FR Notes

FIRST EDITION
A BOOK BY CA PRATIK JAGATI
FINANCIAL
REPORTING
FOR CA FINAL
MODULE - 2
© with Author (CA Pratik Jagati)
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KEY HIGHLIGHTS:
1. All ICAI Study Material Examples
2. Mostly concepts covered through self
made charts
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About the Author:
Pratik Jagati is a qualified Chartered Accountant

since 2016. He is from Guwahati Assam.
After becoming CA, He started teaching CA Final
FR & SFM.
He is well known for his unique teaching techniques
which makes him different from other faculties.
He believes in logical understanding and tries to
relate concepts with day to day life examples which
helps in making tough and complicated Concepts
easy.
students loves his Balance Sheet Approach which
provides them Birds Eye View to understand tough
concepts in an easy manner.
Pratik sir is the only faculty who teaches Entire FR
& SFM in full practical manner without
rattafication of any formulas which in turn help
students to clear CA Exams and to apply such
knowledge in practical life too.
PREFACE
Hi Students,
I am pleased to present before you the one of its

kind book of CA Final's Financial Reporting. As the
perfection is a continuous process and I am always
dedicated to make notes better & find new ways and
approaches to present it in better & simplified
manner.
I want to thank all those students who trusted me

and contributed in making these notes better.
Hope you will enjoy reading these notes.
Best of Luck!!!
Yours Friendly,
Pratik Jagati
Table of Contents:
Ind AS 1: Presentation of Financial Statements...........................................................................381
Ind AS 34: Interim Financial Statements.......................................................................................404
Ind AS 8: Accounting Policies, Changes in Accounting Estimates & Errors............................416
Ind AS 10: Events after the Reporting Period...............................................................................422
Ind AS 24: Related Party Disclosures.............................................................................................434
Ind AS 108: Operating Segments....................................................................................................447
Analysis of Financial Statements......................... ..........................................................................462
Integrated Reporting.........................................................................................................................467
Ind AS 101: First Time Adoption of Ind AS....................................................................................482
VOL-2 | CA PRATIK JAGATI

Presentation of Financial Statements: IND AS 1
IND AS 1:
Presentation of Financial Statements
Ind AS 1 is a basic standard, which prescribes the overall requirements for the presentation of
general-purpose financial statements and guidelines for their structure, i.e., components of financial
statements, viz., balance sheet, statement of profit and loss (including other comprehensive income),
statement of cash flows and notes comprising significant accounting policies, etc. Further, the
standard prescribes the minimum disclosures that are to be made in the financial statements and
explains the general features of the financial statements. The presentation requirements prescribed
in the standard are supplemented by the recognition, measurement and disclosure requirements set
out in other Ind AS for specific transactions and other events.
OBJECTIVE
This standard prescribes the basis for presentation of general-purpose financial statements to
ensure comparability:
a) with the entity’s financial statements of previous periods and
b) with the financial statements of other entities.
It sets out overall requirements for the presentation of financial statements, guidelines for their
structure and minimum requirements for their content.
SCOPE
1. This standard applies to all types of entities including those that present:
a) consolidated financial statements in accordance with Ind AS 110 ‘Consolidated Financial
Statements; and
b) separate financial statements in accordance with Ind AS 27 'Separate Financial
Statements.
2. This standard does not apply to structure and content of condensed interim financial
statements prepared in accordance with Ind AS 34 except for para 15 to 35 of Ind AS 1.
3. This Standard uses terminology that is suitable for profit-oriented entities, including public
sector business entities.
4. If entities with not for-profit activities in the private sector or the public sector apply this
Standard, they may need to amend the descriptions used for particular line items in the
financial statements and for the financial statements themselves.
5. Similarly, entities that do not have equity as defined in Ind AS 32 Financial Instruments:
Presentation (e.g. some mutual funds) and entities whose share capital is not equity (eg. some
co-operative entities) may need to adapt the financial statement presentation of members' or
unit holders' interests.
DEFINITIONS
1. General purpose financial statements (referred to as ‘financial statements’) are those
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.

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2. Impracticable: Applying a requirement is impracticable when the entity cannot apply it after
making every reasonable effort to do so.
3. Indian Accounting Standards (Ind AS) are Standards prescribed under Section 133 of the
Companies Act, 2013.
4. Material
Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general-purpose financial statements make on
the basis of those financial statements, which provide financial information about a specific
reporting entity.
Materiality depends on the nature or magnitude of information, or both. An entity assesses
whether information, either individually or in combination with other information, is material in
the context of its financial statements taken as a whole.
Information is obscured if it is communicated in a way that would have a similar effect for
primary users of financial statements to omitting or misstating that information.
Examples of circumstances that may result in material information being obscured:
a) information regarding a material item, transaction or other event is disclosed in the
financial statements but the language used is vague or unclear;
b) information regarding a material item, transaction or other event is scattered
throughout the financial statements;
c) dissimilar items, transactions or other events are inappropriately aggregated;
d) similar items, transactions or other events are inappropriately disaggregated; and
e) the understandability of the financial statements is reduced as a result of material
information being hidden by immaterial information to the extent that a primary user is
unable to determine what information is material.
Assessing whether information could reasonably be expected to influence decisions made by

the primary users of a specific reporting entity’s general purpose financial statements
requires an entity to consider the characteristics of those users while also considering the
entity’s own circumstances.
5. Many existing and potential investors, lenders and other creditors cannot require reporting
entities to provide information directly to them and must rely on general purpose financial
statements for much of the financial information they need. Consequently, they are the
primary users to whom general purpose financial statements are directed. Financial
statements are prepared for users who have a reasonable knowledge of business and economic
activities and who review and analyse the information diligently. At times, even well-informed
and diligent users may need to seek the aid of an adviser to understand information about
complex economic phenomena. Notes contain information in addition to that presented in the
balance sheet, statement of profit and loss, other comprehensive income, statement of
changes in equity and statement of cash flows. Notes provide narrative descriptions or
disaggregation of items presented in those statements and information about items that do
not qualify for recognition in those statements.
6. Owners are holders of instruments classified as equity.

7. Profit or loss is the total of income less expenses, excluding the components of other
comprehensive income.

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8. Reclassification adjustments are amounts reclassified to profit or loss in the current period
that were recognised in other comprehensive income in the current or previous periods.
9. Total comprehensive income is 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. Total comprehensive income comprises all components of profit or loss and
other comprehensive income.
10. Other comprehensive income comprises items of income and expense (including reclassification
adjustments) that are not recognised in profit or loss as required or permitted by other Ind
AS.
The components of Other Comprehensive Income include the following:

S. No. Components Reference
1 Changes in revaluation surplus Ind AS 16 ‘Property, Plant

and Equipment’ and Ind
AS 38 ‘Intangible Assets’
2 Re-measurements of defined benefit plans Ind AS 19, Employee
Benefits
3 Gains and losses arising from translating the financial Ind AS 21 ‘The Effects of
statements of a foreign operation Changes in Foreign
Exchange Rates’
4 Gains and losses from investments in equity instruments Paragraph 5.7.5 of Ind AS
designated at fair value through other comprehensive 109, Financial Instruments
income
5 Gains and losses on financial assets measured at fair value Paragraph 4.1.2A of Ind
through other comprehensive income AS 109
7 For particular liabilities designated as at fair value Paragraph 5.7.7 of Ind AS
through profit or loss, the amount of the change in fair 109
value that is attributable to changes in the liability’s
credit risk
8 Changes in the value of the time value of options when Ind AS 109
separating the intrinsic value and time value of an option
contract and designating as the hedging instrument only
the changes in the intrinsic value
9 Changes in the value of the forward elements of forward Ind AS 109
contracts when separating the forward element and spot
element of a forward contract and designating as the
hedging instrument only the changes in the spot element,
and changes in the value of the foreign currency basis
spread of a financial instrument when excluding it from
the designation of that financial instrument as the
hedging instrument

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PURPOSE OF FINANCIAL STATEMENTS

The objective of general-purpose financial statements is to provide information about the financial
position, financial performance, and cash flows of an entity that is useful to a wide range of users in
making economic decisions. To meet the objective, financial statements provide information about an
entity’s:
a) assets;
b) liabilities;
c) equity;
d) income and expenses, including gains and losses;
e) contributions by and distributions to owners in their capacity as owners; and
f) cash flows.
Information, along with other information in the notes, assists users of financial statements in
predicting the entity’s future cash flows and, in particular, their timing and certainty.
COMPLETE SET OF FINANCIAL STATEMENTS

A complete set of financial statements comprises:
a) a balance sheet as at the end of the period;
b) a statement of profit and loss for the period;
c) statement of changes in equity for the period;
d) a statement of cash flows for the period;
e) notes, comprising significant accounting policies and other explanatory information;
f) comparative information in respect of the preceding period;
g) a balance sheet as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatement of items in its
financial statements, or when it reclassifies items in its financial statements.
An entity shall present a single statement of profit and loss, with profit or loss and other
comprehensive income presented in two sections. The sections shall be presented together, with the
profit or loss section presented first followed directly by the other comprehensive income section.
Many entities present reports and statements (generally in annual reports) such as financial reviews
by management, environmental reports, and value-added statements that are outside the financial
statements. Such reports and statements that are outside the financial statements are outside the
scope of Ind AS.
Note:
1. An entity shall present a single statement of profit and loss, with profit or loss and other
comprehensive income (OCI) presented in two sections. The sections shall be presented
together, with the profit or loss section presented first followed directly by the other
comprehensive income section.
2. Reports and statements presented outside financial statements are outside the scope of
Ind AS.
3. An entity is not required to present the related notes to the opening balance sheet as at
the beginning of the preceding period.

384
GENERAL FEATURES OF FINANCIAL STATEMENTS

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Presentation of True and Fair View and compliance with Ind AS

Financial statements shall present a true and fair view of the financial position, financial performance
and cash flows of an entity. Presentation of true and fair view requires the faithful representation of
the effects of transactions, other events and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses set out in the Conceptual Framework.
The application of Ind AS, with additional disclosure, when necessary, is presumed to result in
financial statements that present a true and fair view.
An Explicit and Unreserved Statement

An entity whose financial statements comply with Ind AS shall make an explicit and unreserved
statement of such compliance in the notes.
An entity shall not describe financial statements as complying with Ind AS unless they comply with all
the requirements of Ind AS. There may be disagreement of the Company with the auditor on
applicability of any Ind AS or particular requirement of any Ind AS and accordingly auditor may
qualify the audit report. Even in such a situation, the financial statements will be assumed to be Ind
AS compliant. In virtually all circumstances, presentation of a true and fair view is achieved by
compliance with applicable Ind AS. Presentation of a true and fair view also requires an entity:
a) to select and apply accounting policies in accordance with Ind AS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’. Ind AS 8 sets out a hierarchy of authoritative
guidance that management considers in the absence of an Ind AS that specifically applies to
an item.
b) to present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information
c) to provide additional disclosures when compliance with the specific requirements in Ind AS is
insufficient to enable users to understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial performance.
Inappropriate Accounting Policies

An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting
policies used or by notes or explanatory material
Departure from the Requirements of an Ind AS — Whether Permissible?

In the extremely rare circumstances in which management concludes that compliance with a
requirement in an Ind AS would be so misleading that it would conflict with the objective of financial
statements set out in the Conceptual Framework, the entity shall depart from that requirement if
the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
When an entity departs from a requirement of an Ind AS, it shall disclose:

a) that management has concluded that the financial statements present a true and fair view of
the entity’s financial position, financial performance and cash flows;
b) that it has complied with applicable Ind AS, except that it has departed from a particular
requirement to present a true and fair view;
c) the title of the Ind AS from which the entity has departed, the nature of the departure,
including the treatment that the Ind AS would require, the reason why that treatment would
be so misleading in the circumstances that it would conflict with the objective of financial
statements set out in the Conceptual Framework, and the treatment adopted; and

386
d) for each period presented, the financial effect of the departure on each item in the financial
statements that would have been reported in complying with the requirement.
When an entity has departed from a requirement of an Ind AS in a prior period, and that departure
affects the amounts recognised in the financial statements for the current period, it shall make the
disclosures given above. For example, when an entity departed in a prior period from a requirement in
an Ind AS for the measurement of assets or liabilities and that departure affects the measurement
of changes in assets and liabilities recognised in the current period’s financial statements.
In the extremely rare circumstances in which management concludes that compliance with a
requirement in an Ind AS would be so misleading that it would conflict with the objective of financial
statements set out in the Conceptual Framework, but the relevant regulatory framework prohibits
departure from the requirement, the entity shall to the maximum extent possible, reduce the
perceived misleading aspects of compliance by disclosing:
a) the title of the Ind AS in question, the nature of the requirement, and the reason why
management has concluded that complying with that requirement is so misleading in the
circumstances that it conflicts with the objective of financial statements set out in the
Framework; and
b) for each period presented, the adjustments to each item in the financial statements that
management has concluded would be necessary to present a true and fair view.
GOING CONCERN
Financial statements prepared under Ind AS should be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading or has no realistic alternative
but to do so. Management is required to assess, at the time of preparing the financial statements,
the entity's ability to continue as a going concern, and this assessment should cover the entity's
prospects for at least 12 months from the end of the reporting period. The 12-month period for
considering the entity's future is a minimum requirement; an entity cannot, for example, prepare its
financial statements on a going concern basis if it intends to cease operations 18 months from the

387
end of the reporting period.

The assessment of the entity's status as a going concern will often be straight forward. A profitable
entity with no financing problems will generally be a going concern. In other cases, management might
need to consider very carefully the entity's ability to meet its liabilities as they fall due. Detailed
cash flow and profit forecasts might be required to satisfy management that the entity is a going
concern.
The following are examples of events or conditions that, individually or collectively, may cast
significant doubt on the entity’s ability to continue as a going concern. This listing is neither all-
inclusive nor does the existence of one or more of the items always signify that a material
uncertainty exists:
a) Net liability or net current liability position;
b) Fixed-term borrowings approaching maturity without realistic prospects of renewal or
repayment; or excessive reliance on short-term borrowings to finance long-term assets;
c) Indications of withdrawal of financial support by creditors;
d) Negative operating cash flows indicated by historical or prospective financial statements;
e) Adverse key financial ratios;
f) Substantial operating losses or significant deterioration in the value of assets used to
generate cash flows;
g) Arrears or discontinuance of dividends;
h) Inability to pay creditors on due dates;
i) Inability to comply with the terms of loan agreements;
j) Change from credit to cash-on-delivery transactions with suppliers;
k) Inability to obtain financing for essential new product development or other essential
investments;
l) Loss of key management without replacement;
m) Loss of a major market, key customer(s), franchise, license, or principal supplier(s);
n) Emergence of a highly successful competitor;
o) Changes in law or regulation or government policy expected to adversely affect the entity.
If management has significant doubt of the entity’s ability to continue as a going concern, the
uncertainties should be disclosed.
In case the financial statements are not prepared on a going concern basis, the entity should disclose
the basis of preparation of financial statements and also the reason why the entity is not regarded
as a going concern.
Events that occur after the reporting period might indicate that the entity is no longer a going
concern. An entity does not prepare its financial statements on a going concern basis if management’s
post- year end assessment indicates that it is not a going concern. Any financial statements that are
prepared after that assessment (including the financial statements in respect of which management
are making the assessment) are not prepared on a going concern basis. This is consistent with Ind AS
10, which requires a fundamental change to the basis of accounting when the going concern
assumption is no longer appropriate.
ACCRUAL BASIS OF ACCOUNTING

1. An entity shall prepare its financial statements, except for cash flow information, using the
accrual basis of accounting.
2. When the accrual basis of accounting is used, an entity recognises items as assets, liabilities,
equity, income and expenses (the elements of financial statements) when they satisfy the
definitions and recognition criteria for those elements in the Conceptual Framework

388
MATERIALITY & AGGREGATION

1. An entity shall present separately each material class of similar items. An entity shall present
separately items of a dissimilar nature or function unless they are immaterial except when
required by law.
2. Financial statements result from processing large numbers of transactions or other events
that are aggregated into classes according to their nature or function. The final stage in the
process of aggregation and classification is the presentation of condensed and classified
data, which form line items in the financial statements. If a line item is not individually
material, it is aggregated with other items either in those statements or in the notes. An
item that is not sufficiently material to warrant separate presentation in those statements
may warrant separate presentation in the notes.
3. An entity need not provide a specific disclosure required by an Ind AS if the information is
not material except when required by law.
Example 1
Entity A has done a wrong classification of assets between 2 categories of plant and machinery.
Such a classification would not be material in amount if it affected two categories of plant or
equipment, however, it might be material if it changed the classification between a non-current
and a current asset category.
Losses from bad debts or pilferage that could be shrugged off as routine by a large business may
threaten the continued existence of a small business.
An error in inventory valuation may be material in a small enterprise for which it may cut earnings
by half but could be immaterial in an enterprise for which it might make a barely perceptible
ripple in the earnings.
OFFSETTING
1. An entity shall not offset assets and liabilities or income and expenses, unless required or
permitted by an Ind AS.
2. An entity reports separately both assets and liabilities, and income and expenses. Measuring
assets net of valuation allowances — for example, obsolescence allowances on inventories and
doubtful debts allowances on receivables—is not offsetting.
3. Ind AS 115, ‘Revenue from Contracts with Customers’, requires an entity to measure revenue
from contracts with customers at the amount of consideration to which the entity expects to
be entitled in exchange for transferring promised goods or services. For example, the amount
of revenue recognized reflects any trade discounts and volume rebates the entity allows. An
entity undertakes, in the course of its ordinary activities, other transactions that do not
generate revenue but are incidental to the main revenue-generating activities. An entity
presents the results of such transactions, when this presentation reflects the substance of
the transaction or other event, by netting any income with related expenses arising on the
same transaction.
Examples 2
An entity presents gains and losses on the disposal of non-current assets, including
investments and operating assets, by deducting from the amount of consideration on
disposal the carrying amount of the asset and related selling expenses; and

389
Example 3
An entity may net expenditure related to a provision that is recognised in accordance with
Ind AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, and reimbursed under a
contractual arrangement with a third party (for example, a supplier’s warranty agreement)
against the related reimbursement.
4. In addition, an entity presents on a net basis gains and losses arising from a group of similar
transactions, for example, foreign exchange gains and losses or gains and losses arising on
financial instruments held for trading. However, an entity presents such gains and losses
separately if they are material.
FREQUENCY OF REPORTING
1. An entity shall present a complete set of financial statements (including comparative
information) at least annually.
2. When an entity changes the end of its reporting period and presents financial statements for
a period longer or shorter than one year, an entity shall disclose, in addition to the period
covered by the financial statements:
a) the reason for using a longer or shorter period, and
b) the fact that amounts presented in the financial statements are not entirely
comparable.
Example 4
In 20X8 entity ‘Superb’ was acquired by entity ‘Happy Go Luck’. To align its reporting date with
that of its parent, Superb changed the end of its annual reporting period from 31stJanuary to
31st March. Consequently, entity Superb’s reporting period for the year ended 31st March, 20X8
is 14 months. On the basis of these facts, the following disclosure would be appropriate:
Extract from the notes to entity Superb’s 31st March, 20X8 financial statements:
Note 1: Basis of preparation and accounting policies
Reporting period
To align the entity’s reporting period with that of its parent (Happy Go Luck), the entity changed
the end of its reporting period from 31st January to 31st March. Amounts presented for the
period ended 31st March, 20X8 are for 14 months. Comparative figures are for a 12 months
period. Consequently, comparative amounts for the statement of comprehensive income, statement
of changes in equity, statement of cash flows and related notes are not entirely comparable.
COMPARATIVE INFORMATION
Minimum comparative information:

a) An entity should present comparative information in respect of the preceding period for all
amounts reported in the current period’s financial statements except when Ind AS permit or
require otherwise.
b) Comparative information for narrative and descriptive information should be included if it is
relevant to understand the current period’s financial statements. For example, in the current
period an entity discloses details of a legal dispute whose outcome was uncertain at the end of
the immediately preceding reporting period and that is yet to be resolved

390
c) An entity shall present, as a minimum:

i. 2 Balance Sheets
ii. 2 Statement of Profit and Loss
iii. 2 Statement of Cash Flows
iv. 2 Statement of Changes in Equity and
v. Related Notes.
Additional Comparative Information:

An entity may present comparative information in addition to the minimum comparative financial
statements required by Ind ASs, as long as that information is prepared in accordance with Ind AS.
This comparative information may consist of one or more statements referred to in ‘Complete set of
financial statements’ but need not comprise a complete set of financial statements. When this is the
case, the entity shall present related note information for those additional statements.
Example:5
An entity may present a third statement of profit or loss (thereby presenting the current period,
the preceding period and one additional comparative period). However, the entity is not required to
present a third balance sheet, a third statement of cash flows or a third statement of changes in
equity (ie an additional financial statement comparative). The entity is required to present, in the
notes to the financial statements, the comparative information related to that additional
statement of profit or loss and other comprehensive income.
Change in Accounting Policy, Retrospective Restatement or Reclassification:

1. When an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements or reclassifies items in its financial
statements, it shall present, as a minimum, three balance sheets, two of each of the other
statements, and related notes. An entity presents balance sheets as at
a) the end of the current period,
b) the end of the preceding period, and
c) the beginning of the preceding period.
2. When an entity is required to present an additional balance sheet as at the beginning of the
preceding period, it must disclose the information as required by Ind AS 8 and also the
information as explained in subsequent points. However, it need not present the related notes
to the opening balance sheet as at the beginning of the preceding period.
3. When the entity changes the presentation or classification of items in its financial
statements, the entity shall reclassify comparative amounts unless reclassification is
impracticable.
4. When the entity reclassifies comparative amounts, the entity shall disclose:
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.
5. When it is impracticable to reclassify comparative amounts, an entity shall disclose:

a) the reason for not reclassifying the amounts, and

391
b) the nature of the adjustments that would have been made if the amounts had been
reclassified.
Consistency of Presentation
An entity shall retain the presentation and classification of items in the financial statements from
one period to the next unless:
a) it is apparent, following a significant change in the nature of the entity’s operations or a
review of its financial statements, that another presentation or classification would be more
appropriate having regard to the criteria for the selection and application of accounting
policies in Ind AS 8; or
b) an Ind AS requires a change in presentation.
Example:6
A significant acquisition or disposal, or a review of the presentation of the financial statements,
might suggest that the financial statements need to be presented differently. An entity changes
the presentation of its financial statements only if the changed presentation provides information
that is reliable and more relevant to users of the financial statements and the revised structure is
likely to continue, so that comparability is not impaired. When making such changes in presentation,
an entity reclassifies its comparative information.
STRUCTURE AND CONTENT

Ind AS 1 requires particular disclosures in the balance sheet or in the statement of profit and loss,
or in the statement of changes in equity and requires disclosure of other line items either in those
statements or in the notes.
Identification of Financial Statements:

An entity shall clearly identify the financial statements and distinguish them from other information
in the same published document. Ind AS apply only to financial statements, and not necessarily to
other information presented in an annual report, a regulatory filing, or another document though they
may be useful to users.
An entity shall display the following information prominently:

a) the name of the reporting entity or other means of identification, and any change in that
information from the end of the preceding reporting period
b) whether the financial statements are of an individual entity or a group of entities;
c) reporting date or the reporting period
d) the presentation currency
e) the level of rounding used in presenting amounts in the financial statements.
f) An entity meets above requirements by presenting appropriate headings for pages,
statements, notes, columns and the like. Judgement is required in determining the best way of
presenting such information.
For example, when an entity presents the financial statements electronically separate pages
are not always used; an entity then presents the above items to ensure that the information
included in the financial statements can be understood.
g) An entity often makes financial statements more understandable by presenting information in
thousands or millions of units of the presentation currency. This is acceptable as long as the
entity discloses the level of rounding and does not omit material information.

392
As per Schedule III of the Companies Act 2013, depending upon the turnover of the company,
the figures appearing in the financial statements shall be rounded off as below:
 Less than one hundred crore rupees - To the nearest hundreds, thousands, lakhs or
millions, or decimals thereof.
 One hundred crore rupees or more- To the nearest, lakhs, millions or crores, or
decimals thereof.
Once a unit of measurement is used, it should be used uniformly in the Financial Statements.
BALANCE SHEET
At a minimum, the balance sheet shall include following items:
a Property, plant and equipment
b Investment property
c Intangible assets
d Financial assets (excluding amounts shown under (e, h &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 The total of assets classified as held for sale and assets included in disposal groups
classified as held for sale in accordance with Ind AS 105 Non-current Assets Held for Sale
and Discontinued Operations
k Trade and other payables
l Provisions
m Financial liabilities (excluding amounts shown under k and l)
n Liabilities and assets for current tax, as defined in Ind AS 12 Income Taxes
o Deferred tax liabilities and deferred tax assets, as defined in Ind AS 12
p Liabilities included in disposal groups classified as held for sale in accordance with Ind AS
105
q Non-controlling interests, presented within equity
r Issued capital and reserves attributable to owners of the parent
Additional line items, headings and subtotals in the balance sheet should be presented when such
presentation is relevant to an understanding of the entity’s financial position.
The descriptions of the line items, and the order in which they are shown, can be adapted according
to the entity's nature and its transactions.
Example:7
Financial institutions would amend the descriptions of line items to provide information that is
relevant to the operations of financial institutions.
Distinction between Current / Non-Current

Entities preparing Ind AS financial statements are required to present the face of the balance
sheet, differentiating between current and non-current assets and between current and non-current
liabilities.
An entity shall present current and non-current assets, and current and non-current liabilities, as
separate classifications in its balance sheet except when a presentation based on liquidity provides

393
information that is reliable and more relevant. When that exception applies, an entity shall present
all assets and liabilities in order of liquidity.
Whichever method of presentation is adopted, an entity shall disclose the amount expected to be
recovered or settled after more than twelve months for each asset and liability line item that
combines amounts expected to be recovered or settled:
a) no more than twelve months after the reporting period, and
b) more than twelve months after the reporting period.
When an entity supplies goods or services within a clearly identifiable operating cycle, separate
classification of current and non-current assets and liabilities in the balance sheet provides useful
information by distinguishing the net assets that are continuously circulating as working capital from
those used in the entity’s long-term operations. It also highlights assets that are expected to be
realised within the current operating cycle, and liabilities that are due for settlement within the
same period.
When an entity presents current and non-current assets, and current and non-current liabilities, as
separate classifications in its balance sheet, it shall not classify deferred tax assets (liabilities) as
current assets (liabilities).
Note:
1. Financial institutions may present assets and liabilities in increasing or decreasing order of
liquidity if the presentation is reliable and more relevant than a current / non-current
presentation. This is because such entity does not supply goods or services within a clearly
identifiable operating cycle.
2. An entity is permitted to present some of its assets and liabilities using a current / non-
current classification and others in order of liquidity. The need for a mixed basis of
presentation might arise when an entity has diverse operations.
CURRENT ASSETS
An entity shall classify an asset as current when:
a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
b) it holds the asset primarily for the purpose of trading;
c) it expects to realise the asset within twelve months after the reporting period; or
d) 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 twelve months after the
reporting period.
An entity shall classify all other assets as non-current.

This Standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a
long-term nature. It does not prohibit the use of alternative descriptions as long as the meaning is
clear.
Operating Cycle
The operating cycle of an entity is the time between the acquisition of assets for processing and
their realisation in cash or cash equivalents. When the entity’s normal operating cycle is not clearly
identifiable, it is assumed to be twelve months.
Current assets include assets (such as inventories and trade receivables) that are sold, consumed or

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realised as part of the normal operating cycle even when they are not expected to be realised within
twelve months after the reporting period. Current assets also include assets held primarily for the
purpose of trading.
For Example:
a) Some financial assets classified as held for trading in accordance with Ind AS 109
b) Current portion of non-current financial assets.
Example: 8
An entity produces whisky from barley, water and yeast in a 24-month distillation process. At the
end of the reporting period the entity has one month’s supply of barley and yeast raw materials,
800 barrels of partly distilled whisky and 200 barrels of distilled whisky.
All raw materials (barley and yeast) work in process (partly distilled whisky) and finished goods
(distilled whisky) are inventories. The raw materials are expected to be realised (ie turned into
cash after being processed into whisky) in the entity’s normal operating cycle. Therefore, even
though the realisation is expected to take place more than twelve months after the end of the
reporting period, the raw materials, work in progress and finished goods are current assets.
Example: 9
An entity owns a machine with which it manufactures goods for sale. It also owns the building in
which it carries out its commercial activities.
The machine and the building are non-current assets because:
a) they are not cash or cash equivalents;
b) they are not expected to be realised or consumed in the entity’s normal operating cycle;
c) they are not held for the purpose of trading; and
d) they are not expected to be realised within twelve months of the end of the reporting
period.
Example: 10
On 31 December 20X2, an entity replaced a machine in its production line. The replaced machine
was sold to a competitor for 3,00,000. Payment is due 15 months after the end of the reporting
period.
The receivable is a non-current asset because:
a) it is not cash or a cash equivalent;
b) it is not expected to be realised or consumed in the entity’s normal operating cycle;
c) it is not held for the purpose of trading; and
d) it is not expected to be realised within twelve months of the end of the reporting period.
Note: If payment was due in less than twelve months from the end of the reporting period, it
would have been classified as a current asset.
Example:11
On 1st April, 20X2, XYZ Ltd invested 15,00,000 surplus funds in corporate bonds that bear
interest at 8 percent per year. Interest is payable on the corporate bonds on 1st April, of each
year. The principal is repayable in three annual instalments of 5,00,000 starting from 1st April,
20X3. In its statement of financial position at 31st March, 20X3, the entity must present the
1,20,000 accrued interest and 5,00,000 current portion of the non-current loan (i.e. the portion
repayable on 31st March, 20X3) as current assets because they are expected to be realised within
twelve months of the end of the reporting period.

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CURRENT LIABILITIES
An entity shall classify a liability as current when:
a) it expects to settle the liability in its normal operating cycle;
b) it holds the liability primarily for the purpose of trading;
c) the liability is due to be settled within twelve months after the reporting period; or
d) it does not have an unconditional right to defer settlement of the liability for at least twelve
months after the reporting period. Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of equity instruments do not affect its
classification.
An entity shall classify all other liabilities as non-current. Some current liabilities, such as trade
payables and some accruals for employee and other operating costs, are part of the working capital
used in the entity’s normal operating cycle.
An entity classifies such operating items as current liabilities even if they are due to be settled more
than twelve months after the reporting period. The same normal operating cycle applies to the
classification of an entity’s assets and liabilities.
When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve
months. Other current liabilities which are not settled as part of the normal operating cycle, but are
due for settlement within twelve months after the reporting period or held primarily for the purpose
of trading.
Examples are some financial liabilities classified as held for trading in accordance with Ind AS 109,
bank overdrafts, and the current portion of non-current financial liabilities, dividends payable,
income taxes and other non-trade payables.
Financial liabilities that provide financing on a long-term basis (i.e., are not part of the working capital
used in the entity’s normal operating cycle) and are not due for settlement within twelve months
after the reporting period are non-current liabilities.
An entity classifies its financial liabilities as current when they are due to be settled within twelve
months after the reporting period, even if:
a) the original term was for a period longer than twelve months, and
b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after

the reporting period and before the financial statements are approved for issue.
If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve
months after the reporting period under an existing loan facility, it classifies the obligation as non-
current, even if it would otherwise be due within a shorter period. However, when refinancing or
rolling over the obligation is not at the discretion of the entity (for example, there is no arrangement
for refinancing), the entity does not consider the potential to refinance the obligation and classifies
the obligation as current.
When an entity breaches a 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, the entity does not
classify the liability as current, even 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.

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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.
Information to be provided in the Balance Sheet or in the notes:

1. An entity shall disclose, either in the balance sheet or in the notes, further sub-classifications
of the line items presented, classified in a manner appropriate to the entity’s operations.
2. The detail provided in sub-classifications depends on the requirements of Ind AS and on the
size, nature and function of the amounts involved.
3. An entity shall disclose the following, either in the balance sheet or in the statement of
changes in equity which is part of the balance sheet, or in the notes:
a) for each class of share capital:
i. the number of shares authorised;
ii. the number of shares issued and fully paid, and issued but not fully paid;
iii. par value per share, or that the shares have no par value;
iv. a reconciliation of the number of shares
v. the rights, preferences and restrictions attaching to that class including
restrictions on the distribution of dividends and the repayment of capital;
vi. shares in the entity held by the entity or by its subsidiaries or associates; and
vii. shares reserved for issue under options and contracts for the sale of shares,
including terms and amounts; and
b) a description of the nature and purpose of each reserve within equity.
4. An entity whose capital is not limited by shares e.g., a company limited by guarantee, shall
disclose information, showing changes during the period in each category of equity interest,
and the rights, preferences and restrictions attaching to each category of equity interest.
STATEMENT OF PROFIT AND LOSS

1. The statement of profit and loss shall present, in addition to the profit or loss and other
comprehensive income sections:
a) profit or loss;
b) total other comprehensive income;
c) comprehensive income for the period, being the total of profit or loss and other
comprehensive income.
2. An entity shall present (in case of consolidated statement of profit and loss) the following
items as allocation of profit or loss and other comprehensive income for the period:
a) profit or loss for the period attributable to:
i. non-controlling interests, and
ii. owners of the parent.
b) comprehensive income for the period attributable to:
i. non-controlling interests, and
ii. owners of the parent.
Information to be presented in the profit or loss section of the Statement of Profit and Loss.In
addition to items required by other Ind AS, the profit or loss section of the statement of profit and
loss should include line items that present the following amounts for the period:

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a) revenue, presenting separately interest revenue calculated using the effective interest
method;
b) gains and losses arising from the derecognition of financial assets measured at amortised cost
c) finance costs;
d) impairment losses (including reversals of impairment losses or impairment gains) determined in
accordance with Section 5.5 of Ind AS 109
e) share of the profit or loss of associates and joint ventures accounted for using the equity
method;
f) if financial asset is reclassified out of the amortised cost measurement category so that it is
measured at fair value through profit or loss, any gain or loss arising from a difference
between the previous amortised cost of the financial asset and its fair value at the
reclassification date;
g) if a financial asset is reclassified out of the fair value through other comprehensive income
measurement category so that it is measured at fair value through profit or loss, any
cumulative gain or loss previously recognized in other comprehensive income that is
reclassified to profit or loss
h) tax expense;
i) a single amount for the total discontinued operations
Information to be presented in the Other Comprehensive Income section:

1. The other comprehensive income section should present line items for the amounts of other
comprehensive income classified by nature and grouped into those that, in accordance with
other Ind AS:
a) will not be reclassified subsequently to profit or loss; and
b) will be reclassified subsequently to profit or loss when specific conditions are met.
2. An entity shall present additional line items, headings and subtotals in the statement of profit
and loss, when such presentation is relevant to an understanding of the entity’s financial
performance.
3. When an entity presents subtotals, those subtotals shall:
a) be comprised of line items made up of amounts recognised and measured in accordance
with Ind AS;
b) be presented and labelled in a manner that makes the line items that constitute the sub
total clear and understandable;
c) be consistent from period to period; and
d) not be displayed with more prominence than the subtotals and totals required in Ind
AS for the statement of profit and loss.
4. An entity shall present the line items in the statement of profit and loss that reconcile any
sub totals presented with the subtotals or totals required in Ind AS for such statement.
5. An entity shall not present any items of income or expense as extraordinary items, in the
statement of profit and loss or in the notes.
Other comprehensive income for the period

1. With regard to other comprehensive income for the period, the Standard requires to disclose
the amount of income tax relating to each item of other comprehensive income, including
reclassification adjustments, either in the statement of profit and loss or in the notes.
2. An entity may present items of other comprehensive income either:
a) net of related tax effects, or

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b) before related tax effects with one amount shown for the aggregate amount of income
tax relating to those items.
3. The Standard further prescribes that an entity should disclose reclassification adjustments
relating to components of other comprehensive income.
4. Other Ind AS specify whether and when amounts previously recognised in other
comprehensive income are reclassified to profit or loss. Such reclassifications are referred to
in this Standard as reclassification adjustments.
5. A reclassification adjustment is included with the related component of other comprehensive
income in the period that the adjustment is reclassified to profit or loss.
Example 12
Gains realised on the disposal of financial assets are included in profit or loss of the current
period. These amounts may have been recognised in other comprehensive income as unrealised
gains in the current or previous periods. Those unrealised gains must be deducted from other
comprehensive income in the period in which the realised gains are reclassified to profit or loss
to avoid including them in total comprehensive income twice.
Information to be presented in the Statement of Profit and Loss or in the Notes

1. When items of income or expense are material, an entity shall disclose their nature and
amount separately.
2. Circumstances that would give rise to the separate disclosure of items of income and expense
include:
a) write-downs of inventories to net realisable value or of property, plant and equipment
to recoverable amount, as well as reversals of such write-downs;
b) restructurings of the activities of an entity and reversals of any provisions for the
costs of restructuring;
c) disposals of items of property, plant and equipment;
d) disposals of investments;
e) discontinued operations;
f) litigation settlements; and
g) other reversals of provisions.
3. An entity shall present an analysis of expenses recognised in profit or loss using a
classification based on the nature of expense method.
Revenue XXX
Other income XXX
Changes in inventories of finished goods and work in progress XXX
Raw materials and consumables used XXX
Employee benefits expense XXX
Depreciation and amortisation expense XXX
Other expenses XXX
Total expenses (XXX)
Profit before tax XXX
STATEMENT OF CHANGES IN EQUITY

An entity shall present a statement of changes in equity which includes all changes in equity. It

399
includes both - relating to performance and owner changes in equity (from transactions and events
that increase or decrease equity but are not part of performance). The statement of changes in
equity includes the following information:
a) total comprehensive income for the period, showing separately the total amounts attributable
to owners of the parent and to non-controlling interests;
b) for each component of equity, the effects of retrospective application or retrospective
restatement recognised in accordance with Ind AS 8;
c) for each component of equity, a reconciliation between the carrying amount at the beginning
and the end of the period, separately disclosing each change resulting from:
i. profit or loss;
ii. each item of other comprehensive income;
iii. transactions with owners in their capacity as owners, showing separately contributions
by and distributions to owners and changes in ownership interests in subsidiaries that
do not result in a loss of control; and
iv. any item recognised directly in equity such as amount recognised directly in equity as
capital reserve with Ind AS 103.
A. Information to be presented in the statement of changes in equity or in the notes.

1. An entity shall present, either in the statement of changes in equity or in the notes, an
analysis of other comprehensive income by item.
2. An entity shall present, either in the statement of changes in equity or in the notes, the
amount of dividends recognised as distributions to owners during the period, and the
related amount of dividends per share.
3. Ind AS 8 requires retrospective adjustments to effect changes in accounting policies, to
the extent practicable, except when the transition provisions in another Ind AS require
otherwise. Ind AS 8 also requires restatements to correct errors to be made
retrospectively, to the extent practicable. Retrospective adjustments and retrospective
restatements are not changes in equity but they are adjustments to the opening balance of
retained earnings, except when an Ind AS requires retrospective adjustment of another
component of equity.
4. Para 106(b) requires disclosure in the statement of changes in equity of the total
adjustment to each component of equity resulting from changes in accounting policies and,
separately, from corrections of errors. These adjustments are disclosed for each prior
period and the beginning of the period.
STATEMENT OF CASH FLOWS

a) Cash flow information provides users of financial statements with a basis to assess the ability
of the entity to generate cash and cash equivalents and the needs of the entity to utilise
those cash flows.
b) An entity should present a statement of cash flows in accordance with Ind AS 7, Statement
of Cash Flows.
NOTES
Structure
The notes shall:

400
a) present information about the basis of preparation of the financial statements and the
specific accounting policies used;
b) disclose the information required by Ind AS that is not presented elsewhere in the financial
statements; and
c) provide information that is not presented elsewhere in the financial statements but is
relevant to an understanding of any of them.
An entity shall present notes in a systematic manner. In determining a systematic manner, the entity
shall consider the effect on the understandability and comparability of its financial statements.
An entity shall cross-reference each item in the balance sheet, in the statement of changes in equity,
in the statement of profit and loss, and statement of cash flows to any related information in the
notes.
Examples of systematic ordering or grouping of the notes include:

a) giving prominence to the areas of its activities that the entity considers to be most relevant
to an understanding of its financial performance and financial position, such as grouping
together information about particular operating activities;
b) grouping together information about items measured similarly such as assets measured at fair
value; or
c) Notes may be in the following order:
i. statement of compliance with Ind AS;
ii. significant accounting policies applied;
iii. supporting information for items presented in the balance sheet and in the
statement of profit and loss, and in the statements of changes in equity and of cash
flows, in the order in which each statement and each line item is presented; and
iv. other disclosures, including:
 contingent liabilities (see Ind AS 37) and unrecognised contractual
commitments; and
 non-financial disclosures, eg the entity’s financial risk management
objectives and policies (see Ind AS 107).
An entity may present notes providing information about the basis of preparation of the financial
statements and specific accounting policies as a separate section of the financial statements.
Disclosure of Accounting Policies

An entity shall disclose its significant accounting policies comprising:
a) the measurement basis (or bases) used in preparing the financial statements, and
b) the other accounting policies used that are relevant to an understanding of the financial
statements.
An entity must disclose along with its significant accounting policies or other notes, the judgments,
apart from those involving estimations, that management has made in the process of applying the
entity’s accounting policies that have the most significant effect on the amounts recognised in the
financial statements.
Sources of estimation uncertainty

An entity must disclose, in the notes, information about the assumptions made concerning the future,
and other important sources of estimation uncertainty at the end of the reporting period, that have
a significant risk of resulting in a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. Disclosures about nature of such assets and their carrying

401
amount as at the end of the reporting period should also be made.
CAPITAL
An entity shall disclose information that enables users of its financial statements to evaluate the
entity ‘s objectives, policies and processes for managing capital.
Puttable financial instruments classified as Equity

For puttable financial instruments classified as equity instruments, an entity shall disclose (to the
extent not disclosed elsewhere):
a) summary quantitative data about the amount classified as equity;
b) its objectives, policies and processes for managing its obligation to repurchase or redeem the
instruments when required to do so by the instrument holders, including any changes from the
previous period;
c) the expected cash outflow on redemption or repurchase of that class of financial instruments;
and
d) information about how the expected cash outflow on redemption or repurchase was
determined.
Other Disclosure
An entity must disclose the amount of dividends proposed or declared before the financial
statements were approved for issue but not recognised as a distribution to owners during the period,
and the related amount per share and the amount of any cumulative preference dividends not
recognised.
Ind AS 1 requires certain other disclosures, if not disclosed elsewhere in information published with
the financial statements:
a) the domicile and legal form of the entity, its country of incorporation and the address of its
registered office (or principal place of business, if different from the registered office);
b) a description of the nature of the entity’s operations and its principal activities;
c) the name of the parent and the ultimate parent of the group; and
d) if it is a limited life entity, information regarding the length of its life.
CARVE OUT IN IND AS 1 FROM IAS 1
As per IFRS
IAS 1 requires that in case of a loan liability, if any condition of the loan agreement which was
classified as non -current is breached on or before the reporting date, such loan liability should be
classified as current, even if the breach is rectified after the balance sheet date.
Carve Out
Ind AS 1 clarifies that 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.
Reason
Under Indian banking system, a long-term loan agreement generally contains a large number of
conditions. Some of these conditions are substantive, such as, recalling the loan in case interest is

402
not paid, and some conditions are procedural and not substantive, such as, submission of insurance
details where the entity has taken the insurance but not submitted the details to the lender at the
end of the reporting period. Generally, customer-banker relationships are developed whereby in case
of any procedural breach, a loan is generally not recalled. Also, in many cases, a breach is rectified
after the balance sheet date and before the approval of financial statements. Carve out has been
made as it is felt that if the breach is rectified after the balance sheet date and before the
approval of the financial statements, it would be appropriate that the users are informed about the
true nature of liabilities being non-current liabilities and not current liability.

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Interim Financial Statements: IND AS 34
IND AS 34:
Interim Financial Statements
INTRODUCTION
Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS 34
does not mandate an entity as when to prepare such a report. Timely and reliable interim financial
reporting improves the ability of investors, creditors, and others to understand an entity’s capacity
to generate earnings and cash flows and its financial condition and liquidity. Permitting less
information to be reported than in annual financial statements (on the basis of providing an update to
those financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.
OBJECTIVE
The objective of this Standard is to prescribe:
a) The minimum content of an interim financial report
b) The principles for recognition and measurement in complete or condensed financial statements
for an interim period.
SCOPE
1. This Standard does not mandate which entities should be required to publish interim financial
reports, how frequently, or how soon after the end of an interim period.
2. This Standard applies if an entity is required or elects to publish an interim financial report in
accordance with Indian Accounting Standards (Ind AS).
3. Each financial report, annual or interim, is evaluated on its own for conformity to Ind AS. The
fact that an entity may not have provided interim financial reports during a particular
financial year or may have provided interim financial reports that do not comply with this
Standard does not prevent the entity's annual financial statements from conforming to Ind
AS if they otherwise do so.
4. If an entity's interim financial report is described as complying with Ind AS, it must comply
with all of the requirements of this Standard.
DEFINITION
1. Interim Period is a financial reporting period shorter than a full financial year.
2. Interim Financial Report means a financial report containing either a complete set of financial
statements (as described in Ind AS 1, Presentation of Financial Statements), or a set of
condensed financial statements (as described in this Standard) for an interim period.
CONTENTS OF AN INTERIM FINANCIAL REPORT

An Interim Financial Report shall include, at minimum, the following:
a) A condensed balance sheet
b) A condensed statement of profit and loss
c) A condensed statement of changes in equity
d) A condensed statement of cash flows
e) Notes, comprising significant accounting policies and other explanatory information

404
 In the interest of timeliness and cost considerations and to avoid repetition of information
previously reported, an entity may be required to or may elect to provide less information
at interim dates as compared with its annual financial statements.
 The interim financial report focuses on new activities, events, and circumstances and does
not duplicate information previously reported.
 Nothing in this Standard is intended to prohibit or discourage an entity from publishing a

complete set of financial statements (as described in Ind AS 1) in its interim financial
report, rather than condensed financial statements and selected explanatory notes. Nor
does this Standard prohibit or discourage an entity from including in condensed interim
financial statements more than the minimum line items or selected explanatory notes asset
out in this Standard.
FORM AND CONTENT OF INTERIM FINANCIAL REPORT
SIGNIFICANT EVENTS & TRANSACTIONS:

a) An entity shall include in its interim financial report an explanation of events and transactions
that are significant to an understanding of the changes in financial position and performance
of the entity since the end of the last annual reporting period.
b) Information disclosed in relation to those events and transactions shall update the relevant
information presented in the most recent annual financial report.
c) A user of an entity’s interim financial report will have access to the most recent annual
financial report of that entity. Therefore, it is unnecessary for the notes to an interim
financial report to provide relatively insignificant updates to the information that was
reported in the notes in the most recent annual financial report
The following is a list of events and transactions for which disclosures would be required if they
are significant: the list is not exhaustive.
i. the write-down of inventories to net realisable value and the reversal of such write -
down;
ii. recognition of a loss from the impairment of financial assets, property, plant and
equipment, intangible assets, assets arising from contracts with customers, or other
assets, and the reversal of such an impairment loss;
iii. the reversal of any provisions for the costs of restructuring
iv. acquisitions and disposals of items of property, plant and equipment;
v. commitments for the purchase of property, plant and equipment;
vi. litigation settlements;
vii. corrections of prior period errors;
viii. changes in the business or economic circumstances that affect the fair value of the
entity’s financial assets and financial liabilities, whether those assets or liabilities are
recognised at fair value or amortised cost;
ix. any loan default or breach of a loan agreement that has not been remedied on or
before the end of the reporting period;
x. related party transactions;
xi. transfers between levels of the fair value hierarchy used in measuring the fair value of

405
financial instruments;
xii. changes in the classification of financial assets as a result of a change in the purpose
or use of those assets; and
xiii. changes in contingent liabilities or contingent assets.
d) Individual Ind AS provide guidance regarding disclosure requirements for many of the items
listed above. When an event or transaction is significant to an understanding of the changes in
an entity’s financial position or performance since the last annual reporting period, its interim
financial report should provide an explanation of and an update to the relevant information
included in the financial statements of the last annual reporting period.
SIGNIFICANT EVENTS & TRANSACTIONS
Included in Interim Report Does not included in Interim Report
Avoid relatively insignificant updates

An explanation of events and
to the information that was reported
transactions that are significant to
in the notes in the most recent
an understanding of the changes in
Annual Financial Report because the
financial position and performance of
user will have access to the most
the entity since the end of the last
recent Annual Financial Report
Annual Reporting Period.
carrying such information
Information disclosed in relation to

those events and transactions shall
update the relevant information
presented in the most recent Annual
Financial Report
OTHER DISCLOSURES:
The information shall normally be reported on a financial year-to-date basis. In addition to disclosing
significant events and transactions, an entity shall include the following information, in the notes to
its interim financial statements. The following disclosures shall be given either in the interim
financial statements or incorporated by cross-reference from the interim financial statements to
some other statement (such as management commentary or risk report) that is available to users of
the financial statements on the same terms as the interim financial statements and at the same time.
If users of the financial statements do not have access to the information incorporated by cross-
reference on the same terms and at the same time, the interim financial report is incomplete:
a) a statement that the same accounting policies and methods of computation are followed in the
interim financial statements. If those recently used policies or methods have been changed, a
description of the nature and effect of the change should also be given

406
b) explanatory comments about the seasonality or cyclicality of interim operations.

c) the nature and number of items affecting assets, liabilities, equity, net income or cashflows
that are unusual because of their nature, size or incidence.
d) the nature and amount of changes in estimates of amounts reported in prior interim periods of
the current financial year or changes in estimates of amounts reported in prior financial year
e) issues, repurchases and repayments of debt and equity securities.
f) dividends paid (aggregate or per share) separately for ordinary shares and other shares.
g) the following segment information (disclosure of segment information is required in an entity’s
interim financial report only if Ind AS 108, Operating Segments, requires that entity to
disclose segment information in its annual financial statements):
i. revenues from external customers, if included in the measure of segment profit or loss
reviewed by the chief operating decision maker or otherwise regularly provided to the
chief operating decision maker.
ii. inter segment revenues, if included in the measure of segment profit or loss reviewed
by the chief operating decision maker or otherwise regularly provided to the chief
operating decision maker.
iii. a measure of segment profit or loss.
iv. a measure of total assets and liabilities for a particular reportable segment if such
amounts are regularly provided to the chief operating decision maker and if there has
been a material change from the amount disclosed in the last annual financial
statements for that reportable segment.
v. a description of differences from the last annual financial statements in the basis of
segmentation or in the basis of measurement of segment profit or loss.
vi. a reconciliation of the total of the reportable segments’ measures of profit or loss to
the entity’s profit or loss before tax expense (tax income) and discontinued operations.
However, if an entity allocates to reportable segments items such as tax expense (tax
income), the entity may reconcile the total of the segments’ measures of profit or loss
to profit or loss after those items. Material reconciling items shall be separately
identified and described in that reconciliation.
h) events after the interim period that have not been reflected in the financial statements for
the interim period.
i) the effect of changes in the composition of the entity during the interim period, including
business combinations, obtaining or losing control of subsidiaries and long-term investments,
restructurings, and discontinued operations. In the case of business combinations, the entity
shall disclose the information required by Ind AS 103, Business Combinations.
j) for financial instruments, the disclosures about fair value of Ind AS 113, Fair Value
Measurement, and Ind AS 107, Financial Instruments: Disclosures.
k) for entities becoming, or ceasing to be, investment entities, as defined in Ind AS 110,
Consolidated Financial Statements, the disclosures in Ind AS 112, Disclosure of Interests in
Other Entities.
l) the disaggregation of revenue from contracts with customers required by Ind AS 115,
Revenue from Contracts with Customers

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PERIODS FOR WHICH INTERIM FINANCIAL STATEMENTS ARE REQUIRED TO BE PRESENTED

Interim reports shall include interim financial statements (condensed or complete) for periods as
follows:
a) balance sheet as of the end of the current interim period and a comparative balance sheet as
of the end of the immediately preceding financial year.
b) statements of profit and loss for the current interim period and cumulatively for the current
financial year to date, with comparative statements of profit and loss for the comparable
interim periods (current and year-to-date) of the immediately preceding financial year
c) statement of changes in equity cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year.
d) statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately preceding
financial year.
For an entity whose business is highly seasonal, financial information for the twelve months up to the
end of the interim period and comparative information for the prior twelve-month period may be
useful.

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Note: For an entity whose business is highly seasonal, financial information for the 12 months up to
the end of the interim period and comparative information for the prior 12-month period may be
useful.
Following is the illustrative example to understand the periods for which interim financial statements
are required to be presented:
Scenario (a) Entity publishes interim financial reports half-yearly
The entity's financial year ends 31 March (Financial year). The entity will present the following
(condensed or complete) in its half-yearly interim financial report as of30 September 20X2:
Name of Component Current Period Comparative Period
Balance Sheet as at 30 September, 20x2 31st March, 20x2
th
Statement of P&L : 6 months ending 30th September, 20x2 30th September, 20x1
Statement of Cash Flows: 6 months ending 30th September, 20x2 30th September, 20x1
Statement of Changes in Equity: 6 m ending 30th September, 20x2 30th September, 20x1
Scenario (b) Entity publishes interim financial reports quarterly

The entity's financial year ends 31 March (Financial year). The entity will present the following
financial statements (condensed or complete) in its Qtr Interim Report as on 30.09.20x2
Name of Component Current Period Comparative Period
Balance Sheet as at 30 September, 20x2 31st March, 20x2
th
Statement of P&L :
 6 months ending 30th September, 20x2 30th September, 20x1
 3 months ending 30th September, 20x2 30th September, 20x1
Statement of Cash Flows: 6 months ending 30th September, 20x2 30th September, 20x1
Statement of Changes in Equity: 6 m ending 30th September, 20x2 30th September, 20x1

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MATERIALITY
a) In deciding how to recognise, measure, classify, or disclose an item for interim financial
reporting purposes, materiality shall be assessed in relation to the interim period financial
data.
b) In making assessments of materiality, it shall be recognised that interim measurements may
rely on estimates to a greater extent than measurements of annual financial data.
c) While judgement is always required in assessing materiality, this Standard bases the
recognition and disclosure decision on data for the interim period by itself for reasons of
understandability of the interim figures
d) Unusual items, changes in accounting policies or estimates, and errors are recognised and
disclosed on the basis of materiality in relation to interim period data to avoid misleading
inferences that might result from non-disclosure
DISCLOSURE IN ANNUAL FINANCIAL STATEMENTS

a) If an estimate of an amount reported in an interim period is changed significantly during the
final interim period of the financial year but a separate financial report is not published for
that final interim period, the nature and amount of that change in estimate shall be disclosed
in a note to the annual financial statements for that financial year.
b) Ind AS 8 requires disclosure of the nature and (if practicable) the amount of a change in
estimate that either has a material effect in the current period or is expected to have a
material effect in subsequent periods.
c) An entity is not required to include additional interim period financial information in its annual
RECOGNITION AND MEASUREMENT
S NO Criteria Recognition & Measurement

1 Same accounting 1. An entity shall apply the same accounting policies in its
policies as annual interim financial statements as are applied in its annual
financial statements, except for accounting policy changes
made after the date of the most recent annual financial
statements that are to be reflected in the next annual
2. The frequency of an entity’s reporting (annual, half-yearly,

or quarterly) shall not affect the measurement of its annual
results. To achieve that objective, measurements for interim
reporting purposes shall be made on a year-to-date basis.
3. Year-to-date measurements may involve changes in
estimates of amounts reported in prior interim periods of the
current financial year. But the principles for recognising
assets, liabilities, income, and expenses for interim periods
are the same as in annual financial statements.
2 Revenues received 1. Revenues that are received seasonally, cyclically, or
cyclically, Occasionally occasionally within a financial year shall not be anticipated or
or seasonally deferred as of an interim date if anticipation or deferral
would not be appropriate at the end of the entity’s
financial year.

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(Example: Dividend revenue, royalties, and government grants)
2. Certain entities earn more revenue in certain interim

periods of a financial year than other interim periods. Such
revenues are recognised when they occur.
(Example: seasonal revenues of retail)
3 Costs incurred Costs that are incurred unevenly during an entity’s financial
unevenly during the year shall be anticipated or deferred for interim reporting
financial year purposes if, and only if, it is also appropriate to anticipate or
defer that type of cost at the end of the financial
year.
Employer Payroll Taxes and Insurance Contributions

If employer payroll taxes or contributions to government-sponsored insurance funds are assessed on
an annual basis, the employer’s related expense is recognised in interim periods using an estimated
average annual effective payroll tax or contribution rate, even though a large portion of the
payments may be made early in the financial year. A common example is an employer payroll tax or
insurance contribution that is imposed up to a certain maximum level of earnings per employee. For
higher income employees, the maximum income is reached before the end of the financial year, and
the employer makes no further payments through the end of the year.
Major Planned Periodic Maintenance or Overhaul

The cost of a planned major periodic maintenance or overhaul or other seasonal expenditure that is
expected to occur late in the year is not anticipated for interim reporting purposes unless an event
has caused the entity to have a legal or constructive obligation. The mere intention or necessity to
incur expenditure related to the future is not sufficient to give rise to an obligation.
Provisions
A provision is recognised when an entity has no realistic alternative but to make a transfer of
economic benefits as a result of an event that has created a legal or constructive obligation. The
amount of the obligation is adjusted upward or downward, with a corresponding loss or gain
recognised in profit or loss, if the entity’s best estimate of the amount of the obligation changes.
This Standard requires that an entity apply the same criteria for recognising and measuring a
provision at an interim date as it would at the end of its financial year. The existence or non-
existence of an obligation to transfer benefits is not a function of the length of the reporting
period. It is a question of fact.
Year-End Bonuses
The nature of year-end bonuses varies widely. Some are earned simply by continued employment
during a time period. Some bonuses are earned based on a monthly, quarterly, or annual measure of
operating result. They may be purely discretionary, contractual, or based on years of historical
precedent.
A bonus is anticipated for interim reporting purposes if, and only if, (a) the bonus is a legal obligation
or past practice would make the bonus a constructive obligation for which the entity has no realistic
alternative but to make the payments, and (b) a reliable estimate of the obligation can be made. Ind
AS 19, Employee Benefits provides guidance.
Variable Lease Payments

Contingent lease payments can be an example of a legal or constructive obligation that is recognised

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as a liability. If a lease provides for contingent payments based on the lessee achieving a certain level
of annual sales, an obligation can arise in the interim periods of the financial year before the
required annual level of sales has been achieved, if that required level of sales is expected to be
achieved and the entity, therefore, has no realistic alternative but to make the future lease payment.
Intangible Assets
An entity will apply the definition and recognition criteria for an intangible asset in the same way in
an interim period as in an annual period. Costs incurred before the recognition criteria for an
intangible asset are met, are recognised as an expense. Costs incurred after the specific point in
time at which the criteria are met are recognised as part of the cost of an intangible asset.
‘Deferring’ costs as assets in an interim balance sheet in the hope that the recognition criteria will be
met later in the financial year is not justified.
Vacations, Holidays, and Other Short-Term Compensated Absences

Accumulating compensated absences are those that are carried forward and can be used in future
periods if the current period’s entitlement is not used in full. Ind AS 19, Employee Benefits requires
that an entity measure the expected cost of and obligation for accumulating compensated absences
at the amount the entity expects to pay as a result of the unused entitlement that has accumulated
at the end of the reporting period. That principle is also applied at the end of interim financial
reporting periods. Conversely, an entity recognises no expense or liability for non- accumulating
compensated absences at the end of an interim reporting period, just as it recognises none at the end
of an annual reporting period.
Other Planned But Irregularly Occurring Costs

An entity’s budget may include certain costs expected to be incurred irregularly during the financial
year, such as charitable contributions and employee training costs. Those costs generally are
discretionary even though they are planned and tend to recur from year to year. Recognising an
obligation at the end of an interim financial reporting period for such costs that have not yet been
incurred generally is not consistent with the definition of a liability.
Measuring Interim Income Tax Expense

Interim period income tax expense is accrued using the tax rate that would be applicable to expected
total annual earnings, that is, the estimated average annual effective income tax rate applied to the
pre-tax income of the interim period.
This is consistent with the basic concept set out in the Standard that the same accounting
recognition and measurement principles shall be applied in an interim financial report as are applied in
annual financial statements. Income taxes are assessed on an annual basis. Interim period income tax
expense is calculated by applying to an interim period’s pre-tax income the tax rate that would be
applicable to expected total annual earnings, that is, the estimated average annual effective income
tax rate. That estimated average annual rate would reflect a blend of the progressive tax rate
structure expected to be applicable to the full year’s earnings including enacted or substantively
enacted changes in the income tax rates scheduled to take effect later in the financial year. Ind AS
12, Income Taxes provides guidance on substantively enacted changes in tax rates. The estimated
average annual income tax rate would be re- estimated on a year-to- date basis, consistent with
paragraph 28 of this Standard. The Standard requires disclosure of a significant change in estimate.
To the extent practicable, a separate estimated average annual effective income tax rate is
determined for each taxing jurisdiction and applied individually to the interim period pre -tax income
of each jurisdiction. Similarly, if different income tax rates apply to different categories

412
of income (such as capital gains or income earned in particular industries), to the extent
practicable a separate rate is applied to each individual category of interim period pre-tax income.
While that degree of precision is desirable, it may not be achievable in all cases, and a weighted
average of rates across jurisdictions or across categories of income is used if it is a reasonable
approximation of the effect of using more specific rates.
Contractual or Anticipated Purchase Price Changes

Volume rebates or discounts and other contractual changes in the prices of raw materials, labour, or
other purchased goods and services are anticipated in interim periods, by both the payer and the
recipient, if it is probable that they have been earned or will take effect. Thus, contractual rebates
and discounts are anticipated but discretionary rebates and discounts are not anticipated because
the resulting asset or liability would not satisfy the conditions in the Framework that an asset must
be a resource controlled by the entity as a result of a past event and that a liability must be a
present obligation whose settlement is expected to result in an outflow of resources.
Depreciation and Amortisation

Depreciation and amortisation for an interim period is based only on assets owned during that interim
period. It does not take into account asset acquisitions or dispositions planned for later in the
financial year.
Inventories
Inventories are measured for interim financial reporting by the same principles as at financial year-
end. Ind AS 2, Inventories establishes standards for recognising and measuring inventories.
Inventories pose particular problems at the end of any financial reporting period because of the need
to determine inventory quantities, costs, and net realisable values. Nonetheless, the same
measurement principles are applied for interim inventories. To save cost and time, entities often use
estimates to measure inventories at interim dates to a greater extent than at the end of annual
reporting periods.
Following are examples of how to apply the net realisable value test at an interim date and how to
treat manufacturing variances at interim dates:
1. Net realisable value of inventories

The net realisable value of inventories is determined by reference to selling prices and
related costs to complete and dispose at interim dates. An entity will reverse a write-down to
net realisable value in a subsequent interim period only if it would be appropriate to do so at
the end of the financial year.
2. Interim period manufacturing cost variances

Price, efficiency, spending, and volume variances of a manufacturing entity are recognised in
the statement of profit and loss at interim reporting dates to the same extent that those
variances are recognised in the statement of profit and loss at financial year-end. Deferral of
variances that are expected to be absorbed by year-end is not appropriate because it could
result in reporting inventory at the interim date at more or less than its portion of the actual
cost of manufacture.
3. Foreign currency translation gains and losses

Foreign currency translation gains and losses are measured for interim financial reporting by
the same principles as at financial year-end.

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Ind AS 21, The Effects of Changes in Foreign Exchange Rates specifies how to translate the
financial statements for foreign operations into the presentation currency, including
guidelines for using average or closing foreign exchange rates and guidelines for recognising
the resulting adjustments in profit or loss or in other comprehensive income. Consistently with
Ind AS 21, the actual average and closing rates for the interim period are used. Entities do
not anticipate some future changes in foreign exchange rates in the remainder of the current
financial year in translating foreign operations at an interim date.
If Ind AS 21 requires translation adjustments to be recognised as income or expense in the

period in which they arise, that principle is applied during each interim period. Entities do not
defer some foreign currency translation adjustments at an interim date if the adjustment is
expected to reverse before the end of the financial year:
Use of 1. To ensure that the resulting information is reliable and that all
Estimates material financial information that is relevant to an understanding of
the financial position or performance of the entity is appropriately
disclose.
2. The preparation of interim financial reports requires a greater use

of estimation methods than annual financial reports.
Inventories
Full stock-taking and valuation procedures may not be required for inventories at interim dates,
although it may be done at financial year-end. It may be sufficient to make estimates at interim
dates based on sales margins.
Provisions
Determination of an appropriate amount of a provision (such as a provision for warranties,
environmental costs, and site restoration costs) may be complex and often costly and time -
consuming. Entities sometimes engage outside experts to assist in the annual calculations. Making
similar estimates at interim dates often entails updating of the prior annual provision rather than the
engaging of outside experts to do a new calculation.
Pensions
Ind AS 19, Employee Benefits requires that an entity determine the present value of defined benefit
obligations and the market value of plan assets at the end of each reporting period and encourages an
entity to involve a professionally qualified actuary in measurement of the obligations. For interim
reporting purposes, reliable measurement is often obtainable by extrapolation of the latest actuarial
valuation.
Contingencies
The measurement of contingencies may involve the opinions of legal experts or other advise. Formal
reports from independent experts are sometimes obtained with respect to contingencies. Such
opinions about litigation, claims, assessments, and other contingencies and uncertainties may or may
not also be needed at interim dates.
Inter-company reconciliations
Some inter-company balances that are reconciled on a detailed level in preparing consolidated
financial statements at financial year-end might be reconciled at a less detailed level in preparing

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RESTATEMENT OF PREVIOUSLY REPORTED INTERIM PERIODS

A change in accounting policy, other than one for which the transition is specified by a new Ind AS,
shall be reflected by:
a) Restating the financial statements of prior interim periods of the current financial year and
the comparable interim periods of any prior financial years that will be restated in the annual
financial statements in accordance with Ind AS 8; or
b) When it is impracticable to determine the cumulative effect at the beginning of the financial
year of applying a new accounting policy to all prior periods, adjusting the financial statements
of prior interim periods of the current financial year, and comparable interim periods of prior
financial years to apply the new accounting policy prospectively from the earliest date
practicable.
Under Ind AS 8, a change in accounting policy is reflected by retrospective application, with

restatement of prior period financial data as far back as is practicable. However, if the cumulative
amount of the adjustment relating to prior financial years is impracticable to determine, then under
Ind AS 8 the new policy is applied prospectively from the earliest date practicable.
The effect of this along with respect to interim periods shall be that within the current financial
year any change in accounting policy is applied either retrospectively or, if that is not practicable,
prospectively, from no later than the beginning of the financial year.
INTERIM FINANCIAL REPORTING AND IMPAIRMENT

An entity is required to assess goodwill for impairment at the end of each reporting period, and, if
required, to recognise an impairment loss at that date in accordance with Ind AS 36. However, at the
end of a subsequent reporting period, conditions may have so changed that the impairment loss would
have been reduced or avoided had the impairment assessment been made only at that date.
Accordingly, an entity shall not reverse an impairment loss recognised in a previous interim period in
respect of goodwill.

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Accouting Policies, Changes in Accounting Estimates and Errors: IND AS 8
IND AS 8:
Accouting Policies, Changes in Accounting
Estimates and Errors
ACCOUNTING POLICIES:
Accounting policies are the specific principles, bases, conventions, rules and practices applied by an
entity in preparing and presenting financial statements.
1. Principles: Prepare financial statements applying all IND AS/Provision for gratuity.
2. Bases: FIFO/Weighted average, Cost model/Revaluation model
3. Conventions: Constructive obligation to pay bonus
4. Rules: Goodwill once impaired cannot be reversed
5. Practices: Improvement, Past experience
Example of accounting policies

 Inventory: FIFO/Weighted average (LIFO not allowed)
 PPE/Intangibles: Cost model/Revaluation model(Same model within same class)
 Investment Property: Cost model (Revaluation model not allowed)
 Cash Flow Statement: Direct method/Indirect method
 Investment in Subsidiary/Associate/Joint Venture: Cost or IND AS 109
As per IND AS 8, if any of the IND AS already specifies the guidelines about following a particular
policy then entity must follow such guidelines specified by IND AS.
An entity can also refer to guidance notes which are published by ICAI, along with the relevant IND
AS, if there is an ambiguity or there is need to go into the depth of a particular transaction.
If every entity follows a different base or a different rule or a different convention, then it will be
impossible to compare the financial statements across entities having similar nature of business.
IS IT COMPULSORY TO APPLY ACCOUNTING POLICIES?

IND AS set out accounting policies that result in financial statements containing relevant and
reliable information about the transactions, other events and conditions to which they apply.
Selection and Application of Accounting Policies when specific Ind AS is not available on the
particular Transaction/ Condition/Event:
In such cases, management shall use its judgement in developing and applying an accounting policy
that results in information that is:
1. Relevant to the economic decision-making needs of users; and
2. Reliable that the financial statements:
a) Represent faithfully the financial position, financial performance and cash flows of the
entity;
b) Substance over legal form;
c) Neutral, i.e., free from bias;
d) Prudent; and
e) Complete in all material respects.
In making the judgement, management shall refer to, and consider the applicability of following
sources:
1. Check if there are any other IND AS available which are dealing with similar and related
issues
2. Check the basic Framework of IND AS, which provides the general principles

416
3. Check the pronouncements of International Accounting Standard Board

4. Check the pronouncements of other standard setting bodies having a similar conceptual
framework
5. Check the accounting literature and accepted industry practices.
CONSISTENCY OF ACCOUNTING POLICIES:

An entity shall select and apply its accounting policies consistently for similar transactions, other
events and conditions.
CHANGE IN ACCOUNTING POLICIES:

A change is permitted if: -
1. Is required by an IND AS; or
2. Results in the financial statements providing reliable and more relevant information
(A change in accounting policy just because your competitor used such policy or to inflate
profits is not permitted).
NOTE:
Users of financial statements should be able to compare the financial statements of an entity over
time to identify trends in its balance sheet, profit and loss and cash flows. Therefore, the same
accounting policies are applied within each period and from one period to the next unless a change in
accounting policy meets one of the above criteria.
Frequent changes in accounting policies are not permitted by IND AS 8.
Example: 1 Change in Accounting Policy(Method of Valuation of Inventory)

Trading A/c(FIFO) Trading A/c(Weighted Average)
Opening Stock 5,000 Opening Stock 5,000
GP 1,000 Closing Stock 6,000 GP 1,500 Closing Stock 6,500
Following are NOT a change in accounting policies:

1. The application of an accounting policy for transactions, other events or conditions that
DIFFER IN SUBSTANCE from those previously occurring;
Example: 2
A company owns several hotels and provides significant ancillary services to occupants of
rooms. These hotels are, therefore, treated as owner-occupied properties and classified as
property, plant and equipment in accordance with IND AS 16. The company acquires a new
hotel but outsources entire management of the same to an outside agency and remains as a
passive investor. The selection and application of an accounting policy for this new hotel in
line with IND AS 40 is not a change in accounting policy simply because the new hotel rooms
are also let out for rent. This is because the way in which the new hotel is managed differs
in substance from the way other existing hotels have been managed so far.
2. the application of a new accounting policy for transactions, other events or conditions that
DID NOT OCCUR PREVIOUSLY or WERE IMMATERIAL.
Example: 3
An entity has classified as investment property, an owner-occupied property previously
classified as part of property, plant and equipment where it was measured after initial

417
recognition applying the revaluation model. IND AS 40 on investment property permits only
cost model. The entity now measures this investment property using the cost model. This is
not a change in accounting policy.
HOW TO APPLY THE CHANGES IN ACCOUNTING POLICIES?

IND AS 8 deals with two situations:
1. If a change in accounting policy is due to a new IND AS, then the standard itself provides the
transitional provisions (retrospective or prospective or modified retrospective). In such cases,
the entity needs to follow the TRANSITIONAL PROVISIONS accordingly.
2. If the change in accounting policy is made voluntarily or where the IND AS is not containing
transitional provisions, then the accounting policy needs to be applied RETROSPECTIVELY.
CHANGE IN ACCOUNTING POLICY
AS PER STANDARD VOLUNTARY
GUIDANCE GIVEN (IND

NO GUIDANCE
AS 116)
GENERALLY, NO
FOLLOW SUCH RETROSPECTIVE GUIDANCE
GUIDANCE ADJUSTMENT
RETROSPECTIVE APPLICATION:
When a change in accounting policy is applied retrospectively, the entity shall adjust the opening
balance of each affected component of equity for the earliest PRIOR PERIOD presented and the
other comparative amounts disclosed for each prior period presented as if the new accounting policy
had always been applied (UNLESS IMPRACTICABLE).
If it is impracticable for an entity to change the policy from day 1, it can apply the changed policy
from the earliest period for which it would be practicable to make the changes in policies
retrospectively which may be the current period.
LIMITATION OF RETROSPECTIVE APPLICATION:

There can be practical difficulties in making the retrospective changes. To prevent frequent change
in accounting policy, the standard allows such change in accounting policy with retrospective effect.
The intention of the standard is that as far as possible company should follow same accounting policy
consistently to ensure relevance and reliability of financial statements.
There are some advantages of change in accounting policy:
1. Companies will not make the frequent changes in their accounting policies just to do the
window dressing of their financial statements.
2. The comparison of financial statements over time and with other entities will be possible, in a
reliable way.
CHANGE IN ACCOUNTING ESTIMATES:

There are many uncertainties in business activities, therefore many items in financial statements can

418
only be estimated.
Estimation involves judgement based on the latest and reliable information.
Estimation may be required of:
1. Bad debts (expected creditors as per impairment of financial asset)
2. Fair value of financial assets or financial liabilities
3. Useful lives of, or expected pattern of consumption in depreciable assets
4. Warranty obligations.
5. Inventory obsolescence (NRV)
Note The use of reasonable estimate is an essential part of the preparation of financial statements.
CAN CHANGE IN ACCOUNTING ESTIMATES RELATED TO PRIOR PERIOD?

An estimate may need revision as a result of new information or more experience.
By its nature, the REVISION of an estimate does not relate to prior periods and is not the
correction of an error.
CHANGE IN BASIS OF MEASUREMENT:

A change in the measurement basis is a change in an accounting policy, and not a change in an
accounting estimate (e.g., Inventory Cost formula). When it is difficult to distinguish, always treat as
a change in an accounting estimate.
ACCOUNTING FOR CHANGE IN ACCOUNTING ESTIMATES:

The effect of change in an accounting estimate, shall be recognised PROSPECTIVELY in profit or loss
in:
PERIOD OF CHANGE – If change affects that period only
PERIOD OF CHANGE AND FUTURE PERIODS- If change affects the both
To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities,
or equity - it shall be recognised by adjusting the same in the period of change (PROSPECTIVELY).
Disclosure of Change in Estimates:

The entity should disclose:
i. Effect of change in estimate on the current period
ii. If applicable and practicable, effect of change in estimate on the future periods
iii. If applicable but impracticable, the fact that it is impracticable to estimate the effect on
future periods.
ERRORS (PRIOR PERIOD ERRORS):

IND AS 8 deals with the treatment of errors that have taken place in past, but were not discovered
at that time. Subsequently, when they are discovered, it is necessary to correct such errors in the
financial statements and make sure that the financial statements present relevant and reliable
information in the period in which they are discovered.
As per the definition given in IND AS 8, Prior period errors are omissions from, and misstatements
in, the entity’s financial statements for one or more prior periods arising from a failure to use, or
misuse of, reliable information that:
(a) was available when financial statements for those periods were approved for issue; and
(b) could reasonably be expected to have been obtained and taken into account in the preparation
and presentation of those financial statements. Such errors include the effects of mathematical

419
mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and

fraud. Errors can arise in respect of the recognition, measurement, presentation or disclosure of
elements of financial statements.
Financial statements do not comply with IND AS if they contain either material errors or immaterial
errors made intentionally to achieve a particular presentation of an entity’s financial position,
financial performance or cash flows.
COMMON TYPES OF ERRORS:
1. Mathematical Mistakes:
In accounting terms, generally the errors are called as error of commission. Wrong
calculations, carry forward of wrong balances and errors in totals are few examples of
mathematical errors.
2. Mistakes in applying policies:

Specific standards may prescribe method of applying specific policies for particular nature of
transaction.
For example, as a general rule, assets and liabilities and income and expenses should not be
offset, unless otherwise specifically required or permitted in an IND AS. If a receivable from
another entity and payable to that entity are offset without any currently existing legally
enforceable right to set off the recognised amounts, then, it will be an error while applying
the policies, since it is against the principles of offset prescribed in IND AS 32, ‘Financial
Instruments: Presentation’
3. Misinterpretations of facts:
IND AS 10 deals with treatment of the events after the reporting period. Whether the event
is an adjusting event or a non-adjusting event depends on whether that event provides
evidence of a condition existing at the end of the reporting period. Sometimes, this requires
judgement of the management and may result into misinterpretation of facts, if not dealt with
properly.
4. Omissions:
The mistakes that happened due to omission to record a material transaction, perhaps, due to
oversight
5. Frauds:
Major theft undetected in the past.
TREATMENT OF ERRORS
1. Potential Errors of Current Period: Potential current period errors discovered in that period
are corrected before the financial statements are approved for issue.
2. Prior period errors discovered subsequently: Material errors are sometimes not discovered
until a subsequent period, and these prior period errors are corrected in the comparative
information presented in the financial statements for that subsequent period.
Situation 1: Error discovered relates to the comparative prior period presented

Unless impracticable, an entity shall correct material prior period errors retrospectively in

420
the first set of financial statements approved for issue after their discovery by restating the
comparative amounts for the prior period(s) presented in which the error occurred.
Example: 4
While preparing the financial statement for the financial year 20X2-20X3, the prior period
presented would be financial year 20X1-20X2, if one year comparative period is presented.
If the error occurred in the year 20X1-20X2 but discovered in year 20X2-20X3, then it
should be corrected in the financial statements for the year 20X2-20X3 by restating the
comparative amounts for the year 20X1-20X2. This will result in consequential restatement
of opening balances for the year 20X2-20X3.
Situation 2: Error discovered relates to period before the earliest comparative prior
period presented
If the material error occurred before the earliest prior period presented, an entity shall,
unless impracticable, correct the same retrospectively in the first set of financial statements
approved for issue after their discovery by restating the opening balances of assets, liabilities
and equity for the earliest prior period presented.
Example: 5
An entity presents one year comparative period in its financial statements. While preparing
the financial statements for the financial year 20X4-20X5, if an error has been discovered
which occurred in the year 20X1-20X2, i.e., for the period which was earlier than earliest
prior period presented (which is 20X3-20X4 in this example), then, the, error should be
corrected by restating the opening balances of relevant assets and/or liabilities and
relevant component of equity for the year 20X3-20X4. This will result in consequential
restatement of balances as at April 1, 20X3 (i.e., the third balance sheet). A material error
in depreciation provision of the preceding year ended 31st March, 20X2 was discovered
when preparing the financial statements for the year ended 31st March, 20X3. The amount
recognised in statement of profit and loss for the year ended 31st March, 20X2 was ₹ 1,
00,000 instead of ₹ 50,000. In this case, when presenting the financial statements for the
year ended 31st March, 20X3, depreciation for the comparative year 20X1-20X2 will be
restated at ₹ 50,000. The carrying amount i.e., net book value of property, plant and
equipment for the comparative year ending 31st March, 20X2 will be increased by ₹ 50,000
(due to restatement of accumulated depreciation). This will result in consequential
restatement of opening balance of retained earnings and property, plant and equipment for
the year 20X2-20X3.
Continuing with the aforesaid example, assume that the error relates to year ended 31st
March, 20X1 and 20X0-20X1 is not the earliest period for which comparative information
is presented. In this case, the error will be corrected by restating the opening balances of
retained earnings and carrying amount i.e., net book value, of property, plant and equipment,
for the year 20X1-20X2. This will result in restatement of balances as at April 1, 20X1.

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Events after the Reporting Period: IND AS 10
IND AS 10:
Events after the Reporting Period
INTRODUCTION
It is impossible for any company to present the information on the same day, as the day of reporting.
There would always be a gap between the end of the period for which financial statements are
presented and the date on which the same will actually be made available to the public.
During this gap, there is a possibility of occurring of few events which will have far reaching effects
on the business / existence of the company. Now the question arises: what view the company should
take about such events? Should it leave it without any cognizance as they are taking place after the
reporting period, or should it take cognizance of such events as at the time of preparation of the
financial statement and making it available to the public? If the company is aware of the facts and is
still not disclosing the same, it may mislead the users.
Ind AS 10 deals with such events and provides guidance about its treatment in the financial
Statements
OBJECTIVE
The objective of this standard is to prescribe:
a) When an entity should adjust its financial statements for the events after the reporting
period.
b) The disclosures that an entity should give about the date when the financial statements were
approved for issue and about events after the reporting period.
The standard also requires that an entity should not prepare its financial statements on a going
concern basis if events after the reporting period indicate that the going concern assumption is no
longer appropriate
SCOPE
The Standard shall be applied in:
1. Accounting for events after reporting period; and
2. Disclosure of events after the reporting period.
DEFINITIONS AND EXPLANATIONS

We have seen above that the main focus of the standard is events after the reporting period.
Therefore, it is necessary to understand the meaning of it.
Events after the Reporting Period

Events after the reporting period are those events, favourable and unfavourable, that occur between
the end of the reporting period and the date when the financial statements are approved by the
Board of Directors (in case of a company) and by the corresponding approving authority (in case of
any other entity) for issue.
Example: 1
The Board of Directors of ABC Ltd., in its meeting on 5th May, 20X1, reviews and approves the
financial statements for the year ended 31st March, 20X1 and issues them to the shareholders.
The financial statements are adopted by the shareholders in the annual general meeting on 23rd

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June, 20X1. The date of approval of financial statements for the purpose of this standard is 5th
May, 20X1
Approval of Financial statements

Now the question arises that what is meant by approval of financial statements? When can one says
that the financial statements are approved? Which body needs to be considered as approving
authority? If there is a hierarchy of approvals, at what level, one can assume that the financial
statements are approved?
What is the date of approval of financial statements?

It is worthwhile to note that the process involved in approving the financial statements for Issue will
vary depending upon the (a) management structure, (b) statutory requirements and (c) procedures
followed in preparing and finalising the financial statements.
As per paragraph 3 of the standard,

a) In case of a company: The financial statements will be treated as approved when board of
directors approves the same; and
b) In the case of any other entity: The financial statements will be treated as approved when the
corresponding approving authority approves the same. The standard does not mention
specifically what will constitute the approving authority in case of any other entity. But from
the word “Corresponding” one can construe that it is the body which is authorised to manage
the entity on behalf of all members
It is pertinent to note that in some cases, an entity is required to submit its financial statements to
its shareholders for approval after the financial statements have been approved by the Board for
issue. In such cases, as per paragraph 5 of Ind AS 10, even though shareholders’ approval is needed,
yet, for the purpose of deciding the events after the reporting period, the date of approval of
financial statements will be considered as the date of approval by the board of directors only.
Example:2
The Board of Directors of ABC Ltd., in its meeting on 5th May, 20X1, reviews and approves the
financial statements for the year ended 31st March, 20X1 and issues them to the shareholders.
The financial statements are adopted by the shareholders in the annual general meeting on 23rd
June, 20X1. The date of approval of financial statements for the purpose of this standard is 5th
May, 20X1
Likewise, in some cases, the management of an entity is required to issue its financial statements to a
supervisory board (made up solely of non-executives) for approval. In such cases, as per paragraph 6
of Ind AS 10, the financial statements are approved for issue when the management approves them
for issue to the supervisory board.
Example:3
On 18th May, 20X2, the management of an entity approves financial statements for issue to its
supervisory board. The supervisory board is made up solely of non-executives and may include
representatives of employees and other outside interests. The supervisory board approves the
financial statements on 26th May, 20X2. The financial statements are made available to
shareholders and others on 1st June, 20X2.
The shareholders approve the financial statements at their annual meeting on 15th July, 20X2 and
the financial statements are then filed with a regulatory body on 17th July, 20X2.

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The financial statements are approved for issue on 18th May, 20X2 (date of management approval
for issue to the supervisory board)
When date of approval is after the public announcement of some other financial information
‘Events after the reporting period’ include all events up to the date when the financial statements
are approved for issue, even if those events occur after the public announcement of profit or of
other selected financial information’
Should the company report only unfavourable events?

The standard clearly states that events after reporting period can be favourable as well as
unfavourable. Accordingly, an entity should report both favourable as well as unfavourable events
after the reporting period.
TYPES OF EVENTS
The ‘events after the reporting period’ are classified into two categories:
a) Adjusting Events: Adjusting events are those that provide evidence of conditions that existed
at the end of the reporting period (adjusting events after the reporting period); and
b) Non-Adjusting Events: Non-adjusting events are those that are indicative of conditions that
arose after the reporting period (non-adjusting events after the reporting period).
Ind AS 10 Carve Out: Where there is a breach of a material provision of a long-term loan
payable on demand on the reporting date, the agreement by lender before the approval of the
financial statements for issue, to not demand payment as a consequence of the breach, shall be
considered as an adjusting event.
RECOGNITION AND MEASUREMENT OF ADJUSTING EVENTS

An entity shall adjust the amounts recognised in its financial statements to reflect adjusting events
after the reporting period.
Examples of adjusting events after the reporting period

The following are examples of adjusting events after the reporting period that require an entity to
adjust the amounts recognised in its financial statements, or to recognise items that were not
previously recognised:
A. The settlement after the reporting period of a court case that confirms that the entity had a
present obligation at the end of the reporting period. The entity adjusts any previously
recognised provision related to this court case in accordance with Ind AS 37, ‘Provisions,
Contingent Liabilities and Contingent Assets’ or recognises a new provision.
The entity does not merely disclose a contingent liability because the settlement provides
additional evidence that would be considered in accordance with paragraph 16 of Ind AS 37.
Example: 4
The financial year ends on 31st March, 20X7. A company can conduct the AGM any time
before 30th September, 20X7. However, the company needs to publish the results for
quarter ended 30th June, 20X7 as interim results. The board of the directors (BOD)
approves the financial statements for the year ended 31st March 20X7 on 30th August,

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20X7.
In the instant case, since the BOD is approving the accounts on 30th August, 20X7, ‘after
the reporting period’ will be the period between 31st March, 20X7 and 30th August, 20X7.
However, in between, the partial financial information has already been published.
Now the question arises that if any information is revealed after the release of interim
results for the quarter ended 30th June, 20X7, but before 30th August, 20X7, should it
be considered for the purposes of Ind AS 10 or not since partial information has already
been published without considering the event that was revealed after publishing some
financial information? Will taking the cognizance of the additional information confuse the
stakeholders? Will it be misleading?
In such a situation, Ind AS 10 requires that even if partial information has already been
published, events after the reporting period should be considered.
B. The receipt of information after the reporting period indicating that an asset was impaired at
the end of the reporting period, or that the amount of a previously recognised impairment loss
for that asset needs to be adjusted. For example:
1. The bankruptcy of a customer that occurs after the reporting period usually confirms
that the customer was credit-impaired at the end of the reporting period;
Example 5
Loss allowance for expected credit loss in respect of the amount due from a
customer was recognised at the end of the reporting period in accordance with Ind
AS 109, ‘Financial Instruments’. Subsequent liquidation order on the customer
issued before the date of approval of financial statements for the reporting period
indicates that nothing could be received from the customer. This confirms that the
expected credit loss at the end of the reporting period on this particular trade
receivable is equal to its gross carrying amount and, consequently, the entity needs
to adjust the loss allowance for the expected credit loss at the end of the
reporting period so that net carrying amount of this particular trade receivable at
the end of the reporting period is zero.
2. The sale of inventories after the reporting period may give evidence about their net
realisable value at the end of the reporting period.
While making the valuation of closing inventories, Ind AS 2, Inventories, prescribes the
general principle that the inventories need to be valued at cost or net realisable value,
whichever is less. In cases, where inventories are valued at net realisable value (and not
‘at cost’), the estimates of net realisable value are based on the most reliable evidence
available at the time the estimates are made, of the amount the inventories are
expected to realise. However, when the inventories are actually sold during the period
after the reporting date (but before approval of financial statements), the selling price
of the actual sale transaction provides the evidence of net realisable value provided
the market conditions remains unchanged. In contrast, if a change in the market
conditions occur (say, due to surplus production, additional import, etc.), then the
resultant changes to the selling price of inventories do not reflect the conditions that
existed on the reporting date (when the inventories were valued).
Example 6
Entity A values its inventories at cost or NRV, whichever is less. Entity A has 10
pieces of item A in its stock at the year end. Each item costs 500. All these items
are sold subsequently but before the date of approval of financial statements for

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the reporting period at 450 per piece. The sale of inventories after the reporting
period normally provides evidence about their net realisable value at the end of the
reporting period.
3. The determination after the reporting period of the cost of assets purchased, or the
proceeds from assets sold, before the end of the reporting period. Same principle can
be applied for sale of assets as well.
Example 7
The sale of an asset took place in March, 20X2. However, the actual consideration
was determined and collected after 31st March, 20X2, i.e., on 10th May, 20X2 (date
of approval of financial statements was 15th May, 20X2). In such a situation, sale
value recognised in the books as on 31st March, 20X2 should be adjusted.
4. The determination after the reporting period of the amount of profit-sharing or bonus
payments, if the entity had a present legal or constructive obligation at the end of the
reporting period to make such payments as a result of events before that date (see
Ind AS 19, Employee Benefits).
The careful reading of the above provision brings forth following two points:
a) There is a legal or constructive obligation at the end of reporting period
b) The obligation is based on profit sharing or bonus payments.
Here one would understand that before the year end, one cannot determine the amount
of profit. Unless one determines the final amount of profit, one cannot finalise the
amount of profit sharing as the latter is related to the former. Therefore, such events
must be considered for the adjustments in financial statements, provided, the contract
already exists on the last day of reporting period.
5. The discovery of fraud or errors that show that the financial statements are
incorrect. If any error or any fraud related to the reporting period is detected after
the reporting period (but before approval of the financial statements), then the entity
must adjust the financial statements appropriately by rectifying the same. This is
because such fraud and errors provide evidence that the financial statements are not
correct as at the reporting date. Discovery of such fraud and errors are adjusting
events under Ind AS 10.
ACCOUNTING TREATMENT AND DISCLOSURE OF NON- ADJUSTING EVENTS AFTER THE

REPORTING PERIOD
An entity shall not adjust the amounts recognised in its financial statements to reflect non- adjusting
events after the reporting period.
An example of a non-adjusting event after the reporting period is a decline in fair value of
investments between the end of the reporting period and the date when the financial statements are
approved for issue. The decline in fair value does not normally relate to the condition of the
investments at the end of the reporting period but reflects circumstances that have arisen
subsequently. Therefore, an entity does not adjust the amounts recognised in its financial statements
for the investments. Similarly, the entity does not update the amounts disclosed for the investments
as at the end of the reporting period, although it may need to give additional disclosure as required
under paragraph 21 of Ind AS 10.

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Recognition, Measurement and Disclosure
Non-adjusting events after the reporting

Adjusting events after the reporting period
period
Adjust the amounts recognised in the Do not adjust the amounts recognised in the
financial statements to reflect it financial statements to reflect it
If non-adjusting events after the reporting period are material, then disclose:
a) the nature of the event; and
b) an estimate of its financial effect, or a statement that such an estimate cannot be made.
SPECIAL CASES
LONG TERM LOAN ARRANGEMENTS

Notwithstanding anything contained in the definition of adjusting events and non-adjusting events in
paragraph 3 of Ind AS 10, where there is a breach of a material provision of a long- term loan
payable on demand on the reporting date, the agreement by lender before the approval of the
financial statements for issue, to not demand payment as a consequence of the breach, shall be
considered as an adjusting event.
Example 8
ABC Ltd., in order to raise funds, has privately placed debentures of ` 1 crore, on 1st January,
20X1, issued to PQR Ltd. As per the original terms of agreement, the debentures are to be
redeemed on 31st March, 20X9. One of the conditions of the private placement of the debentures
was that debt-equity ratio at the end of any reporting year should not exceed 2:1. If this
condition is not fulfilled, then, PQR Ltd., has a right to demand immediate redemption of the
debentures. On 31st March, 20X6, debt-equity ratio of ABC Ltd., exceeds 2:1. Therefore, PQR
Ltd., decides to return the debentures.
Thus, on 31st March, 20X6, the liability of the ABC Ltd., towards PQR Ltd., (which was originally a
long-term liability) becomes a current liability, since it is now a liability on demand. However, ABC
Ltd. enters into an agreement with PQR Ltd. on 15th April, 20X6 that PQR Ltd., will not demand
the payment immediately. The financial statements are approved by the BOD on 30th April, 20X6.
In this case, the agreement that PQR Ltd., will not demand the money immediately is a subsequent
event. Even though it is a subsequent event not affecting the condition existing at the balance
sheet date, yet because of the specific provisions of paragraph 3 of Ind AS 10, it has to be given
effect in the financial statements for the year 20X5-20X6. Accordingly, though as per original
GOING CONCERN
terms the liability would have been otherwise reclassified as a current liability as on 31st March,
20X6, by giving effect to the event after the reporting period due to the specific provisions of
paragraph 3 of Ind AS 10, it would continue to be classified as a non-current liability as on 31st
March, 20X6. In other words, the re-classification of debentures as current liability as at 31st
March, 20X6 will be adjusted and once again classified as a non-current liability as at that date.
An entity shall not prepare its financial statements on a going concern basis if management

427
determines after the reporting period either that it intends to liquidate the entity or to cease
trading, or that it has no realistic alternative but to do so.
Deterioration in operating results and financial position after the reporting period may indicate a
need to consider whether the going concern assumption is still appropriate. If the going concern
assumption is no longer appropriate, the effect is so pervasive that this standard requires a
fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised
within the original basis of accounting.
Ind AS 1 specifies required disclosures if:
a) the financial statements are not prepared on a going concern basis; or
b) management is aware of material uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going concern. The events or
conditions requiring disclosure may arise after the reporting period.
Going concern approach has a lot of importance in the financial statements. Going concern approach
can be applied if and only if the entity has intentions to continue its operations. The carrying amount
of assets and carrying amount of liabilities will be much different if the entity has plans to go in for
liquidation.
Example 9
A going concern company assumes that the raw material inventory and work in progress will be
completed in due course and the inventories of finished goods would be ready for sale. But, if the
company has no intention to continue with the business, it may take a decision to sell the raw
material and WIP at best available market price, may be at scrap value also.
If a company decides to go into liquidation, then the long-term liabilities of the company will turn into
short-term liabilities as the company will have to pay all its debts before it closes down its
operations. Thus, the overall approach of accounting will change when there is no going concern
approach.
Therefore, Ind AS 10, specifically requires that if after the reporting period but before approval of
the financial statements, there are any signs of not continuing the operations, or the decision is
taken during that period not to continue with the operations, in spite of the fact that the decision
was taken after the reporting period, still the entity should prepare the financial statements with a
different approach and, accordingly, inform the stakeholders clearly that the is planning to cease
operations.
DIVIDENDS
If an entity declares dividends to holders of equity instruments (as defined in Ind AS 32, Financial
Instruments: Presentation) after the reporting period, the entity shall not recognise those dividends
as a liability at the end of the reporting period.
If dividends are declared after the reporting period but before the financial statements are
approved for issue, the dividends are not recognised as a liability at the end of the reporting period
because no obligation exists at that time. Such dividends are disclosed in the notes in accordance
with Ind AS 1, Presentation of Financial Statements.
The crux of difference between adjusting event and non-adjusting event depends on the fact
whether the event provides evidence for existence of a condition at the end of reporting period or
not.

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DISCLOSURE REQUIRED UNDER IND AS 10
Date of approval for Issue

 An entity shall disclose the date when the financial statements were approved for issue and
who gave that approval. If the entity’s owners or others have the power to amend the financial
statements after issue, the entity shall disclose that fact.
 It is important for users to know when the financial statements were approved for issue,
because the financial statements do not reflect events after this date.
Ind AS 10, underlines the importance of date of approval, by requiring a separate disclosure of the
date of approval of financial statements. Note that this date is important because it gives a clear
idea to the stakeholders about the period, which is covered after the reporting period, for providing
information to the stakeholders. In a way, it determines the scope of the financial statements in
terms of time.
Updating disclosure about conditions at the end of the Reporting Period

1. If an entity receives information after the reporting period about conditions that existed at
the end of the reporting period, it shall update disclosures that relate to those conditions, in
the light of the new information.
In case of adjusting events, the entity is supposed to make the necessary adjustments in the
financial statements. But just making the changes in the financial statements will not be
sufficient as the stakeholders will not be in a position to understand why the adjustments are
made. Therefore, in addition to adjustments in the financial statements, it is necessary to
make the separate disclosure of the same.
2. In some cases, an entity needs to update the disclosures in its financial statements to reflect
information received after the reporting period, even when the information does not affect
the amounts that it recognises in its financial statements. One example of the need to update
disclosures is when evidence becomes available after the reporting period about a contingent
liability that existed at the end of the reporting period. In addition to considering whether it
should recognise or change a provision under Ind AS 37, an entity updates its disclosures
about the contingent liability in the light of that evidence.
Disclosure of Non-adjusting events after the reporting period

If non-adjusting events after the reporting period are material, non-disclosure could reasonably be
expected to influence the decision that the primary uses of general-purpose financial statement
make on the basis of those financial statements which provide financial information about a specific
reporting entity Accordingly, an entity shall disclose the following for each material category of non-
adjusting event after the reporting period:
a) the nature of the event; and
b) an estimate of its financial effect, or a statement that such an estimate cannot be made.
Examples of non-adjusting events after the reporting period generally resulting in disclosure:
a) a major business combination after the reporting period (Ind AS 103, Business Combinations,
requires specific disclosures in such cases) or disposing of a major subsidiary
b) announcing a plan to discontinue an operation;

429
c) major purchases of assets, classification of assets as held for sale in accordance with Ind AS
105, Non-current Assets Held for Sale and Discontinued Operations, other disposals of
assets, or expropriation of major assets by government;
d) the destruction of a major production plant by a fire after the reporting period;
e) announcing, or commencing the implementation of, a major restructuring (see Ind AS 37);
f) major ordinary share transactions and potential ordinary share transactions after the
reporting period (Ind AS 33, Earnings per Share, requires an entity to disclose a description
of such transactions, other than when such transactions involve capitalisation or bonus issues,
share splits or reverse share splits all of which are required to be adjusted under Ind AS
33);
g) abnormally large changes after the reporting period in asset prices or foreign exchange
rates;
h) changes in tax rates or tax laws enacted or announced after the reporting period that have a
significant effect on current and deferred tax assets and liabilities (see Ind AS 12, Income
Taxes);
i) entering into significant commitments or contingent liabilities, for example, by issuing
significant guarantees; and
j) commencing major litigation arising solely out of events that occurred after the reporting
period
Important Points to Remember

S Item Timing Treatment Reason
No
1 Dividend Declared after the Do not recognise it as a No obligation exists at
reporting period liability at the end of the that time
but before approval reporting period.
of financial
statements Disclosed in Notes
2 Going Concern If management Do not prepare the The deterioration in
determines after financial statements on a operating results and
the reporting going concern basis; or financial position
period either After the reporting
that it intends to Make necessary period may be so
liquidate the entity disclosure of not pervasive that it may
or to cease trading following going concern require a fundamental
basis or events or change in the basis of
conditions that may accounting
cast significant doubt
upon the entity’s ability
to continue as a going
concern
3 Date of Approved after the Disclose the date when Important for users to
approval of Reporting Period the financial statements know when the financial
financial were approved for issue statements were
statements and who gave that approved for issue
for issue approval because the financial
statements do not
reflect events after this

430
date
4 Updating Received Update disclosures that When the information
disclosure information after relate to new information does not affect the
about the reporting / conditions amounts that it
conditions at period recognises in its
the end of the financial statements,
reporting disclosures are required
period
DISTRIBUTION OF NON-CASH ASSETS TO OWNERS

Sometimes an entity distributes non-cash assets as dividends to its equity shareholders, acting in
their capacity as owners. In those situations, an entity may also give equity shareholders a choice of
receiving either non-cash assets or a cash alternative.
It may be recalled that paragraph 107 of Ind AS 1, inter alia, requires an entity to present the
amount of dividends recognised as distributions to owners either in the statement of changes in
equity or in the notes to the financial statements but does not prescribe how to measure it. Appendix
A to Ind AS 10, Distribution of Non-cash Assets to Owners is relevant in this regard.
APPLICABILITY
Appendix A to Ind AS 10 applies to the following types of non-reciprocal distributions of assets by
an entity to its owners acting in their capacity as owners:
a) distributions of non-cash assets (e.g., items of property, plant and equipment, businesses as
defined in Ind AS 103, ownership interests in another entity or disposal groups as defined in
Ind AS 105); and
b) distributions that give owners a choice of receiving either non-cash assets or a cash
alternative.
It applies only to distributions in which all owners of the same class of equity instruments are
treated equally.
NON-APPLICABILITY
1. This Appendix does not apply to a distribution of a non-cash asset that is ultimately controlled
by the same party or parties before and after the distribution.
2. This exclusion applies to the separate, individual and consolidated financial statements of an
entity that makes the distribution.
3. For a distribution to be outside the scope of this Appendix on the basis that the same parties
control the asset both before and after the distribution, a group of individual shareholders
receiving the distribution must have, as a result of contractual arrangements, such ultimate
collective power over the entity making the distribution.
4. It does not apply when an entity distributes some of its ownership interests in a subsidiary
but retains control of the subsidiary. The entity making a distribution that results in the
entity recognising a non-controlling interest in its subsidiary accounts for the distribution in
accordance with Ind AS 110, Consolidated Financial Statements.
5. This Appendix addresses only the accounting by an entity that makes a non-cash asset
distribution. It does not address the accounting by shareholders who receive such a
distribution.

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ISSUES ADDRESSED BY APPENDIX A TO IND AS 10

1. When an entity declares a distribution (and hence, has an obligation to distribute the assets
concerned to its owners), it must recognise a liability for the dividend payable.
2. Accordingly, this Appendix addresses the following three questions:
a) When should the entity recognise the dividend payable?
b) How should an entity measure the dividend payable? And
c) When an entity settles the dividend payable, how should it account for any difference
between:
i. the carrying amount of the assets distributed and
ii. the carrying amount of the dividend payable?
These issues have been discussed in the subsequent paragraphs.
ACCOUNTING PRINCIPLES ENUCIATED BY APPENDIX A TO IND AS 10

When an entity declares a distribution and has an obligation to distribute the assets concerned to its
owners, it must recognise a liability for the dividend payable.
When to recognise a dividend payable
The liability to pay a dividend shall be recognised when the dividend is appropriately authorised and
is no longer at the discretion of the entity
This is the date:

a) when declaration of the dividend (e.g., by management or the board of directors), is approved
by the relevant authority (e.g., the shareholders), if the jurisdiction requires such approval, or
b) when the dividend is declared, (e.g., by management or the board of directors), if the
jurisdiction does not require further approval.
Measurement of a dividend payable

a) An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at
the fair value of the assets to be distributed
b) If an entity gives its owners a choice of receiving either a non-cash asset or a cash
alternative, the entity shall estimate the dividend payable by considering both the fair value
of each alternative and the associated probability of owners selecting each alternative.
c) At the end of each reporting period and at the date of settlement, the entity shall review and
adjust the carrying amount of the dividend payable, with any changes in the carrying amount
of the dividend payable recognised in equity as adjustments to the amount of the distribution.
Accounting for any difference between the carrying amount of the assets distributed and the
carrying amount of the dividend payable when an entity settles the dividend payable
When an entity settles the dividend payable, it shall recognise the difference, if any, between:
a) the carrying amount of the assets distributed and
b) the carrying amount of the dividend payable - in profit or loss.
PRESENTATION AND DISCLOSURE

An entity shall present the difference between carrying amount of the assets distributed and the
carrying amount of the dividend payable at the time of settlement of the dividend payable as a
separate line item in profit or loss.
An entity shall disclose the following information, if applicable:
a) the carrying amount of the dividend payable at the beginning and end of the period; and

432
b) the increase or decrease in the carrying amount recognised in the period as result of a change
in the fair value of the assets to be distributed
If after the end of a reporting period but before the financial statements are approved for issue, an
entity declares a dividend to distribute a non-cash asset, it shall disclose:
a) the nature of the asset to be distributed;
b) the carrying amount of the asset to be distributed as of the end of the reporting period; and
c) the fair value of the asset to be distributed as of the end of the reporting period, if it is
different from its carrying amount, and the information about the method(s)used to measure
that fair value required to be disclosed by Ind AS 113, Fair Value Measurement
CARVE OUT IN IND AS 10 FROM IAS 10

Ind AS 10 Carve Out: As a consequence to carve-out made in Ind AS 1, Ind AS 10 provides, in the
definition of ‘Events after the reporting period’ that in case of 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, if the lender, before the approval of the
financial statements for issue, agrees to waive the breach, it shall be considered as an adjusting
event.
However, under IAS 10 ‘Events after the Reporting Period’, an agreement with the lender after the
reporting period but before the approval of the financial statements for issue not to demand
payment (say, arising out of breach of loan covenants) is not considered as an adjusting event.

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Related Party Disclosures: IND AS 24
IND AS 24:
Related Party Disclosure
An entity in the course of its commerce and business enters into numerous transactions and gets
impacted by various related party relationships. It is a normal feature of commerce and business to
have related party relationships. Entities frequently carry on their business activities through
subsidiaries, joint ventures or associates. The entity has the ability to affect the financial and
operating policy of a subsidiary generally as it has control over it. In the case of joint venture, it has
joint control whereas in the case of an associate it has significant influence.
It is quite probable that related party relationship may have an effect on the profit or loss and
financial position of an entity. The effect gets manifested through:
Transactions that are Example: An entity may sell goods to its parent at cost. It may not sell
entered between related goods at cost to an unrelated party
parties may not be
entered with unrelated
parties
Transactions with Example: S Limited, a subsidiary of H Limited, in steel manufacturing
unrelated parties get used to purchase billets from UR Limited. H Limited acquires 100%
influenced because of stake in FS Limited who also manufactures billets. FS Limited is now a
related party fellow subsidiary of S Limited. H Limited instructs S Limited not to
relationships purchase billets from UR Limited but from FS Limited
Therefore, the users of the financial statements of any entity should have:
a) the knowledge of:
i. related party relationships of an entity;
ii. entity’s transactions, outstanding balances, commitments etc. with such related parties;
b) as it may affect the user’s assessments:

i. of operations of the entity and
ii. the risks and opportunities faced by the entity
Example: 1
On instruction of H Ltd. (Holding Co.), S Ltd., a steel manufacturing company is buying billets from
its follow subsidiary FS Ltd. though there are many other sellers offering better prices &
incentives. Opportunity to buy at better & reasonable price is at risk since other steel
manufacturer from the same industry can buy at a cheaper rate and can have better selling
position than S Ltd.
Example: 2
S Limited, a subsidiary of H Limited, in steel manufacturing used to purchase billets from UR
Limited. H Limited acquires 100% stake in FS Limited who also manufactures billets. FS Limited is
now a fellow subsidiary of S Limited. H Limited instructs S Limited to purchase at least 50%
billets from FS Limited at a 10% lower rate than from FS Limited.
OBJECTIVE
The objective of the Standard is to ensure that the financial statements of an entity contain
necessary disclosures with respect to:
a) Related party relationships;

434
b) related party transactions;

c) outstanding balances with related parties; and
d) commitments with related parties.
The disclosures are necessary so that users’ attention could be drawn to the possibility that financial
statements may be affected by such related party relationships and other items as mentioned above.
SCOPE
The Standard has to be applied in:
a) identifying related party relationships;
b) identifying related party transactions;
c) identifying outstanding balances between an entity and its related parties;
d) identifying commitments between an entity and its related parties;
e) identifying the circumstances in which disclosures of above items is to be made; and
f) determining the disclosures to be made about the above items.
The disclosures are to be made in:

a) Individual financial statements of the entity.
b) Consolidated and separate financial statements of a parent, venturer or an investor prepared
in accordance with Ind AS 110 'Consolidated Financial Statements' or Ind AS 27, 'Separate
Financial Statements'.
i. Related party transactions and outstanding balances with other entities in a group are
disclosed in an entity's financial statements, however, intra-group related party
transactions and outstanding balances are eliminated in the preparation of consolidated
financial statements of the group.
Exception:
If the above intra group related party transactions & outstanding balances between
investment entity and its subsidiary are measured at fair value through profit or
loss, then not eliminated.
ii. Disclosures not required when either

 such disclosures are in conflict with the entity's duties of confidentiality in terms
of a statute, regulator or similar competent authority governing the entity; or
 the entity is prohibited by the statute, regulator or similar competent authority to
disclose certain information otherwise required to be disclosed as per this
Standard.
Example 3
Banks are obliged by law to maintain confidentiality in respect of their customers’
transactions and this Standard would not override the obligation to preserve the
confidentiality of customers’ dealings
DEFINITION
1. A related party is (i) a person or (ii) an entity that is related to the reporting entity.
2. A reporting entity in this Standard is an entity that is preparing its financial statements.
Thus, two types of related party relationships are envisaged.
i. One relationship is between the reporting entity and a person or persons
ii. The other relationship is between the reporting entity and another entity or entities.

435
Note: The Standard clarifies that in considering each possible related party relationship, the
attention should be directed to the substance of the relationship and not merely the legal
form.
Understanding relationship between the reporting entity and a person(s)

3. Person or a close member of that person’s family is related to a reporting entity that person:
i. has control or joint control over the reporting entity;
ii. has significant influence over the reporting entity; or
iii. is a member of the key management personnel of
 the reporting entity or
 a parent of the reporting entity.
4. Close members of the family of a person are the one who may be expected to influence or be
influenced by that person in their dealings with the entity. It includes:
i. that person's children, spouse or domestic partner, brother, sister, father and mother;
ii. children of that person's spouse or domestic partner; and
iii. dependents of that person or that person's spouse or domestic partner.
5. A parent is an entity that controls one or more entities and present consolidated financial
statements.
Example: 4
Mr. A holds 51% in equity share capital of A Limited. A Limited has no other form ofshare capital.
As Mr. A control A Limited, he is a related party.
Example: 5
Mrs. A is wife of Mr. A. Mr. A holds 51% of equity shares of A Limited. A Limited has no other
form of share capital. Mr. A controls A Limited. Since Mr. A is a related party, Mrs. A is also a
related party of A Limited.
Example: 6
Mr. D is a director of A Limited. Being a member of key management personnel ofA Limited, he is
related to A Limited.
Example: 7
Mr. D is a director of H Limited. S Limited is a subsidiary of H Limited. Mr. D is related to S
Limited.
Understanding relationship between the reporting entity and another entity/entities:

6. An entity is related to a reporting entity if any of the following conditions applies:
a) The entity and the reporting entity are members of the same group (which means that
each parent, subsidiary and fellow subsidiary is related to the others)
Example:8
SA Limited and SB Limited are subsidiaries of H Limited. SA Limited, SB Limited and H
Limited are related to each other.
b) One entity is an associate or joint venture of the other entity (or an associate or joint
venture of a member of a group of which the other entity is a member).

436
Example:9
AS Limited is an associate of S Limited. S Limited is a subsidiary of H Limited. SH
Limited is another subsidiary of H Limited. AS Limited and SH Limited are related
parties
c) Both entities are joint ventures of the same third party.
Example:10
H Limited has entered into 2 joint ventures, JHA Limited (joint venture with A Limited)
and JHB Limited (joint venture with B Limited). JHA Limited and JHB Limited are
related parties.
d) One entity is a joint venture of a third entity and the other entity is an associate of the
third entity.
Example:11
JH Limited is a joint venture of H Limited. AH limited is an associate of H Limited. JH
Limited and AH Limited are related parties.
e) The entity is a post-employment benefit plan for the benefit of employees of either the
reporting entity or an entity related to the reporting entity. If the reporting entity is
itself such a plan, the sponsoring employers are also related to the reporting entity.
f) The entity is controlled or jointly controlled by a person identified in 3 above.

Example:12
Mr. A controls A Limited (the reporting entity). He also controls B Limited. A Limited
and B Limited are related to each other.
g) A person identified in 3(a) above has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity).
Example:13
Mr. A controls A Limited (the reporting entity). He is a non-executive director in B
Limited. A Limited and B Limited are related parties.
h) The entity, or any member of a group of which it is a part, provides key management
personnel services to the reporting entity or to the parent of the reporting entity.
Example:14
A Ltd is a parent company with 3 subsidiary companies- B Ltd. C Ltd & D Ltd. It also has
an associate company E Ltd. Subsidiary F Ltd of E Ltd provides key management
personnel services to A Ltd. F Ltd. is in a related party relationship with A, B, C D & E
The aforesaid definition is wide and exhaustive. It is quite possible that the identification of
related parties may become an onerous task. The standard, therefore, as has been stated
above, lays emphasis on the substance of the relationship rather than legal form.
7. Control exists when the investor is exposed or has rights to variable returns from its
involvement with the investee and has the ability to affect those returns through its power
over investee.

437
8. Joint Control is the contractually agreed sharing of control of an arrangement which exists
only when decisions about the relevant activities require the unanimous consent of the parties
sharing control.
9. Significant influence is the power to participate in the financial and operating policy decisions
of the investee, but is not control of those policies. The terms ‘control’, ‘joint control’ and
‘significant influence’ are discussed in detail in chapters on Ind AS 110, Consolidated Financial
Statements, Ind AS 111 Joint Arrangements’ & Ind AS 28, Investments in Associates & Joint
Ventures.
10. Key management personal are those persons having authority and responsibility for planning,
directing and controlling the activities of the entity, directly or indirectly, including any
director (whether executive or otherwise) of that entity.
Analysis:
The definition includes executive as well as non-executive directors who have responsibility for the
management and direction of a significant part of the business. It is not necessary that these people
should have the ‘director’ designation. The term also includes members of the management
committee(s), if those committee(s) have the authority for planning, directing and controlling the
entity’s activities.
The Standard further states that in the definition of a related party, an associate includes
subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture.
Example:15
R Limited has an associate B Limited. B Limited has a subsidiary S Limited, a joint venture J
Limited and an associate A Limited. R Limited is the reporting entity. It identifies B Limited and S
Limited as its related parties. J Limited and A Limited are not related parties of R Limited
Student’s Notes:

438
Relationship of an Entity
Persons Another Entities
If they are members of the same group i.e.,

Who has Parent & Subsidiary and Fellow Subsidiaries
Who has
control or Who is a
Significant
Joint member of
Influence
Control the key
over the One entity is an Associate or JV of the other
over the management
Reporting entity/Member of a group which the other
reporting of personnel
Entity entity is a member
entity
Both entities are JV of same 3rd Party
The
Reporting
Entity One entity is a JV of 3rd entity and other
entity is an associate of 3rd Party
A parent
of the The entity is a post-employment benefit plan
Reporting for the benefit of employees of either the
Entity reporting entity or an entity related to the
reporting entity.
If the reporting entity is itself such a plan, the

sponsoring employers are also related to the
reporting entity
The entity is controlled or jointly controlled by

a person identified in 3 above
A person identified in 3(a) above has significant

influence over the entity or is amember of the
key management personnel of the entity (or of a
parent of the entity).
The entity, or any member of a group of which

it is a part, provides key management personnel
services to the reporting entity or to the
parent of the reporting entity

439
UNDERSTANDING WHO ARE NOT RELATED PARTIES

The Standard clarifies that certain relationships are not related party relationships. These are as
follows:
a) Two entities are not related parties simply because they have a director or other member of
key management personnel in common or because a member of key management personnel of
one entity has significant influence over the other entity.
Example:16
Mr. A is a director in X Limited. He is also a director in Y Limited. He has no other interest
in either of these companies. There are no transactions between these two entities. X
Limited and Y Limited are not related parties.
Example:17
Mr. A is a director in X Limited. He is also a director in Y Limited. He has no other interest
in either of these companies. Y Limited purchases the entire production of X Limited. The
transactions are always at arm’s length. X Limited and Y Limited may be related parties as it
is quite possible that Y Limited may be able to exercise control/significant control over X
Limited. As per this Standard substance is more important than mere legal form.
b) Two venturers are not related parties simply because they share joint control over a joint
venture
Example:18
JV Limited is an equal joint venture of J Limited and V Limited. J Limited and V Limited are
not related parties.
c) providers of finance, (i) trade unions, (ii) public utilities, and (iii) departments and agencies of
a government that does not control, jointly control or significantly influence the reporting
entity, are not related parties simply by virtue of their normal dealings with an entity (even
though they may affect the freedom of action of an entity or participate in its decision-
making process).
Example:19
A Bank and B Bank has provided finance to XY Limited. By virtue of loan agreement, they
occupy a non-executive observer seat on the Board of Directors of XY Limited. A Bank and B
Bank are not related parties of XY Limited.
d) a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a
significant volume of business, simply by virtue of the resulting economic dependence.
Example:20
A Limited is an auto ancillary of an automobile company. It supplies all its production to the
automobile company. Automobile company has no other interest in A Limited. A Limited and
automobile company are not related parties.
NON-RELATED PARTIES
a) Two entities are not related parties simply because they have a director or other member of
key management personnel in common or because member of key management personnel of one
entity has significant influence over the other entity.

440
b) Two venturers are not related parties simply because they share joint control over a joint
venture.
c) providers of finance, (i) trade unions, (ii) public utilities, and (iii)departments and agencies of a
government that does not control, jointly control or significantly influence the reporting
entity, are not related parties simply by virtue of their normal dealings with an entity (even
though they may affect the freedom of action of an entity or participate in its decision-
making process).
d) A customer, supplier, franchisor, distributor or general agent with whom an entity transacts
significant volume of business, simply by virtue of the resulting economic dependence
UNDERSTANDING RELATD PARTY TRANSACTIONS

A related party transaction is a transfer of resources, services or obligations between a reporting
entity and a related party, regardless of whether a price is charged.
Examples include:
a) purchases or sales of goods (finished or unfinished)
b) purchases or sales of property and other assets
c) rendering or receiving of services;
d) leases;
e) transfers of research and development;
f) transfers under licence agreements;
g) transfers under finance arrangements (including loans and equity contributions in cash or in
kind);
h) provision of guarantees or collateral;
i) commitments to do something if a particular event occurs or does not occur in the future,
including executory contracts (recognised and unrecognised);
j) settlement of liabilities on behalf of the entity or by the entity on behalf of that related
party; and
k) management contracts including for deputation of employees.
Note: It is not necessary for any consideration to be passed for the related party transactions
Also, participation by a parent or subsidiary in a defined benefit plan that shares risks between
group entities is a transaction between related parties.
OTHER IMPORTANT DEFINITIONS

11. Compensation includes all employee benefits (as defined in Ind AS 19, Employee Benefits)
including employee benefits to which Ind AS 102, Share-based Payments, applies. Employee benefits
are all forms of consideration paid, payable or provided by the entity, or on behalf of the entity, in
exchange for services rendered to the entity. It also includes such consideration paid on behalf of a
parent of the entity in respect of the entity. Compensation includes:
a) short-term employee benefits, monetary such as wages, salaries and social security
contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable
within twelve months of the end of the period) and non— monetary benefits (such as medical
care, housing, cars and free or subsidised goods or services) for current employees;
b) post-employment benefits such as pensions, other retirement benefits, post- employment life
insurance and post- employment medical care;
c) other long-term employee benefits, including long service leave or sabbatical leave, jubilee or
other long service benefits, long-term disability benefits and, if they are not payable wholly

441
within twelve months after the end of the period, profit-sharing, bonuses and deferred
compensation;
d) termination benefits; and
e) share-based payment.
12. Government refers to the Government, government agencies and similar buddies whether local,
national, and international.
13. A Government related entity is an entity that controlled Jointly controlled and significantly
influenced by a government.
DISCLOSURE
The disclosure requirements can be broadly classified into two categories.
a) Category 1 requires disclosures of relationships even though there are no related party
transactions between the disclosed related parties.
b) Category 2 requires disclosures of relationships and transactions only when there are related
party transactions.
DISCLOSURE-RELATIONSHIP BETWEEN PARENT & SUBSIDIARIES

The following disclosures of relationships, if exist, must be made irrespective of the fact whether
there have been related party transactions by the entity:
a) Under this an entity is required to disclose the name of its parent and, if different, the
ultimate controlling party. It may be noted that the ultimate controlling party may be a
person.
Example:21
S4 Limited (reporting entity) is a subsidiary of S3 Limited. S3 Limited is a subsidiary of S2
Limited. S2 Limited is a subsidiary of S1 Limited. S1 Limited is a subsidiary of H Limited.
S4 Limited, S3 Limited, S2 Limited and S1 Limited must disclose the name and relationship
with S3 Limited, S2 Limited and S1 Limited respectively and with H Limited.
b) If neither the entity's parent nor the ultimate controlling party produces consolidated
financial statements available for public use, the name of the next most senior parent that
does so shall also be disclosed.
Example:22
Limited. S2 Limited is a subsidiary of S1 Limited. S1 Limited is a subsidiary of H Limited.
Only S2 Limited and S1 Limited produces consolidated financial statements for public use.
S4 Limited must disclose the name and relationship with S3 Limited, S2 Limited, S1 Limited
and H Limited.
Example:23
Limited. S2 Limited is a subsidiary of S1 Limited. S1 Limited is a subsidiary ofH Limited. S3
Limited, S2 Limited, S1 Limited and H Limited all produces consolidated financial
statements for public use. S4 Limited must disclose the name and relationship with S3
Limited and H Limited.

442
c) The disclosure of relationship between a parent and its subsidiary (reporting entity) is
important because the existence of control relationship may prevent the reporting entity
from being independent in making its financial and operating decisions. The disclosure of the
name of the related party and the nature of the related party relationship where control
exists may sometimes be at least as relevant in appraising an entity's prospects as are the
operating results and the financial position presented in its financial statements. Such a
related party may establish the entity's credit standing, determine the source and price of its
raw materials, and determine to whom and at what price the product is sold.
d) The Standard clarifies that the requirement to disclose related party relationships between a
parent and its subsidiaries is in addition to the disclosure requirements in Ind AS 110,
Consolidated Financial Statements, Ind AS 28, Investments in Associates, and Joint Ventures.
CATEGORY 2 DISCLOSURE
Under this category, two types of disclosures are required. The first requires disclosures related to
compensation to key management personnel. The second requires other disclosures where there have
been related party transactions during the year.
Disclosures of compensation to key management personnel:

An entity is required to disclose:
a) total compensation to key management personnel and
b) Compensation for each of the following categories:
c) short-term employee benefits;
d) post-employment benefits;
e) other long-term benefits;
f) termination benefits;
g) share-based payments.
If an entity obtains key management personnel services from another entity (the 'management
entity'), the entity is not required to apply the requirements to the compensation paid or payable by
the management entity to the management entity's employees or directors.
Disclosures where there have been related party transactions during the year
Where an entity has had related party transactions during the periods covered by the financial
statements, it shall disclose, in addition to disclosures listed above, the following for the users to
understand the potential effect of these relationships and transactions on the financial statements:
a) the nature of the related party relationship;
b) the information about these related party transactions and outstanding balances, including
commitments.
The disclosures, at a minimum, shall include:

a) The amount of the transactions;
b) The amount of outstanding balances, including commitments, and:
i. their terms and conditions, including whether they are secured, and the nature of the
consideration to be provided in settlement; and
ii. details of any guarantees given or received;
c) Provisions for doubtful debts related to the amount of outstanding balances; and
d) The expense recognized during the period in respect of bad or doubtful debts due from
related parties.

443
Amounts incurred by the entity for the provision of key management personnel services that are
provided by a separate management entity shall be disclosed.
The aforesaid disclosures shall be made separately for each of the following categories:
a) the parent;
b) entities with joint control or significant influence over the entity;
c) subsidiaries;
d) associates;
e) joint ventures in which the entity is a joint venturer;
f) key management personnel of the entity or its parent; and
g) other related parties.
The classification of amounts payable to, and receivable from, related parties in the different
categories is an extension of the disclosure requirements in Ind AS 1, Presentation of Financial
Statements, for information to be presented either in the balance sheet or in the notes. The
categories are extended to provide a more comprehensive analysis of related party balances and
apply to related party transactions.
However, disclosures that related party transactions were made on terms equivalent to those that
prevail in arm's length transactions should be made only if such terms can be substantiated.
Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary
for an understanding of the effects of related party transactions on the financial statements of the
entity.
Disclosure of details of particular transactions with individual related parties would frequently be
too voluminous to be easily understood. Accordingly, items of a similar nature may be disclosed in
aggregate by type of related party. However, this is not done in such a way as to obscure the
importance of significant transactions.
Example:24
Purchases or sales of goods are not aggregated with purchases or sales of fixed assets. Nor a
material related party transaction with an individual party is clubbed in an aggregated disclosure
EXEMPTION TO GOVERNMENT-RELATED ENTITIES

A reporting entity is exempt from the disclosure requirements in relation to:
a) Related Party transactions
b) Outstanding balances and
c) Commitments with:
i. a government that has control, joint control or significant influence over the reporting
entity; and
ii. another entity that is a related party because the same government has control, joint -
control or significant influence over both the reporting entity and the other entity.
However, in case the reporting entity opts to apply the exemption, it shall disclose:
a) the name of the government;
b) the nature of the government's relationship with the entity (whether the government has
control, joint control or significant influence over the entity);

444
c) to enable the users of the entity's financial statements to understand the effect of related
party transactions on its financial statements, the following information in sufficient details:
i. the nature and amount of each individually significant transaction;
ii. for other transactions that are not significant individually but are significant when
aggregated, either a qualitative or quantitative indication of their extent.
Thus, the reporting entity is expected to apply its judgment to determine the level of details it is
required to disclose as per above. To enable the reporting entity to arrive at decision, it shall
consider:
a) the closeness of the related party relationship;
b) whether the transaction is significant in size;
c) whether the transaction is carried out on non-market terms;
d) whether these are outside the normal day to day business operations, such as purchase and
sales of businesses
e) whether they are disclosed to regulatory or supervisory authorities;
f) whether they are reported to senior management;
g) whether they are subject to shareholder approval.
DISCLOSURE REQUIREMENTS WHEN EXEMPTION APPLIES

In Entity A's financial statements, an example of disclosure to comply for individually significant
transactions could be: Example of disclosure for individually significant transaction carried out on
non-market terms
Example:25
On 15 January, 20X1 Entity A, a utility company in which Government G indirectly owns75 per cent
of outstanding shares, sold a 10-hectare piece of land to another government- related utility
company for 5 million. On 31, December 20X0 a plot of land in a similar location, of a similar size
and with similar characteristics, was sold for 3 million. There had not been any appreciation or
depreciation of the land in the intervening period. See note X [of the financial statements] for
disclosure of government assistance as required by Ind AS 20, Accounting for Government Grants
and Disclosure of Government Assistance, and notes Y and Z [of the financial statements] for
compliance with other relevant Indian Accounting Standards.
Example:26 Example of disclosure for individually significant transaction because of size of

transaction
In the year ended December 20X1 Government G provided Entity A, a utility company in which
Government G indirectly owns 75 per cent of outstanding shares, with a loan equivalent to 50
percent of its funding requirement, repayable in quarterly instalments over the next five years.
Interest is charged on the loan at a rate of 3 per cent, which is comparable to that charged on
Entity A’s bank loans. See notes Y and Z [of the financial statements] for compliance with other
relevant Indian Accounting Standards.
Example of disclosure of collectively significant transactions in Entity A’s financial statements, an
example of disclosure to comply with for collectively significant transactions could be:
Example:27
Government G, indirectly, owns 75 per cent of Entity A’s outstanding shares. Entity A’s significant
transactions with Government G and other entities controlled, jointly controlled or significantly

445
influenced by Government G are [a large portion of its sales of goods and purchases of raw
materials] or [about 50 per cent of its sales of goods and about 35 per cent of its purchases of
raw materials]. The company also benefits from guarantees by Government G of the company’s
bank borrowing. See note X [of the financial statements] for disclosure of government assistance
as required by Ind AS 20, Accounting for Government Grants and Disclosure of Government
Assistance, and notes Y and Z [of the financial statements] for compliance with other relevant
Indian Accounting Standards.

446
Operating Segments: IND AS 108
IND AS 108:
Operating Segments
CORE PRINCIPLE
An entity should disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the business activities in which it engages and the economic
environments in which it operates.
Ind AS 108 requires an entity to disclose information to enable the stakeholders to have insight into
the entity’s operations from the same perspective as that of its management. For instance, in case of
an entity engaged in multiple lines of business/ business activities (e.g., engineering, financial services
and IT), the users of financial statements must have the information about the performance of each
of its ‘business activities’ as perceived by management in order to make better and more informed
decisions about their investments in the entity as a whole.
Similarly, an entity may be operating across multiple economic environments. ‘Economic Environments
in general, are those factors which have an impact on the working of any business. These factors
could include political and economic macro-systems, trade cycles, economic resources, statutory
environment, income levels, industrial growth rates and many other such factors. These are dynamic
in nature and are in a continuous state of change.
In view of these complexities, Ind AS 108 requires disclosure of information in a manner which
enables users to make informed decisions based on their assessment of the economic environments in
which the different businesses of an entity operate.
SCOPE
Ind AS 108 should apply to companies to which Indian Accounting Standards notified under the
Companies Act, 2013 apply. If an entity that is not required to apply Ind AS 108 chooses to disclose
information about segments that does not comply with Ind AS 108, it should not describe the
information as segment information.
If a financial report contains both the consolidated financial statements of a parent that is within
the scope of Ind AS 108 as well as the parent’s separate financial statements, segment information is
required only in the consolidated financial statements.
OPERATING SEGMENTS
An operating segment is a component of an entity:
a) that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the same
entity);
b) whose operating results are regularly reviewed by the entity’s chief operating decision maker
(CODM) to make decisions about resources to be allocated to the segment and assess its
performance; and
c) for which discrete financial information is available.
An operating segment may engage in business activities for which it has yet to earn revenues, for
example, start-up operations may be operating segments before earning revenues. A perusal of the
above requirements for identifying an operating segment differs with requirements contained in

447
Accounting Standard (AS) 17, Segment Reporting. According to AS 17, identification of business
segment is determined by considering risk and returns derived from an identical product or service
or group of related products and services. Similarly, identification of geographical segment is
determined by considering the risk and returns from products and services within a particular
economic environment.
Ind AS 108, however, requires the consideration of earning of revenues and incurring of expenses
from a business activity, the operating results of which are regularly reviewed by entity’s CODM. It
may be noted that AS 17 follows the approach of risk and return for determination of a business and
geographical segment.
Ind AS 108, however, follows the management approach meaning thereby that whichever business
activity is considered by the management as a separate source of revenue will be considered as an
operating segment, the operating results of which are regularly reviewed by CODM to make decision
about resources allocation and performance measurement.
Under this approach, not only would enterprises be likely to report more detailed information but the
knowledge obtained of the structure of an enterprise’s internal organisation is valuable in itself
because it highlights segments based on such structure. This approach results in the following
significant advantages:
a) An ability to see an enterprise “through the eyes of management” enhances a user’s ability to
predict actions or reactions of management that can significantly affect the enterprise’s
prospects for future cash flows.
b) Information about those segments is generated for management’s use and hence the
incremental cost of providing information for external reporting would be relatively low.
FUNCTIONS THAT ARE INTEGRAL TO BUSINESS

In case of a company, where the activities of a function are an integral part of company’s business
(for example, research and development function for a pharmaceuticals or software company), this
can be considered as an operating function provided that there is discrete information available that
is regularly reviewed by the CODM
Discontinued operations – whether an operating segment

If the discontinued operation:
a) continues to engage in business activities;
b) whose operating results are reviewed by the CODM; and
c) there is discrete information available to support the review. Then, it would meet the
definition of an operating segment
The term ‘chief operating decision maker’ (CODM) identifies a function, not necessarily a manager
with a specific title. That function is to allocate resources to and assess the performance of the
operating segments of an entity. Often the CODM of an entity is its chief executive officer or chief
operating officer but, for example, it may be a group of executive directors or others.
For many entities, the three characteristics of operating segments clearly identify its operating
segments. However, an entity may produce reports in which its business activities are presented in a
variety of ways. If the CODM uses more than one set of segment information, other factors may
identify a single set of components as constituting an entity’s operating segments, including the

448
nature of the business activities of each component, the existence of managers responsible for them,
and information presented to the board of directors.
Whether a committee of non-executive directors (NEDs) is likely to be the CODM.

NEDs are not usually involved in resource allocation decisions, other than at a very high level. Their
role is primarily related to governance than a management role. Accordingly, it may be difficult to
establish if they would meet the definition of the CODM.
However, a function (Board of directors), might include non-executive directors who’s sole
responsibility is governance. Such a function would be a CODM if the most significant operating, as
well as strategic, decisions are made by that function, even if those non-executive directors do not
participate in implementing such decisions.
Generally, an operating segment has a segment manager who is directly accountable to and maintains
regular contact with the CODM to discuss operating activities, financial results, forecasts, or plans
for the segment. The term ‘segment manager’ identifies a function, not necessarily a manager with a
specific title. The chief operating decision maker also may be the segment manager for some
operating segments. A single manager may be the segment manager for more than one operating
segment.
If the characteristics apply to more than one set of components of an organisation but there is only
one set for which segment managers are held responsible, that set of components constitutes the
operating segments.
The characteristics may apply to two or more overlapping sets of components for which managers are
held responsible. That structure is sometimes referred to as a matrix form of organisation. For
example, in some entities, some managers are responsible for different product and service lines
worldwide, whereas other managers are responsible for specific geographical areas. The CODM
regularly reviews the operating results of both sets of components, and financial information is
available for both.
In that situation, the entity should determine which set of components constitutes the operating
segments by reference to the core principle.

449
REPORTABLE SEGMENTS
An entity should report separately information about each operating segment that:
a) has been identified or results from aggregating two or more of those segments; and
b) exceeds the quantitative thresholds.
Standard specifies other situations in which separate information about an operating segment should
be reported.
Identify
CODM
Identify
Operating
Segments
Determine Disclose
Reportable information about
Operating each reportable
Segments segment
AGGREGATION CRITERIA
Operating segments often exhibit similar long-term financial performance if they have similar
economic characteristics. For example, similar long-term average gross margins for two operating
segments would be expected if their economic characteristics were similar.
Two or more operating segments may be aggregated into a single operating segment if aggregation is
consistent with the core principle of Ind AS 108, the segments have similar economic characteristics,
and the segments are similar in each of the following respects:
a) the nature of the products and services;
b) the nature of the production processes;
c) the type or class of customer for their products and services;
d) the methods used to distribute their products or provide their services; and
e) if applicable, the nature of the regulatory environment, for example, banking, insurance or
public utilities.
QUANTITATIVE THRESHOLDS
An entity should report separately information about an operating segment that meets any of the
following quantitative thresholds:
a) Its reported revenue, including both sales to external customers and intersegment sales or
transfers, is 10% or more of the combined revenue, internal and external, of all operating
segments.

450
b) The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute
amount, of:
i. the combined reported profit of all operating segments that did not report a loss and
ii. the combined reported loss of all operating segments that reported a loss.
c) Its assets are 10% or more of the combined assets of all operating segments. Operating
segments that do not meet any of the quantitative thresholds may be considered reportable
and separately disclosed, if management believes that information about the segment would be
useful to users of the financial statements.
All
All
QUANTITATIVE THRESHOLDS
An entity should report separately information about an operating segment that meets any of the
following quantitative thresholds:
a) Its reported revenue, including both sales to external customers and intersegment sales or
transfers, is 10% or more of the combined revenue, internal and external, of all operating
segments.
b) The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute
amount, of:
i. the combined reported profit of all operating segments that did not report a loss and
VOL-2 | CA PRATIK JAGATI 451

ii. the combined reported loss of all operating segments that reported a loss.
iii. Its assets are 10% or more of the combined assets of all operating segments.
Operating segments that do not meet any of the quantitative thresholds may be
considered reportable and separately disclosed, if management believes that
information about the segment would be useful to users of the financial statements.
Information about other business activities and operating segments that are not reportable should
be combined and disclosed in an ‘all other segments’ category separately from other reconciling items
in the reconciliations. The sources of the revenue included in the ‘all other segments’ category should
be described.
If management judges that an operating segment identified as a reportable segment in the

immediately preceding period is of continuing significance, information about that segment should
continue to be reported separately in the current period even if it no longer meets the criteria for
reputability.
If an operating segment is identified as a reportable segment in the current period in accordance

with the quantitative thresholds, segment data for a prior period presented for comparative
purposes should be restated to reflect the newly reportable segment as a separate segment, even if
that segment did not satisfy the criteria for reportability in the prior period, unless the necessary
information is not available and the cost to develop it would be excessive.
There may be a practical limit to the number of reportable segments that an entity separately
discloses beyond which segment information may become too detailed. Although no precise limit has
been determined, as the number of segments that are reportable increases above ten, the entity

452
should consider whether a practical limit has been reached.
DISCLOSURE
An entity should disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the business activities in which it engages and the economic
environments in which it operates.
An entity should disclose the following for each period for which a statement of profit and loss is
presented:
a) general information;
b) information about reported segment profit or loss, including specified revenues and expenses
included in reported segment profit or loss, segment assets, segment liabilities and the basis
of measurement; and
c) reconciliations of the totals of segment revenues, reported segment profit or loss, segment
assets, segment liabilities and other material segment items to corresponding entity amounts.
Reconciliations of the amounts in the balance sheet for reportable segments to the amounts in the
entity’s balance sheet are required for each date at which a balance sheet is presented. Information
for prior periods should be restated.
GENERAL INFORMATION
An entity should disclose the following general information:
a) factors used to identify the entity’s reportable segments, including the basis of organisation
(for example, whether management has chosen to organise the entity around differences in
products and services, geographical areas, regulatory environments, or a combination of
factors and whether operating segments have been aggregated); and
b) the judgements made by management in applying the aggregation criteria. This includes a brief
description of the operating segments that have been aggregated in this way and the economic
indicators that have been assessed in determining that the aggregated operating segments
share similar economic characteristics; and
c) types of products and services from which each reportable segment derives its revenues.
Factors that management used to identify the entity’s reportable segments

Diversified Company’s reportable segments are strategic business units that offer different
products and services. They are managed separately because each business requires different
technology and marketing strategies. Most of the businesses were acquired as individual units, and
the management at the time of the acquisition was retained.
Description of the types of products and services from which each reportable segment derives
its revenues
Diversified Company has five reportable segments: car parts, motor vessels, software, electronics
and finance. The car parts segment produces replacement parts for sale to car parts retailers. The
motor vessels segment produces small motor vessels to serve the offshore oil industry and similar
businesses. The software segment produces application software for sale to computer manufacturers
and retailers. The electronics segment produces integrated circuits and related products for sale to
computer manufacturers. The finance segment is responsible for portions of the company’s financial

453
operations including financing customer purchases of products from other segments and property
lending operations.
Information about profit or loss, assets and liabilities

An entity should report a measure of profit or loss for each reportable segment. An entity should
report a measure of total assets and liabilities for each reportable segment if such amounts are
regularly provided to the CODM. An entity should also disclose the following about each reportable
segment if the specified amounts are included in the measure of segment profit or loss reviewed by
the CODM, or are otherwise regularly provided to the CODM, even if not included in that measure of
segment profit or loss:
a) revenues from external customers;
b) revenues from transactions with other operating segments of the same entity;
c) interest revenue;
d) interest expense;
e) depreciation and amortisation;
f) material items of income and expense disclosed in accordance with Ind AS 1, Presentation of
Financial Statements;
g) the entity’s interest in the profit or loss of associates and joint ventures accounted for by
the equity method;
h) income tax expense or income; and
i) material non-cash items other than depreciation and amortisation.
An entity should report interest revenue separately from interest expense for each reportable
segment unless a majority of the segment’s revenues are from interest and the CODM relies
primarily on net interest revenue to assess the performance of the segment and make decisions
about resources to be allocated to the segment. In that situation, an entity may report that
segment’s interest revenue net of its interest expense and disclose that it has done so.
An entity should disclose the following about each reportable segment if the specified amounts are
included in the measure of segment assets reviewed by the CODM or are otherwise regularly
provided to the CODM, even if not included in the measure of segment assets:
a) the amount of investment in associates and joint ventures accounted for by the equity
method; and
b) the amounts of additions to non-current assets (For assets classified according to a liquidity
presentation, non-current assets are assets that include amounts expected to be recovered
more than twelve months after the reporting period) other than financial instruments,
deferred tax assets, net defined benefit assets (in accordance with Ind AS 19, Employee
Benefits) and rights arising under insurance contracts.
The following table illustrates a suggested format for disclosing information about segment profit or
loss, assets and liabilities. The same type of information is required for each year for which a
statement of profit and loss is presented. Diversified Company does not allocate tax expense (tax
income) or non-recurring gains and losses to reportable segments. In addition, not all reportable
segments have material non-cash items other than depreciation and amortisation in profit or loss.
The amounts in this illustration are assumed to be the amounts in reports used by the CODM.
Information about reportable segment profit or loss, assets and liabilities:

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Car Motor Software Electronic Finance All Total

parts vessels others
Revenue from external 3,000 5,000 9,500 12,000 5,000 1,000 35,500
customers (a)
Inter-segment revenues - - 3,000 1,500 - - 4,500
Interest revenue 450 800 1,000 1,500 - - 3,750
Interest expense 350 600 700 1,100 - - 2,750
Net interest revenue(b) - - - 1,000
Depreciation and amortisation 200 100 50 1,500 1,100 - 2,950
Reportable Segment profit 200 70 900 2,300 500 100 4,070
Other material Non-cash item:
Impairment of assets - 200 - - - - 200
Reportable segment assets 2,000 5,000 3,000 12,000 57,000 2,000 81,000
Expenditures for reportable 300 700 500 800 600 - 2,900
segment non- current assets
Reportable segment liabilities 1,050 3,000 1,800 8,000 30,000 43,850
a) Revenues from segments below the quantitative thresholds are attributable to four operating
segments of Diversified Company. Those segments include a small property business, an
electronics equipment rental business, a software consulting practice and a warehouse leasing
operation. None of those segments has ever met any of the quantitative thresholds for
determining reportable segments.
b) The finance segment derives a majority of its revenue from interest. Management primarily
relies on net interest revenue, not the gross revenue and expense amounts, in managing that
segment. Therefore, only the net amount is disclosed.
MEASUREMENT
The amount of each segment item reported should be the measure reported to the CODM for the
purposes of making decisions about allocating resources to the segment and assessing its
performance. Adjustments and eliminations made in preparing an entity’s financial statements and
allocations of revenues, expenses, and gains or losses should be included in determining reported
segment profit or loss only if they are included in the measure of the segment’s profit or loss that is
used by the chief operating decision maker. Similarly, only those assets and liabilities that are
included in the measures of the segment’s assets and segment’s liabilities that are used by the chief
operating decision maker should be reported for that segment. If amounts are allocated to reported
segment profit or loss, assets or liabilities, those amounts should be allocated on a reasonable basis.
If the CODM uses only one measure of an operating segment’s profit or loss, the segment’s assets or
the segment’s liabilities in assessing segment performance and deciding how to allocate resources,
segment profit or loss, assets and liabilities should be reported at those measures. If the CODM
uses more than one measure of an operating segment’s profit or loss, the segment’s assets or the
segment’s liabilities, the reported measures should be those that management believes are
determined in accordance with the measurement principles most consistent with those used in
measuring the corresponding amounts in the entity’s financial statements.

455
An entity should provide an explanation of the measurements of segment profit or loss, segment
assets and segment liabilities for each reportable segment. At a minimum, an entity should disclose
the following:
a) the basis of accounting for any transactions between reportable segments;
b) the nature of any differences between the measurements of the reportable segments’ profits
or losses and the entity’s profit or loss before income tax expense or income and discontinued
operations (if not apparent from the reconciliations). Those differences could include
accounting policies and policies or allocation of centrally incurred costs that are necessary for
an understanding of the reported segment information;
c) the nature of any differences between the measurements of the reportable segments’ assets
and the entity’s assets (if not apparent from the reconciliations. Those differences could
include accounting policies and policies for allocation of jointly used assets that are necessary
for an understanding of the reported segment information;
d) the nature of any differences between the measurements of the reportable segments’
liabilities and the entity’s liabilities (if not apparent from the reconciliations. Those
differences could include accounting policies and policies for allocation of jointly utilised
liabilities that are necessary for an understanding of the reported segment information;
e) the nature of any changes from prior periods in the measurement methods used to determine
reported segment profit or loss and the effect, if any, of those changes on the measure of
segment profit or loss; and
f) the nature and effect of any asymmetrical allocations to reportable segments. For example, an
entity might allocate depreciation expense to a segment without allocating the related
depreciable assets to that segment
Measurement of operating segment profit or loss, assets and liabilities

The accounting policies of the operating segments are the same as those described in the significant
accounting policies except that pension expense for each operating segment is recognised and
measured based on cash payments to the pension plan. Diversified Company evaluates performance
based on profit or loss from operations before tax expense not including non-recurring gains and
losses and foreign exchange gains and losses.
Diversified Company accounts for inter-segment sales and transfers as if the sales or transfers were
to third parties, i.e., at current market prices.
RECONCILIATIONS
An entity should provide reconciliations of all of the following:
a) the total of the reportable segments’ revenues to the entity’s revenue;
b) the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss
before tax expense (tax income) and discontinued operations. However, if an entity allocates
to reportable segments items such as tax expense (tax income), the entity may reconcile the
total of the segments’ measures of profit or loss to the entity’s profit or loss after those
items;
c) the total of the reportable segments’ assets to the entity’s assets if the segment assets are
reported;
d) the total of the reportable segments' liabilities to the entity's liabilities if segment liabilities
are reported; and

456
e) the total of the reportable segments' amounts for every other material item of information
disclosed to the corresponding amount for the entity.
All material reconciling items should be separately identified and described. For example, the amount
of each material adjustment needed to reconcile reportable segment profit or loss to the entity’s
profit or loss arising from different accounting policies should be separately identified and
described.
The following illustrate reconciliations of reportable segment revenues, profit or loss, assets and
liabilities to the entity’s corresponding amounts. Reconciliations also are required to be shown for
every other material item of information disclosed. The entity’s financial statements are assumed not
to include discontinued operations. The entity recognises and measures pension expense of its
reportable segments on the basis of cash payments to the pension plan, and it does not allocate
certain items to its reportable segments.
Reconciliation of reportable segment revenues, profit or loss, assets and liabilities:

Revenues
Total revenues for reportable segments 39,000
Other revenues 1,000
Elimination of intersegment revenues (4,500)
Entity’s revenues 35,500
Profit or Loss
Total profit or loss for reportable segments 3,970
Other profit or loss 100
Elimination of intersegment profits (500)
Unallocated amounts:
Litigation settlement received 500
Other corporate expenses (750)
Adjustment to pension expense in consolidation (250)
Income before income tax expense 3,070
Assets
Total assets for reportable segments 79,000
Other assets 2,000
Elimination of receivable from corporate headquarters (1,000)
Other unallocated amounts 1,500
Entity’s assets 81,500
Liabilities
Total liabilities for reportable segments 43,850
Unallocated defined benefit pension liabilities 25,000
Entity’s liabilities 68,850

457
Other material items Reportable Adjustments Entity totals

Segment totals
Interest revenue 3,750 75 3,825
Interest expenses 2,750 (50) 2,700
Net interest revenue 1,000 - 1,000
(finance segment only)
Expenditure for assets 2,900 1,000 3,900
Depreciation and amortisation 2,950 - 2,950
Impairment of assets 200 - 200
The reconciling item to adjust expenditures for assets is the amount incurred for the corporate
headquarters building, which is not included in segment information. None of the other adjustments
are material.
RESTATEMENT OF PREVIOUSLY REORTED INFORMATION

If an entity changes the structure of its internal organisation in a manner that causes the
composition of its reportable segments to change, the corresponding information for earlier
periods, including interim periods, should be restated unless the information is not available and the
cost to develop it would be excessive. The determination of whether the information is not
available and the cost to develop it would be excessive should be made for each individual item of
disclosure. Following a change in the composition of its reportable segments, an entity should
disclose whether it has restated the corresponding items of segment information for earlier
periods.
If an entity has changed the structure of its internal organisation in a manner that causes the
composition of its reportable segments to change and if segment information for earlier periods,
including interim periods, is not restated to reflect the change, the entity should disclose in the
year in which the change occurs segment information for the current period on both the old basis
and the new basis of segmentation, unless the necessary information is not available and the cost to
develop it would be excessive.
ENTITY WIDE DISCLOSURES

Some entities’ business activities are not organised on the basis of differences in related products
and services or differences in geographical areas of operations. Such an entity’s reportable segments
may report revenues from a broad range of essentially different products and services, or more than
one of its reportable segments may provide essentially the same products and services.
Similarly, an entity’s reportable segments may hold assets in different geographical areas and report
revenues from customers in different geographical areas, or more than one of its reportable
segments may operate in the same geographical area. Certain information required should be provided
only if it is not provided as part of the reportable segment information required by Ind AS 108.
Information about products and services

An entity should report the revenues from external customers for each product and service, or each
group of similar products and services, unless the necessary information is not available and the cost
to develop it would be excessive, in which case that fact should be disclosed. The amounts of
revenues reported should be based on the financial information used to produce the entity’s financial

458
statements.
Information about geographical areas

An entity should report the following geographical information, unless the necessary information is
not available and the cost to develop it would be excessive:
a) revenues from external customers
i. attributed to the entity's country of domicile and
ii. attributed to all foreign countries in total from which the entity derives revenues. If
revenues from external customers attributed to an individual foreign country are
material, those revenues should be disclosed separately. An entity should disclose the
basis for attributing revenues from external customers to individual countries; and
b) non-current assets (For assets classified according to a liquidity presentation, non-current

assets are assets that include amounts expected to be recovered more than twelve months
after the reporting period) other than financial instruments, deferred tax assets, post-
employment benefit assets, and rights arising under insurance contracts (i) located in the
entity’s country of domicile and (ii) located in all foreign countries in total in which the entity
holds assets. If assets in an individual foreign country are material, those assets should be
disclosed separately.
The amounts reported should be based on the financial information that is used to produce the
entity’s financial statements. If the necessary information is not available and the cost to develop it
would be excessive, that fact should be disclosed.
An entity may provide, in addition to the information required by this paragraph, subtotals of
geographical information about groups of countries.
The following illustrates the geographical information required (Because Diversified Company's
reportable segments are based on differences in products and services, no additional disclosures of
revenue information about products and services are required.
Geographical Information Revenue(a) Non-Current Assets
United States 19,000 11,000

Canada 4,200 -
China 3,400 6,500
Japan 2,900 3,500
Other countries 6,000 3,000
35,500 24,000
Total
(a) Revenue is attributed to countries on the basis of the customer’s location.
Information about major customers

An entity should provide information about the extent of its reliance on its major customers. If
revenues from transactions with a single external customer amount to 10% or more of an entity’s
revenues, the entity should disclose that fact, the total amount of revenues from each such
customer, and the identity of the segment or segments reporting the revenues.
The entity need not disclose the identity of a major customer or the amount of revenues that each

459
segment reports from that customer. For the purposes of Ind AS 108, a group of entities known to a
reporting entity to be under common control should be considered a single customer.
However, judgement is required to assess whether a government (including government agencies and
similar bodies whether local, national or international) and entities known to the reporting entity to
be under the control of that government are considered a single customer.
In assessing this, the reporting entity should consider the extent of economic integration between
those entities.
The following illustrates the information about major customers. Neither the identity of the
customer nor the amount of revenues for each operating segment is required.
Revenues from one customer of Diversified Company's software and electronics segments represent
approximately ₹5,000 of the Company's total revenues.
Diagram to assist in identifying reportable segments

The following diagram illustrates how to apply the main provisions for identifying reportable
segments as defined in Ind AS 108.
Overall determination of reportable operating segments based on management reporting system
YES Aggregate
Do some operating segments if
segments meet all desired
aggregation criteria?
NO
YES Do some operating

segments meet the
quantitative
thresholds?
NO
YES
Do some remaining
Aggregate operating segments
segments meet a majority of the
if desired aggregation criteria?

460
NO
YES
Do identified
reportable segments
account for 75% of the
entity revenue?
NO
Report additional segment if

Aggregate remaining
These are reportable external revenue of all
segments into ‘all other
segments to be disclosed segment is less than 75% of
segments’ category
the entity’s revenue

461
Analysis of Financial Statements
FINANCIAL STATEMENTS OF CORPORATE ENTITIES

The format and content of the financial statements for companies is required to be in accordance
with Schedule III to the Companies Act, 2013. Further, there are several additional disclosure
requirements both with respect to the balance sheet and statement of profit and loss.
Certain industries have formats specified by their industry regulators, which need to be followed by
them. This fact has also been recognised in the Companies Act, 2013 in the proviso to Section 129(1)
which implies that the format set out in Schedule III will not be applicable to insurance companies
and banking companies. The formats for these companies are prescribed by specific regulators.
In terms of format, Schedule III only prescribes the vertical format of balance sheet and does not
provide the alternative of using the horizontal format. Further, Schedule III sets out the minimum
requirements for disclosure on the face of the balance sheet and the statement of profit and loss. It
allows line items, sub-line items and sub-totals to be presented as an addition or substitution on the
face of the financial statements when such presentation is relevant to an understanding of the
company’s financial position or performance or to cater to industry/sector- specific disclosure
requirements or when required for compliance with the amendments to the Companies Act or under
the Standards. Schedule III now requires all disclosures to be made as a part of the notes.
Apart from granting an overriding status to the Standards, cognizance has also been given to the
requirements of Standards in the format of the balance sheet and accordingly elements such as
deferred tax assets and intangible assets have been included in the balance sheet. Also, it has been
clearly stated that the disclosure requirements specified in Part I and Part II or Part III of the
Schedule III are in addition to and not in substitution of the disclosure requirements specified in
the respective notified Standards. The terms used in Schedule III are to be considered as per the
respective notified Standards.
One of the pertinent aspect which needs to be considered in the preparation of financial statements
with regard to Schedule III is that it does not prescribe the accounting treatment to be adopted by
the entity; it only prescribes the format and content. Consequently, the fact that a particular item
has been included in the format of the balance sheet in Schedule III does not imply that the
particular item can be recognized in the balance sheet. Schedule III prescribes only presentation
and not treatment which is a subject matter of Standards, which has also been specifically
acknowledged in Schedule III.
CHARACTERSTIC OF GOOD FINANCIAL STATEMENT

In the Indian scenario, the ICAI has been the recognized accounting body issuing generally accepted
accounting policies and has made the standards mandatory for enterprises operating within India.
Besides Accounting Standards, ICAI has also issued the converged set of Ind AS that is adopted and
notified by MCA, and many large entities have already implemented it or are in the transition phase
for adoption (depending on the net worth or other specified criteria).
The key features to any set of financial statements are:

462
1. True and fair view of the affairs of the enterprise:

This is the most important feature of any set of financial statements. The user of the
financial statements depends fully on the same and hence the reliability factor is supreme.
2. Relevance:
The financial statements should provide the relevant information for the period it is
presented. There is no point in presenting historical data of past several years that are
redundant as of date. The key here is that the user of the financial statements should be in a
position to take independent decision after reading the financial statements. This decision can
be different for different users – for an investor the decision whether to hold the shares of
the enterprise will stem from the set of statements, for a senior employee of the company it
can be the future growth prospects of the company etc. But what is important is that the
users should be empowered to make decisions through the financial statements
3. Understandability:
For the user to make sense, the financial statements should be readable and content lucid to
digest. Even a layman should be able to read the same, and understand the basic information,
if not the accounting policies and procedures.
4. Consistency:
The users of the financial statements will be benefitted only if the statements are released in
periodic intervals and in standard formats. Else, the entire purpose of furnishing financials will
be defeated. That is the reason that laws are prescribed for presentation formats and
periodicity.
5. Regulatory Compliance:
Needless to say, the tax authorities, market regulators etc. rely hugely on financial
statements to understand and gauge the compliances met by the enterprise.
6. Universality:
Last but not the least; the financial statements should be comparable both within the industry
and outside. So financial statements by two different companies should look in similar lines if
both are engaged in, say, manufacturing steel. Likewise, the financials of a company
manufacturing steel in India should be comparable to the set of financial statements of a
company based out of US engaged in the similar line of business.
The need to have the above key characteristics have brought the accounting bodies world
over to come together to have a set of common standards for better integration and
harmonization of accounting principles and practices.
BEST PRACTICES - APPLICABLE TO ALL COMPANIES

Following are some of the practices, if followed by the preparers of the financial statements, it
would lead to better presentation and disclosure and will also serve the meaningful purpose for
various stakeholders in understanding the functioning, financial position and financial performance of
the entity and in appropriate decision making:
1. Compliance
Financial reporting is a regulated activity and compliance with the requirements is a must.
Comply with the standards and regulations but also ensure your financial statements are an
effective part of your wider communication with your stakeholders. It should be simple and

463
understandable without any change in the interpretation.

Example : Usage of the term ‘remaining maturity’ instead of ‘original maturity’ while describing
cash and cash equivalents.
2. Complete
The information disclosed in the financial statements should be complete and should not lead
to any further cross questioning in the mind of the users. Ensure consistency of disclosures
across the financial statements
Example: Where the accounting policy states that “Balances of debtors, creditors and loans
and advances are subject to reconciliations and confirmations”. This indicates that these
balances may or may not be appropriately stated as well as raising questions regarding the
appropriateness of the audit process.
3. Simple and specific:

a) Draft your notes, accounting policies, commentary on more complex areas in simple and
plain English. Ensuring that there are no vague or ambiguous notes.
Example: The definition of a derivative and a hedged item and how the company uses such
items:
“A derivative is a type of financial instrument the company uses to manage risk. It is
something that derives its value based on an underlying asset. It's generally in the form of
a contract between two parties entered into for a fixed period. Underlying variables, such
as exchange rates, will cause its value to change over time. A hedge is where the company
uses a derivative to manage its underlying exposure. The company's main exposure is to
fluctuation in foreign exchange risk. We manage this risk by hedging forex movements, in
effecting the boundaries of exchange rate changes to manageable, affordable amounts.”
b) Make your policies clear and specific.
c) Ensure that there should not be any vague or ambiguous notes, with no further information
or explanation which may lead to misinterpretation of information
d) Reduce generic disclosures and focus on company specific disclosures that explain how the
company applies the policies
Example : A note stated “Land not registered in the name of the company has been given
for the use of group companies”. However, there are no disclosures regarding such lease
elsewhere in the financial statements. This leads to ambiguity regarding whether the land
has been capitalized in the books of account or not.
A better disclosure would be to include this note in the note relating to ‘Property, plant
and Equipment’ with an Asterix against land and a note which states “Land includes area
measuring XX acres, towards which the registration process is still in progress. This land
has been given on lease to group companies.”
4. Transparency:
In preparation of financial statements many a times certain assumptions, or other bases
are taken. Disclose those assumptions and bases transparently, so that they users are not
misled. Rather such transparency shall provide useful additional information and substantiate
your decision/judgement.
5. Materiality:

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a) The lack of clarity in how to apply the concept of materiality is perceived to be one of the
main drivers for overloaded financial statements. Make effective use of materiality to
enhance the clarity and conciseness of your financial statements.
b) Information should only be disclosed if it is material. It is material if it could influence
users’ decisions which are based on the financial statements.
c) Your materiality assessment is the ‘filter’ in deciding what information to disclose and
what to omit.
d) Once you have determined which specific line items require disclosure, you should assess
what to disclose about these items, including how much detail to provide and how best to
organise the information.
6. Integration of Notes
a) Notes cover the largest portion of the financial statements. They are an effective tool of
communication and have the greatest impact on the effectiveness of your financial
statements.
b) Group notes into categories, place the most critical information more prominently or a
combination of both.
c) Integrate your main note of a line item with its accounting policy and any relevant key
estimates and judgements.
d) Ensuring that the accounting policies are disclosed in one place and not scattered across
various notes.
For example, in one case it was observed that the policy of recognizing 100% depreciation
on assets costing less than ₹ 5,000 was specified in the note on fixed assets, rather than
in the accounting policy for fixed assets.
7. Disclosure of Significant Accounting Policies

a) The financial statements should disclose your significant accounting policies. Disclose only
your significant accounting policies – remove your non-significant disclosures that do not
add any value.
b) Your disclosures should be relevant, specific to your company and explain how you apply
your policies.
c) The aim of accounting policy disclosures is to help your investors and other stakeholders
to properly understand your financial statements
d) Use judgement to determine whether your accounting policies are significant, considering
not only the materiality of the balances or transactions affected by the policy but also
other factors including the nature of the company’s operation.
8. Disclosures of Key Estimates and Judgements

a) Effective disclosures about the most important estimates and judgements enable investors
to understand your financial statements.
b) Focus on the most difficult, subjective and complex estimates.
c) Include details of how the estimate was derived, key assumptions involved, the process for
reviewing and an analysis of its sensitiveness.
d) Provide sufficient background information on the judgement, explain how the judgement
was made and the conclusion reached.

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9. Integrated Approach
a) Financial statements are just one part of your communication with the stakeholders. An
annual report typically includes financial statements, a management commentary and
information about governance, strategy and business developments, CSR Reporting,
Business Responsibility Reporting etc. There is also a growing trend towards integrated
reporting.
b) To ensure overall effective communication consider the annual report as a whole and
deliver a consistent and coherent message throughout.
c) Ind AS 1 also acknowledges that one may present, outside the financial statements, a
financial review that describes and explains the main features of the company’s financial
performance and financial position, and the principal uncertainties it faces.
d) Many companies also present, outside the financial statements, reports and statements
such as environmental reports and value-added statements, particularly in industries in
which environmental factors are significant and when employees are regarded as an
important user group.
e) Even though the reports and statements presented outside financial statements are
outside the scope of AS / Ind AS, they are not out of the scope of regulation.

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Integrated Reporting
In the last few decades, the concept of value is slowly and gradually shifting from price based or
market value of an entity to asset based whether it is tangible or intangible assets. Since the
dynamics of the global economy are changing, today’s organizations require to assess the value
created over the time by actively managing a wider range of resources. Resources like intangible
assets such as intellectual capital, research and development, brand value, natural and human capital
have become as important as tangible assets in many industries. However, these intangible assets are
not universally assessed in current financial reporting frameworks even though they often represent
a substantial portion of market value.
Integrated reporting is part of an evolving corporate reporting system. This system is enabled by
comprehensive frameworks and standards, addressing measurement and disclosure in relation to all
capitals, appropriate regulation and effective assurance. Integrated reporting is consistent with
developments in financial and other reporting, but an integrated report also differs from other
reports and communications in a number of ways. In particular, it focuses on the ability of an
organization to create value in the short, medium and long term.
ORGANISATIONAL STRUCTURE/ ISSUING AUTHORITY

Integrated Reporting (<IR>) is a concept first introduced in South Africa. Later on, this concept
travelled to many countries like German, France, Spain, Brazil and UK and integrated reporting was
made along with their financial statements in one or the other manner. In 2010, the International
Integrated Reporting Council (IIRC) was set up which aims to create the globally accepted integrated
reporting framework.
The International Integrated Reporting Council (IIRC) is a global coalition of:
1) Regulators
2) Investors
3) Companies
4) Standard setters
5) The accounting profession and NGOs
Together, this coalition shares the view that communication about value creation should be the next
step in the evolution of corporate reporting. With this purpose they issued the International
Integrated Reporting (IR) Framework.
The framework has been developed keeping in mind the greater flexibility to be given to the entity
and the management in the reporting but at the same time should target to report the value created
by the organisation through various capital. Integrated Reporting as the name suggest will integrate
both financial and non- financial information. In future, it will become the only report to be issued by
the organisation.
WHAT IS INTEGRATED REPORTING <IR>?

Integrated reporting is a concept that has been created to better articulate the broader range of
measures that contribute to long-term value and the role organizations play in society. Integrated
Reporting is enhancing the way organizations think, plan and report the story of their business.
Central to this is the proposition that value is increasingly shaped by factors additional to financial
performance, such as reliance on the environment, social reputation, human capital skills and others.
This value creation concept is the backbone of integrated reporting and is the direction for the

future of corporate reporting. In addition to financial capital, integrated reporting examines five
additional capitals that should guide an organization’s decision-making and long-term success — its
value creation in the broadest sense.
Integrated Reporting reflects how our company thinks and does business. This approach allows us to
discuss material issues facing our business and communities and show how we create value, for
shareholders and for society as a whole.” Dimitris Lois, CEO, Coca-Cola HBC
Organizations are using <IR> to communicate a clear, concise, integrated story that explains how all
of their resources are creating value. <IR> is helping businesses to think holistically about their
strategy and plans, make informed decisions and manage key risks to build investor and stakeholder
confidence and improve future performance.
Integrated Reporting (<IR>) promotes a more cohesive and efficient approach to corporate reporting
and aims to improve the quality of information available to providers of financial capital to enable a
more efficient and productive allocation of capital.
Integrated Reporting (<IR>) is shaped by a diverse coalition including business leaders and investors
to drive a global evolution in corporate reporting.
An integrated report is a concise communication about how an organization’s:

1) Strategy
2) Governance
3) Performance And
4) Prospects
in the context of its external environment

It leads to the creation, preservation or erosion of value over:
1) Short,
2) Medium, and
3) Long term
Concise
Communication of:
1) Strategy In the Leads to
context of creation,
2) Governance
External preservation or
3) Performance erosion of value
Environment
4) Prospects
PURPOSE OF INTEGRATED REPORTING

The primary purpose of an integrated report is to explain to providers of financial capital how an
organization creates, preserves or erodes value over time. It therefore contains relevant
information, both financial and other.
An integrated report benefits all stakeholders interested in an organization’s ability to create value
over time, including:
1) Employees
2) Customers
3) Suppliers
4) Business partners

5) Local communities
6) Legislators
7) Regulators and
8) Policy-makers.
SALIENT FEATURES OF INTEGRATED REPORTING FRAMEWORK
Principle Based Approach

The International <IR> Framework (the Framework) takes a principles-based approach. The
Framework is principles-based framework. It does not prescribe specific key performance indicators,
measurement methods or the disclosure of individual matters. Those responsible for the preparation
and presentation of the integrated report therefore need to exercise judgement, given the specific
circumstances of the organization.
It intent to strike an appropriate balance between flexibility and prescription that recognizes the
wide variation in individual circumstances of different organizations while enabling a sufficient
degree of comparability across organizations to meet relevant information needs.
Targets the Private Sector or Profit-Making Companies

This Framework is written primarily in the context of private sector, for-profit companies of any
size but it can also be applied, adapted as necessary, by public sector and not-for-profit
organizations.
Quantitative and Qualitative information

Quantitative indicators, including key performance indicators and monetized metrics, and the
context in which they are provided can be very helpful in explaining how an organization creates,
preserves or erodes value and how it uses and affects various capitals.
The ability of the organization to create value can best be reported on through a combination of
quantitative and qualitative information.
It is not the purpose of an integrated report to quantify or monetize the value of the organization at
a point in time, the value it creates, preserves or erodes over a period, or its uses of or effects on all
the capitals.
Identifiable Communication
An integrated report should be a designated, identifiable communication.An integrated report may be
prepared in response to existing compliance requirements, and may be either a standalone report or
be included as a distinguishable, prominent and accessible part of another report or communication.
It should include, transitionally on a comply or explain basis, a statement by those charged with
governance accepting responsibility for the report.
An integrated report is intended to be more than a summary of information in other communications

(e.g., financial statements, a sustainability report, analyst calls, or on a website); rather, it makes
explicit the connectivity of information to communicate how value is created, preserved or eroded
over time.
Financial and Non-Financial Items

The primary purpose of an integrated report is to explain to providers of financial capital how an
organization creates value over time. It, therefore, contains relevant information, both financial and
other.

Value Creation, Preservation or Erosion for the Organization and for Others
Value created, preserved or eroded by an organization over time manifests itself in increases,
decreases or transformations of the capitals caused by the organization’s business activities and
outputs. That value has two interrelated aspects – value created, preserved or eroded for:
1) The organization itself, which affects financial returns to the providers of financial capital
2) Others (i.e., stakeholders and society at large)
CAPITALS
The capitals are stocks of value that are increased, decreased or transformed through the activities
and outputs of the organization.
The overall stock of capitals is not fixed over time. There is a constant flow between and within the
capitals as they are increased, decreased or transformed.
Example: 1
When an organization improves its human capital through employee training, then the related
training costs reduce its financial capital. The effect is that financial capital has been
transformed into human capital
The Framework has categorised the capital into 6 main forms. However, at the same time, it stresses
upon that not necessary the same categorisation of capital be followed by the entities in their
integrated reporting.
CAPITAL
MANUFACTURED NATURAL
SOCIAL &
FINANCIAL INTELLECTUAL HUMAN
RELATIONSHIP
1) Financial Capital
The pool of funds
a) available to an organization for use in the production of goods or the provision of
services
b) obtained through financing, such as debt, equity or grants; or
c) generated through operations or investments.
2) Manufactured Capital
Manufactured physical objects (as distinct from natural physical objects) that are available to
an organization for use in the production of goods or the provision of services, including:
a) Buildings
b) Equipment
c) Infrastructure (such as roads, ports, bridges, and waste and water treatment plants).
3) Intellectual Capital
Organizational, knowledge-based intangibles, including:

a) Intellectual property, such as patents, copyrights, software, rights and licences

b) “Organizational capital” such as tacit knowledge, systems, procedures and protocols.
4) Human Capital
People’s competencies, capabilities and experience, and their motivations to innovate, including
their:
a) Alignment with and support for an organization’s governance framework, risk
management approach, and ethical values
b) Ability to understand, develop and implement an organization’s strategy
c) Loyalties and motivations for improving processes, goods and services, including their
ability to lead, manage and collaborate.
5) Social and Relationship Capital

The institutions and the relationships within and between communities, groups of stakeholders
and other networks, and the ability to share information to enhance individual and collective
well-being. Social and relationship capital includes:
a) Shared norms, and common values and behaviour
b) Key stakeholder relationships, and the trust and willingness to engage that an
organization has developed and strives to build and protect with external stakeholders
c) Intangibles associated with the brand and reputation that an organization has
developed
d) An organization’s social licence to operate
6) Natural Capital
All renewable and non-renewable environmental resources and processes that provide goods or
services that support the past, current or future prosperity of an organization.
It includes:
a) Air, water, land, minerals and forests
b) Biodiversity and eco-system health
Note: Not all capitals are equally relevant or applicable to all organizations. While most
organizations interact with all capitals to some extent, these interactions might be relatively
minor or so indirect that they are not sufficiently important to include in the integrated report.
CONTRIBUTION OF CAPITALS IN INTEGRATED REPORTING

The stock of capitals available to the organization are increased, decreased or transformed as a
result of the value it is creating through various activities. The connectivity and interdependence
among the various capitals or inputs — specifically their influence on the organization’s long-term
financial performance — should be communicated in an integrated report.
The capitals not only interact with each other, but they are also influenced by external factors.
These include the economic climate, technological progress, social changes and environmental issues.
Many a times, the capitals become an internally generated intangible asset.
To understand how an organisation uses its capitals, how they relatable to each other and the
influence of external factors, it’s vital to define the strategy, and series of KPIs, to measure the
strategy’s progress.

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. This requires a very different mind -set when looking at examples of good reporting.
There are many good illustrations of how to report specific matters but examples can only provide a
starting point for a company’s own reporting, not a template.
Strategic focus
Consistency & and futute
Orientation
Comparability
Connectivity
Materiality & of
Reliability and Information
Completeness
Stakeholder
Relationship
The starting point for understanding how Integrated Reporting works is considering the application
of the content elements and guiding principles of the IIRC’s Integrated Reporting framework. The
following Guiding Principles underpin the preparation and presentation of an integrated report,
informing the content of the report and how information is presented.
Strategic Focus and Future Orientation

An integrated report should provide:
a) Insight into the organization’s strategy and

b) How it relates to the organization’s ability

to create value and to its use of and effects on the capitals in:
 Short,
 Medium, and
 Long term
Applying the Guiding Principle is not limited to the Content Elements. It guides the selection and
presentation of other content, and may include, for example:
a) Highlighting significant risks, opportunities and dependencies flowing from the organization’s
market position and business model.
b) The views of those charged with governance about:
i. The relationship between past and future performance, and the factors that can
change that relationship
ii. How the organization balances short-, medium- and long-term interests
iii. How the organization has learned from past experiences in determining future
strategic directions.
Adopting a strategic focus and future orientation includes clearly articulating how the continued
availability, quality and affordability of significant capitals contribute to the organization’s ability to
achieve its strategic objectives in the future and create value.
Extract of ABC LTD Sustainability Report Year 2016 Building Natural Achievements and Social
Capital
ABC’s vision of sustainable and inclusive growth has led to the adoption of a Triple Bottom Line
approach that simultaneously builds economic, social and environmental capital.
It’s Social Investment Programmes, including Social Forestry, Soil & Moisture Conservation,
Sustainable Agriculture, Livestock Development, Biodiversity, Women Empowerment, Education,
Skilling & Vocational Training and Health & Sanitation, have had a transformational impact on rural
India.
These Programmes strive to empower stakeholder communities to conserve, manage and augment
their natural resources, create sustainable on and off-farm livelihood sources and improve social
infrastructure in rural areas.
Through its Businesses and associated value chains, ABC has supported the generation of around 6
million livelihoods, touching the lives of many living at the margins in rural India. In line with its
commitment to environmental goals, ABC has constantly strived to reduce the impact of its
Businesses, processes, products and services and create a positive footprint. ABC has adopted a
low-carbon growth strategy through reduction in specific energy consumption and enhancing use
of renewable energy sources.
ABC also endeavours to reduce specific water consumption and augment rainwater harvesting
activities both on site and off site at watershed catchment areas, as well as minimise waste
generation, maximise reuse & recycling and use external post-consumer waste as raw material in
its units.
Connectivity of Information
An integrated report shows the connections between the different components:
a) Organisation's business model
b) External factors that affect the organisation
c) Various resources and relationships on which the organisation and its performance are
dependent upon

Note: The report should highlight the connection, for example, between past, present and future
performance, between financial and non-financial information, and between qualitative and
quantitative information.
Sample Report
Schiphol Group Company – An Extract
Mission
We aim to rank among the world’s leading airport companies. We create sustainable value for our
stakeholders by developing Airport Cities and by positioning Amsterdam Airport Schiphol as
Europe’s preferred airport. Schiphol ranks among the most efficient transport hubs for air, rail
and road connections and offers its visitors and the businesses located at Schiphol the services
they require 24 hours a day, seven days a week.
Both on site and off site at watershed catchment areas, as well as minimise waste generation,
maximise reuse & recycling and use external post-consumer waste as raw material in its units.
Profile
XYZ Group is an airport operator, focusing particularly on Airport Cities. A prime example of an
Airport City is Amsterdam Airport Schiphol. Europe’s fifth-largest airport in terms of passengers
and third-largest in terms of cargo water consumption and augment rainwater harvesting activities
In addition to our Dutch operations (Amsterdam Airport Schiphol, Rotterdam The Hague Airport,
Eindhoven Airport and Lelystad Airport), we have direct and indirect operations in the United
States, Australia, Italy, Indonesia, Aruba and Sweden.
Activities
The operation of airport and development of airport cities involve 3 inextricably linked business
areas: Aviation, Consumers and Real Estate. The integrated activities of Aviation, Consumers and
Real Estate form the core of the Airport City concept. This concept is not only applied to
Amsterdam Airport Schiphol but also – either in part or in full – to other airports, particularly
through the Alliances & Participations business area. Our revenues derived from this broad range
of activities are made up for the most part of airport charges, concession fees, parking fees,
retail sales, rents and leases, and income from our international activities. Amsterdam Airport
Schiphol is an important contributor to the Dutch economy. It serves as one of the home bases
for Air France-KLM and its SkyTeam partners, from which these airlines serve their European and
intercontinental destinations. Amsterdam Airport Schiphol offers a high-quality network serving
301 destinations.
Strategy
The maintenance and reinforcement of the Main Port’s competitive position, and that of
Amsterdam Airport Schiphol in particular, is the single most important objective on which our
strategy is focused. This strategy combines the airport’s socio-economic function with our
entrepreneurial business operations.
The interconnection and interaction between these two elements are crucial for the robust and
future-proof development of Schiphol Group going forward. Corporate Responsibility is an integral
part of this strategy and has been permeating increasingly all aspects of our operations.
Stakeholders
Schiphol Group has many stakeholders and their interests can be quite divergent. We do our
utmost to conduct an active dialogue with all our stakeholders. In this, and in everything else that
we do, our core values play a key role: reliability, efficiency, hospitality, inspiration and

sustainability. Achieving the ambition to be Europe’s preferred airport calls for a culture driven
by a desire to fulfil or, better yet, surpass the expectations of customers and local stakeholders
specific water consumption and augment rainwater harvesting activities both on site and off site
at watershed catchment areas, as well as minimise waste generation, maximise reuse & recycling
and use external post-consumer waste as raw material in its units.
Stakeholder Relationships
An integrated report should provide insight into:
a) Nature and Quality of the organization’s relationships with its
b) Key stakeholders
including how and to what extent the organization understands, takes into account and responds to
their legitimate needs and interests
Materiality
An integrated report should disclose information about matters that substantively affect the
organization’s ability to create value over:
 Short,
 Medium, and
 Long term
The materiality determination process for the purpose of preparing and presenting an integrated
report involves:
a) Identifying relevant matters based on their ability to affect value creation
b) Evaluating the importance of relevant matters in terms of their known or potential effect on
value creation
c) Prioritizing the matters based on their relative importance
d) Determining the information to disclose about material matters.
Conciseness
An integrated report should be concise. An integrated report includes sufficient context to
understand the organization’s strategy, governance, performance and prospects without being
burdened with less relevant information.
In achieving conciseness, an integrated report:

a) Applies the materiality determination process
b) Follows a logical structure and includes internal cross-references as appropriate to limit
repetition
c) May link to more detailed information, information that does not change frequently or
external sources
d) Expresses concepts clearly and in as few words as possible
e) Favours plain language over the use of jargon or highly technical terminology
f) Avoids highly generic disclosures, often referred to as “boilerplate”, that are not specific to
the organization.
Reliability and Completeness

An integrated report should include all material matters, both positive and negative, in a balanced
way and without material error.

Consistency and Comparability

The information in an integrated report should be presented:
a) On a basis that is consistent over time.
b) In a way that enables comparison with other organizations to the extent it is material to the
organization’s own ability to create value over time
Note: The use of industry benchmarks, indicators of best practice, and ratios are tools that can
improve reporting consistency and industry comparability.
CONTENT ELEMENTS OF INTEGRATED REPORTING

An integrated report includes the eight Content Elements.
The Content Elements are fundamentally linked to each other and are not mutually exclusive. The
order of the Content Elements is not the only way they could be sequenced.The Content Elements are
not intended to serve as a standard structure for an integrated report with information about them
appearing in a set sequence or as isolated, standalone sections. Rather, information in an integrated
report is presented in a way that makes the connections between the Content Elements apparent.
The content of an organization’s integrated report will depend on the individual circumstances of the
organization. The Content Elements are therefore stated in the form of questions rather than as
checklists of specific disclosures. Accordingly, judgement needs to be exercised in applying the
Guiding Principles to determine what information is reported, as well as how it is reported.
ORGANISATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT

Question to be answered through this element in the integrated reporting is “What does the
organisation do and what are the circumstances under which it operates?”
1) Organisational Overview
An integrated report identifies the organization’s mission and vision, and provides essential
context by identifying matters such as:
a) The organization’s:
i. Culture, ethics and values
ii. Ownership and operating structure
iii. Principal activities and markets
iv. Competitive landscape and market positioning (considering factors such as the
threat of new competition and substitute products or services, the bargaining
power of customers and suppliers, and the intensity of competitive rivalry)
v. Position within the value chain
b) KQI: Key quantitative information

i. Number of employees
ii. Revenue
iii. Number of countries in which the organization operates
iv. Significant changes from prior periods
c) Significant factors:
i. Significant factors affecting the external environment and the organization’s
response
2) External Environment:

Significant factors affecting the external environment include aspects of:

a) Legal
b) Commercial
c) Social
d) Environmental
e) Political context
That affects the organization’s ability to create value in the short, medium or long term.
GOVERNANCE
Question to be answered through this element in the integrated reporting is “How does the
organisation’s governance structure support its ability to create value in the short, medium and long
term?”
An integrated report provides insight about how such matters as the following are linked to its ability
to create value:
1) The organization’s leadership structure, including the skills and diversity (e.g., range of
backgrounds, gender, competence and experience) of those charged with governance and
whether regulatory requirements influence the design of the governance structure.
2) Specific processes used to make strategic decisions and to establish and monitor the culture
of the organization, including its attitude to risk and mechanisms for addressing integrity and
ethical issues
3) Particular actions those charged with governance have taken to influence and monitor the
strategic direction of the organization and its approach to risk management
4) How the organization’s culture, ethics and values are reflected in its use of and effects on the
capitals, including its relationships with key stakeholders
5) Whether the organization is implementing governance practices that exceed legal
requirements
6) The responsibility those charged with governance take for promoting and enabling innovation
7) How remuneration and incentives are linked to value creation in the short, medium and long
term, including how they are linked to the organization’s use of and effects on the capitals.
BUSINESS MODEL
Question to be answered through this element in the integrated reporting is “What is the
organisation’s business model?”
An integrated report describes the business model, including key:
1) Inputs
2) Business activities
3) Outputs
4) Outcomes
Inputs
An integrated report shows how key inputs relate to the capitals on which the organization depends,
or that provide a source of differentiation for the organization, to the extent they are material to
understanding the robustness and resilience of the business model.
Business Activities
An integrated report describes key business activities. This can include:
1) How the organization differentiates itself in the market place?

2) The extent to which the business model relies on revenue generation after the initial point of
sale
3) How the organization approaches the need to innovate?
4) How the business model has been designed to adapt to change?
When material, an integrated report discusses the contribution made to the organization’s long- term
success by initiatives such as process improvement, employee training and relationships management.
Outputs
An integrated report identifies an organization’s key products and services. There might be other
outputs, such as by-products and waste (including emissions), that need to be discussed within the
business model disclosure depending on their materiality.
Outcomes
An integrated report describes key outcomes, including:
1) Both internal outcomes (e.g., employee morale, organizational reputation, revenue and cash
flows) and external outcomes (e.g., customer satisfaction, tax payments, brand loyalty, and
social and environmental effects)
2) Both positive outcomes (i.e., those that result in a net increase in the capitals and thereby
create value) and negative outcomes (i.e., those that result in a net decrease in the capitals
and thereby erode value).
Risks and Opportunities

Question to be answered through this element in the integrated reporting is “What are the specific
risks and opportunities that affect the organisation’s ability to create value over the short, medium
and long-term, and how is the organisation dealing with them?”
An integrated report identifies the key risks and opportunities that are specific to the organization,
including those that relate to the organization’s effects on, and the continued availability, quality and
affordability of, relevant capitals in the short, medium and long term.
Strategy and Resource Allocation
Question to be answered through this element in the integrated reporting is “Where does the
organisation want to go and how does it intend to get there?”
An integrated report ordinarily identifies:
a) The organization’s short, medium and long- term strategic objectives
b) The strategies it has in place, or intends to implement, to achieve those strategic objectives
c) The resource allocation plans it has to implement its strategy
d) How it will measure achievements and target outcomes for the short, medium and long term.
Performance
Question to be answered through this element in the integrated reporting is “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?”
An integrated report contains qualitative and quantitative information about performance that may
include matters such as:
a) Quantitative indicators with respect to targets and risks and opportunities, explaining their
significance, their implications, and the methods and assumptions used in compiling them.
b) The organization’s effects (both positive and negative) on the capitals, including material
effects on capitals up and down the value chain.

c) The state of key stakeholder relationships and how the organization has responded to key
stakeholders’ legitimate needs and interests.
d) The linkages between past and current performance, and between current performance and
the organization’s outlook
Outlook
Question to be answered through this element in the integrated reporting is “What 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?”
An integrated report ordinarily highlights anticipated changes over time and provides information,
built on sound and transparent analysis, about:
a) The organization’s expectations about the external environment the organization is likely to
face in the short, medium and long term
b) How that will affect the organization
c) How the organization is currently equipped to respond to the critical challenges and
uncertainties that are likely to arise.
Basis of Preparation and Presentation

Question to be answered through this element in the integrated reporting is “How does the
organization determine what matters to include in the integrated report and how are such matters
quantified or evaluated?”
An integrated report describes its basis of preparation and presentation, including:
a) A summary of the organization’s: Materiality determination process
b) A description of: Reporting boundary and how it has been determined
c) A summary of: Significant frameworks and methods used to quantify or evaluate material
matters
GENERAL REPORTING GUIDANCE

The following general reporting matters are relevant to various Content Elements:
a) Disclosure of material matters. Taking the nature of a material matter into consideration, the
organization considers providing:
 Key information, such as:
i. An explanation of the matter and its effect on the organization’s strategy,
business model or the capitals
ii. Relevant interactions and interdependencies providing an understanding of
causes and effects
iii. The organization’s view on the matter
iv. Actions to manage the matter and how effective they have been
v. The extent of the organization’s control over the matter
vi. Quantitative and qualitative disclosures, including comparative information for
prior periods and targets for future periods
 If there is uncertainty surrounding a matter, disclosures about the uncertainty
Note: Depending on the nature of a matter, it may be appropriate to present it on its

own in the integrated report or throughout in conjunction with different Content
Elements. Care is needed to avoid generic disclosures.

b) Disclosures about Capitals

Disclosures about the capitals, or a component of a capital are determined by their effects on
the organization’s ability to create value over time, rather than whether or not they are
owned by the organization. It includes the factors that affect their availability, quality and
affordability and the organization’s expectations of its ability to produce flows from them to
meet future demand.
c) Time frames for short, medium and long-term Time frames differ by:
i. Industry or sector (e.g., strategic objectives in the automobile industry typically cover
two model cycle terms, spanning between eight and ten years, whereas within the
technology industry, time frames might be significantly shorter)
ii. The nature of outcomes (e.g., some issues affecting natural or social and relationship
capitals can be very long term in nature).
The length of each reporting time frame and the reason for such length might affect the
nature of information disclosed in an integrated report.
Note: It is not necessary to disclose the effects of a matter for each time frame.
Example:
Longer-term matters are more likely to be more affected by uncertainty, information
about them may be more likely to be qualitative in nature, whereas information about
shorter-term matters may be better suited to quantification, or even monetization.
d) Aggregation and disaggregation

Each organization determines the level of aggregation (e.g. by country, subsidiary, division, or
site) at which to present information that is appropriate to its circumstances.
In some circumstances, aggregation of information can result in a significant loss of meaning

and can also fail to highlight particularly strong or poor performance in specific areas. On the
other hand, unnecessary disaggregation can result in clutter that adversely affects the ease
of understanding the information.
The organization disaggregates (or aggregates) information to an appropriate level
considering, in particular, how senior management and those charged with governance manage
and oversee the organization and its operations. This commonly results in presenting
information based on the business or geographical segments used for financial reporting
purposes.
INTERNATIONAL ACCOUNTING STANDARDS BOARD LOOKING AT THE ROLE OF WIDER

REPORTING
The International Accounting Standards Board (IASB) as part of its ‘better communication’ work is
studying and consulting on wider corporate reporting, including developments in Integrated Reporting,
as it considers the role the IASB may take going forward.One possibility is that the IASB might
consider a project to revise and update its existing Practice Statement Management Commentary.
Businesses that are looking to communicate a broader story of value creation can use the
International IR Framework alongside IFRS.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SEBI vide its circular no. SEBI/HO/CFD/CMD/CIR/P/2017/10 February 6, 2017 has advised top 500
companies [to whom Business Responsibility Report (‘BRR’) have been mandated under Regulation
34(2)(f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ("SEBI
LODR")], to adopt Integrated Reporting on a voluntary basis from the financial year 2017-18.
The objective behind recommending voluntary adoption of Integrated Reporting is to improve

disclosure standards. An integrated report aims to provide a concise communication about how an
organisation's strategy, governance, performance and prospects create value over time so that
interested stakeholders may make investment decisions accordingly. Today an investor seeks both
financial as well as non-financial information to take a well-informed investment decision.
Therefore, towards the objective of improving disclosure standards, in consultation with industry
bodies and stock exchanges, the listed entities are advised to adhere to the following:
a) The information related to Integrated Reporting may be provided in the annual report
separately or by incorporating in Management Discussion & Analysis or by preparing a separate
report (annual report prepared as per IR framework).
b) In case the company has already provided the relevant information in any other report
prepared in accordance with national/international requirement / framework, it may provide
appropriate reference to the same in its Integrated Report so as to avoid duplication of
information.
c) As a green initiative, the companies may host the Integrated Report on their website and
provide appropriate reference to the same in their Annual Report.

First Time Adoption of IND AS: IND AS 101
INTRODUCTION
Ind AS 101 prescribes the accounting principles for first - time adoption of Ind AS. It lays down
various ‘transition’ requirements when a company adopts Ind AS for the first time, i.e., a move from
Accounting Standards (Indian GAAP) to Ind AS.
Conceptually, the accounting under Ind AS should be applied retrospectively at the time of transition
to Ind AS. However, Ind AS 101 grants limited exemptions from these requirements in specified areas
where the cost of complying with them would be likely to exceed the benefits to users of financial
statements. Ind AS 101 also prohibits retrospective application of Ind AS in some areas (called
exceptions), particularly where retrospective application would require judgments by management
about past conditions after the outcome of a particular transaction is already known.
Ind AS 101 also prescribes presentation and disclosure requirements to explain the transition to the
users of financial statements including explaining how the transition from Indian GAAP to Ind AS
affected the company’s financial position, financial performance and cash flows.
Ind AS 101 does not provide any exemption from the disclosure requirements in other Ind AS.
OBJECTIVE
The objective of this Ind AS is to ensure that an entity’s first Ind-AS financial statements, and its
interim financial reports for part of the period covered by those financial statements, contain high
quality information that:
a) is transparent for users and comparable
b) provides a suitable starting point; and
c) at a cost that does not exceed the benefits
DEFINITIONS
1. First Ind AS Financial Statements:
a) The first annual financial statements in which an entity adopts Ind AS, by an explicit and
unreserved statement of compliance with Ind AS.
b) This means compliance with ALL Ind-AS, partial compliance is not enough to make entity
Ind AS compliant.
2. First -time Adopter

An entity that presents its first Ind AS financial statements, that entity is known as first time
adopter
3. Opening Ind AS Balance sheet:

An entity's balance sheet at the date of transition to Ind AS
4. Date of Transition to Ind AS

The beginning of the earliest period for which an entity presents full comparative information
under Ind ASs in first Ind AS Financial statements.
5. First Ind AS Reporting Period

The latest reporting period covered by an entity's first Ind AS financial statements.

Example: 1
XYZ Ltd. is a BSE listed company having net worth of 100 cr. XYZ Ltd. has to prepare financial
statements as per Ind AS from 1st April 20X1.
The first Ind AS Financial Statements would be for period ending as on 31.3.20X2 First–time
adopter - “XYZ Ltd” with effect from 1.4.20X1
Opening Ind AS Balance sheet – 1.4.20X0 Date of Transition to Ind AS – 1.4.20X0
First Ind AS reporting period – 1.4.20X1 to 31.3.20X2
The financial statements for the period 1.4.20X0 to 31.3.20X1 shall be the comparative period for
the first Ind AS reporting period.
6. Deemed cost
An amount used as a surrogate for cost or depreciated cost at a given date. Subsequent
depreciation or amortisation assumes that the entity had initially recognised the asset or
liability at the given date and that its cost was equal to the deemed cost. This definition will be
used in measurement, at the date of transition to Ind AS, of
a) investments in subsidiaries, joint ventures and associates
b) property, plant and equipment, an investment property, an intangible asset or a right? Of
use asset
c) assets acquired and liabilities assumed in a business combination when the exemption
under Ind AS 101 is availed.
7. Previous GAAP
The basis of accounting that a first-time adopter used for its statutory reporting requirements
in India immediately before adopting Ind AS. For instance, companies required to prepare their
financial statements in accordance with Section 133 of the Companies Act, 2013, shall consider
those financial statements as previous GAAP financial statements. Those previous GAAP
financial statements were prepared as per the Companies (Accounting Standards) Rules, 2006
and hence such accounting standards are the "Previous GAAP" for those companies in India.
SCOPE
Ind AS 101 applies to:
a) First Ind AS financial statements
b) Each interim financial report for part of the period covered by its first Ind AS financial
statements. For example, if the period covered by the first Ind AS financial statements is year
ended 31 March 20X2 and the company prepares quarterly financial results (i.e. interim financial
report) for each quarter of that year, Ind AS 101 shall be applied in preparation of those
financial results.
c) However, it does not apply to: Changes in accounting policies made by an entity that already
applied Ind AS.
RECOGNITION AND MEASUREMENT

1. Opening Ind AS Balance Sheet
An entity shall prepare and present an opening Ind AS balance sheet at the date of transition
to Ind AS. This is the starting point for its accounting in accordance with Ind AS.
2. Accounting policies:
Entity uses the same accounting policies in its opening Ind AS Balance Sheet and through all
periods presented in its first Ind AS financial statements. Those accounting policies shall
comply with each Ind AS effective at the end of its first Ind AS reporting period, subject to:

a) Mandatory exceptions and

b) Optional exemptions
Example: 2 Consistent application of latest version of Ind AS

The end of entity A’s first Ind AS reporting period is 31 March 20X2. Entity A decides to present
comparative information in those financial statements for one year only. Therefore, its date of
transition to Ind AS is the beginning of business on 1 April 20X0 (or, equivalently, close of business
on 31 March 20X0).
Entity A presented financial statements in accordance with its previous GAAP annually to 31 March
each year up to, and including, 31 March 20X1.
Application of requirements:
Entity A is required to apply the Ind AS effective for periods ending on 31 March 20X2 in:
a) preparing and presenting its opening Ind AS balance sheet at 1 April 20X0; and
b) preparing and presenting its balance sheet for 31 March 20X2 (including comparative
amounts for the year ended 31 March 20X1), statement of profit and loss, statement of
changes in equity and statement of cash flows for the year to 31 March 20X2 (including
comparative amounts for the year ended 31 March 20X1) and disclosures (including
comparative information for the year ended 31 March 20X1).
If a new Ind AS is not yet mandatory but permits early application, entity A is permitted, but not
required, to apply that Ind AS in its first Ind AS financial statements.
THE GENERAL PRINCIPLE OF IND AS 101

It may be noted that the way Ind AS 101 is structured, it first lays down the general principle that all
Ind AS, as effective for the first Ind AS reporting period, should be applied retrospectively i.e.
at the starting point, which is the opening Ind AS balance sheet, should carry the balances as if Ind
AS has always been applied by the company in the past.
Once the general principle has been specified, Ind AS 101 then talks about certain (a) exemptions and
(b) exceptions, the former being voluntary and the latter being mandatory, as mentioned above.
So, let’s talk of the general principle first - an entity shall, in its opening Ind AS Balance sheet:
a) Recognise all assets and liabilities whose recognition is required by Ind AS. For example,
recognition of derivative assets and liabilities for which a different guidance was followed under
Indian GAAP or intangible assets arising in a business combination, which were not carried in
the books of the acquiree entity under Indian GAAP;
b) Not recognise items as assets or liabilities if Ind AS do not permit such recognition. For
example, Ind AS 115, Revenue from Contracts with Customers, has different thresholds for
revenue recognition as compared to AS 9 under Indian GAAP and hence an item that is
recognized as a trade receivable in Indian GAAP, may not be so recognized under Ind AS
c) Reclassify items that it recognised in accordance with previous GAAP as one type of asset,
liability or component of equity, but are a different type of asset, liability or component of
equity in accordance with Ind AS. For example, Ind AS requires classification of assets given
on operating lease as investment property whereas the same are presented as property, plant
and equipment under Indian GAAP; and
d) Apply Ind AS in measuring all recognised assets and liabilities. For example, Ind AS has well-
defined measurement principles for financial assets and liabilities, like certain investments are
measured at fair value under Ind AS, whereas the same are measured at lower of cost and fair
value under Indian GAAP

EXCEPTIONS/EXEMPTIONS
There are two categories of provisions in Ind AS 101 under which the general principle mentioned above
is applied in a modified manner:
1. Mandatory exceptions to the retrospective application of other Ind AS
2. Optional exemptions from retrospective application of other Ind AS
Mandatory exceptions to the retrospective application of other Ind AS

1. ESTIMATES:
An entity’s estimates in accordance with Ind AS at the date of transition to Ind AS shall be
consistent with estimates made for the same date in accordance with previous GAAP (after
adjustments to reflect any difference in accounting policies), unless there is objective evidence
that those estimates were in error.
Step 1: Estimates required by previous GAAP? If yes, then go to Step 2 otherwise Step 3
Step 2: Evidence of Error? If yes then go to Step 3 otherwise Step 4.
Step 3: Make estimate reflecting condition at relevant date i.e., the date to which the estimate
relates.
Step 4: Consistent with Ind AS? If yes then go to step 5 otherwise Step 6
Step 5: Use previous estimates
Step 6: Use previous estimates and adjust to reflect Ind AS.
2. DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

A first-time adopter shall apply the derecognition requirements in Ind AS 109 prospectively
for transactions occurring on or after the date of transition to Ind AS.
Example: 3
If a first-time adopter derecognised non-derivative financial assets or non-derivative
financial liabilities in accordance with its previous GAAP as a result of a transaction that
occurred before the date of transition to Ind AS, it shall not recognise those assets and
liabilities in accordance with Ind AS (unless they qualify for recognition as a result of a later
transaction or event). A practical example of such financial assets could be securitization of
a loan portfolio by a NBFC to a Trust before the date of transition resulting in derecognition
of the same from books under Indian GAAP, whereas under Ind AS, the derecognition
criteria may not have been met.
An entity may apply the derecognition requirements in Ind AS 109 retrospectively from a date
of the entity’s choosing, provided that the information needed to apply Ind AS 109 to financial
assets and financial liabilities derecognised as a result of past transactions was obtained at the
time of initially accounting for those transactions.
3. HEDGE ACCOUNTING
At the date of transition to Ind AS an entity shall:
a) measure all derivatives at fair value; and
b) eliminate all deferred losses and gains arising on derivatives that were reported in
accordance with previous GAAP as if they were assets or liabilities.
An entity shall not reflect in its opening Ind AS Balance Sheet a hedging relationship of a
type that does not qualify for hedge accounting in accordance with Ind AS 109 (for example,
many hedging relationships where the hedging instrument is a stand-alone written option or
a net written option; or where the hedged item is a net position in a cash flow hedge for
another risk than foreign currency risk). In other words, if the hedge relationship:

A. is of a type that qualifies for hedge accounting (i.e. hedge relationship consists of
eligible hedging instruments and eligible hedged items as per Ind AS 109), and
B. is designated under Indian GAAP then:
i. the hedge relationship is required to be reflected in the opening Ind AS
Balance Sheet, irrespective of whether other conditions for applying hedge
accounting (i.e. documentation and effectiveness) are met; and
ii. if those conditions are not met, requirements of Ind AS 109 with respect to
discontinuance of hedge accounting are applied subsequently.
As a corollary to this principle, if either of (A) or (B) above are not met,
barring a specific exception (dealt with in subsequent paragraph), the hedge
relationship is required to be removed from the opening Ind AS Balance Sheet.
If an entity designated a net position as a hedged item in accordance with
previous GAAP, which is not a qualifying hedged item otherwise under Ind AS
109, it may designate as a hedged item in accordance with Ind AS an individual
item within that net position, or a net position if that meets the requirements
in Ind AS 109, provided that it does so no later than the date of transition to
Ind AS.
Hedge accounting is followed only from the date the qualifying criteria are
met, irrespective of the conditions stated at (A) and (B) above. Transactions
entered into before the date of transition to Ind AS shall not be
retrospectively designated as hedges.
4. NON-CONTROLLING INTEREST
A first-time adopter shall apply the following requirements of Ind AS 110 prospectively from
the date of transition to Ind AS:
a) Total comprehensive income is attributed to the owners of the parent and to the non-
controlling interests even if this results in the non-controlling interests having a deficit
balance;
b) Accounting for changes in the parent’s ownership interest in a subsidiary that do not
result in a loss of control; and
c) Accounting for a loss of control over a subsidiary, and the related requirements of Ind
AS 105, Non-current Assets Held for Sale and Discontinued operations i.e. classification
of all the assets and liabilities of that subsidiary as held for sale.
However, if a first-time adopter elects to apply Ind AS 103 retrospectively to past

business combinations, it shall also apply Ind AS 110 from that date.
5. CLASSIFICATION AND MEASUREMENT OF FINANCIAL ASSETS

Ind AS 109 contains principles for classification of a financial asset as at (a) amortised cost
or (b) fair value through other comprehensive income or (c) fair value through profit or loss.
Such classification depends on assessment of features of the financial asset on the date of
its initial recognition.
Ind AS 101 provides an exception to this general principle by requiring that such assessment
should be done on the date of transition to Ind AS.
Ind AS 101 further provides that if it is impracticable to assess the below mentioned
features of a financial asset as at the date of transition to Ind AS, the “contractual cash flow
characteristics test” shall be done without taking into account those features:
a) Modified time value of money element

b) Significance of the fair value of a prepayment feature
An entity shall disclose the carrying amount of such financial assets until those financial assets
are derecognized.
Ind AS 109 requires the measurement of amortised cost of a financial asset or a financial
liability using effective interest method. As an exception to this general measurement principle,
Ind AS 101 provides that if it is impracticable (as defined in Ind AS 8) for an entity to apply
retrospectively the effective interest method in Ind AS 109, the fair value of the financial
asset or the financial liability at the date of transition to Ind AS shall be the new gross carrying
amount of that financial asset or the new amortised cost of that financial liability at the date
of transition to Ind AS.
6. IMPAIRMENT OF FINANCIAL ASSETS

An entity shall apply the impairment requirements of Ind AS 109 retrospectively subject to the
below:
a) At the date of transition to Ind AS, an entity shall use reasonable and supportable
information that is available without undue cost or effort to determine the credit risk
at the date that financial instruments were initially recognised.
b) An entity is not required to undertake an exhaustive search for information when

determining, at the date of transition to Ind AS, whether there have been significant
increases in credit risk since initial recognition.
c) If, at the date of transition to Ind ASs, determining whether there has been a
significant increase in credit risk since the initial recognition of a financial instrument
would require undue cost or effort, an entity shall recognise a loss allowance at an amount
equal to lifetime expected credit losses at each reporting date until that financial
instrument is derecognised, unless that financial instrument is low credit risk at a
reporting date.
7. EMBEDDED DERIVATIVES
A first-time adopter shall assess whether an embedded derivative is required to be separated
from the host contract and accounted for as a derivative on the basis of the conditions that
existed at the later of (a) the date it first became a party to the contract and (b) the date a
reassessment is required by Ind AS 109 i.e., when there is a change in the terms of the contract
that significantly modifies the cash flows that otherwise would be required under the contract.
8. GOVERNMENT LOANS
A first-time adopter shall classify all government loans received as a financial liability or an
equity instrument in accordance with Ind AS 32, Financial Instruments: Presentation.
A first-time adopter shall apply the requirements in Ind AS 109, Financial Instruments, and Ind
AS 20, Accounting for Government Grants and Disclosure of Government Assistance,
prospectively to government loans existing at the date of transition to Ind AS and shall not
recognise the corresponding benefit of the government loan at a below-market rate of interest
as a government grant.

Example: 4
Government of India provides loans to MSMEs at a below-market rate of interest to fund the set-
up of a new manufacturing facility. Company A’s date of transition to Ind AS is 1 April 20X5.
In 20X2, Company A had received a loan of 1 crore at a below-market rate of interest from the
government. Under Indian GAAP, Company A accounted for the loan as equity and the carrying
amount was 1 crore at the date of transition. The amount repayable at 31 March 20X9 will be 1.25
crore.
The loan meets the definition of a financial liability in accordance with Ind AS 32. Company A
therefore reclassifies it from equity to liability. It also uses the previous GAAP carrying
amount of the loan at the date of transition as the carrying amount of the loan in the
opening Ind AS balance sheet. It calculates the annual effective interest rate (EIR) starting 1 April
20X5 as below:
EIR = Amount / Principal(1/t) i.e., 1.25/1(1/4) i.e., 5.74%. approx.
At this rate, 1 crore will accrete to 1.25 crore as at 31 March 20X9.
During the next 4 years, the interest expense charged to statement of profit and loss shall be:
Year Ended Opening Amortised Interest Expense for Closing Amortised
Cost the year @ 5.74% p.an Cost
March 31, 20x6 1,00,00,000 5,73,713 1,05,73,713
March 31, 20x7 1,05,73,113 6,06,627 1,11,80,340
March 31, 20x8 1,18,80,340 6,41,430 1,18,21,770
March 31, 20x9 1,18,21,770 6,78,230 1,25,00,000
Calculations have been done on full scale calculator. However, in case calculations are done taking EIR
as exact 5.74%, then there will be difference of a few Rs due to rounding off.
An entity may apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any government
loan originated before the date of transition to Ind AS, provided that the information needed to do
so had been obtained at the time of initially accounting for that loan.
OPTIONAL EXEMPTIONS FROM RETROSPECTIVE APPLICATION OF OTHER IND AS
BUSINESS COMBINATION
Ind AS 103 need not be applied to business combinations before date of transition. But, if one business
combination is restated to comply with Ind AS 103, all subsequent business combinations are restated.
When the exemption is used:

1. There won’t be any change in classification from previous GAAP.
For example, if the “pooling of interests” method is applied as per AS 14, the balances of
assets and liabilities arising therefrom shall be carried forward. Another example is
regarding the identification of the acquirer – irrespective of the fact that a business
combination could have been a reverse acquisition as per Ind AS 103, the accounting adopted
in previous GAAP shall be continued.
Recognition exemptions:
The table below summarises the provisions of paragraph C4(b) and (c) of Ind AS 101:
Case Asset/Liability Asset/Liability Is the Result: How is the
recognised as qualifies for change an Whether resulting

per previous recognition in Intangible Asset/Liability change

GAAP Ind AS Asset? recognised in accounted for?
Opening Ind AS
Balance Sheet?
1 No No Not Applicable
2 No Yes No Yes* Retained Earning
3 No Yes Yes Yes Goodwill
4 Yes No Yes No Goodwill**
5 Yes No No No Retained Earning
* Unless a financial asset or financial liability was derecognised in previous GAAP (refer
mandatory exception below)
** Including any resulting changes to deferred tax and non-controlling interests
Measurement exemptions:
a) If an asset acquired or liability assumed was not recognized in previous GAAP but would
have been recognised in Ind AS, it shall not have a deemed cost of zero and shall be
measured at the amount at which Ind AS would require it to be measured. The resulting
change is recognised in retained earnings.
b) If an asset acquired or liability assumed was recognized in previous GAAP but Ind AS
would require its subsequent measurement at other than original cost (for example,
investments in certain equity instruments as per Ind AS 109), it shall be measured at
such basis and not its original cost. The resulting change is recognised in retained
earnings. Refer Example 5 below.
In all other cases, no measurement adjustment shall be made to the carrying amounts of
the assets acquired and liabilities assumed.
c) Therefore, it should be evident that the balance of goodwill or capital reserve as per
previous GAAP is not adjusted for any reason other than:
i. Recognition of an intangible asset that was earlier subsumed in goodwill or capital
reserve but Ind AS requires it to be recognised separately; or
ii. Vice versa, an asset that was recognised as an intangible asset under previous
GAAP but is not permitted to be recognised as an asset under Ind AS.
2. Regardless of whether there is any indication that the goodwill may be impaired, the goodwill
has to be tested for impairment at the date of transition to Ind AS and any resulting impairment
loss is to be recognised in retained earnings (or, if so required by Ind AS 36, in revaluation
surplus). The impairment test is based on conditions at the date of transition to Ind AS.
Example: 5
If the acquirer had not, in accordance with its previous GAAP, capitalised leases acquired in
a past business combination in which acquiree was a lessee, it shall capitalise those leases in
its consolidated financial statements, as Ind AS 116, would require the acquiree to do in its
Ind AS Balance Sheet.
Similarly, if the acquirer had not, in accordance with its previous GAAP, recognised a
contingent liability that still exists at the date of transition to Ind AS, the acquirer shall
recognise that contingent liability at that date unless Ind AS 37 would prohibit its recognition
in the financial statements of the acquiree.

INSURANCE CONTRACTS
Ind AS 104 will apply for annual periods beginning on or after date of transition to Ind AS. If an insurer
changes its accounting policies for insurance liabilities, it is permitted to reclassify some or all of its
financial assets as FVTPL (fair value through profit or loss).
SHARE BASED PAYMENT TRANSACTIONS

A first-time adopter is encouraged, but not required, to apply Ind AS 102, Share-based Payment, to
equity instruments that vested before date of transition to Ind AS.
However, a first-time adopter may apply Ind AS 102 to equity instruments, if it has disclosed publicly
the fair value of those equity instruments, determined at the measurement date.
It is encouraged to apply Ind AS 102 to liabilities arising from share-based payment transactions that
were settled before the date of transition to Ind AS.
DEEMED COST FOR PPE, INTANGIBLE ASSETS & ROU ASSETS

An entity has the following options with respect to measurement of its property, plant and equipment
(Ind AS 16), intangible assets (Ind AS 38) and right of use assets (Ind AS 116) in the opening Ind AS
balance sheet:
a) Measurement basis as per the respective standards applied retrospectively. This measurement
option can be applied on an item-by-item basis. For example, Plant A can be measured applying
Ind AS 16 retrospectively and Plant B can be measured applying the “fair value” or “revaluation”
options mentioned below.
b) Fair value at the date of transition to Ind AS. This measurement option can be applied on an
item-by-item basis in similar fashion as explained above.
c) Previous GAAP revaluation, if such revaluation was, at the date of revaluation, broadly
comparable to (a) fair value or (b) cost or depreciated cost in accordance with other Ind AS
adjusted to reflect changes in general or specific price index. This measurement option can be
applied on an item-by-item basis in similar fashion as explained above.
d) Previous GAAP carrying amounts (provided there is no change in functional currency). This
measurement option can be applied only if applied to “all” of the asset’s classes and items
therein. In addition, this measurement option can be applied to investment property (Ind AS
40) as well.
Investment Property
Ind AS 40, Investment Property permits only the cost model. Therefore, option of availing fair value
as deemed cost for investment property is not available for first time adopters of Ind AS for its
financial statements
CUMULATIVE TRASACTION DIFFERENCE

1. No Need to:
a) Recognise some translation differences in other comprehensive income.
b) Reclassify cumulative translation differences for foreign operation from entity to profit
or loss as part of gain or loss on its disposal.
2. If first time adopter uses this exemption:

a) Cumulative translation differences set to zero for all foreign operations.
b) Gain / loss on subsequent disposal of a foreign operation shall exclude these differences
that arose before transition

LONG TERM FOREIGN CURRENCY MONETARY ITEMS

Paragraph 46A of AS 11 notified under the Companies (Accounting Standards) Rules, 2006 permitted
companies to recognise foreign currency exchange gain / loss arising on long- term foreign currency
monetary items in either of the following ways:
a) In profit or loss
b) If such monetary item was entered into to acquire property, plant and equipment or intangible
asset - in the cost thereof
c) If such monetary item was entered into for any other purpose – accumulated in foreign currency
monetary item translation difference account (FCMITDA)
A first-time adopter may continue the accounting policy adopted for accounting for exchange
differences arising from long term foreign currency monetary items recognised in the financial
statements for the period ending immediately before the beginning of the first Ind AS financial
reporting period, as per previous GAAP.
To be clear, this exemption is not a permanent exemption from the requirements of Ind AS 21. It is
available only for those long-term foreign currency monetary items which are recognised before the
first Ind AS reporting period began. For example, if the transition date is 1 April 20X5, the first
reporting period will be 1 April 20X6 to 31 March 20X7. Therefore, this exemption is available only if
such monetary items were recognised in the last previous GAAP financial statements i.e., financial
statements for the year ended 31 March 20X6.
If the Company wants to avail the option prospectively:

The Company cannot avail the exemption given in Ind AS 101 and cannot exercise option under
paragraph 46/46A of AS 11, prospectively, on the date of transition to Ind AS in respect of long-term
foreign currency monetary liability existing on the date of transition as the company has not availed
the option under paragraph 46/46A earlier. Therefore, the Company need to recognise the exchange
differences in accordance with the requirements of Ind AS 21, The Effects of Changes in Foreign
Exchange Rates which requires all foreign exchange differences to be recognised in profit or loss,
except such foreign exchange differences which are accounted for as an adjustment to borrowing
costs in accordance with Ind AS 23.
If the Company wants to avail the option retrospectively:

The Company cannot avail the exemption given in Ind AS 101 and cannot exercise the option under
paragraph 46/46A of AS 11 retrospectively on the date of transition to Ind AS in respect of long-
term foreign currency monetary liability that existed on the date of transition since the option is
available only if it is in continuation of the accounting policy followed in accordance with the previous
GAAP. Y Ltd. has not been using the option provided in Para 46/ 46A of AS 11, hence, it will not be
permitted to use the option given in Ind AS 101 retrospectively.
INVESTMENT IN SUBSIDIARY, ASSOCIATE & JOINT VENTURE

Ind AS 27 requires measurement of investments in subsidiaries, joint ventures and associates either
at (a) cost or (b) in accordance with Ind AS 109 (i.e., at fair value, either through other comprehensive
income or through profit or loss).
Ind AS 101 permits a first-time adopter to measure such investments at:
a) Cost determined in accordance with Ind AS 27 (as above) or
b) Deemed cost:
i. Fair value at the date of transition; or
ii. Previous GAAP carrying amount at the date of transition.

COMPOUND FINANCIAL INSTRUMENT

A first-time adopter need not split the compound financial instruments into separate liability and equity
component, if liability component is not outstanding as at transition date.
FAIR VALUE MEASUREMENT OF FINANCIAL ASSET/LIABILITIES

As per Ind AS 109, if:
a) the fair value of the financial asset or financial liability at initial recognition differs from the
transaction price, and
b) such fair value is not based on:
i. Level 1 inputs (refer Ind AS 113), or
ii. Valuation technique that uses only data from observable markets then, such difference
(referred to in first bullet above) is deferred and amortised in profit or loss on the basis
stated in Ind AS 109.
Ind AS 101 permits an entity to apply this requirement of Ind AS 109 prospectively to transactions
entered into on or after the date of transition.
DECOMMISSIONING LIABILITY INCLUDED IN PROPERTY, PLANT & EQUIPMENT

Appendix ‘A’ to Ind AS 16 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”
requires specified changes in a decommissioning, restoration or similar liability to be added to or
deducted from the cost of the asset to which it relates; the adjusted depreciable amount of the asset
is then depreciated prospectively over its remaining useful life.
An entity need not comply with this requirement for changes in such liabilities that occurred before
the date of transition. If an entity avails of this exemption, it shall:
a) Measure the liability as at the transition date as per Ind AS 37 i.e. based on the facts and
circumstances, including the risk-adjusted discount rate, as at the transition date,
b) If the liability is in the scope of Appendix A to Ind AS 16, roll-back that liability to the date
that liability first arose using best estimate of historical risk-adjusted discount rate and
include it in the cost of the asset, and
c) Calculate accumulated depreciation on the transition date on the basis of estimated useful life
as at that date.
DESIGNATION OF PREVIOUSLY RECOGNISED FINANCIAL INSTRUMENTS

All financial instruments are initially measured at fair value. As regards subsequent measurement, Ind
AS 109 permits that upon initial recognition, an entity may designate financial instruments as
subsequently measured at fair value if certain criteria are met. Ind AS 101 exempts an entity from
retrospective designation of financial instruments and permits that such designation be done on the
basis of the facts and circumstances that exist at the date of transition to Ind AS. In particular the
exemption is provided for below mentioned financial instruments:
a) Designation of any financial liability or asset at fair value through profit or loss
b) Designation of investment in an equity instrument at fair value through other comprehensive
income
EXTINGUISHING FINANCIAL LIABILITIES WITH EQUITY INSTRUMENTS

Appendix D of Ind AS 109 provides for accounting principles to be applied when an entity’s equity
instruments are issued to extinguish all or part of its financial liability.
A first-time adopter may apply Appendix D of Ind AS 109 from the date of transition to Ind AS.

SEVERE HYPERINFLATION
In hyperinflationary economy, when an entity’s date of transition to Ind AS, is on, or after, the
functional currency normalization date, then all assets and liabilities held before the functional
currency normalization date may be measured at fair value on the date of transition.
This fair value may be used as deemed cost of those assets and liabilities in the opening Ind AS
statement of financial position.
When the functional currency normalisation date falls within a 12- month comparative period, the
comparative period may be less than 12 months, provided that a complete set of financial statements
(as required by paragraph 10 of Ind AS 1) is provided for that shorter period.
LEASES
A first-time adopter may determine whether an arrangement existing at the date of transition to Ind
AS contain a lease (including classification by a lessor of each land and building element as finance or
an operating lease) on the basis of facts and circumstances existing on the date of transition.
A lessee which is a first-time adopter of Ind AS shall recognise lease liabilities and right-of- use
assets, by applying the following approach to all of its leases at the date of transition to Ind AS:
a) measure a lease liability at the present value of the remaining lease payments discounted using
the lessee’s incremental borrowing rate at the date of transition to Ind AS;
b) measure a right-of-use asset on a lease-by-lease basis either at:
i. it carrying amount as if Ind AS 116 had been applied since the commencement date of the
lease, but discounted using the lessee’s incremental borrowing rate at the date of transition
to Ind AS; or
ii. an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease
payments relating to that lease recognised in the Balance Sheet immediately before the
date of transition to Ind AS.
c) apply Ind AS 36 to right-of-use assets.
A first-time adopter that is a lessee may do one or more of the following at the date of transition to
Ind AS, applied on a lease-by lease basis:
a) apply a single discount rate to a portfolio of leases with reasonably similar characteristics.
b) elect not to apply the above requirements given in (a) to (c) to leases for which the lease term
ends within 12 months of the date of transition to Ind AS. Instead, the entity shall account for
(including disclosure of information about) these leases as if they were short-term leases
accounted as per Ind AS 116.
c) elect not to apply the above requirements given in (a) to (c) to leases for which the underlying
asset is of low value. Instead, the entity shall account for (including disclosure of information
about) these leases as per Ind AS 116.
d) exclude initial direct costs from the measurement of the right-of-use asset at the date of
transition to Ind AS.
e) use hindsight, such as in determining the lease term if the contract contains options to extend
or terminate the lease.
FINANCIAL ASSET/INTANGIBLE ASSETS ACCOUNTED FOR IN ACCORDANCE WITH Appendix

D to Ind AS 115, Service Concession Arrangements
Change in accounting policy pursuant to the requirements of this Appendix to be accounted for
retrospectively except for amortization policy for intangible assets relating to toll roads adopted as

per previous GAAP.
If impracticable for an operator to apply the requirements of the Ind AS retrospectively at the date
of transition to Ind AS, it shall recognise financial assets and intangible assets that existed at the
date of transition to Ind AS using the previous carrying amounts.
DESIGNATION OF CONTRACTS TO BUY/SELL A NON-FINANCIAL ITEM

Ind AS 109 permits some contracts to buy or sell a non-financial item to be designated at inception as
measured at fair value through profit or loss (see paragraph 2.5 of Ind AS 109). Despite this
requirement an entity is permitted to designate, at the date of transition
to Ind AS, contracts that already exist on that date as measured at fair value through profit or loss
but only if they meet the requirements of paragraph 2.5 of Ind AS 109 at that date and the entity
designates all similar contracts.
STRIPPING COSTS IN THE PRODUCTION OF SURFACE MINE

A first-time adopter may apply Appendix B to Ind AS 16, Stripping costs in the production phase of a
surface mine, from the date of transition to Ind AS. As at the transition date to Ind AS, any previously
recognised asset balance that resulted from stripping activity undertaken during the production phase
shall be reclassified as a part of an existing asset to which the stripping activity related, to the extent
that there remains an identifiable component of the ore body with which the predecessor stripping
asset can be associated.
NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

A first-time adopter can:
a) Measure noncurrent assets held for sale or discontinued operation at the lower carrying value
and fair value less cost to sell at the date of transition to Ind AS in accordance with Ind AS
105; and
b) Recognize directly in retain earnings any difference between that amount and the carrying
amount of those assets at the date of transition to Ind AS determined under the entity’s
previous GAAP
ASSET AND LIABILITIES OF SUBSIDIARIES, ASSOCIATES & JOINT VENTURES

If a subsidiary becomes a first-time adopter later than its parent, the subsidiary shall measure its
assets and liabilities at either:
a) The carrying amounts that would be included in the parent’s consolidated financial statements,
based on the parent’s date of transition to Ind AS. Or
b) The carrying amounts required by Ind AS 101, based on the subsidiary’s date of transition to
Ind AS.
If an entity becomes first time adopter later than its subsidiary, the entity shall measure the assets
and liabilities at the subsidiary at the same carrying amounts as in the financial statements of the
subsidiary, after adjusting for consolidation and equity accounting adjustments and for the effects of
the business combination in which the entity acquired the subsidy.
REVENUE FROM CONTRACTS WITH CUSTOMERS

Any of the following exemption may be used in applying Ind AS 115 retrospectively:
a) For completed contracts: Need not restate contracts that begin and end within the same annual
reporting period;

b) For completed contracts that have variable consideration: Option to use the transaction price
at the date the contract was completed rather than estimating variable consideration amounts
in the comparative reporting periods;
c) For all reporting periods presented before the beginning of the first Ind AS reporting period,
an entity need not disclose the amount of the transaction price allocated to the remaining
performance obligations and an explanation of when the entity expects to recognize that amount
as revenue.
JOINT ARRANGEMENTS
Transition from Proportionate Consolidation to Equity Method

a) To measure initial investment at transition date at the aggregate of carrying amount of assets
and liabilities that the entity had previously proportionately consolidated including goodwill
arising on acquisition.
b) To test the investment for impairment, regardless of whether there are indicators of such
impairment. Any resulting impairment shall be recognised as an adjustment to retained earnings
at the date of transition to Ind AS.
c) If aggregate of all previously recognized assets/liabilities results in negative asset and if having
legal or constructive obligation, then recognize corresponding liability otherwise adjust retained
earnings.
Transition from Equity Method to accounting for assets and liabilities

a) To derecognize previous investment and recognize share of each asset and liability in respect
of its interest in joint operation.
b) Difference between amount of net assets (including goodwill) as per Ind AS and previously
recognized;
i. If carrying amount of previous investment is lower: Offset against goodwill relating to
investment and thereafter retained earning
ii. If carrying amount of previous investment is higher: Adjust against retained earning
Transitional provisions in entity’s Separate FS

a) To derecognise the investment and recognise assets and liabilities as per transition from equity
method to accounting for assets and liabilities
b) Provide reconciliation between amount derecognized, recognized and adjustment to retained
earnings.
PRESENTATION AND DISCLOSURE
Comparative Information
1. Ind AS does not require historical summaries to comply with the recognition and measurement
requirement of Ind AS.
2. In any financial statements containing historical summaries or comparative information in
accordance with previous GAAP, an entity shall:
a. Label the previous GAAP information prominently as not being prepared in accordance
with Ind AS; and
b. Disclose the nature of the main adjustments that would make it comply with Ind AS. An
entity need not quantify those adjustments.

Explanation of transition to Ind AS

1. Reconciliation of
a) Equity from previous GAAP to Ind AS at transition and last year end;
b) Last year’s total comprehensive income under previous GAAP to Ind AS.
2. Sufficient detail to understand adjustments to each line item.

3. Reconciliation to distinguish correction of errors identified during transition from change in
accounting policy.
4. Fair value as deemed cost and the amount of the adjustment.
5. Ind AS 36 disclosures for impairment during transition.
6. If adopted first time exemption option, to disclose the fact and accounting policy until such
time those PPE, Intangible Assets, investment properties or intangible assets significantly
depreciated/impaired/derecognized.
7. Interim financial reports to include reconciliation with equity and profit or loss under previous
GAAP.
8. Further information to comply with Ind AS 34.
CARVE OUTS IN IND AS 101 FROM IFRS 1
Definition of previous GAAP under Ind AS 101
As per IFRS
IFRS 1 defines previous GAAP as the basis of accounting that a first - time adopter used immediately
before adopting IFRS.
Carve out
Ind AS 101 defines previous GAAP as the basis of accounting that a first-time adopter used for its
reporting requirement in India immediately before adopting Ind AS. The change made it mandatory
for Indian entities to consider the financial statements prepared in accordance with notified
Accounting Standards as was applicable to them as previous GAAP when it transitions to Ind AS.
Reason
The change makes it mandatory for Indian companies to consider the financial statements prepared in
accordance with Accounting Standards notified under the Companies (Accounting Standards) Rules,
2006 as previous GAAP when it transitions to Ind AS as the law prevailing in India recognises only the
financial statements prepared in accordance with the Companies Act, 2013.
Allowing the use of carrying cost of Property, Plant and Equipment (PPE) on the date of transition of
Ind AS 101
As per IFRS
IFRS 1 First time Adoption of International Accounting Standards provides that on the date of
transition, either the items of Property, Plant and Equipment shall be determined by applying IAS 16
Property, Plant and Equipment retrospectively or the same should be recorded at fair value or a
previous GAAP revaluation, subject to certain requirements.
Carve out
Paragraph D7AA of Ind AS 101 provides an additional option to use carrying values of all items of
property, plant and equipment on the date of transition in accordance with previous GAAP as an

acceptable starting point under Ind AS.
Reason
In case of old companies, retrospective application of Ind AS 16 or fair values at the date of transition
to determine deemed cost may not be possible for old assets. Accordingly, Ind AS 101 provides relief
to an entity to use carrying values of all items of property, plant and equipment on the date of transition
in accordance with previous GAAP as an acceptable starting point under Ind AS.
Long Term Foreign Currency Monetary Items
As per IFRS
No provision in IFRS 1.
Carve out
Paragraph D13AA of Appendix D to Ind AS 101 provides that a first-time adopter may continue the
policy adopted for accounting for exchange differences arising from translation of long-term foreign
currency monetary items recognised in the financial statements for the period ending immediately
before the beginning of the first Ind AS financial reporting period as per the previous GAAP.
Consequently, Ind AS 21 also provides that it does not apply to long-term foreign currency monetary
items for which an entity has opted for the exemption given in paragraph D13AA of Appendix D to Ind
AS 101. Such an entity may continue to apply the accounting policy so opted for such long-term foreign
currency monetary items.
Reason
Para 46A of AS 11 provides an option to recognise long term foreign currency monetary items as a part
of the cost of property, plant and equipment or to defer its recognition in the statement of profit and
loss over the period of loan in case the loan is not related to acquisition of fixed assets. To provide
transitional relief, such entities have been given an option to continue the capitalisation or deferment
of exchange differences, as the case may be, on foreign currency borrowings obtained before the
beginning of first Ind AS reporting period.
Intangible assets arising from service concession arrangements related to toll roads accounted for in
accordance with Appendix D, Service Concession Arrangements to Ind AS 115, Revenue from Contracts
with Customers
As per IFRS
No provision in IFRS 1.
Carve Out
Ind AS 101 permits a first-time adopter to continue with the policy adopted for amortization of
intangible assets arising from service concession arrangements related to toll roads recognised in the
financial statements for the period ending immediately before the beginning of the first Ind AS
financial reporting period as per the previous GAAP.
As a consequence, to the above, paragraph 7AA has been inserted in Ind AS 38 to scope out the entity,
to apply amortisation method, that opts to amortise the intangible assets arising from service
concession arrangements in respect of toll roads recognised in the financial statements for the period
ending immediately before the beginning of the first Ind AS reporting period as per the exception

given in paragraph D22 of Appendix D to Ind AS 101.
Reason
Schedule II to the Companies Act, 2013, allows companies to use revenue-based amortisation of
intangible assets arising from service concession arrangements related to toll roads while Ind AS 38,
Intangible Assets, allows revenue-based amortisation only in the circumstances in which the
predominant limiting factor that is inherent in an intangible asset is the achievement of revenue
threshold. In order to provide relief to such entities, Ind AS 38 and Ind AS 101 have been amended
to allow the entities to continue to use the accounting policy adopted for amortization of intangible
assets arising from service concession arrangements related to toll roads recognised in the financial
statements for the period ending immediately before the beginning of the first Ind AS financial
statements. In other words, Ind AS 38 would be applicable to the amortisation of intangible assets
arising from service concession arrangements related to toll roads entered into after the
implementation of Ind AS.
Land and building element in lease contracts
As per IFRS
No provisions under IFRS 1.
Carve Out
Paragraph D9AA provides that an entity which is a lessor can use the transition date facts and
circumstances for lease arrangements which includes both land and building elements to assess the
classification of each element as finance or an operating lease at the transition date to Ind AS. Also,
if there is any land lease newly classified as finance lease then the first-time adopter may recognise
assets and liability at fair value on that date; any difference between those fair values is recognised
in retained earnings.
Reason
This aspect is quite common in the Indian environment and it was felt that the first-time adopters may
face hardship if they were to retrospectively assess the two elements of the contract.



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FIRST EDITION

A BOOK BY CA PRATIK JAGATI

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Assessing whether information could reasonably be expected to influence decisions made by

6. Owners are holders of instruments classified as equity.

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The components of Other Comprehensive Income include the following:

1 Changes in revaluation surplus Ind AS 16 ‘Property, Plant

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PURPOSE OF FINANCIAL STATEMENTS

COMPLETE SET OF FINANCIAL STATEMENTS

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GENERAL FEATURES OF FINANCIAL STATEMENTS

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Presentation of True and Fair View and compliance with Ind AS

An Explicit and Unreserved Statement

Inappropriate Accounting Policies

Departure from the Requirements of an Ind AS — Whether Permissible?

When an entity departs from a requirement of an Ind AS, it shall disclose:

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end of the reporting period.

ACCRUAL BASIS OF ACCOUNTING

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MATERIALITY & AGGREGATION

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Minimum comparative information:

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c) An entity shall present, as a minimum:

Additional Comparative Information:

Change in Accounting Policy, Retrospective Restatement or Reclassification:

5. When it is impracticable to reclassify comparative amounts, an entity shall disclose:

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STRUCTURE AND CONTENT

Identification of Financial Statements:

An entity shall display the following information prominently:

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Distinction between Current / Non-Current

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An entity shall classify all other assets as non-current.

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b) an agreement to refinance, or to reschedule payments, on a long-term basis is completed after

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Information to be provided in the Balance Sheet or in the notes:

STATEMENT OF PROFIT AND LOSS

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Information to be presented in the Other Comprehensive Income section:

Other comprehensive income for the period

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Information to be presented in the Statement of Profit and Loss or in the Notes

STATEMENT OF CHANGES IN EQUITY

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A. Information to be presented in the statement of changes in equity or in the notes.

STATEMENT OF CASH FLOWS