Ind-AS : Overview

By CA Jatin Furia
 Announcement by MCA for adoption of Ind-AS

• Press release (Feb 25, 2011) notified 35 Indian Accounting

Standards converged with IFRS ( referred to as Ind AS)

• Ind AS to be implemented once the issues with other

relevant Government Departments are resolved

• Actual date of implementation of Ind AS to be notified by

the MCA

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Assumptions on First Time Adoption of Ind-AS

• First time adoption requires compliance with all Ind-AS

as at Reporting Date

• Effect of transition recognised directly in Equity

(Networth) in Balance Sheet

• Explanation of Transition to Ind-AS to be provided

– Reconciliation of Equity on the date of transition
– Significant differences between Ind AS and
Previous GAAP in Total Comprehensive Income

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First time Adoption of Indian Accounting Standards (Ind-
AS 101)

• Comparative Information (Assuming Date of transition April 1,

2011)

– April 1, 2011 : Opening Balance Sheet

– March 31, 2012 : First Ind-AS Compliant FS :
– March 31, 2011 : Previous GAAP Re-classified FS
– Companies have an option of presenting March 31, 2011
financial statements as per Ind-AS and opening BS as on
April 1, 2010

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Ind AS & IFRS

• Carve outs included in Ind AS can broadly be categorized as :

– Mandatory deviations from IFRS

– Optional deviations from IFRS
– Removal of choices given under IFRS
– Others

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Ind AS & IFRS….. contd
• Mandatory Deviations
– Gain on Business Combination to be recognised as Capital Reserve
and not through Profit & Loss Account
– Employee Benefit Obligations to be discounted at Government
Bond Rate and not Corporate Bond Rate
– No reduction in liabilities if on account of changes in companies
own credit risk
– Recognition of revenues from sales of real estate on a percentage of
completion basis instead of on transfer of significant risk & rewards
of ownership
– Foreign currency denominated borrowings having conversion
options will be recognised in equity and no subsequent MTM
required

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Ind AS & IFRS….. contd

• Optional Deviations
– Exchange differences on translation of long-term monetary items
can be directly taken to equity. Such accumulated exchange
differences to be amortised to P&L in an appropriate manner
– Previous GAAP Carrying values of PPE on the date of transition can
be considered as deemed cost under Ind-AS. Exemption is also
available for intangible assets and investment properties
– De-recognition provisions for financial assets can be applied from
the transition date

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Ind AS & IFRS….. contd
• Removal of Choices

– Profit & Loss Account to be presented in single statement format as

per the revised Schedule VI, whereas IFRS provides an option to
disclose other comprehensive Income (OCI) in separate statement

– Investment property to be carried at cost and option of carrying at fair

value not available. Fair Value to be disclosed

– Actuarial gains and losses on employee benefits to be recognised

directly in other comprehensive income

– Government grants to be classified as deferred income and netting off

from related assets not allowed

– Non-monetary government grants to be valued at fair value as against

nominal value option available under IFRS e.g. Development Rights,
Land given for usage by Government
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Ind AS & IFRS….. contd

• Others

– Common control transactions are included in the scope of

Ind AS 103. The additional guidance provides that business
combination transactions between entities under common
control should be accounted for using the pooling of
interest method while under IFRS such transactions are
excluded

– Deferral of accounting for Service Concession

Arrangements

– Preparation of Standalone as well as Consolidated Financial

Statements

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Consolidated Financial Statements (Ind AS 27)
• Preparation of Consolidated Financial Statements (CFS) mandatory for
a parent
• For assessing control over an entity, effect of potential voting rights
currently exercisable or convertible are considered
• Detailed Guidance for Consolidation of SPEs
• Difference between reporting dates of Subsidiary & Parent should not
be more than three months

• Share of losses to be attributed to Minority Interest even if deficit

• Minority Interest to be presented within equity
• On disposal of Subsidiary’s shares which does not result into loss of
control (say 70% to 65%), no gain/loss to be recognised in P&L.
Difference between consideration and pro-rata carrying value to be
recognised directly in equity

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Consolidated Financial Statements ….. contd
• On disposal of Subsidiary’s shares which results into loss of control
(say 65% to 18%), gain/loss to be recognised in P&L with the amount
as under :
– Difference between consideration & pro-rata carrying value (i.e. 65% less 18%
of carrying value) PLUS
– Difference between Fair value & carrying value of balance investments, not
divested (i.e. 18%)

• Deferred tax to be calculated based on CFS financials

• Borrowing Cost to be capitalised using borrowings at Group level
resulting into higher capitalisation (on equity funding by Parent)
• Jointly Controlled Entity (JCE) with more than 50% share needs to be
consolidated as JCE only and not as Subsidiary
• Entity with intention of sale in “Near Future” also needs to be
consolidated

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Software System modifications

• Calculation and recognition of interest on Loans

borrowed and lended based on Effective Interest Rate

• Bifurcation between Current and Non-current in system

to be done majority based on ALM module

• Modification of existing coding of Trial Balance and to be

grouped based on that

• Revised Schedule VI format of Balance Sheet and P&L to

come from system Groupings

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Thank You

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Components of OCI

(a) Changes in revaluation surplus on PPE

(b) Actuarial gains and losses on defined benefit plans

(c) Gains and losses arising from translating the financial

statements of a foreign operation

(d) Unrealised gains and losses on Available-for-sale financial

Assets

(e) Effective portion of gains and losses on hedging

instruments in a cash flow hedge

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Gain on Business combination

Example :
` mn
Purchase consideration 150
Fair Value of Assets Acquired 165
Gain on business Combination 15

Recognition of above Gain of ` 15 :

- IFRS Profit & Loss Account
- Ind AS Capital Reserve in Equity

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Conversion Option

Foreign Currency Convertible Bonds (FCCB)

FCCB are classified as hybrid Instruments
Hybrid Instruments are initially split between:
- Conversion Option (embedded Derivative); and
- loan liability
Conversion option
IFRS Ind AS
Initial Treated as derivative and Conversion option will be
Recognition recorded at its fair value. recognised as Equity
Subsequent Mark-to-market(MTM) every No remeasurement
Measurement reporting date and the impact is subsequently i.e. no MTM
recognised in P&L Account

Key Implications: Eliminates the volatility in P&L Account

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Translation of Long Term Monetary Items

Example:
• Company had taken a loan of US$100 in Year 1 repayable after three years,
when the exchange rate was 1 US$ = ` 43.
• The exchange rates at the end of years
• Year 1 : ` 43.63, Year 2: ` 46.46, Year 3: ` 48.89
(i) A company may typically apply option to recognize the impact of exchange
differences on profit or loss
The Company can charge exchange loss of ` 63, ` 283, ` 243, respectively, in
each year
(ii) A company may typically apply option to recognize the impact of exchange
differences in its equity and amortise them over the period till maturity
With use of this option, the charge to P&L in each year will be ` 21, `
163 and ` 406, respectively

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 Consolidation of Special Purpose Entity

SPE shall be consolidated when the substance of the relationship between the
entity and the SPE indicates that the SPE is controlled by the entity

Following circumstances may indicate a relationship in which an entity

controls SPE and consequently should consolidate the SPE :
– Activities of the SPE are conducted on behalf of the entity
– Entity has decision-making powers to obtain majority of the benefits from the
activities of the SPE
– Entity has rights to obtain majority of the benefits of SPE and therefore may be
exposed to the risk incident to the activities of SPE
– Entity retains majority of the residual or ownership risks related to the SPE or its
assets

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