FINANCIAL REPORTING – PAPER 1

QUICK SUMMARY

BHAVIK CHOKSHI
{CA (FINAL AIR 41), CS (CSFC AIR 21), CFA (USA),
DIP IFRS (ACCA)}

CONTACT US – 9082810221/ 7977299310

1
 INDEX

Sr No. Contents Page No.

1 IND AS 1 : PRESENTATION OF FINANCIAL STATEMENTS 4

2 IND AS 2 : INVENTORIES 6

3 IND AS 7 : STATEMENT OF CASH FLOWS 7

IND AS 8 : ACCOUNTING POLICIES, CHANGES IN ACCOUNTING
4 9
ESTIMATES AND ERRORS
5 IND AS 10 : EVENTS AFTER THE REPORTING PERIOD 10

6 IND AS 12 : INCOME TAXES 11

7 IND AS 16 : PROPERTY, PLANT & EQUIPMENT 13

8 IND AS 19 : EMPLOYEE BENEFITS 14

IND AS 20 : ACCOUNTING FOR GOVERNMENT GRANTS &
9 17
DISCLOSURE OF GOVERNMENT ASSISTANCE
IND AS 21 : THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE
10 18
RATES
11 IND AS 23 : BORROWING COSTS 21

12 IND AS 24 : RELATED PARTY DISCLOSURES 22

13 IND AS 33 : EARNINGS PER SHARE 24

14 IND AS 34 : INTERIM FINANCIAL REPORTING 25

15 IND AS 36 : IMPAIRMENT OF ASSETS 27

IND AS 37 : PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT
16 29
ASSETS
17 IND AS 38 : INTANGIBLE ASSETS 31

18 IND AS 40 : INVESTMENT PROPERTY 33

2
19 IND AS 41 : AGRICULTURE 35

20 IND AS 101 : FIRST TIME ADOPTION OF IND AS 37

IND AS 105 : NON CURRENT ASSETS HELD FOR SALE &
21 40
DISCONTINUED OPERATIONS
22 IND AS 108 : OPERATING SEGMENTS 42

23 IND AS 113 : FAIR VALUE MEASUREMENT 44

24 IND AS 115 : REVENUE FROM CONTRACTS WITH CUSTOMERS 47

25 IND AS 116 : LEASES 50

BUSINESS COMBINATION & CORPORATE RESTRUCTURUNG
26 52
[IND AS 103]
27 CONSOLIDATION SUBSIDARY [IND AS 110] 59
JOINT ARRANGEMENTS, JOINT VENTURES & ASSOCIATES
28 61
[IND AS 111]
29 FINANCIAL INSTRUMENTS [IND AS 109] 62

30 ACCOUNTING FOR CSR TRANSACTIONS 78

31 ACCOUNTING FOR SHARE BASED PAYMENTS [IND AS 102] 79

32 INTEGRATED REPORTING 80

3
 1. IND AS 1 : PRESENTATION OF FINANCIAL STATEMENTS

• Roadmap for • Objective

implementation of Ind AS • Scope
• Provisions as per Companies
• Definitions
Act, 2013 (the "Act")
• Guidance Note on Division-II
of Schedule-III to the Act
• Guidance Note on Division-
III of Schedule-III to the Act
Indian
Accounting Ind AS 1
Standards

Structure and Financial

Content
Statements
• Identification of
the financial • Purpose of
statements financial
• Balance Sheet statements
• Statement of • Complete set of
profit and loss financial
• Section 1 - Profit statements
and loss • General features
• Section 2 -
other
comprehensiv
e income
• Statement of
changes in
equity
• Statement of cash
flows
• Notes

4
SPECIAL CASES
Loan Repayable After 12 Months Non Current Liability

Breach of a material condition

before Balance Sheet Date Current Liability
(Repayable on Demand)

Grace Period (Before

Waiver
Balance Sheet Date)

< 12 Months > 12 Months Before During Post After Post

from Balance from Balance Balance Balance Sheet Balance Sheet
Sheet Sheet Sheet Date Period Period

Non Non Non Current

Current Current
Current Current Liability
Liability Liability
Liability Liability [IFRS:CL]

Loan Repayable
Before 12 Months 
Current Liability

No Refinancing/No Roll Refinancing/Rollover

over Agreed Till Balance Agreed Before Balance
Sheet Date Sheet Date

Current Option of Unconditional/

Liability Banker Entity’s option

Current Same Different

Liability Bank Bank

Non
Current
Current
Liability
Liability

5
 2. IND AS 2 : INVENTORIES

Objective
• determination of cost
• its subsequent
recognition as an expense
• provides guidance on
the cost formulas

Scope - Applies to
all inventories
except
Disclosure • Ind AS 32 &109
Financial Instruments
• Ind AS 41 Agriculture

Measurement of Inventory
Recognition as an
Expense • Valuation Principle
• Cost
• Cost Formulas
• Net Realisable Value

6
 3. IND AS 7 : STATEMENT OF CASH FLOWS
•Objectives
•Scope
•Benefits
Ind AS •Definitions
7

•Operating Cash Flows

•Investing Cash Flows
Presentation •Financing Cash Flows
of Statement
of Cash
Flows

•Direct Method
Method of •Indirect Method
Presentation

 Reporting on a net basis

 Foreign Currency Transactions
 Interest and Dividend
 Taxes on Income
Peculiar Cases  Investments in Subsidiaries, associates and Joint ventures
 Changes in ownerships Interests in subsidiaries and other businesses
of Cash flows  Non Cash Transactions

•Components of cash and cash

equivalents
Disclosure •Other Disclosures

7
Cash Equivalents
Cash Equivalents mean investment which are marketable, highly liquid and which can
be converted into determinable amounts of cash within a short period of time.

QUICK RECAP

8
 4. IND AS 8 : ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS

Ind AS 8 “Accounting Policies, Changes

in Accounting Estimates and Errors”

Accounting Changes in
Policies Accounting Errors
Estimates
• Selection and of • Limitations
application • Apply changes on retrospective
accounting in accounting restatement
policies estimates
prospectively • Disclosure of
• Consistency of prior
accounting • Disclosure period errors
policies
• Changes
accounting in
policies
• Applying changes
in accounting
policies
• Retrospective
application
• Limitations on
retrospective
application
• Disclosure

9
 5. IND AS 10 : EVENTS AFTER THE REPORTING PERIOD

 Of adjusting events after • Long term loan

the reporting period arrangements
 No recognition of non- • Going concern
adjusting events after
the reporting period;
only disclosure is Recognition
required and
measurement Special Cases

Distribution
of Non-cash
Assets to Disclosure
Owners
 When to recognise
Date of approval
a dividend payable for issue
 Measurement of a Non-adjusting
dividend payable events after the
 Presentation and reporting Period
disclosures

10
 6. IND AS 12 : INCOME TAXES

• Deferred tax assets

• Temporary differences
• Taxable temporary differences
Definition • Deductible temporary differences
• Tax base

• Current Tax
Tax Expense
• Deferred Tax

• Recognition
Current tax • Measurement
• Accounting of Current Tax Effects
• Offsetting Current Tax Assets and Current Tax Liabilities

• Compute carrying amount

• Compute tax base
• Compute temporary differences
• Classify temporary differences
Deferred Tax • Identify exceptions
• Assess (also reassess) deductible temporary differences, tax
losses and tax credits
• Determine the tax rate (law)
• Calculate and recognise deferred tax
• Accounting of deferred tax
• Offsetting deferred tax assets and deferred tax liabilities

• Deferred tax arising from a business combination

Practical Application • Current and deferred tax arising from share-based payment transactions
• Change in tax status of an entity or its shareholders

• Disclose components of tax expenses (income)

• Tax related to items charged directly to equity
• Tax related to items recognised in statement of other comprehensive income
• Explanation of the relationship between tax expense (income) and accounting
profit
Disclosure • Change in tax rates
• Unrecognised deductible temporary differences, unused tax losses and unused tax credits
• Temporary differences associated with investments in subsidiaries etc.
Amount of deferred tax liabilities (assets) or income (expense)

11
RECOGNITION OF TAX

RECOGNITION OF TAX

Items in P/L Items in O.C.I. Items directly in Reserve

(Eg : FVTPL items) (Eg : FVOCI items) (Equity)

Tax to be shown directly in

Tax in P/L Tax in O.C.I
Reserves (Other Equity)
(Eg : Dividend and DDT) if
applicable

STEPS IN DEFERRED TAX WORKING

1) Calculate Carrying Value (Applying IND AS principles)
2) Calculate Tax Base (Based on Income Tax principles)
3) Calculate Difference
4) Deferred Tax = Difference × Tax Rate (Subject to Certain exceptions)

At this stage, we need to identify Deferred Tax Asset or Deferred Tax Liability. As a
general rule, if the carrying value of an underlying asset is greater than the
tax base, the deferred tax item would be opposite. i.e., an underlying asset
will create a Deferred Tax Liability.

If the carrying value of an underlying item is less than the tax base, the
deferred tax item would also be the same i.e. An underlying asset will create
a deferred tax asset.

Underlying Asset Underlying Liability

Carrying value > Tax Base D.T.L D.T.A
[Eg : P.P.E] [Eg : 43 B items]
Carrying Value < Tax Base D.T.A D.T.L
[Eg : Preliminary [Eg : Loan with Processing
Expenses] Fees]
Carrying Value = Tax Base No Deferred Tax

12
 7. IND AS 16 : PROPERTY, PLANT AND EQUIPMENT

Ind AS 16

Measurement Measurement after

Recognition Derecognition Disclosure
at recognition recognition

Initial costs Elements

of cost Cost model

Subsequent Measurement
of cost Revaluation model
costs

Depreciation

Depreciable
amount and
depreciation
period

Depreciation method

Impairment

Compensation for
impairment

13
 8. IND AS 19 : EMPLOYEE BENEFITS

Employee
benefits

Short-term Post- Other Long-

Termination
Employee employment term Employee
Benefits
Benefits Benefits Benefits

Short-term
Employee
Benefits

Recognition Measurement Disclosure

Post-employment
Benefits

Defined Contribution Defined Benefit

Plans Plans

Defined
Contribution
Plans

Recognition Measurement Disclosure

Defined Benefit
Plans

Multi- Insured Recognition

State Plans Presentation Disclosure
employer Benefits And Curtailments
Plans Measureme And
nt Settlements

14
 Recognition And
Measurement

Actuarial
Accounting for Present Recognition
valuation Curtailment
the Value of and
Defined Measurement s And
Constructive Settlements
Obligation Benefit : of Plan
Obligations Assets
and Current
Service Cost

Other Long-term
Employee Benefits

Recognition
Disclosure
And Measurement

Termination
Benefits

Recognition Measurement Disclosure

15
 SUMMARY

EXPENSE (P/L) REMEASUREMENT

RESERVE (O.C.I)
Net Interest Changes in Actuarial xx
On Liability xx Assumptions (Liability)
(-) On Assets (xx) xx
xx Changes in Return On
C.S.C xx Plan Assets xx
P.S.C (vested/unvested) xx
(-) Gain on Curtailment (xx) Changes in Asset Ceiling
EXPENSE (EBE) xx Changes in xx
Remeasurement Reserve

LIABILITY PLAN ASSETS

Opening (Acturial) xx Opening (Fair Value) xx
(+) Interest xx (+) Interest xx
(+) C.S.C xx (Expected Return) xx
(+) P.S.C xx (-) Benefits Paid (xx)
(-) Curtailment (xx) (+) Contribution xx
(-) Benefits Paid (xx)
+ Changes in Return xx
+ Changes in xx (O.C.I)
Actuarial Assumptions
Closing (Acturial) xx Closing (Fair Value) xx

Balance Sheet
Closing Liability xx
(-) Closing Asset (xx)
Deficit/(Surplus) xx
+ Changes Due to xx
Asset Ceiling (OCI)
Net Amount in Balance Sheet xx

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9. IND AS 20 : ACCOUNTING FOR GOVERNMENT GRANTS
AND DISCLOSURE OF GOVERNMENT ASSISTANCE

Ind AS 20

Government Grants Government Assistance Disclosure

Recognition of
Presentation of Repayment of
Government
Grants Government Government
Grants Grants

Reasonable
assurance for
Related to asset Related to income
receipt and
compliance
Credited to
Statement of profit
and loss, either
Presented in balance
Non-monetary separately or under
sheet by setting up 'other income'
government grant as deferred
grants income

Alternatively,
deducted in
Alternatively, deduct the grant in reporting related
arriving at the carrying amount of the expense
asset

17
 10. IND AS 21 : THE EFFECTS OF CHANGES IN FOREIGN
EXCHANGE RATES

I. TYPES OF CURRENCIES

TYPES OF CURRENCIES

FUNCTIONAL FOREIGN PRESENTATION

CURRENCY CURRENCY CURRENCY

Currency of the primary Currency other than This is the currency in

economic environment in Functional currency which Financial
which an entity operates. (Not Statements are presented.
necessarily the home
currency).
Transactions in
Foreign Usually this is the
Accounts are prepared in the Currency need Functional Currency.
Functional Currency. (i.e. to be converted However any other
Transactions Recorded in into Functional currency may also be
Functional Currency). Currency. taken.

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II. CONVERSION PRINCIPLES

Conversion Principles For

Foreign Currency Transactions

Subsequent Recognition
Initial Recognition [Balance Sheet Date]

Spot Rate on Date of Non Monetary Monetary

Transaction

Closing Rate
At Fair Value
At Historic Cost

Rate on the Date

when Fair Value is
determined
Historic Rate

III. FOREIGN OPERATIONS

Foreign Operation refer to Branches, Subsidiaries, Joint Ventures and
Associates whosefunctional currency is different from the functional currency
of the Parent. The following additional factors should be considered:

Functional Currency Functional Currency

PARTICULARS Different From Parent Same as Parent
[INDEPENDENT] [DEPENDENT]
1. Dependence on LOW HIGH
Parent
2. Proportion of
Transactions with LOW HIGH
Parent
3. Ability to Finance HIGH LOW
Own Operations

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IV. TRANSLATION PRINCIPLES
At the time of consolidation, we will have to translate the subsidiary’s Financials
into theparent’s currency as per the following principles:

Financial Items Exchange Rate

i) Incomes/ Expenses
ii) Assets/ Liabilities
iii) Equity Capital
iv) Reserves
 Pre-Reserves
 Post Reserves
v) Foreign Currency
Reserve (FCTR)
vi) Goodwill On Consolidation
Rate on the Date of Transaction [Average
Rate can also be taken for simplicity].
Closing Rate [For both Monetary and Non-
Monetary Items]
Rate on the Date of Acquisition
Rate on the Date of Acquisition
Average Rate in the Post Acquisition Period
Translation The difference in Balance Sheet which arises
because of different foreign exchange rates
would be accumulated under FCTR (OCI)
(Reclassifiable).
Closing rate

20
 11. IND AS 23 : BORROWING COSTS

Core Principle
Capitalisation of borrowing
costs that are directly
attributable to the acquisition,
construction or production of
a qualifying asset.

Scope - exclusions
• qualifying asset
measured at fair value
Disclosures • inventories produced in
large quantities
• actual or imputed
cost of equity

Borrowing costs eligible

Period of capitalisation: for capitalisaion
Commencement • Specific borrowings
Suspension • General borrowings
Cessation • Calculation of
capitalisation rate

21
 12. IND AS 24 : RELATED PARTY DISCLOSURES

Related party

Related party
Indentification
transactions
of

Not a related
party
Ind AS 24 "Related
Party Disclosure"
Name of related
party Irrespective
of RP transactions

Only when there

Disclosure
is RP transactions
s

Exemption from
disclosures to Govt.
related entitites.

22
RELATIONSHIP OF AN ENTITY

23
13. IND AS 33 : EARNINGS PER SHARE

24
 14. IND AS 34 : INTERIM FINANCIAL REPORTING

Contents of an Interim Financial Report

Minimum
Components
of Interim
Recognition and Measurement
Financial
Report

Significant
Events and Same
Transactions Accounting
Policies as Restatement of Previously
Annual
Reported Interim Periods
Revenues
Received
Other Seasonally, or
Disclosures Cyclically,
Occasionally

Costs incurred Interim Financial

Unevenly during Disclosure in Annual Reporting and
the Financial Year Financial Statements Impairment

Use of Estimates
Materialit
y

25
RECOGNITION AND MEASUREMENT

RECOGNITION & MEASUREMENT

[APPLICABLE TO LISTED COMPANIES AS WELL]

Discrete View Integral View

Views each interim period as an Views the interim period to be a

independent (discrete) period part of the financial year

Expenses/Incomes accruing in the

interim period should be recorded Only income tax is to be
in that period accounted as per integral view

All items (except income tax) will

follow discrete view

APPLICATION OF THE INTEGRAL VIEW TO INCOME TAX

1. Calculate estimated annual accounting income. This is to be calculated as per
books of account i.e. we should ignore carry forward losses of the previous years, but
the losses of the current year should be considered.

2. Calculate Annual Tax Expenses based on Taxable Profit (As per Income Tax
Act) This tax is calculated after considering carry forward losses of the previous years
as well as losses of the current year and the slab rates.

3. Calculate weighted Average Tax Rate (W.A.T.R)

i.e. WATR = Annual Tax Expense (Step-2) x 100 Annual Accounting

Income (Step-1)

4. Tax Expense for quarter = Accounting Profit/Loss for quarter x WATR

The above step 4 is possible only if there is no change in the estimate of income. In
case the estimate subsequently changes, we need to recalculate the WATR based on
the revised annual estimate and the tax expense should be recorded as follows:
(Accounting Income Till Date x Revised WATR) – Tax earlier Recorded

26
 15. IND AS 36 : IMPAIRMENT OF ASSETS

Objective
• ensuring that assets are
carried at no more than
their recoverable amount.
• when an impairment loss
should be reversed
Scope:
Applies to all asset except
Reversal of Impairment arising from Ind AS 2, 12,
losses 19, 41, 104, 105, 109 and
115

Recognition and Requirement for

measurement of an impairment review when
Impairment loss there are inidcations for
impairment

Requirement for annual review

Intangible assets with an
Measurement of
recoverable amount : indefinite useful life or not yet
Higher of fair value less available for use.
costs of diposal and its Goodwill acquired in business
value in use combination

27
 CASH GENERATING UNIT (C.G.U)

CGU is the smallest group of assets which are capable of generating largely independent
cash flows.

Evaluation of impairment should be done at the CGU level only if the individual asset
where indicators of impairment exist is not capable of generating independent cash flows
and hence the value in use for the same cannot be reliably determined.

VI] Allocation of Impairment Loss in case of a C.G.U.

1) Calculate carrying value of C.G.U i.e., carrying value of individual assets + Allocable
Goodwill + Allocable corporate Assets

2) Calculate Recoverable value for the entire CGU i.e., the higher of total net selling price
and total value in use for the entire C.G.U.

3) Impairment Loss = 1 – 2 [If positive]

4) Allocation of Impairment Loss:

i) First to be written off against Allocable Goodwill.

ii) Excess loss if any should be written off against all other individual asset
(including allocable corporate assets) proportionately in the ratio of their
carrying values.
iii) The allocation of impairment loss should ensure that the carrying values of
individual asset/corporate assets should not fall below the individual
recoverable value (individual net selling price or the individual value in use
whichever is higher), if available.

28
 16. IND AS 37 : PROVISIONS, CONTINGENT
LIABILITIES AND CONTINGENT ASSETS

Ind AS 37

Recognition Measurement Reimburse Application of Disclosure

Appendix
ments the
t
Change
and use
recognition
of and
provision measuremen
Provision Contingency Provision Levies
Best s t rules
estimate

Present Contingent
Contingent
obligation liability Future liability
Risk and operati
uncertainities ng
losses
Past Contingent
Asset Contingent
event asset
Present
Onerous
value
contracts
Probable outflow
of resources
embodying
economic benefits Future
events Restructuring

Expected
Reliable disposal of
estimate of assets
the obligation

29
CONTINGENCIES

ACCOUNTING FOR
CONTINGENCIES

Contingent Liabilities Contingent Assets

Probable Uncertain Remote Virtually Probable Uncertain

Certain [51% - 95%] [< 50%]
(> 50%) (5% - 50%) (< 5%)
[> 95%]

Disclose in
Create Disclose in Ignored
Ignored Record Asset Notes
Provision Notes

30
 17. IND AS 38 : INTANGIBLE ASSETS

Objective
Prescribe the accounting
treatment for Intangible Assets
which are not dealt with by
another accounting standard

Amortisation of I.A. with finite Scope exclusion:

useful life. • Intangible assets covered by
I.A. with indefinite useful lives another Standard
review for annual impairment • Financial Assets
• Exploration and evaluation assets
• Minerals & non-
regenerative resources
Intangible Asset may arise from:
Separate Acquisition Meaning of Intangible Asset
Part of a Business combination
• Identifiable
Government Grant
Internally generated goodwill • Non-monetary asset
Internally generated intangible assets • Without physical substance
Exchange of assets
Measurement of Intangible
Asset:
Initial Measurement : At Cost
Subsequent Measurement :
Cost or Revaluation Model

31
RESEARCH AND DEVELOPMENT

Research and
development

Development
Research expenses
expenses

Capitalized If:
Expensed to P&L a. Technically viable
b. Legally Possible
c. Financially Feasible
d. Cost Measurable

ELSE
Expensed to P&L a/c

32
 18. IND AS 40 : INVESTMENT PROPERTY

Classification of property as
Objective and Scope investment property or owner-
occupied property

Investment Property
Ind AS 40

Transfers and Disposals Recognition and Measurement

DUAL USE PROPERTIES

PROPERTY WITH DUAL USE

[OWN USE + RENTAL]

Both parts are Both Parts are not

seperately saleable seperately saleable

No proportionate seperation
Both parts should be seperated permitted
and a proportionate amount
should be taken to P.P.E and
Investment Property respectively The entire property should be
classified as P.P.E (unless own use
component is insignificant)

Reference: Unless given in the question,

we will always assume that
the owner occupied part is
significant and hence
classification would be P.P.E

33
 ACCOUNTING

ACCOUNTING
(Same as P.P.E)

1) Cost Model Only permitted DISCLOSURE

(Revaluation model is prohibited
under IND AS 40. However, IFRS
permits Revaluation Model)
2) Depreciation will also be charged
on I.P (Building )based on its useful
Life (Same as P.P.E)
Fair value needs to be disclosed for an investment
property in the notes. In case fair value cannot be
determined, Reasons for the same need to be
disclosed. (Such a disclosure of Fair Value is not
required under IND As 16 – P.P.E). (Note 1)

34
 19. IND AS 41 : AGRICULTURE

Objective and Scope Recognition and Measurement

Agriculture
Ind AS 41

Government Grants Gains and losses

ACCOUNTING TREATMENT – BIOLOGICAL ASSETS

Accounting Treatment – Biological

Assets

Subsequent Gain/Loss
Initial Recognition (At (Realized/
Recognition each Balance Unrealized) Depreciation
Sheet Date)

Profit & Loss a/c

Cost to Sell Fair value – (Fair Value
Cost to Sell Gain/Loss)
No Depreciation

35
GOVERNMENT GRANTS

Government Grants for Biological Assets

Biological Assets at Biological Assets at Cost

Fair Value -Cost to Sell

UNCODITIONAL CONDITIONAL IND AS 20 would apply

[NON-REFUNDABLE] [Refundable if condition [i.e. Defer the grant in
not complied] ratio of depreciation]

P&L Immediately Record in Deferred Grant a/c

initially and defer to P&L as and
when conditions are satisfied.

[The life of the asset is irrelevant.]

36
20. IND AS 101 : FIRST-TIME ADOPTION OF IND AS

IND AS 101

Definitions Recognition
Objective and Scope Presentation
and
and Disclosure
Measurement

Opening Ind
AS Balance
Sheet

Accounting policies

Exceptions to the
retrospective
application of other
Ind AS

Exemptions from
other Ind AS

37
SUMMARY OF MANDATORY EXCEPTIONS & OPTIONAL EXEMPTIONS

Accounting
policies

Should comply with

every IND AS subject
to:

Mandatory Optional
Exceptions exemptions

Mandatory Exceptions

1. Estimates
2. Derecognition of FA/FL
3. Hedge accounting
4. Non-controlling interests
5. Classification and measurement of
FA
6. Impairment of FA
7. Embedded derivatives
8. Government grants

38
 Optional exemptions
1. Business Combinations
2. Insurance contracts
3. Share based payment transactions
4. Deemed cost for PPE and intangible
assets
5. Cumulative translation difference
6. Investment in subsidiaries, joint
ventures and associates
7. Compound financial instruments
8. Fair value measurement of FA / FL
9. Decommissioning liabilities included in
Property Plant Equipment
10. Designation of previously recognized
financial instruments
39
11. Existing FL with
equity instruments
12. Severe Hyperinflation
13. Leases
14.FA or intangible assets
accounted for service concession
arrangements
15. Designation of contracts to buy or
sell a non-financial item
16. Striping costs in the production of
surface mine
17. NCA held for sale and discounted
operations
18. Assets/Liab of subsidiaries,
associates and joint ventures
19. Revenue from Contract with
Customers
20. Joint arrangements
 21. IND AS 105 : NON-CURRENT ASSETS HELD FOR
SALE AND DISCONTINUED OPERATIONS

Objective

Accounting for assets held

for sale
Presentation and disclosure
of asset held for sale and
discontinued operations

Scope out - Measurement

Presentation and provisions
Disclosure of • Deferred tax assets - Ind AS 12
Discontinued Operations
• Financial Assets - Ind AS 109
• Agriculture - Ind AS 41
• Contractual rights - Ind AS 104
• Employee benefits - Ind AS 19

Presentation and Disclosure

of non-current assets
(disposal group) held for sale
Criteria for classifying
existing non-current assets
(disposal group) as held for
sale

Measurement of non-
current assets (disposal
group) classified as held for
sale

40
CLASSIFICATION OF NON CURRENT ASSETS/DISPOSAL GROUP AS HELD
FOR SALE

CRITERIA FOR CLASSIFICATION

AVAILABLE FOR IMMEDIATE SALE IS HIGHLY

SALE IN THE PRESENT AND
PROBABLE
CONDITION

1) An asset which is intended to be 1) Appropriate level of management is

committed to the sale plan.
renovated cannot be classified as held for
E.g.: Board / Shareholder Approval
sale till the time renovation is completed
2) Active process to find a buyer has started
2) Assets which remain vital for the entity’s
E.g.: Broker Appointed
ongoing operations cannot be classified as held
3) Asset is marketed and continues to be
for sale E.g.: An asset needed to complete a
marketed at a reasonable price compared
backlog of order
to the Fair Value
3) Exceptions :
4) The sale is expected to be completed
Legal/Customary delays which are usual for the
within 1 year from the date of classification
sale of similar assets can be ignored.
5) Withdrawal from sale plan is unlikely.
E.g.: Regulator’s Approval

41
 22. IND AS 108 : OPERATING SEGMENTS

Ind AS 108

Identification of Operating CODM

Segments
Discrete information
Determination of Reportable
Operating Segments Expected to earn
revenue

Aggregation criteria

Quantitative
thresholds

Disclosure Measurement Entity-wide disclosure

General Information
Reconciliations Information about
products and
services
Information
about profit or Restatement Information about
loss, assets and of previously geographical areas
liabilities reported
information
Information about
major customers

42
REPORTABLE SEGMENTS
A) Quantitative Thresholds
An entity should report an operating segment (after applying the aggregation criteria)
only if it is material. A segment is considered to be material if it meets any of the
following three quantitative thresholds:
i) Segment Revenue ≥ 10% x Combined-Segment Revenue [External +
Internal] [External + Internal]

OR

ii) Segment Profit ≥ 10% x Higher of:

(ABSOLUTE)
a. Combined Segment Profit (Absolute)
or
b. Combined Segment Loss (Absolute)
OR
iii) Segment Assets ≥ 10% x Combined Segment Assets

B) Additional Criteria for Reportable Segments

i) Any segment desired by the management can be reported separately even if it does
not meet the quantitative thresholds.
ii) Total External Revenue of all Reportable Segments selected should be greater than
or equal to 75% of total external revenue. (Reference Note – Under quantitative
threshold, 10% is taken for combined segment revenue whereas under this test 75%
is taken against external revenue only)

43
 23. IND AS 113 : FAIR VALUE MEASUREMENT

MEANING OF FAIR VALUE

The fair value is a price that would be received to sell an asset (exit price) or transfer a
Liability in the appropriable market in an orderly transaction between market
participants at the measurement date.
i.e. Fair Value is an exit price at the measurement date from the perspective of the market
participant that holds the asset/Liability

KEY POINTS
1) Appropriate Market

MARKET

MOST
PRINCIPAL
ADVANTAGEOUS
MARKET
MARKET

Market place with the highest volume/ level of This is the market place which maximizes
activities as compared to any other market for the Net proceeds to be generated from the
similar transactions. sale

Net proceeds = Available price

– Transportation Cost –
Transaction Cost

The price in the Principal market should be taken as the first preference.
However, if a product does not have a principal market, only then should
the assessment be based on the most advantageous market.

2) PRICE (Fair Value)

Price = Available price – Transportation Cost
While determining fair value, transportation cost needs to be deducted
whereas transaction cost is not deducted.
In case transaction cost (example – brokerage, sales commission) is deducted, then the
value derived would be the Fair Value – Cost to Sell
44
 FAIR VALUE HIERARCHY AND SELECTION OF VALUATION METHODS
RULE:

A. Select the method which maximizes the use of observable inputs (Level 1)
and minimizes the use of unobservable inputs (Level 3)

INPUTS

Observable Inputs Unobservable Inputs

Based on market data obtained from sources Reflects the entity’s own assumptions about
independent of the entity. financial factors.
Eg : same company’s price on BSE, Gold price on Eg : Forecasted future Cash flows, Growth
MCX. in Gordon’s Formula etc

B.

FAIR VALUE
HIERARCHY

LEVEL 1 LEVEL 2 LEVEL 3

Quoted Market Price of

Quoted Market prices of
Identical Assets in active
market (Unadjusted market
price)
E.g.: Entity has 24 karat gold
and the quoted price of 24
karat gold is available
Similar Assets which require
Certain adjustments. Financial Forecast which do
not have a direct market
Eg : Entity has 23 karat gold quote.
but market value is available
for 22 and 24 karat gold. Eg : Ke, g in Gordon’s
Formula
[Adjusted price of a similar
asset]

A valuation technique will have to be used in case we cannot find the quoted market price
for our asset in the Principal/Most Advantageous Market. In such cases, IND AS 113
prescribes the following valuation techniques based on the rules discussed above.
45
 VALUATION
TECHNIQUE

Market Approach Income Approach Asset/Cost Approach

Using market multiples of Present value of Future

comparable companies incomes/cash flows. Based on the value of
assets/Liabilities
E.g.: EPS x Comparable E.g.: Gordon’s Formula
company’s PE (Generally E.g.: NAV
level 2) (Generally Level 3)

46
 24. IND AS 115 : REVENUE FROM CONTRACTS
WITH CUSTOMERS

IND AS 115 Revenue from contracts

with customers

Definitions Recognition
Scope Contract Presentation
costs and
Disclosure

Recognition

Five step
model

Five step model

Step 1 – Step 2 – Step 4 – Step 5 –

Identifying Step 3 – Satisfaction of
Identifying Allocation of
the contract Determination performance
performance transaction
of transaction obligation
obligation price to
price
performance
obligation

47
 Step 1 – Identifying the contract

Criteria for
recognizing a Contract
contract Combining Contract
term contracts
modifications

Step 2 – Identifying performance

obligation

Promises in Consignment Principal vs Non-

Long term agent
contracts with Distinct arrangements Arrangements refundable
customers goods or consideration upfront fees
services

Step 3 – Determination of
transaction price

Variable Existence of
consideration significant
– constraints Non cash Consideration
financing consideration payable to a
in estimating component
variable customer
consideration

Step 4 – Allocation of transaction

price to performance obligation

Methods of Allocation of
Allocation of variable Changes in
allocating a discount
transaction consideration, transaction
price discount price

48
 Step 5 – Satisfaction of
performance obligation

Performance Performance Measuring

obligations obligations progress towards
satisfied over satisfied at a complete
time point in time satisfaction of a
performance
obligation

CONTRACT COST

Contract Cost

Contract Contract
Acquisition Cost Fulfilment Cost

Incremental cost to obtain Cost to fulfill a contract

a contract that would not
be incurred if the contract
is not obtained (eg:
brokerage) Covered under Not Covered under
other Ind AS other Ind AS

Recognise as an asset and

amortise it over the period
of contract including
renewals
As per principles Capitalise as
prescribed in the fulfilment asset
respective Ind AS. and amortise over
the contract term
(average term
including
renewals).

49
 25. IND AS 116 : LEASES

IND AS 116

What is a Key Lessee Lessor Other

Overview matters
lease? Concepts accounting accounting

Overview

Objective Scope Recognition

Exemption

What is a lease?

Whether Separation of Contract

arrangement lease and non- combinations
contains lease? lease
components

Key Concepts

Inception and Lease Lease Discount Initial Economic Fair value

commencement term payments rate direct cost life
of lease

50
 Lessee accounting

Lease Presentation
Initial recognition Subsequent
Remeasurement &
and measurement measurement modifications
disclosures

Lessor accounting

Presentation
Lease Finance lease Operating lease Modifications &
classification
disclosures

Other matters

Sales &
Sub leases leaseback

51
26. BUSINESS COMBINATION & CORPORATE
RESTRUCTURING [IND AS 103]

52
SUMMARY TO DETERMINE WHETHER TRANSACTION IS BUSINESS OR NOT :

53
ACCOUNTING FOR BUSINESS COMBINATION
IND AS 103 applies in the books of the acquirer on the acquisition date only. As per IND AS
103, all transactions except common control combinations should be accounted using
acquisition method only (Similar to Purchase Method under AS 14)

Acquisition Method – Steps

i) Identify Acquirer: entity which obtains control post the business combination
ii) Determine Acquisition Date: when acquirer obtains control over the acquiree.
iii) Calculate Purchase Consideration (P.C.): on fair value of consideration paid to the
owners (Equity)
iv) Calculate Identifiable Net Assets taken over. (Based on Fair Value)
v) Calculate Non-Controlling Interest (NCI): Using Proportionate Net Assets Method or
Fair Value Method
vi) Calculate Goodwill/Gain on Bargain Purchase/Capital Reserve.

In case Balance Sheet is to be prepared on the Acquisition Date, we will apply the above steps
and then prepare the Balance Sheet as per the Schedule 3 format under IND AS.

PURCHASE CONSIDERATION CAN BE SUMMARIZED AS :

54
EXCEPTIONS TO RECOGNITION AND MEASUREMENT PRINCIPLES FOR NET
ASSETS

55
ACQUIRER SHARE BASED PAYMENT AWARDS EXCHANGED FOR AWARDS
HELD BY THE ACQUIREE’S EMPLOYEES

56
CONTINGENT CONSIDERATION

COMMON CONTROL COMBINATION (CCC) [APPENDIX TO IND AS 103]

1. Meaning
A CCC involves acquisition of entities or businesses in which all the combining entities
or business are ultimately controlled or jointly controlled by the same Party/Parties
before and after the combination and common control is not transitory.

2. Example of CCC:
1. Merger between Fellow Subsidiaries
2. Merger of a Subsidiary with a Parent
3. Conversion of a Partnership Firm into a Company
4. Demerger of a Division which is ultimately controlled by the same parent company or
same controlling shareholders.

3. Accounting for Common Control Combinations

CCC should be accounted using pooling of interest method, which has the following
features:
1) All assets and liabilities appearing in the books should be taken over at book value.
Further, no new asset/liability will be created.

57
 2) Securities issued as Purchase Consideration should be recorded at Nominal Value
(Irrespective of Fair Value).

ICAI interprets nominal value in the following manner:

a) Issue Price if given
b) If no issue price is given, then face value is the nominal value

3) All Reserves/Retained Earnings will be taken over and the identity of the reserves will
be maintained.
4) In case there is a difference between P.C and N.A taken over (including Reserves) then
the difference (whether positive/negative) will be shown as a separate line item i.e.,
Capital Reserve on Restructuring (debit / credit). Goodwill/Bargain Purchase Gain
cannot be created.

DEMERGER
It is an arrangement where a part (division) of a company is transferred to another company
which operates separately from the original selling company. The accounting for demerger
would defer depending on whether it is classified as a business combination/common control
combination (CCC). This will inturn depend on how P.C is distributed. There are three
possibilities:
Option i) PC issued to selling company is shares [CCC] (irrespective of ultimate
shareholding)
Option ii) PC issued to members of Selling company where there are controlling members in
the selling company [CCC]
Option iii) PC issued to the members of selling company where there are no controlling
shareholders in the selling company. [Business Combination]

58
 27. CONSOLIDATION SUBSIDARY [IND AS 110]

STEPS IN THE CONSOLIDATION PROCESS

STEP 1: Prepare Schedule III Balance Sheet format. (Based on the line items given in
the question. Additionally always include Goodwill and NCI in the format.)

STEP 2: Prepare Consolidation Notes for Assets, Liabilities and Equity Capital of Parent

STEP 3: Prepare working notes (1,2 and 3 )

WN-1: Consolidated Other Equity

WN-2: Goodwill Calculation (Alternatively, Cost of Control A/C can be prepared)

WN-3: Non Controlling Interest

STEP 4: Analysis of reserves and adjusting entriesfor the given adjustments

STEP 5: Totaling & Closing

CONTROL

CONTROL [IND AS 110]

POWER TO DIRECT EXPOSURE TO VARIABLE LINKAGE BETWEEN POWER

RELEVANT ACTIVITIES RETURNS & VARIABLE RETURNS

Existing Rights that give Can be Positive/Negative

current ability to direct
returns depending on
relevant activities performance. Eg : Lenders
are not exposed to variable
returns and hence cannot
have control.
Investor should have power as a
principal (And not an agent) Eg :
CEO has powers which are
derived from its employment
agreement and hence he acts as an
agent and hence cannot have
control merely because he is CEO.

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CONSOLIDATION ADJUSTMENTS
Negative N.C.I

Fair Value
Adjustments

Goodwill
Impairment

Unrealized Profits On Inter Company

Transactions

Uniform Accounting
Policies

Different Reporting Dates

CONSOLIDATION ADJUSTMENTS
Inter Company
Elimination

Dividend
Adjustment

Bonus

Stake Sale

Additional Stake
Purchase

Chain Holding

60
28. JOINT ARRANGEMENTS, JOINT VENTURES & ASSOCIATES
[IND AS 111]
EQUITY METHOD (IND AS 28)
Applicable for investment in Associates/ Joint Ventures in CFS. In the SFS, the investments
can be shown at cost or fair value as per choice in IND AS 27.

FEATURES OF EQUITY METHOD

1) Assets/Liabilities of Associates are not taken over
2) Share in Equity: The investor's share in all the post-acquisition profits, reserves, OCI
(Equity) are to be added to the investment.
i.e. Investment in A a/c Dr. xx
To Consolidated P/L a/c xx
To Consolidated Other Reserves xx
To Consolidated OCI xx

All the changes in equity should be adjusted against the investment as the Net Assets of
the Associate are not taken over.

3) Dividend: Dividend received should be directly adjusted against the carrying value of
investment as it is treated as a recovery of investment and should not be credited to the
consolidated P&L again.
Bank a/c Dr. xx
To Investment in A xx
[same for Pre and Post Acquisition Dividend]

4) Intercompany Debtors/Creditors: These are not eliminated as we do not take over

the Net Assets of the Associate.

5) Inter Company Unrealized Profit on Stock:

Profits of the associate are taken over and hence any unrealized profit on both Upstream
and Downstream transactions should be eliminated to the extent of investor's share
Consolidated P/L a/c Dr. xx
To Investment in A (Downstream)/ Inventory (Upstream) xx
[Unrealized Profit × Investor’s share]
6) Goodwill: Identify the goodwill at the date of acquisition. This implies that goodwill
should merely be disclosed along with investment. However, goodwill should not be
shown as a separate line item in the Balance Sheet.
7) LOSSES: The share in the post-acquisition losses of the associate should be adjusted in
the same manner as the post-acquisition profits. However, the carrying value of
investment after adjusting the losses cannot be negative.

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 29. FINANCIAL INSTRUMENTS [IND AS 109]

FINANCIAL ASSET

62
KEY ELEMENTS

63
FINANCIAL LIABILITY

EQUITY

64
CATEGORISATION OF FINANCIAL ASSSETS HAS BEEN BROADLY LAID OUT
IN THE BELOW FLOW CHART :

65
FINANCIAL ASSETS

66
FINANCIAL ASSETS : MEASUREMENT

67
CLASSIFICATION OF FINANCIAL ASSETS

68
FAIR VALUE AT INITIAL MEASUREMENT

69
INCOMES AND/OR EXPENSES ON ASSETS MEASURED AT FAIR VALUE
SHALL BE RECOGNISED AS FOLLOWS :

70
FINANCIAL LIABILITIES : MEASUREMENT

71
DIFFERENCE BETWEEN MEASUREMENT REQUIREMENTS OF FINANCIAL
LIABILITY AND EQUITY AND THEIR COMPARISON CAN BE UNDERSTOOD
WITH THE HELP OF FOLLOWING DIAGRAMMATIC PRESENTATION –

THREE STAGE MODEL FOR IMPAIRMENT

72
COMPOUND FINANCIAL INSTRUMENTS (CFI) E.G.: CONVERTIBLES

From issuer’s perspective

A CFI has features of both Financial Liabilities and Equity and hence in the books of the issuer,
we need to separate the liability component and the equity component. The following steps
needs to be followed:
Step 1: Find the value of Liability component.
This can be calculated by discounting contractually agreed cash flows which are in the nature
of financial liabilities at the market rate of interest of similar non-convertible instruments.
Step 2: Equity component = Issue Price – Liability Component

KEY POINTS
1) We will always try to value the liability component only. Equity component will be
balancing figure. Do not try to value equity component by any other method.
2) If nothing is given, we assume that interest is mandatory and conversion is compulsory.
3) In order to determine whether cash flows are in the nature of FL or Equity, refer special
case no. 9 along with definitions.
4) Interest generally has FL feature. However, for principal, in case of compulsory convertible,
we treat to be in the nature of equity and in case of optionally convertible, in the nature of
FL.
5) If nothing is given, we assume conversion will happen for a Fixed number of shares
6) In case of Optionally convertible instruments, if we are not given that option to convert is
with the Holder or the Issuer, we will assume that the option is with the Holder.

ACCOUNTING FOR FINANCIAL LIABILITIES

Particulars Amortized FVTPL

Initial Recognition F.V – T.C F.V
(T.C : P/L)
Subsequent Recognition Amortized Cost F.V
Unrealized Gain/Loss N.A P/L
Interest/Dividend Effective Interest (P/L) P/L

73
REGULAR WAY PURCHASE OR SALE OF FINANCIAL ASSETS

74
DERECOGNITION OF FINANCIAL ASSETS

75
DERECOGNITION OF FINANCIAL ASSETS
EXTINGUSHMENT ACCOUNTING

TERMS ARE SUBSTANTIALLY DIFFERENT IF

ACCOUNTING TREATMENT

76
HEGDE ACCOUNTING

TYPES OF HEADING RELATIONSHIPS

77
 30. ACCOUNTING FOR CSR TRANSACTIONS

ACCOUNTING FOR CSR TRANSACTION

S. 135

C.S.R Obligations (If CSR

Applicability applicable)

1. C.S.R committee to be
a) Turnover > 1,000 cr
formed.
OR
2. CSR Report to be given along with
b) Net worth > 500cr
the Board Repor
OR
3. CSR Spent should be a
c) Net Profit > 5cr
minimum 2% of the Average
The above limits should be checked on a
net profit of the immediately
standalone basis in the immediately
preceding Financial Year preceeding 3 Financial Years.

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31. ACCOUNTING FOR SHARE BASED PAYMENTS [IND AS 102]

Share Based Payment Transactions

Recognition Types of Share Based Share Based Disclosure

Payment Transactions Payment
Transactions among
group entities

Equity Settled Cash Settled Share Based Share Based

Share Based Payment Transaction Payment
Payment Transaction
Transaction
with Cash
Share-based payment
Transactions in which services are transactions which
received
provide the
Transactions measured by reference to counterparty with a
the fair value of the equity instruments choice of settlement
granted
Modifications including Share-based payment
cancellations and transactions which
settlements provide the entity with
a choice of settlement

Determining the fair Treatment of Treatment of

value of equity a reload conditions
instruments granted feature

If the fair value of the equity

Vesting Non-vesting
instruments cannot be estimated
reliably

79
 32. INTEGRATED REPORTING

I. INTERNATIONAL INTEGRATED REPORTING COUNCIL (IIRC)

In 2010, IIRC was set up which aims to create the globally accepted integrated reporting
framework. It is the body which has prescribed Integrated Reporting (IR) Format. IIRC
is a global coalition of: Regulators, Investors, Companies and Standard setters

II. INTEGRATED REPORTING

Integrated Reporting will integrate both financial and non- financial information. It is
based on showing value creation on an overall basis for 6 measures of capital. Integrated
Reporting suggests detailed disclosures for six capitals (Financial,
Manufacturing, Intellectual, Human, Social, Natural) that should guide an
organization’s decision-making and long-term success.
The primary purpose of an integrated report is to explain to providers of financial
capital how an organization creates value over time.
III. SALIENT FEATURES OF INTEGRATED REPORTING FRAMEWORK
 Principle Based Approach:; Lays down broad principles, it does not set
standard format for reporting
 Targets the Private Sector or Profit Making Companies: But it can also be
applied, adapted as necessary, by public sector and not-for-profit organizations
 Identifiable Communication: May be either a standalone report or be
included as in annual report
 Financial and Non-financial Items: Reporting for six forms of capital
 Value Creation: Value created by an organization over time is reflected in the
changes of the capitals caused by the organization’s business activities and outputs.

IV. THE CAPITALS

The capitals are stocks of value that are increased, decreased or transformed through
the activities and outputs of the organization. The Framework has categorise the capital
into 6 main forms.
 Financial Capital: The pool of funds available to an organization for use in the
production of goods or the provision of services eg: debt, equity
 Manufactured Capital: Manufactured physical objects that are available to an
organization for use in the production of goods or the provision of services eg:
Building, plant
 Intellectual Capital: Organizational, knowledge-based intangibles eg: Patents,
80
 Copyrights
 Human Capital: People’s competencies, capabilities and experience, and their
motivations to innovate
 Social and Relationship Capital: The institutions and the relationships within
and between communities, groups of stakeholders and other networks.
 Natural Capital All renewable and non-renewable environmental resources and
processes that provide goods or services that support the organization eg: Air, water

V. GUIDING PRINCIPLES FOR PREPARATION AND PRESENTATION OF

INTEGRATED REPORT
One of the distinguishing features of Integrated Reporting is that in contrast to
compliance based reporting, there can be no model report. Every report must be built
around the unique business model of the preparer. Few Guiding Principles are:
1. Strategic focus and future orientation
2. Connectivity of information
3. Stakeholder relationships
4. Materiality
5. Conciseness
6. Reliability and completeness
7. Consistency and comparability

VI. CONTENTS OF INTEGRATED REPORTING

 Organisational Overview and External Environment
Explain what does the organisation do and what are the circumstances under
which it operates
 Governance
Explain how the organisation’s leadership structure supports its ability to create
value
 Business Model
Explain the Inputs, processes and Outputs generated
 Risks and Opportunities
Explain the specific risks and opportunities that affect the organisation’s ability to
create value and how is the organisation dealing with them (Risk management
policy)
 Strategy and Resource Allocation

81
 Explain where the organisation wants to go and how does it intend to get there
 Performance
Explain to what extent has the organisation achieved its strategic objectives for the
period and what are its outcomes in terms of effects on the capitals
 Outlook
Outline the challenges and uncertainties is the organisation likely to encounter in
pursuing its strategy, and what are the potential implications for its business
model and future performance
 Basis of Preparation and Presentation
Explain how the organization determines what matters to include in the integrated
report and how such matters are quantified or evaluated

VII. SEBI Regulations

SEBI vide its circular dated February 6, 2017 has advised top 500 companies [to
whom Business Responsibility Report (‘BRR’) have been mandated under SEBI
Regulations to adopt Integrated Reporting on a voluntary basis from the
financial year 2017-18.
The listed entities are advised to adhere provide Integrated Report in the annual
report separately or by incorporating in Management Discussion & Analysis or even
by preparing a separate report and giving reference of the same in the Annual Report.

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