Ind AS 1 : Presentation of Financial

Statements

CA (Dr) Sanjeev Singhal

Chairman, Sustainability Accounting Standards Board
Vice Chairman, Accounting Standards Board, ICAI
Chairman, CII Group on Accounting & Auditing Standards
Member, CII National Committee for CFO & National ASB

Agenda of the standard

Purpose of Components of
Objective and
Financial Financial
scope
statements Statements

Overall Structure and

Definitions
considerations content
Objective of Ind AS 1

• for presentation of general purpose

To prescribe the financial statements
basis

• With entity’s own FS of previous periods

To ensure • With FS of other entities
comparability

• Overall requirements for the

presentation of financial statements
To set • Guidelines for their structure
• Minimum requirements for their content

Scope

Applicable in preparing and presenting general

purpose financial statements in accordance with
Ind ASs.

Other Ind ASs set out the recognition,

measurement and disclosure requirements for
specific transactions and other events.

It is not applied to Structure and content of

condensed Interim financial statement under Ind
AS 34 except for general features of FS

It applies equally to all entities, including those

that present Consolidated financial statements.
Definitions
 General Purpose financial Statement
are financial statements intended to meet the needs of users who are not
in a position to require an entity to prepare reports tailored to their
particular information needs

 Impracticable requirement
Entity can not apply it after making every reasonable effort

 Ind AS
Indian Accounting Standards (Converged with IFRS) prescribed under
Section 133 of the Companies Act, 2013

 Material
Omission or misstatement is material if it can influence the economic
decision of users

Purpose of Financial Statements

Structured Presentation

Financial Cash Flows

Financial Position
Performance
Components/ Complete set of financial statements

Balance sheet

Statement of profit and loss

Statement of changes in equity

Cash flow statement

Notes
• Accounting policies
• Explanatory notes
Comparative information

A Balance sheet as at the beginning of the earliest comparative period

• When an entity applies an accounting policy retrospectively
• makes a retrospective restatement of items in its FS
• when it reclassifies items in its financial statements

General Features/ Overall Considerations

General features/ Overall Considerations

Presentation of true and fair view & compliance with Ind ASs

Going concern

Accrual basis

Aggregation and materiality

Off-setting

Frequency of reporting

Comparative information

Consistency of presentation

Overall considerations

 Presentation of True & Fair View and Compliance with Ind AS

 True & Fair view assumed through application of Ind AS
 Explicit & Unreserved Statement of Compliance of All Ind AS
needs to be disclosed

 Departure from Compliance of Ind AS

 In extremely rare circumstances, where compliance with a
Standard would be misleading so it would conflict with
objective set out in the framework
 Departure is permissible, if regulatory framework requires or
does not prohibit
 Specified disclosure required
Overall considerations - Going concern

When preparing financial statements, management shall make an

assessment of an entity’s ability to continue as a going concern :

• An entity shall prepare financial statements on a

going concern basis unless
• there is intention to liquidate or to cease trading or
• no other alternative except to do so

• Disclose in case of Material uncertainty

• If FS are not prepared on Going Concern basis –

Disclose fact, basis and reason for that

Overall considerations

Accrual basis Consistency

Presentation &
classification be
retained
Transactions and
events Unless change in
nature of
are recognised
operations
when they occur,
necessitates
and
another
In the periods to presentation
which they relate
A standard or an
interpretation
requires a change
Overall considerations

Materiality & Aggregation
Material - present separately
Immaterial - aggregate with
other items
Offsetting
Assets, Liabilities, Income and
expenses shall not be offset
unless required or permitted
(Measuring assets net of valuation
allowances- for e.g. obsolescence
allowances on inventories and doubtful
debts allowances on receivables is not
offsetting)

Overall considerations

Comparative information
Includes narrative & descriptive information
If an entity changes the presentation or classification of items in
its FS, it shall reclassify comparative amounts unless
reclassification is impracticable.

When an entity reclassifies comparative amounts, it shall

disclose: (Para 41)
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified;
and
(c) the reason for the reclassification.
Overall considerations

When it is impracticable to reclassify comparative amounts, an

entity shall disclose: (Para 42)

(a) the reason for not reclassifying the amounts, and

(b) the nature of the adjustments that would have been made
if the amounts had been reclassified

Structure and Content

Structure and content - General

Identification of
Reporting period Information required
financial statements

Name and
change, if any
At least annually, Individual or
Clearly group financials
distinguished
Period covered
from other
information
To explain if Currency
longer or shorter
Level of rounding

Structure and Content - Balance Sheet

Current Vs Non current distinction or

Classify based on liquidity if more relevant

Obligatory/ Minimum line items on face of B/S

Disclosure required on face or in notes

• Relevant sub-classifications of items above

• Information on share capital and reserves
Structure and Content - Balance Sheet

 Minimum Items on face of Balance Sheet

 Property, Plant and Equipment

 Investment Property
 Intangible Assets
 Financial Assets
o Non Current Assets & Liabilities classified
 Trade and Other receivables as HFS
 Cash and Cash Equivalents o Trade and Other Payables
 Biological Assets o Provisions
 Inventories o Financial liabilities
 Investments Accounted for o Liabilities and Assets for current tax
using the equity method o Deferred tax assets and liabilities
o Non Controlling interest within equity
o Issued Capital and reserves attributable
to equity holders of the parent

Financial statement presentation

minimum line items as well as comparative financial information

The minimum accounts to be

presented on the statement of
financial position as defined by Ind
AS 1.54 are:
a) Property, plant and equipment
b) Investment property
c) Intangible assets
d) Financial assets (excluding amounts
shown under (e), (h) and (i))
e) Investments accounted for using the
equity method
f) Biological assets
g) Inventories
h) Trade and other receivables
i) Cash and cash equivalents
j) Total of assets classified as held for sale
and assets included in disposal groups
classified as held for sale per Ind AS 105
Use your brain...

As per Ind AS 1,which one of the following items is not

required to be shown on the face of the Balance Sheet:

a) Biological assets
b) Property, plant and equipment
c) Investment property
d) Contingent liability
e) Intangible Assets

Structure and content

Current Assets Current Liability
It expects to realise the asset, or intends
to sell or consume it, in its normal
operating cycle

•Settled in the normal course of

It holds the asset primarily for the purpose
of trading
It expects to realise the asset within 12
months after the reporting period
The asset is cash or a cash equivalent (as
defined in Ind AS 7) unless the asset is
restricted from being exchanged or used
to settle a liability for at least 12 months
after reporting period
operating cycle or due to be
settled within 12 month of the
balance sheet date
•Held primarily for the purpose of
being traded
•No unconditional right to defer
settlement for at least 12 months

Asset which is not current, is Liability which is not current, is

Non Current Assets Non Current Liability
Use your brain...

Inventory or trade receivables of Pluto Ltd are normally

realized in 15 months.

Should Pluto Ltd. classify such inventory/trade receivables as

current ?

Use your brain...

A Gas Agency requires an amount to be deposited as security deposit,

which is refundable when the gas connection is surrendered. How should
the Gas Agency classify such deposits received, i.e., current or non-
current?

Analysis:
Although it is expected that most of the customers will not surrender
their connection and the deposit will need not to be refunded, but
surrendering of gas connection by the customer is a condition that is not
within the control of the entity. Hence the Gas Agency does not have an
unconditional right to defer settlement of the liability for at least twelve
months after the reporting period. Accordingly, the deposit will have to
be classified as current liability.
Carve outs in respect of long term loans

Where there is a breach of a material provision of a long-term loan

arrangement on or before the end of the reporting period with the effect
that the liability becomes payable on demand on the reporting date, the
entity does not classify the liability as current, if the lender agreed, after
the reporting period and before the approval of the financial statements for
issue, not to demand payment as a consequence of the breach.

However, an entity classifies the liability as non-current if the lender agreed

by the end of the reporting period to provide a period of grace ending at
least twelve months after the reporting period, within which the entity can
rectify the breach and during which the lender cannot demand immediate
repayment.

Structure and content - Statement of Profit and

Loss
 Concepts of profit and loss and other comprehensive income:

 Profit or loss is defined as "the total of income less expenses,

excluding the components of other comprehensive income".

 Other comprehensive income is defined as comprising "items of

income and expense (including reclassification adjustments)
that are not recognised in profit or loss as required or permitted
by other Ind ASs".

 Total comprehensive income is defined as "the change in equity

during a period resulting from transactions and other events,
other than those changes resulting from transactions with
owners in their capacity as owners".
Structure and content - Statement of Profit and
Loss

 Includes Profit or loss and Other Comprehensive Income

 obligatory line items on face of statement of Profit & loss

 To show as allocation
 Profit or loss attributable to NCI
 Profit or loss attributable to equity holders of the parent
 expenses analysed on basis of Nature only like Salaries,
depreciation, etc (allowed in both IFRS and Ind AS)

 Classification based on function like Selling and distribution,

Administration etc (allowed in IFRS but not allowed in Ind AS)

Structure and content - Statement of Profit and

Loss

 Minimum line Items on the face of the Profit & Loss :

 Revenue
 Finance Costs
 Impairment losses
 Share of profit or loss of associate and JV by equity method
 Tax expense
 Sum of profit or loss on discontinued operations plus gain
or loss on the disposal of discontinued operations assets
 gains and losses arising from the derecognition of financial
assets measured at amortised cost.

 No extraordinary items
 Statement of Profit & Loss
minimum line items as well as comparative financial information

The minimum information to be

presented on the income statement as
defined by Ind AS 1.82:
► Revenue
► Finance costs
► Share of profit or loss of associates
and joint ventures accounted for
using the equity method
► A single amount comprising the total
of:
► The post-tax profit or loss of
discontinued operations
► The post-tax gain or loss
recognized on the
measurement of fair value
less costs to sell or on the
disposal of assets or disposal
group(s) constituting the
discontinued operations
► Tax expense
► Profit or loss

Use your brain...

 Your company has no Investment Property. Would you present

the line item

 Investment Property ….Nil

 or not show it at all?
Structure and content - OCI
Components of OCI includes income and expenses that are not recognized
in P&L as permitted by other Ind AS:
Changes in revaluation surplus (Ind AS 16 and 38)

Re-measurements of defined benefit plans (Ind AS 19)

gains and losses arising from translating the financial statements of a foreign operation (Ind AS 21)

gains and losses on Equity Investment / financial assets measured at fair value through OCI in
accordance with Ind AS 109.
effective portion of gains and losses on hedging instruments in a cash flow hedge and the gains and
losses on hedging instruments that hedge investments in equity instruments measured at fair value
through OCI (Ind AS 109)

For Financial liabilities designated at FVTPL, Changes in FV due to Entity’s own credit risk (Ind AS 109)

Share of OCI in Associates and Joint Ventures

Structure and content - SOCIE

 Statement of changes in equity

 Separate component of financial statements

 On the face for each component of equity a reconciliation

between carrying amount at beginning and at end of period
 Profit or loss for the period
 other comprehensive income
 Effect of retrospective application or restatement

 Also in statement or in the notes

 Capital transactions with owners
 Movements in accumulated profit
 Movements in capital and reserves
Structure and content

 Role of statement of changes in equity

 Broader performance indicator
 ‘Total recognised gains and losses’ or
 ‘Comprehensive income’

 Cash flow statement in accordance with Ind AS 7

Structure and content - Notes to the Financial

Statements

The notes shall:

present information about

disclose the information
the basis of preparation of
required by Ind ASs that is
the financial statements and
not presented elsewhere in
the specific accounting
the financial statements; and
policies;

provide information that is

not presented elsewhere in
the financial statements, but
is relevant to an
understanding of any of
them.
Structure and content - Notes to the Financial
Statements
notes shall be presented in a systematic manner
and cross-reference in the following order:

summary of significant
Statement of
accounting policies
compliance with Ind AS
applied

other disclosures,
including: contingent
supporting information liabilities and
for items presented in unrecognised
FS, in the order in which contractual
each statement and commitments, and
each line item is other non-financial
presented; and
disclosures

Other Disclosures

 Critical Management Judgments

Examples
 Substance over form issues
 Sale of goods/ financing arrangements
 Existence of control over SPEs

 Critical Estimates
Examples
 Recoverability of internally generated intangible assets
 Impairment of goodwill
 Useful lives of property, plant and equipment etc.

 Capital Management policies

Comparison - Ind AS Vs AS

Key Differences
Particulars Ind AS AS

Applicable Ind AS 1: Presentation of AS 1: Disclosure of

Guidance financial statements. Accounting policies.

SOCIE - Presentation of all Statement is currently not

Requirement transactions with equity presented. Movements in
holders in the capacity of share capital, retained
equity holder in the earnings and other
statement of changes in reserves are to be
equity. presented in the notes to
accounts.
Extra-ordinary Presentation of any items Specifically require
Items of income or expense as disclosure of such items.
extraordinary is
Prohibited.
Key Differences
Particulars Ind AS AS

OCI Requires - Presentation of such Concept of OCI does

statement as part of Financial not exist.
statements.

Disclosure of Presented as a Component of Presented separately

Minority equity. from liabilities and
Interest equity.

Key source of Disclosure is required for key No such disclosure

uncertainty sources of estimation uncertainty required.
that have a significant risk of
causing a material adjustment to
the carrying amounts of assets
and liabilities.

Key Differences
Particulars Ind AS AS
Judgements used in Requires Disclosure of Critical No such disclosure
finalisation of Judgments made by required.
accounting policy management in applying
accounting policies.
Method used for Allows nature of expense only. Schedule III requires
Presentation of In IFRS Nature and Function analysis of expense by
Expense both are allowed. nature.
Explicit and Entity is required to make an No such Requirement.
unreserved explicit and unreserved
statement of statement of such compliance in
compliance the notes.

Requirement of In case of change in accounting Impact is treated in the

presenting 3rd policy, reclassification and error, current year financials
Balance sheet as 3rd Balance Sheet is required to and disclosed in notes
comparative be presented. to accounts only.
Ind AS 2 : Inventories

CA (Dr) Sanjeev Singhal

Chairman, Sustainability Accounting Standards Board
Vice Chairman, Accounting Standards Board, ICAI
Chairman, CII Group on Accounting & Auditing Standards
Member, CII National Committee for CFO & National ASB

42
 Objective and Scope

The objective is to prescribe the accounting treatment of Inventories.

This standard is applicable to all inventories except,

- Work in progress arising under Construction contracts including directly
related services (Ind AS 115)
- Financial Instruments (Ind AS 32 and Ind AS 109)
- Biological assets related to agricultural activity and agricultural produce at the
point of harvest (Ind AS 41)
- Measurement of Inventories held by Producers of agriculture produce after
harvest and Commodity broker traders measuring inventories at FV less CTS

Inventory - Definition

Inventories are assets :

in the form of materials

in the process of
held for sale in ordinary
production for such sale,
course of business
or
or supplies to be
consumed in the
production process or in
the rendering of services
Inventory – Key points

Inventory may include intangible assets that are being produced for
resale, e.g. software.

Inventory also includes properties that have been purchased or are

being developed for resale in the ordinary course of business.

Spare parts, stand-by and servicing equipment (e.g. tools and

consumable lubricants) are classified as inventory unless they are
expected to be used during more than one period or can be used
only in connection with an item of PP&E, in which case they are
classified as PP&E

Reusable and returnable packaging or parts that are sold to a

customer, but will be returned to the seller to be reused, are not
inventory if the items will be used during more than one period.

Measurement of Inventories
Inventories shall be measured at the lower of cost and net realizable
value

Cost includes:

other costs incurred in

Costs of conversion bringing the inventories
costs of purchase
and to their present
location and condition.
Cost of Inventories - Guidance

• Purchase costs include the purchase

price, transport and handling costs, taxes
Costs of purchase
that are not recoverable and other costs
directly attributable to the purchase.

• When payment for inventory is

deferred beyond normal credit terms,
Deferred payment the arrangement contains a financing
element and interest should be
imputed if the impact is material.

• Cash, trade or volume discounts and

Discounts and rebates on rebates are deducted from the cost of
purchases purchase.

Cost of Inventories - Guidance

Costs of conversion or production

Costs of production or conversion include all direct costs such as labour,
material and direct overheads and an allocation of fixed and variable
production overheads.

These include the depreciation and maintenance of factory buildings and

equipment; amortization of intangible assets such as software used in the
production process; and the cost of factory management and administration.

Labour costs include taxes and employee benefit costs associated with labour
that is involved directly in the production process.
Cost of Inventories - Guidance

Allocation of fixed overheads

The allocation of fixed production overheads is based on the normal
capacity of production facilities.

Any inefficiencies should be recognized in profit or loss, classified as

other expenses, or, if an entity classifies expenses based on function,
allocated to the appropriate function.

For example, assume that under normal operating conditions Company

J expects to produce 100 coffee machines a year. Budgeted and actual
fixed production overheads for 2019 are 800. Therefore, the fixed
overhead cost per machine based on normal production levels is 8.

Cost of Inventories - Guidance

Allocation of fixed overheads
During 2020, due to problems with the production machinery and
decreased demand, J produced only 80 coffee machines. The
production overheads should be allocated based on the normal
production levels of 100 (i.e. 8 per unit). Therefore, of the total
production overheads of 800, only 640 (8 x 80) is allocated to
inventory. The other 160 is recognized as an expense as incurred.
On the other hand, if during 2020 in response to increased demand
for coffee machines J increased production shifts and produced 130
machines, then the amount allocated to the inventory is limited to
the actual expenditure. Therefore, if the total production
overheads remain constant at 800, then a cost of 6.15 (800 / 130) is
allocated to each machine.
Cost of Inventories - Exclusion

Storage costs, unless

Abnormal amounts those costs are
of wasted materials, necessary in the
labor or other production process
production costs before a further
production stage

Administrative
Selling costs
overheads

Cost of Inventories – Case Study

The production of whisky involves the distilling of aged whisky in a cask

prior to bottling. Can storage cost be included in the cost of inventory?

Analysis: Capitalization of storage costs is allowed only if the storage is necessary

in the production process prior to further production stage. Therefore, in this
situation, the storage cost the entity incurs during the distilling process should be
capitalized, as aging is integral to making the finished product saleable.
Techniques for measurement of Costs
Techniques for the measurement of the cost of inventories, such as the standard cost
method or the retail method, may be used for convenience if the results approximate
cost.

Retail method is often used in the

Standard costs take into account
normal levels of materials and
supplies, labour, efficiency and
capacity utilization. They are
regularly reviewed and, if
necessary, revised in the light of
current conditions.
retail industry for measuring
inventories of large numbers of rapidly
changing items with similar margins.
The cost is determined by reducing the
sales value of the inventory by the
appropriate percentage gross margin.
An average percentage for each retail
department is often used.

Cost Formulas
Specific Identification
• Goods or services produced and segregated for specific projects shall be
assigned by using specific identification of their individual costs

No specific identification.
• First-in, First out (FIFO)
• Weighted average cost formula

LIFO is prohibited under Ind AS.

• An entity shall use the same cost formula for all inventories having a similar
nature and use to the entity.
• For inventories with a different nature or use, different cost formulas may be
justified.
Net Realisable Value (NRV)
Net realizable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and sale. The costs of sale
include directly attributable marketing and distribution costs.

Estimated Selling Price X

Estimated cost of completion (X)
Selling Costs (X)
---
Net Realisable Value X

Net Realisable Value (NRV)

Write-downs of inventories and reversals of write-downs
Any write-down of inventories to net realisable value is recognized as an
expense in the period in which the write-down occurs.

A previous write-down of inventories to net realisable value is reversed if the

net realisable value subsequently increases. The amount of the reversal is
limited to the amount of the original write-down such that the new carrying
amount is the lower of cost and the revised net realisable value.

Reversals of previous write-downs are recognized in profit or loss in the period

in which the reversal occurs as a reduction in the amount of inventories
recognized as an expense in the period.
Net Realisable Value (NRV)
Intended use
For example, Company P, a cabinet manufacturer, has raw material
timber inventory on hand at 31 December 2011 with a carrying amount
of 100. The current market value of that timber is 95. P intends to use the
timber to manufacture cabinets.

Therefore, the net realisable value is based on the completed cabinets

and not on the timber in its raw material form. P estimates costs to
completion and sale of 50 and a selling price for the cabinets of 160.

P does not write down inventory at 31 December 2011 because the net
realisable value of the timber of 110 (160 - 50) is higher than its carrying
amount of 100. If, on the other hand, P intended to sell the timber in its
current raw material form, then it would be written down by 5 plus the
estimated costs of sale.

Net Realisable Value (NRV)

Events after the reporting period
Estimates of net realisable value take into consideration fluctuations in price or
cost to the extent that they provide evidence of conditions existing at the end
of the reporting period.
Events after the end of the reporting period may provide evidence that the cost
of inventory exceeds its net realisable value at the reporting date. In these cases
the inventory is written down to its net realisable value at the reporting date.

For example, the carrying amount of Company P's inventory at the end of its 31
December 2011 reporting period is 100. At that date P estimates that the net
realisable value of the inventory is 110. Events in January 2012 provide evidence
that the net realisable value of the inventory at 31 December 2011 was 95.
Therefore, P writes down its inventory to 95 in its 31 December 2011 financial
statements.
Disclosures
• The accounting policies adopted in measuring inventories, including the cost
of formula used,
• The total carrying amount of inventories and the carrying amount in
classifications appropriate to the entity,
• the carrying amount of inventories carried at fair value less costs to sell,
• the amount of inventories recognized as an expense during the period,
• the amount of any write-down of inventories recognized as an expense in
the period,
• the amount of any reversal of any write-down that is recognized as a
reduction, in the amount of inventories recognized as expense,
• the circumstances or events that led to the reversal of a write-down of
inventories,
• the carrying amount of inventories pledged as security for liabilities.