statement of changes

in equity which is a new component under

eBay's now we have seen that the share

capital and our I should use the word

equity share capital and the other

equity put together is the evening and

then liability side as we have seen in

asset side here also liabilities are

classified into non current liabilities

and current liabilities again within non

current liabilities if it is financial

liability that is shown separately all

the items are shown separately so

similarly here if you see financial

liabilities are both non current also is

there some of them and there are some

items which are current also for example

long long term borrowings is a financial

liability and it is shown and at non

current whereas straight payable is a

current liability and accordingly it is

shown here suppose if you have short

term borrowings or working after limits

which you have taken those items will

also come under current liabilities

financial liabilities short term

borrowings similarly provisions can be

long term provision then it will be

shown under non current liabilities it

can be shortened provision which will be

shown under current liabilities so this

again subtotals of the current liability

and non current liability is being made

and total liability is also given as a

subtotal so equity and total liabilities

put together is your balance sheet asset

side

that's a reliable decide so see in the

balance sheet so what are the new things

which we have learned the first time

preparer of the financial statement

normally gives 3 balance sheet one is

for the current period another is for

the comparative period and third on the

date of transition what is the date of

transition is the date on which the

opening India's balance sheet has

prepared we will cover that as part of

in days 1:01 first time adoption of

India's a critical standard which I will

cover with actual conversion of an

Uyghur financial statement into an

Indian financial statement for the

benefit of the audience in fact when I

started I thought that this session will

be for the benefit of students but the

feedback which I have received from

majority of my fellow professionals is

that they are also finding it useful and

the reach is also encouraging that lot

of feedback has happened and based on

the feedback only I'm sharing lot of

inputs like showing the actual excel

file etc for the benefit of you to have

an understanding rather then rather than

just talking theoretically on the

aspects and this the second thing which

we have seen in the balance sheet is it

comes a set comes first and the equity

and liability comes next

equity we are going to show as equity

share capital and other equity and there

is something called financial

instruments which we have seen which can

be financial liability or financial

asset so with that understanding of

balance sheet I think you may have

understood how it is structured how it

is flowing into the balance sheet as per

Indian let's move on because we have

talked about current assets and

non-current asset we have talked about

current liability and non current

liability what does it mean we have to

understand then only it is possible for

us to present it properly right so I was

looking into in days 1 0 18 days 1 which

was actually giving me how I have to do

the entire presentation now the question

which I was having is that

whether this format which we are

discussing is available under I for us

also as I have said already no specified

format has been given by Hindi is one

only India's one is also not giving any

format since we are covered by Companies

Act so we are using Schedule three okay

so if you are preparing under eye for us

the way in which you are presenting

current and non-current asset equity

liability will be similar but only thing

is there is no exact format we just been

prescribed now how I can identify a

particular asset as a current asset or

in non-current asset is an important

consideration in this one give certain

conditions I should say there are four

conditions which has been given if any

one of the condition has been satisfied

the asset is considered as a current

asset if none of the conditions have

been satisfied it becomes a non-current

asset

when you are looking into the standard

the standard gives us a narrative but I

understand

based on my experience when I was

teaching in days to professionals as

well as speaking in a lot of forums

where the audience wanted to understand

by means of a flowchart so that's a

reason why I have mentioned that it's a

current asset decision tree if you are

using your knowledge of search in the

index one you will not find any decision

tree so this is for my easy presentation

I have used the decision tree concept

hopefully it will be useful for you to

understand it easily

the first rule our first question which

I am going to ask is that is this

particular item of an asset is expected

to be realized soul or consumed within

the normal operating cycle what is the

normal operating cycle is nothing but

company has cash it purchases raw

material or traded goods it converts

that into WIP the traded goods are

finished goods are sold and trade

receivables comes into the balance sheet

and trade and sale is subsequently

collected after the credit period into

cash so the cash to cash cycle is what

we called as an operating cycle so

India's first asks the question whether

a particular asset is expected to be

realised sold or consumed within the

normal operating cycle what is expected

to be realized maybe I have a trader

civil whether the trade receivable is

expected to be realized within the

operating cycle for example my operating

cycle is within three months cash to

cash will happen whether I am going to

realize it within three months so if I

am saying the answer yes then we may

have the answer that it's a current

asset what is sold I have traded goods

or finished goods which I am selling

and if it is expected to be sold in the

normal operating cycle it is a current

asset so inventory is a current asset or

it is consumed within the normal

operating cycle for example I have raw

material consumable tools etc those

items are consumed during the operating

cycle then those items are also

considered as a current asset that's the

reason why when we are considering

inventory inventory is always fall into

a category of a current asset because

it's normally consumed within the normal

operating cycle suppose if you answer no

this particular item is neither covered

by operating cycle for example

investment is not covered within the

operating cycle ah if I am saying that

the item is covered by operating cycle

but not expected to be realized within

the operating cycle within three months

or six months it is not expected to be

realized

so what I have to do the next rule says

is it held for sale or you're holding

this particular asset for the purposes

of selling if you say yes it's held for

sale then that item again will be a

current asset for example if I am

considering that inventory is always

held for sale even if the inventory is

not expected to be sold within the

normal operating cycle within three

months but it is always held for sale

and accordingly inventory can never be

part of your non-current asset similarly

I have some investment which I am held

for sale not held for using it for maybe

till the maturity date I am not going to

use it it's regularly I am buying and

selling this particular investment it's

held for sale then it is always a

current asset even though it is a

financial asset it will fall into the

current asset classification so under

financial as assets I will show a

under current assets under financial

asset this investments will be shown as

a current asset suppose if I'm saying

sorry nature of this to rule is

applicable for this particular asset

then I will ask the next question

whether this particular asset is

expected to be realized within twelve

months from the end of the reporting

period

the end of the reporting period is say

for example 31st March 2019 whether it

is expected to be realized within 31st

March 2020 then that particular asset is

considered to be a current asset if I am

saying no this is also not applicable to

me a specific question a specific rule

is relating to cash and cash equivalent

if it is an unrestricted cash and cash

equivalent what you are showing in the

balance sheet without any restriction

you can collect that money back within a

normal period it is always considered as

a current asset so even though it's cash

and cash equivalent there is a conflict

between this standard and the format of

days one cash and cash equivalent is as

defined by ace abs 7 is 3 whereas other

cash balances can be current asset

that's the reason why if you recollect

when I show the balance sheet I have

shown bank balances other than the above

undercurrents of classification so we

should see whether it's an unrestricted

cash and cash equivalent or if it is not

I have to apply the second theory

whether it is expected to be realized

within the next to 12 months so that

comes as a current asset in case none of

this condition is satisfied by a

particular asset then the asset is

considered a st. non-current asset now

the point is if you have this flow chart

handy any item which you wanted to

understand whether it has to be

classified into current or non-current

if it simply understand by means of

going through the flowchart and you will

have the perfect answer where it should

be presented as current or non-current

similar thing I have converted the four

rules which has been given for current

liabilities or non current level based

determination by means of a decision

tree more or less the rules are similar

to what we have seen in current asset

decision tree a slight modification

there we are talking about realization

here we will call it about settlement

and there are some additional concept

because cash and cash equivalent cannot

be part of current liability so to that

extent there is a different question

which is coming in so let us understand

this decision tree why I am trying to

connect with the decision tree of the

current assets is for a simple reason

whenever we recap what we are trying to

learn new with what we have already

learned there is a possibility of this

goes into our mind very strongly and the

resume can be a retaining capability is

much much higher so that's the reason

why I am trying to say that so even if

you have forgotten what is the decision

tree for current liability you can come

from current asset similarly you can

come from current liability decision

tree to current assets decision tree

that's the reason why I am trying to

connect so the first question is whether

this particular liability is expected to

be settled within the normal operating

cycle liability cannot be sold liability

cannot be consumed that's the reason why

it is using only expected to be settled

within the normal operating cycle

compared to current asset decision tree

if I say yes it is expected to be

settled within the normal operating

cycle it is a current liability

suppose he feeis I say no it is not

expected to realize within the normal

operating cycle what I am supposed to do

go to the next rolling the next rule

asks is it held for sale

the normal question which comes to our

mind is how a liability can be held for

sale said can be held for sale but how a

liability can be held for sale could be

a question which comes to our mind

please understand there is a specific

standard called in das1 zero five which

is talking about known as a non-current

asset held for sale and disposal units

what does it mean suppose if a company

wanted to dispose a particular operation

particular vertical of its business

cycle our business model assuming that

they have four or five different

business verticals one is trading one is

manufacturing one is maybe manufacturing

of textile items or one is manufacturing

of industrial items if we consider as an

example and they have decided to dispose

of the textile unit the asset is also

held for sale and whatever liability

relating to that is also held for sale

if somebody is trying to buy that

particular asset what we will say as a

total unit you buy along with the assets

and liabilities so that could be a

possibility that the liability may be

held for sale and that is a current

liability and that if I am NOT

fulfilling any one of these two

conditions the third condition which I

normally look for us whether it is due

to be settled within twelve months from

the end of the reporting period now

let's talk for a moment there we are

settled whether expected to be realized

here I am using the word due to be

settled there is a difference between

these two which you keep it on back of

your mind I will explain it a little

later

the other point which we have to

consider is whether due to be settled

within twelve months from the end of the

reporting period there is a possibility

that a portion of an on current

liability can we do

be settled within the next 12 months and

accordingly they should be shown under

current liability a classical example is

repayment of term loans which are due

for the next 12 months that portion will

not be shown under non current liability

it will be shown under current liability

for better understanding people used to

present the total non current liability

including the current portion then less

current maturities of long term

borrowings shown under current

liabilities refer the cross-reference of

the particular node on current liability

so any portion of a liability which can

be totally due to be settled within two

elements or even a portion of the non

current liability could also be due to

be settled within the next 12 months

from the end of the reporting period

that portion should be shown as current

liability the fourth classification our

fourth rule for classification says

whether the company has an unconditional

right to defer settlement of the

liability for at least 12 months after

the reporting date so what does it mean

suppose a company has borrowed a

terminal I put an example took a term

loan and the company has a holiday

period of one year for repayment of

principal so to the extent the company

has an unconditional right to defer

settlement of that loan beyond 12 months

from the end of the reporting period

okay so if there is an unconditional

right to defer settlement it is a long

term in nature or non-current in nature

suppose if the company does not have the

right to or untraditional does not have

the unconditional right to defer the

settlement beyond 12 months it should be

treated as a current liability term loan

I have said with a bharat areum period

there is a possibility that it will be

only non current liability or it may be

combining both current portion as well

non-current portion not the rent portion

I have an unconditional right to defer

settlement so accordingly it becomes a

non-current let us take another example

I have taken cash credit limit our

working capital limit which are renewed

here on here I have taken a loan from

the bank and the bank is always

relieving my loan every time it is

renewing it is actually an absolute

revision because my performance is also

going up so that's what I am trying to

my mind working after limits is operates

in that manner if the working capital

limits is being renewed Iran here can I

treat that as a non current liability

because in my balance sheet it sits as

it is or it goes on increasing rather

than decreasing can I show that as a non

current liability if you see the last

condition a last rule for determining

whether this liability is a current

liability or not it is ask you to check

one acid test whether the entity does

not have an unconditional right to

deficit even in a cash credit account

it's always repayable on demand and the

bank can renew or it can repay it can

ask for repayment of that particular

item on demand so accordingly even

though it is liable to be renewed a year

on here and permanently states in the

balance sheet since it is not fulfilling

the fourth condition working after

limits are normally considered as non as

a current liability and it cannot go

into non current liabilities

classification now the question comes

suppose if a company borrowed loans

which is long-term in nature but because

of default the bank has sent a notice

recalling that loan what happens if the

notice has been received before the

year-end even though it is a term loan

the last condition will not be satisfied

as said the reporting period that means

even though originally there was a

repayment schedule which has been given

now the bank has recalled that loan when

it is a recall that loan the company

does not have an unconditional right to

effort settlement beyond twelve months

from the end of the reporting period so

accordingly any recalled loans should be

always classified as current liability

normally this happens when the bank has

issued a notice because of NP and that

notice has been received by the client

and sometimes when surfaced you notice

has been issued in all those cases you

have to be very very careful

so especially where there is a default

in repayment of loan you have to

specifically ask the client whether any

notice of recall has been issued

if notice of recall is not issued there

is a carve out which we have done under

igap very under Indians we will continue

to show that as non current liability

only I first says the moment the loan

covenants are not met automatically it

becomes a current liability so that is a

carve out which is available so what we

have to look into is there any issue

relating to recall notice has been

issued by the bank if it is issued then

it has to be reclassified to current

liability when I am reclassifying to

current liability in the current ear

whether the previous year's balance

should also be reclassified to current

liability my view is no because the

position or the determination of a

current asset or current liability has

been determined based on the facts and

circumstances histah existing as on that

balance sheet date so last year I don't

have a default last year I have an

unconditional try right to defer

settlement beyond 12 months so to that

extent it is a non current liability in

last year just because it becomes a

current level in the current year that

that doesn't mean that I have to restate

the previous year balance also

accordingly because there is a separate

standard in ds8

which is talking about how you have to

account for the change in accounting

policy or change in accounting estimate

or prior period errors it says only if

there is an error in the previous year

Restatement is required if there is no

error

it is only based on the current year

circumstances it becomes a current

liability I will not restate the

previous year's balance this applies

equally for current assets and

non-current asset classification as well

as I said please keep something on the

back of your mind there is a difference

between do to be settled and expected to

be settled if you recollect that current

asset decision tree was using the word

you expected to be realized and it is

not saying that due to be realized

it says expected to be realized that

means when the management expects that

it should be realized

whether it is expected to be realized

within two elements according to the

management assessment still it becomes a

current asset when it comes to current

liability it is using the word due to be

settled and not expected to be settled

that means I have a credit card where

the credit terms are say for example 90

days but for some dispute I am not

making the payment I am NOT expecting to

settle it for the next one year whether

that particular trait payable will be a

non current liability the answer is no

because the emphasis is on a do to be

settled and accordingly it is already

due to be settled I'm holding the

payment that's all that doesn't change

the category or characteristics of the

asset from current to non current

liability this is an important thing

which we have to keep it in our mind

some quick points

maybe these questions may be in your

mind and it is not an interactive

session so I am asking the question and

I'm answering this question as well one

of the point which we have to have is

that whenever an asset has to be

classified

into current or non-current you should

understand the clients business for

example a land held by a real estate

developer will be a current asset

because it's held for sale as an

inventory or development in the

operating cycle in the finished product

and then sold as a flat whereas the land

in respect of a manufacturing unit will

be part of non-current because it's a

property plant and equipment so you have

to be careful understand what is the

client's business based on which the

asset or liability requires their

classification the second important

aspect is that we said the asset

classification is normally based on the

intention of the management management

has the intention to settle it sorry

realize it only after IDI expects that

it will be realized only after 12 months

from the end of the reporting period and

because of that it becomes a non-current

asset but at the same time if management

says that no no no I will collect this

within the next to 12 months so

accordingly I wanted to put it in

current asset classification whatever

management says is what we are testing

what we are agreeing because the it is

not an auditors prerogative to decide

whether it's a current asset or

non-current asset but the auditor has to

necessarily ask the management to

demonstrate or how you are believing

that you are expected to realize it

within the next 12 months from the end

of the reporting period so very

important aspect management can give

whatever reasoning but it should be

demonstrated auditor should follow our

auditor should test that as I have said

expected to realize is from the point of

view of the management ok and when what

is the difference between this first or

second one and third one maybe one more

thing which I get added if I have a land

I'm showing as part of property plant

equipment but there is a surplus land in

the factory that surplus land what I am

going to do I not it decided there is a

separate standard called in days

fourteen investment property

it says if their future use of an asset

is not determined then it should be

considered as a investment property if

it is in the nature of land and

buildings or both okay so accordingly

the intention of the management when

they are saying no now here you are

going to use it for the purposes of our

future expansion of factory it can

continue to be in property plant

equipment but they have to demonstrate

that yes this surplus land will also be

used only for the business so that is

one shuttle difference between second

and third bullet third bullet is

normally we come across this situation

trade payables sorry trade receivables

outstanding for more than three years

but management always says that we will

collect it in the next two-three months

so that no provision is required so that

I have to consider that as current asset

or non-current asset as per the

management intention expected to be

realized with next to 12 months so it

becomes current asset but the facts of

the case last three years it is not

collected what is the new evidence which

will be available to ensure that I will

be able to collect it within the next

two three months is an important aspect

okay so it should be demonstrated in the

both the cases

so audit procedures should necessarily

be applied by the auditor to ensure that

there whatever management represents is

having a sufficient appropriate

collaborative audit evidence to conclude

that the management judgment or

management conclusion is acceptable to

the audit how deters as well some more

additional check points as this I have

said last year it is non-current asset

in the current here it is a current

asset whether I have to restate the

previous year as I have already

explained unless there was an error in

the last year

that should've been classified as

current asset but unfortunately by

mistake it has been classified as non

current asset then the Restatement comes

into the picture when that type of error

has been corrected by means of

Restatement there is an issue which we

call as correction of prior period

errors in days it comes into the picture

and we talk about a third balance sheet

in that case as well so I will explain

that concept a little later a company

always says this is held for sale

how long I'd wait

the statement yes this asset is held for

sale and accordingly it is still

continued to be a current asset if you

see held for sale again should be

expected to happen in the immediate near

future when I'm using the word immediate

near future it is expected to be sold

within the next to 12 months so if it is

not demonstrated then held for sale

category may not be applied by the

company so we have to be cautious on

this to determine a particular item as a

current as a category or a non current

category loan covenant we have discussed

already in India only if the reserve

recall notice issued then we will

reclassify the term liability into non

current current liability otherwise we

will continue to show that as a non

current liability another interesting

question comes because the India's

requires preparation of consolidated

financial statement and Companies Act

also requires consolidated financial

statement to be prepared and presented

one of the question which comes is

assuming that I have classified a

particular item as property plant

equipment in the standalone financial

statement whether the same thing can

continue to be in the consolidated

financial statement also in the same

category the concept it may be or may

not be depending upon the circumstances

of the case I think I have some examples

to discuss this particular point so we

will move on to the next slide so it is

always easy to understand by means of

case studies the concept and that is the

reason why I am putting some four five

case studies for you to understand and

all these items as I have already said

you can put any item off an asset or a

liability into the flow chart and you

will get an answer whether it should be

a current asset or non-current asset or

current liability or in on current level

let me take

is a current asset I take some questions

the operating cycle is 15 months

assuming that it is a long-term gas

station period industry so it is 15

months because it's its manufacturing

aircrafts maybe company like agile or

any other company which is manufacturing

aircrafts the accounts receivable is

expected to realize within 15 months

whether the accounts receivable or trade

receivable is considered as current

asset is the question so what is

therefore rules if we trying to

recollect the first condition says

whether expected to be realized consumed

sold within the normal operating cycle

whether this particular item satisfies

that normal operating cycle is 15 months

trade resume is also expected to realize

within 15 months the moment the first

condition our first rule establish Attis

fide because we said even one condition

has been satisfied it becomes a current

asset so it automatically becomes a

current asset let us take another

example the average operating cycle of

the company again we are talking about a

company which is manufacturing aircraft

is 18 months it has some investments and

these investments can be sold at any

time it's not held for sale it can be

sold at any time it's available for sale

and management believes that they will

sell it only within the next 15 months

not within 12 months within the next 15

months now we put this into our rule

what it says whether the asset is

expected to be realized

sold consumed within the operating cycle

operating cycle is

expected to be realized within 15 months

seems to be yes it is expected to be

realized but please understand whether

investment covered by means of the

operating side three definitely know and

accordingly the first condition cannot

be applied for an investment so next

question is whether it is held for sale

it is not held for sale because it's

only says at any point of time it can be

sold available for sale so second

condition is not satisfied what is the

third condition whether they expect it

to be realized within the next to 12

months

no it is expected to be realised with

him only after 12 months within 15

months third condition also failed what

is the fourth condition whether it is

unrestricted cash or cash equivalent

investment is not cash in cash

equivalent so naturally all the four

conditions are not satisfied by this so

to that extent an investment which is

expected to be realized within the next

15 months should be treated as a

non-current asset okay it is not

operating cycle because operating cycle

is not applicable for a financial asset

can we take some more example okay

company has excess finished goods

it's not expecting to sell that within

the next 18 months because of what is

capable of being sold is already there

this is an excess inventory is available

operating cycle is 18 months whether

this inventory has to be treated as an

non current inventory because operating

cycle is not fulfilled twelve months is

also not fulfill cash and cash

equivalents is also not fulfilled but

what we have to see is that what is the

condition first I go to the flow chart

whether expected to be realized within

the operating cycle no failed second

condition is held for sale always

inventory is held for sale so naturally

inventory will never will be classified

as non current item even if they are

held for a longer duration but as an

auditor you will be very very clear

about the audit procedure whether it

creates some sort of impairment on the

carrying value of the inventory when we

are talking about empowerment for

inventory it is nothing but whether

there is a non realizable net realizable

value will fall down below the cost of

the invent then we have to write down

the inventory to that extent of the net

realizable value so that's one audit

conservation which we have to talk about

otherwise inventory will always be a

current asset so there is a contract

which the company has entered into I am

taking another example the company has

entered into your contract

which has a credit period of three

months operating cycle is six months but

company does not expect it to realize

the payment with respect to that

particular trade receivable within the

next twelve months so what happens he

put that again into our flowchart

easiest way of understanding the current

and non-current classification whether

it is expected to be realized within the

operating cycle know six months is

operating cycle I am expecting to

realize after twelve months so not

applicable whether it is held for sale

data's are not held for sale or trade

receivable is not held for sale so

second condition is not fulfilled third

condition whether expected to be

realized within twelve months from the

end of the reporting period not

satisfied because here they are saying

it is not expected and the fourth

condition is is the trading Sibley's

unrestricted cash and cash equivalent

the answer is no and accordingly a trade

receivable which is not expected to be

realized within the next twelve months

from the end of the reporting period or

if the operating cycle is beyond twelve

months within the operating cycle should

be classified as non current asset

so a tree

so we can become in non-current asset

auditor and the management has to be

careful on this particular

classification now some more examples to

understand not necessarily an current

and non-current classification I think

that I have already discussed about this

a real estate development company is

having land and they are building with

the intention of building the

residential flats and will be sold upon

completion whether the land has to be

classified as current so for a real

estate development based on the business

of the company it is nothing but

inventory so it will continue to be

classified as current asset suppose if

the land is held without any future and

they without any determination with

respect to the future use it goes to

investment property standard in days 40

in days 40 the moment it has been

classified as investment property comes

as a non current item so you should

understand what is the intention here

only the question is what is the

intention of the management is important

but it should be demonstrated that's

what we have discussed suppose this is a

peculiar scenario because all practical

issues can come even in a normal

business environment in this one we are

trying to find out is that a real estate

developer develops a property and he was

treating that as part of his inventory

but he may

retain certain portions and give it on

rent because he wanted to hold it for

some period the market may not be good

but he wanted to hold it for some period

and then he wanted to sell it because it

is realizing rent whether it should be

reclassified to investment property as

per in days 40 again the intention is to

hold it for a certain period maybe for

getting a good price and only during the

period temporarily it has been given on

rent so it never loses the

characteristics of inventory so that is

the reason why it has to be very very

important what is their intention what

they are wanting to do whether they will

continue to hold it for rent real is

recording rent only or they will be

selling it in the future if the

intention is to sell it's only a

temporary period for which it is being

held as investment property then you

need not be classified into non current

classification so this is the intention

of the management which has been

explained to us but as we have very very

clearly understood the intention of the

management should be always demonstrated

and our audit procedures should document

how we have verified the intention of

the management

I have I was talking about the parent

company and subsidiary company right so

what will happen in the standalone

financial statement as well as in the

consolidated financial statement let us

take an example a parent company owns

certain office complex out of which one

portion of that has been given to its

subsidiaries say for example they have

ten flows three flows they have retained

and seven flows they have given to

various subsidiaries which they are

holding the seven subsidiary seven flows

which we are talking about will be

considered as part of investment

property so when the parent prepares its

standalone financial statement whatever

has been leased out to the subsidiary is

nothing but held for the purposes of

capital appreciation or for letting it

on rent to others which is the

definition of investment property it

needs the criteria so automatically you

have to classify that as part of

investment property in the stand alone

financial statement when we prepare the

consolidated financial statement for the

group parent stand alone financial

statement and the subsidiary stand alone

financial statement when they are

combined what we are seeing is their

aunt it's a group's financial statement

as far as the group is concerned

whatever premises which has been taken

on ranked by the subsidiary and what has

been given on rent by the parent is

still used for the business purposes of

the group and accordingly it becomes a

property plant and equipment from

investment property categories so you

have to always see what could be the

situation where intended use changes as

well as whether it is a parent and

subsidiary companies and standalone and

consolidation comes into the picture so

I think that we have understood

reasonably well the classification of

current and non-current and also based

on the intention it has to be taken into

consideration I think

we have covered reasonably well how a

balance sheet has to be prepared

presented between current and

non-current what are all the requirement

for current and non-current there are

four conditions even if one condition

has been satisfied it becomes a current

asset management perspective has to be

always considered for classification

management intention should always be

considered for classification but it

should be demonstrated we have seen all

these things and for current liability

again four conditions we have seen and

we have seen expected to be realized is

different from do to be settled and

accordingly even if the management is

not going to repay the loan because of

some dispute if it is already view it

has to be taken into consideration

let's move on to statement of profit and

loss nothing but profit and loss don't

commonly use so let us understand this

here there is something new concept

which is coming in it says a statement

of profit and loss count should be

presented as a single statement approach

what do you mean by single statement

approach I first gives to statement

approach as well a single statement

approach nothing but a single statement

approach with the two sections that is

comprehensive income statement other

comprehensive income statement if they

are combined together and shown under a

single statement that is called a single

statement approach I will show the

profit and loss spoon a little later so

that you can understand this under India

is a single statement approach with the

two sections has been permitted and two

statement approach is not permitted I

forest allows you to have statement of

comprehensive income for the year ended

as a separate statement statement of

other comprehensive income for the year

ended as a separate statement but called

to statement approach for India's it is

a single statement approach this I have

discussed in the last session also we

cannot give based on functional

classification of an item in the Prophet

Allah Scott so we should we cannot say

cost of goods sold administrative

overhead selling overheads we cannot

have it like that because if I'm using

the word administrative overhead it

includes even depreciation for the

assets used for the administrative

purposes so it says it should go P only

by nature of expenses model and that

classification say is nothing but you

have to show based on the nature of the

expenditure for example cost of

materials consumed

changes in inventories your employee

cost depreciation and amortization the

finance cost all these items of nature

of expenses here to present the

financial statement only based on nature

of expenses classification again in days

one is not prescribing the format of the

financial statement scheduled three to

the Companies Act prescribes the format

for India's companies it's a division

two of schedule three before we go into

the next one let us have a quick look of

how the P&L has been presented by an

Indian company and a single statement

approach you may see here that it is for

the year ended and it

for the same company for which we have

shown a balance sheet where we have

shown three-year period current period

comparative period and date of

transition but here only two periods has

been given that is for the current

period and for the comparative period

income from continuing operations has to

be given separately and the net result

of discontinuing operation has to be

given separately and forever

understanding there is no difference

between the existing schedule 6 which

has been revised under 1956 Act and

schedule 3 so the format remains the

same and the expenses which has to be

shown what I have talked about cost of

material consumed etcetera and profit

before exceptional items and thanks

interestingly there is something which

comes into our consideration exceptional

items you are not using extraordinary

items because under in days 1 as well as

under I for us there is no item is

called extraordinary aid under IFRS

there is no concept of exceptional item

I first only says if an entity believes

that it will make a relevant and

reliable presentation it can add any

line item separately on the face of the

P&L account that means assuming that in

a hospital where the major outflow is

the consultant fee the hospital can

decide to include one line item saying

that fee is paid to doctors and

consultants as one of the line item even

though that item is not here in this

financial statement this is the format

we just mean have we normally talk about

all the items will go to other expenses

but for a hospital they wanted to know

what is the total outflow arising out of

the payment made to the consultants and

doctors who are performed the various

surgeries and procedures for the

inpatients and outpatients so it is

possible for the company to include it

you can add a new line item and show

that as a separate line item so showing

that separately I said on the case of

the panelists based on relevant

presentation which you wanted to make

use of it for giving a proper

understanding of the entire expenditure

to the user of the financial statement

in ds1 also permits that but in days one

is not talking about exceptional item

but schedule three talks about

exceptional item and because of that if

any company believes that these items I

wanted to put it as an exceptional item

the auditor cannot object and if it

fulfills the definition of exceptional

items as per schedule 3 that item can be

part of the exceptional item for example

in this case also a company has put some

items of loss as an exceptional item in

the previous year around 680 point 3 6

lakhs they are shown as an exceptional

item maybe they might have treated that

this is arising out of if I understand

or maybe I'm trying to understand this

could be suppose if the company has sold

the property plant equipment a land has

been sold and they have made profit they

don't wanted to show as part of the

operating profits they wanted to show

that as an exceptional item or they have

incurred losses with respect to sale of

a property they don't wanted to show

that as part of their operating income

so our operating profits so they are

trying to show that as part of

exceptional later and in case if the

company is having some discontinued

operations then the discontinuing

operations will be shown after this

after what is the profit from operating

activities then you will show what is

the profit from discontinuing operations

as a single line item profit or loss

that's a net result we will show and

what is the tax impact we will show as a

separate line item in this case it is

not that so up to this profit or loss

for the year is nothing but what we

called as a

comprehensive income statement the other

section other comprehensive income is

normally and unrealized gains and losses

we will see what is other comprehensive

income little later so those items other

comprehensive income statement will be

shown as a separate section and both put

together is what we call it as a total

comprehensive income for the year this

is what we call it as a single statement

approach having two sections

comprehensive income and other

comprehensive income all other items are

similar to what we have seen in our

existing practice so hope even

understood what is the structure of this

statement of profit and loss as I have

said say whatever is the regular incomes

and expenditure which is arising from

the normal cause will be comprehensive

income what is not recognized in the

profit or loss cone and which has been

permitted this is very important which

has been permitted by a particular in

days unless and indias permits this item

to be classified as another

comprehensive income you cannot have all

types of other unrealized gains into OCA

or other comprehensive income for

example if a company wanted to fair

value its investments

there is two possible classification

under financial instrument standard one

says fair value through P&L another says

fair value through OCA if you are using

the concept of fair value through OCA in

days 1:09 allows you to take it to OCA

if you are going to prick the nest fair

value through P&L it should be treated

as part of the comprehensive income so

it cannot be other comprehensive income

so a standard has to specifically allow

you to present that as a comprehensive

other comprehensive income otherwise

nothing can go into OCA that is a very

important rule which we have to consider

comprehensive income plus other

comprehensive income is total

comprehensive income for the period so

as I have mentioned there is an ex

explicit prohibition of treating any

item of income or expenditure as an

extra narrator but exceptional is

permitted because of schedule 3 what do

you mean by other comprehensive income

all these items are considered as other

comprehensive income basically these

items are covered by respective

standards for example if I am talking

about property flan equipment as 14 days

16 when you are doing a revaluation and

every time the revaluation has been done

the reevaluate changes has to be gained

or losses arising out of the revolution

should be routed through OCA and not

through P&L account and cash flow it

just comes from index 1 0 9 and when you

are translating your foreign

subsidiaries which are independent for

an operation you have foreign currency

translation reserve Jeff's idea that

will be part of

OCA and when you are having a certain

financial asset which has been

classified as fair value through OCA any

changes in the measurement will also

come to OCA actually gains and losses

relating to employee benefits actually

it uses our defined benefit plan when

you are using defined benefit plan

normally grachi is one of the classical

example when you have the actuarial

valuation of the tragedy one of the

component which they will mention is

what is the actuary gains and losses

what is the impact because of change in

actual assumptions compared to the

previous year due to the actualization

or because the assumption becomes true

in the current period that will be

considered as an actual gain or loss as

the case may be that item should also be

part of other comprehensive income as I

have said already unless an accounting

standard specifically prescribes no item

can be classified into OCI by the

management so management doesn't have

any discretion
I don't wanted to put that as part of

OCA comprehensive income make sure that

it's part of OCA because the people are

normally considered ApS before OCA so it

will be helpful for me it is not

possible for the company to do that

let's move on to the important component

which is a new element statement of

changes in equity as I have mentioned it

is nothing but what is the opening

component opening balance of each

component of the equity and it may be

profitable as condo CA items which are

directly recognized in equity certain

transactions which are specifically

coming in to that all those items are

considered and what is the closing

balance so you have to show the opening

to closing balance the movement has to

be captured by in a columnar basis so it

is more or less gives it reconciliation

between opening and closing equity for

you to understand I am trying to show

the format of the statement of changes

in equity which is basically goes like

this I

a lot when I'm trying to record this for

example initially I thought that I will

show this as a excel file but I have

seen that my picture or whatever I'm

doing this comes as overtly on the file

so to that extent you are not able to

see so I'm including some more

additional line items so that I can move

the cursor on to understand

so here the names states that this is

for the year ended it's not asset the

year ended because it shows the moment

during the period that's the reason why

it is farther here ended and it has to

Claire categories one equity share

capital if you remember that in the

balance sheet we have seen equity share

capital and be other equity so a and B

put together will go to the balance

sheet a will go to equity share capital

total and other equity the sum total of

all the components will go to the other

equity portion and the balance sheet

so again equity share capital you have

to show the movement from the date of

transition to the comparative period to

the reporting period okay date of

transition for the time being don't get

confused to you just keep it in your

mind that this is nothing but the

opening date of the comparative period

and there is the importance attached to

this and we will see what is it

importance when we are going forward in

the series and for each component of

other equity you have to show what is

the component and what is the opening

balance but as a movement during the

period and what is the total and subtour

total or grand total of all this item

put together will go into your balance

sheet as part of your other equity so

it's nothing but as I have mentioned

combination of your shad capital plus

reserves and surplus but put in a

columnar format showing the movement

from opening to closing okay this is

your new statement of changes in equity

and as far as the notes on accounts is

concerned

there are some guidance which has been

given in in days one what it says is

that you should always show what is the

basis of preparation of your financial

statement whether it is done on the

basis of going concern or otherwise and

what are all the significant accounting

policy you remember that I have

mentioned if the second one explicit and

unreserved

statement of compliance with the Indus

is not there this is not considered as

an Indian financial statement so there

should be a specific paragraph where the

company should mention that in the

preparation of the financial statement

all the applicable in days as notified

by company's accounting standard rules

2015 as amended from time to time

depending upon what is the way in which

you wanted to mention some people who

are simply mentioning the Indian

Accounting Standards as notified under

Section 133 of the Companies Act 2013

it's it's okay as long as you are

consistently making that presentation

but this explicit and and reserved

statement of compliance should be part

of the notes on accounts otherwise it

even if you are prepared with all

compliance it is not considered as an

India's financial statement

interestingly I get never wants you to

talk about what is your management

judgment it is expecting that the user

of the financial statement should

understand that maybe management might

have taken a judgment here for example I

am making a provision for doubtful dates

I'm making a provision for warranty what

is the judgment I have done when I am

expecting here a trade receivable

considered to be doubtful I make my

judgment as a management but I never

disclose those items because it is not

mandatory under I get but here it is

mandatory what are all the judgments

which the management has taken in

applying a particular accounting policy

for example even a critical judgment

could be recognizing a defer taxes it

how the man

believes there will be taxable sorry

reversible temporary differences at the

future period so that is a management

judgment and the management believes

that I wanted to treat this particular

item as part of investment property

what is the management judgment why they

have considered that so all those things

are forming part of this

what is the key assumptions which the

management has taken for example

management provides for doubtful dates

on the assumption that only if the dates

are outstanding for more than six months

or one year that is considered as part

of my doubtful dates in days 1:09 talks

about expected credit loss but still the

key assumptions of how they have asked

to do this should be specifically

mentioned and from which source what is

the source may be from past friend or

maybe based on what is the economy in

which they are operating or the industry

in which they are operating could be a

key assumption and the source can

broaden that should one of the notes on

accounts suppose a particular india's

requires a specific disclosure to be

added according to India's that

disclosure should also be part of the

notes on accounts in simple terms what

is required as per schedule three alone

is not the disclosure all of the things

which has been given in India is one and

plus other standard should be part of it

sometimes there are some disclosure

required by means of statute for example

we make a disclosure relating to dues to

M SME sector and that is a legal

requirement that should also be part of

the disclosure so all those things has

to come let me quickly take you through

one excel file where I can show you how

the structure is actually happening with

respect to the notes on accounts so that

you can understand what happens one

thing which is encouraged is to include

what is the corporate information what

is the company what is its parent

company what is its ultimate parent

company what type of industry in which

the company is engaged it will give a

good guidance for our good insight to

the reader of the financial statement to

understand the industry in which the

company is operating as I say

basis of preparation should specifically

talk about statement of compliance with

the financial statement and there is an

error here

it's talks about international financial

reporting standards because this

placement format I have used for making

a presentation to I forests here it

should be in accordance with Indian

Accounting standard okay and basis of

preparation we have prepared

accordance with the accounting standard

notified by the relevant authorities

you can simply you can also add section

133 of the Companies Act in 2013

notified by the Ministry of Corporate

Affairs etcetera this note is actually

talking about some IFRS maybe it's a

copy-paste error which normally happens

and then comes what is he were

use of estimates what is the judgments

which you have made with respect to what

is a functional currency what is the

management judgment and the estimate

which they have made what are all the

sources this is what I have mentioned

that for property plant equipment what

is the estimated useful life from where

they have got that estimated useful life

why they believe it current tax

computation based on tax laws and tax

rates defer taxes it based on the

possibility of future profits fair value

measurement how the management

determines the assumptions what is the

point at which the trader Sibley is

considered to be impaired what is the

environment testing which for the

non-financial assets like P P what is

the defined benefit plans and other

long-term employee benefits where the

company makes some assumptions relating

to the amount payable and what is the

fair value measurement relating to

financial instruments and what is the

assumptions made for provision

contingencies all those things this I

have actually not given as part of the

slide and one of the requirement

of days one is that in case if there are

some new accounting pronouncement

notified but not made mandatory for the

current year assuming that we have

prepared for the year ending 30 first

March 2019 and in that particular year

in days 1 1 6 was not notified so we are

trying to find out what is the impact of

India's 1 1 6 that the company has to

make a disclosure but of course here 1 1

5 is also there which is an again

incorrect presentation because this is

for the here entered 30 was March 2019

it is already applied so to that extent

the first one is actually incorrect

1 1 6 which has been given is correct so

whatever is the changes which has to be

done supposing there are some minor

modification happened in certain

standards that should also be part of it

I am just giving one example since it is

a copy paste there are some errors which

we actually and how the company

determines the current assets a

non-current asset that is also given as

part of the significant accounting

policy all the significant accounting

policy like fair value measurement etc

etcetera are also given fair value

measurement revenue recognition revenue

recognition for each stream how the

revenue being recognized and what is the

PPE what is the capital work-in-progress

what is the inventory policy so these

are all regular policies but the the

format in which we normally consider is

that you should normally look at giving

the basis of preparation of the

financial statement

we should also have explicit and

reserved compliance with the statements

applicable significant accounting policy

management judgment and assumptions what

is the source for that a specific

disclosure

esperan days will be part of after the

all the nodes for example other expenses

is a last note in the India's financial

statement for majority of the companies

and after that all the disclosure for

example the disclosure relating to a is

- what is the disclosure required yes

sorry India's - inventories what is the

disclosure required

India's 16 what is the disclosure

required if you are talking about the

fair value measurement in days 1 1 3

what is the disclosure required if you

have something called related party

transaction what is the disclosure

required and all other statutory

disclosure that's the way in which the

notes on account should be they suppose

if a company smartly says

I will specifically disclose that I have

not complied with a particular standard

which is not comfortable to us for

example financial instruments language

everybody finding it difficult can a

company say that other than Indians one

zero nine and eight days thirty two all

of the standards have been applied but a

non-compliance by means of a disclosure

cannot be cured so that should be

explicit and understood statement of

compliance so you cannot have a

reservation in compliance that is what

the standard says okay comparatives is

normally one year comparatives but the

third balance sheet can be given should

be given I should use the word should be

given in three circumstances where the

company changes the accounting policy

and applies it on a retrospective basis

that's the reason why when a first time

adopter is preparing the financial

statement he changes the accounting

policy on a retrospective basis right

from the instruction of the company that

is the reason why the third balance

sheet on the date of transition is being

given from igap I am moving to India so

there is a change in accounting policy

which is applied on a retrospective

basis so I am disclosing the third

balance sheet suppose if there is an

error that's what I have said if there

is an accounting error which I am

correcting in the current period I

cannot simply do that I have to restate

the item with your specific disclosure

and a third balance sheet should be

given as part of the financial statement

P&L may not be required but the third

balance sheet will be required but you

have to explain what is the error before

the error how the tie item has been

disclosed in the previous year after

this adjustment has been made what is

the change so you have to give the

detailed disclosure and the third is

suppose I am going to reclassify a

particular item in the financial

statement for example I wanted to

reclassify a particular item as

investment property on a retrospective

basis

not based on da new change in the

management decision but it is an error

again it's an error so because of that I

am restating a balance on a
retrospective basis again I have to give

a third balance sheet and of course the

second and the third is more or less

similar normally when there is an error

happens on Restatement of an item that

is you re measuring a item or when you

are requesting an item you are only

putting that in a different presentation

side you are not doing any measurement

in both the scenarios it's normally

arising out of an error in the previous

period in those cases you are expected

to give the third balance sheet as well

interestingly the standard says one year

comparatives is required

suppose if the management wants to give

three year compared to year comparative

that means three years for example

management believes I wanted to give a

profitless count with current year

previous year and here before previous

year can it give interesting question

the answer the standard says yes it is

possible but interestingly what it says

that that is looking little funny only

the P&L alone can be given for two

competitive periods that means three P&L

account can be given for three periods

but the company if decided need not give

other components of financial statement

so balance it can be only for the

current period and the comparative

period cash flow statement can be only

for that two periods the statement of

changes in equity can also be only for

the two period the P&L II voluntarily

company used for the second comparative

period it can do that but if they have

given the third period

Tyndale detail disclosure relating to

that should be forming part of the note

otherwise people could not understand

our user cannot understand so that's

what it says so that's the end of an

elaborate discussion on how the

financial statements

we'll be prepared and presented in

accordance with in days one and we have

also seen what is the prescription given

in Schedule three part two relating to

in Days financial statement and we have

also seen the components of the

financial statement a new component we

have learned statement of changes in

equity and they also seem that the

classification of an asset and liability

is depending upon the management

perspective and management intention but

it should be demonstrated and you have

also seen how the note should be

structured and given so that the user of

the financial statement can actually

understand I think I have missed one

point to add every line item in the

statement of balance sheet or sir I

should not use the word statement of

Ballantrae sorry every eye line item of

the balance sheet every line item of the

statement of profit or loss count should

have a corresponding cross-reference to

and notes on account that means a user

when he reads property planned equipment

will be linked or cross-reference

referred to a node when he reads the

note he can understand what are all the

composition of the component relating to

property to on equipment and what is the

accumulated depreciation etc similarly

if there is an intangible assets under

development there should be a

cross-reference to the note and it

should be explained so similarly profit

and loss counter sale of goods there

should be a cross-reference sale of

services there should be a

cross-reference other income a

cross-reference to a particular node

similarly all expenses should be crossed

refer to a particular node the reason is

in dias believes that user of the

financial statement should be given a

complete understanding of the financial

statement by means of relevant

disclosure reliable disclosure and

currency in the disclosure so that is

one of the key important advantage of

India's financial statements so I think

time again permitted to me to take the

second session through this video and

the third I will try to upload maybe

tomorrow or day after tomorrow depending

upon the time available because

converting the slides in accordance with

the requirement of this software takes a

little bit of time I I spent more than

two to uh covers to make this

presentation which was already available

I have converted that according to this

software so it tooks it takes a little

bit of time so I should be able to

manage between the other work so I will

try to upload the next video

maybe tomorrow and they have to tomorrow

and as I have already told any questions

which you are having you can actually go

and send me an email or call me at any

point of time in the contact details

which has been given this will also be

uploaded in YouTube so you can have the

link to your friends or your fellow of

students who wanted to understand idea

of this is the knowledge should be

shared with as many people as possible

and that's the reason why I am spending

so much of time in preparing and

presenting this video lecture without

any idea of making money out of it it is

free of cost only for as a knowledge

sharing with all professionals as well

as students and you can please share the

link to others who you believe that it

will be useful to them so thank you so

much and let me thank you for all your

patient hearing and let me come back to

you the next series of this presentation

thank you so much