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Consolidated Financial Statements

Ind AS - 110 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 110 - Indian Accounting Standard (Ind AS) 110 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Indian Accounting Standard (Ind AS) is to establish principles for the presentation and preparation of when an entity controls one or more other entities. Meeting the ob .....

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ment entity and sets out an exception to consolidating particular subsidiaries of an investment entity. 3 This Ind AS does not deal with the accounting requirements for business combinations and their effect on consolidation, including goodwill arising on a business combination (see Ind AS 103, Business Combinations). Scope 4 An entity that is a parent shall present . This Ind AS applies to all entities, except as follows: (a) A parent need not present if it meets all the following conditions: ( .....

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with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and 1[(iv) its ultimate or any intermediate parent produces financial statements that are available for public use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this Ind AS.] (b) 2[***] (c) 2[***] 3[4A This Ind AS does not apply to post-employment benefit plans or other long- .....

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it 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 the investee. 7 Thus, an investor controls an investee if and only if the investor has all the following: (a) power over the investee (see paragraphs 10-14); (b) exposure, or rights, to variable returns from its involvement with the investee (see paragraphs 15 and 16); and (c) the ability to use its power over the investee to affect the amoun .....

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uch cases, because no investor can direct the activities without the co-operation of the others, no investor individually controls the investee. Each investor would account for its interest in the investee in accordance with the relevant Ind ASs, such as Ind AS 111, Joint Arrangements, Ind AS 28, Investments in Associates and Joint Ventures, or Ind AS 109, Financial Instruments. Power 10 An investor has power over an investee when the investor has existing rights that give it the current ability .....

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r example when power results from one or more contractual arrangements. 12 An investor with the current ability to direct the relevant activities has power even if its rights to direct have yet to be exercised. Evidence that the investor has been directing relevant activities can help determine whether the investor has power, but such evidence is not, in itself, conclusive in determining whether the investor has power over an investee. 13 If two or more investors each have existing rights that g .....

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olds only protective rights does not have power over an investee (see paragraphs B26-B28), and consequently does not control the investee. Returns 15 An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor s returns from its involvement have the potential to vary as a result of the investee s performance. The investor s returns can be only positive, only negative or both positive and negative. 16 Although only one investor can control a .....

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8 Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with paragraphs B58-B72 does not control an investee when it exercises decision-making rights delegated to it. Accounting requirements 19 A parent shall prepare using uniform accounting policies for like transactions and other events in similar circumstances. 20 Consolidation of an investee shall begin from the date the investor obtains control of the .....

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ir capacity as owners). 24 Paragraphs B94-B96 set out guidance for the accounting for non-controlling interests in . Loss of control 25 If a parent loses control of a subsidiary, the parent: (a) derecognises the assets and liabilities of the former subsidiary from the consolidated balance sheet. (b) recognises any investment retained in the former subsidiary at its fair value when control is lost and subsequently accounts for it and for any amounts owed by or to the former subsidiary in accordan .....

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ent entity 27 A parent shall determine whether it is an investment entity. An investment entity is an entity that: (a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and (c) measures and evaluates the performance of substantially all of its investments on a fair value bas .....

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form of equity or similar interests (see paragraphs B85V-B85W). The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment entity. An investment entity that does not have all of these typical characteristics provides additional disclosure required by paragraph 9A of Ind AS 112, Disclosure of Interests in Other Entities. 29 If facts and circumstances indicate that there are changes to one or more of the three elements that .....

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31 Except as described in paragraph 32, an investment entity shall not consolidate its subsidiaries or apply Ind AS 103 when it obtains control of another entity. Instead, an investment entity shall measure an investment in a subsidiary at fair value through profit or loss in accordance with Ind AS 109. 4[32. Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing servic .....

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pendix is an integral part of the Ind AS. The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. control of an investee An investor controls an investee 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 the investee. decision maker An en .....

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ally all of its investments on a fair value basis. non-controlling interest Equity in a subsidiary not attributable, directly or indirectly, to a parent. parent An entity that controls one or more entities. power Existing rights that give the current ability to direct the relevant activities. protective rights Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate. relevant activities For the purpose .....

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ciate • interest in another entity • joint venture • key management personnel • related party • significant influence. Appendix B Application guidance This appendix is an integral part of the Ind AS. It describes the application of paragraphs 1-33 and has the same authority as the other parts of the Ind AS . B1 The examples in this appendix portray hypothetical situations. Although some aspects of the examples may be present in actual fact patterns, all facts and circums .....

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etermination: (a) the purpose and design of the investee (see paragraphs B5-B8); (b) what the relevant activities are and how decisions about those activities are made (see paragraphs B11-B13); (c) whether the rights of the investor give it the current ability to direct the relevant activities (see paragraphs B14-B54); (d) whether the investor is exposed, or has rights, to variable returns from its involvement with the investee (see paragraphs B55-B57); and (e) whether the investor has the abili .....

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has the current ability to direct those activities and who receives returns from those activities. B6 When an investee s purpose and design are considered, it may be clear that an investee is controlled by means of equity instruments that give the holder proportionate voting rights, such as ordinary shares in the investee. In this case, in the absence of any additional arrangements that alter decision-making, the assessment of control focuses on which party, if any, is able to exercise voting r .....

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in deciding who controls the investee, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. In such cases, an investor s consideration of the purpose and design of the investee shall also include consideration of the risks to which the investee was designed to be exposed, the risks it was designed to pass on to the parties involved with the investee and whether the investor is exposed to some or all of t .....

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decisions about the relevant activities are made and the rights the investor and other parties have in relation to the investee. Relevant activities and direction of relevant activities B11 For many investees, a range of operating and financing activities significantly affect their returns. Examples of activities that, depending on the circumstances, can be relevant activities include, but are not limited to: (a) selling and purchasing of goods or services; (b) managing financial assets during .....

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s or employment. B13 In some situations, activities both before and after a particular set of circumstances arises or event occurs may be relevant activities. When two or more investors have the current ability to direct relevant activities and those activities occur at different times, the investors shall determine which investor is able to direct the activities that most significantly affect those returns consistently with the treatment of concurrent decision-making rights (see paragraph 13). .....

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product, the other investor will manufacture and market it-this investor has the unilateral ability to make all decisions about the manufacture and marketing of the project. If all the activities-developing and obtaining regulatory approval as well as manufacturing and marketing of the medical product-are relevant activities, each investor needs to determine whether it is able to direct the activities that most significantly affect the investee s returns. Accordingly, each investor needs to con .....

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e investee s returns resulting from each investor s decision-making authority with respect to the factors in (b); and (d) the investors exposure to variability of returns. In this particular example, the investors would also consider: (e) the uncertainty of, and effort required in, obtaining regulatory approval (considering the investor s record of successfully developing and obtaining regulatory approval of medical products); and (f) which investor controls the medical product once the developm .....

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posing the investee to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment with minimal exposure to the credit risk associated with the possible default of the assets in the portfolio because of the nature of these assets and because the equity tranche is designed to absorb the first losses of the investee. The returns of the investee are significantly affected by the management o .....

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he instructions of the debt investor. Managing the investee s asset portfolio is the relevant activity of the investee. The asset manager has the ability to direct the relevant activities until defaulted assets reach the specified proportion of the portfolio value; the debt investor has the ability to direct the relevant activities when the value of defaulted assets surpasses that specified proportion of the portfolio value. The asset manager and the debt investor each need to determine whether .....

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etween investees. B15 Examples of rights that, either individually or in combination, can give an investor power include but are not limited to: (a) rights in the form of voting rights (or potential voting rights) of an investee (see paragraphs B34-B50); (b) rights to appoint, reassign or remove members of an investee s key management personnel who have the ability to direct the relevant activities; (c) rights to appoint or remove another entity that directs the relevant activities; (d) rights t .....

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e voting or similar rights that give an investor power, either individually or in combination with other arrangements. B17 When voting rights cannot have a significant effect on an investee s returns, such as when voting rights relate to administrative tasks only and contractual arrangements determine the direction of the relevant activities, the investor needs to assess those contractual arrangements in order to determine whether it has rights sufficient to give it power over the investee. To d .....

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cal ability to direct the relevant activities unilaterally. Consideration is given, but is not limited, to the following, which, when considered together with its rights and the indicators in paragraphs B19 and B20, may provide evidence that the investor s rights are sufficient to give it power over the investee: (a) The investor can, without having the contractual right to do so, appoint or approve the investee s key management personnel who have the ability to direct the relevant activities. ( .....

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vestee and the chief executive officer of the investor are the same person). (e) The majority of the members of the investee s governing body are related parties of the investor. B19 Sometimes there will be indications that the investor has a special relationship with the investee, which suggests that the investor has more than a passive interest in the investee. The existence of any individual indicator, or a particular combination of indicators, does not necessarily mean that the power criteri .....

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loyees of the investor. (b) The investee s operations are dependent on the investor, such as in the following situations: (i) The investee depends on the investor to fund a significant portion of its operations. (ii) The investor guarantees a significant portion of the investee s obligations. (iii) The investee depends on the investor for critical services, technology, supplies or raw materials. (iv) The investor controls assets such as licences or trademarks that are critical to the investee s .....

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an investor is entitled, or exposed, to more than half of the returns of the investee but holds less than half of the voting rights of the investee. B20 The greater an investor s exposure, or rights, to variability of returns from its involvement with an investee, the greater is the incentive for the investor to obtain rights sufficient to give it power. Therefore, having a large exposure to variability of returns is an indicator that the investor may have power. However, the extent of the inves .....

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ght to be substantive, the holder must have the practical ability to exercise that right. B23 Determining whether rights are substantive requires judgement, taking into account all facts and circumstances. Factors to consider in making that determination include but are not limited to: (a) Whether there are any barriers (economic or otherwise) that prevent the holder (or holders) from exercising the rights. Examples of such barriers include but are not limited to: (i) financial penalties and inc .....

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ations that would allow the holder to exercise its rights. (v) the inability of the holder of the rights to obtain the information necessary to exercise its rights. (vi) operational barriers or incentives that would prevent (or deter) the holder from exercising its rights (eg the absence of other managers willing or able to provide specialised services or provide the services and take on other interests held by the incumbent manager). (vii) legal or regulatory requirements that prevent the holde .....

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d to agree to exercise the rights, the less likely it is that those rights are substantive. However, a board of directors whose members are independent of the decision maker may serve as a mechanism for numerous investors to act collectively in exercising their rights. Therefore, removal rights exercisable by an independent board of directors are more likely to be substantive than if the same rights were exercisable individually by a large number of investors. (c) Whether the party or parties th .....

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instrument. B24 To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Usually, to be substantive, the rights need to be currently exercisable. However, sometimes rights can be substantive, even though the rights are not currently exercisable. Application examples Example 3 The investee has annual shareholder meetings at which decisions to direct the relevant activities are made. The next scheduled shareholders meetin .....

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ll as the making or disposing of significant investments. The above fact pattern applies to examples 3A-3D described below. Each example is considered in isolation. Example 3A An investor holds a majority of the voting rights in the investee. The investor s voting rights are substantive because the investor is able to make decisions about the direction of the relevant activities when they need to be made. The fact that it takes 30 days before the investor can exercise its voting rights does not .....

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have been settled. Thus, the investor has rights that are essentially equivalent to the majority shareholder in example 3A above (ie the investor holding the forward contract can make decisions about the direction of the relevant activities when they need to be made). The investor s forward contract is a substantive right that gives the investor the current ability to direct the relevant activities even before the forward contract is settled. Example 3C An investor holds a substantive option to .....

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g shareholders have the current ability to direct the relevant activities because they can change the existing policies over the relevant activities before the forward contract is settled. B25 Substantive rights exercisable by other parties can prevent an investor from controlling the investee to which those rights relate. Such substantive rights do not require the holders to have the ability to initiate decisions. As long as the rights are not merely protective (see paragraphs B26-B28), substan .....

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exceptional circumstances. However, not all rights that apply in exceptional circumstances or are contingent on events are protective (see paragraphs B13 and B53). B27 Because protective rights are designed to protect the interests of their holder without giving that party power over the investee to which those rights relate, an investor that holds only protective rights cannot have power or prevent another party from having power over an investee (see paragraph 14). B28 Examples of protective .....

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rrower fails to meet specified loan repayment conditions. Franchises B29 A franchise agreement for which the investee is the franchisee often gives the franchisor rights that are designed to protect the franchise brand. Franchise agreements typically give franchisors some decision-making rights with respect to the operations of the franchisee. B30 Generally, franchisors rights do not restrict the ability of parties other than the franchisor to make decisions that have a significant effect on the .....

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ve existing rights that give them the current ability to direct the relevant activities of the franchisee. B32 By entering into the franchise agreement the franchisee has made a unilateral decision to operate its business in accordance with the terms of the franchise agreement, but for its own account. B33 Control over such fundamental decisions as the legal form of the franchisee and its funding structure may be determined by parties other than the franchisor and may significantly affect the re .....

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directed through voting rights. Power with a majority of the voting rights B35 An investor that holds more than half of the voting rights of an investee has power in the following situations, unless paragraph B36 or paragraph B37 applies: (a) the relevant activities are directed by a vote of the holder of the majority of the voting rights, or (b) a majority of the members of the governing body that directs the relevant activities are appointed by a vote of the holder of the majority of the voti .....

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to direct the relevant activities and that entity is not an agent of the investor, the investor does not have power over the investee. B37 An investor does not have power over an investee, even though the investor holds the majority of the voting rights in the investee, when those voting rights are not substantive. For example, an investor that has more than half of the voting rights in an investee cannot have power if the relevant activities are subject to direction by a government, court, admi .....

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voting rights (see paragraphs B41-B45); (d) potential voting rights (see paragraphs B47-B50); or (e) a combination of (a)-(d). Contractual arrangement with other vote holders B39 A contractual arrangement between an investor and other vote holders can give the investor the right to exercise voting rights sufficient to give the investor power, even if the investor does not have voting rights sufficient to give it power without the contractual arrangement. However, a contractual arrangement might .....

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t the manufacturing processes of an investee or to direct other operating or financing activities of an investee that significantly affect the investee s returns. However, in the absence of any other rights, economic dependence of an investee on the investor (such as relations of a supplier with its main customer) does not lead to the investor having power over the investee. The investor s voting rights B41 An investor with less than a majority of the voting rights has rights that are sufficient .....

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ights that give it the current ability to direct the relevant activities; (ii) the more voting rights an investor holds relative to other vote holders, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities; (iii) the more parties that would need to act together to outvote the investor, the more likely the investor is to have existing rights that give it the current ability to direct the relevant activities; (b) potential voting .....

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and an investor holds significantly more voting rights than any other vote holder or organised group of vote holders, and the other shareholdings are widely dispersed, it may be clear, after considering the factors listed in paragraph B42 (a)-(c) alone, that the investor has power over the investee. Application examples Example 4 An investor acquires 48 per cent of the voting rights of an investee. The remaining voting rights are held by thousands of shareholders, none individually holding more .....

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has a sufficiently dominant voting interest to meet the power criterion without the need to consider any other evidence of power. Example 5 Investor A holds 40 per cent of the voting rights of an investee and twelve other investors each hold 5 per cent of the voting rights of the investee. A shareholder agreement grants investor A the right to appoint , remove and set the remuneration of management responsible for directing the relevant activities. To change the agreement, a two-thirds majority .....

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d this right or the likelihood of investor A exercising its right to select, appoint or remove management shall not be considered when assessing whether investor A has power. B44 In other situations, it may be clear after considering the factors listed in paragraph B42 (a)-(c) alone that an investor does not have power. Application example Example 6 Investor A holds 45 per cent of the voting rights of an investee. Two other investors each hold 26 per cent of the voting rights of the investee. Th .....

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h B42 (a)-(c) alone may not be conclusive. If an investor, having considered those factors, is unclear whether it has power, it shall consider additional facts and circumstances, such as whether other shareholders are passive in nature as demonstrated by voting patterns at previous shareholders meetings. This includes the assessment of the factors set out in paragraph B18 and the indicators in paragraphs B19 and B20. The fewer voting rights the investor holds, and the fewer parties that would ne .....

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oting rights of an investee. Eleven other shareholders each hold 5 per cent of the voting rights of the investee. None of the shareholders has contractual arrangements to consult any of the others or make collective decisions. In this case, the absolute size of the investor s holding and the relative size of the other shareholdings alone are not conclusive in determining whether the investor has rights sufficient to give it power over the investee. Additional facts and circumstances that may pro .....

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e relevant activities of the investee require the approval of a majority of votes cast at relevant shareholders meetings-75 per cent of the voting rights of the investee have been cast at recent relevant shareholders meetings. In this case, the active participation of the other shareholders at recent shareholders meetings indicates that the investor would not have the practical ability to direct the relevant activities unilaterally, regardless of whether the investor has directed the relevant ac .....

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ting rights of an investee, such as those arising from convertible instruments or options, including forward contracts. Those potential voting rights are considered only if the rights are substantive (see paragraphs B22-B25). B48 When considering potential voting rights, an investor shall consider the purpose and design of the instrument, as well as the purpose and design of any other involvement the investor has with the investee. This includes an assessment of the various terms and conditions .....

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activities. For example, this is likely to be the case when an investor holds 40 per cent of the voting rights of an investee and, in accordance with paragraph B23, holds substantive rights arising from options to acquire a further 20 per cent of the voting rights. Application examples Example 9 Investor A holds 70 per cent of the voting rights of an investee. Investor B has 30 per cent of the voting rights of the investee as well as an option to acquire half of investor A s voting rights. The o .....

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t, if exercised, would give it a majority of the voting rights in the investee), the terms and conditions associated with those options are such that the options are not considered substantive. Example 10 Investor A and two other investors each hold a third of the voting rights of an investee. The investee s business activity is closely related to investor A. In addition to its equity instruments, investor A also holds debt instruments that are convertible into ordinary shares of the investee at .....

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s. Power when voting or similar rights do not have a significant effect on the investee s returns B51 In assessing the purpose and design of an investee (see paragraphs B5-B8), an investor shall consider the involvement and decisions made at the investee s inception as part of its design and evaluate whether the transaction terms and features of the involvement provide the investor with rights that are sufficient to give it power. Being involved in the design of an investee alone is not sufficie .....

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egral part of the investee s overall activities, even though they may occur outside the legal boundaries of the investee. Therefore, explicit or implicit decision-making rights embedded in contractual arrangements that are closely related to the investee need to be considered as relevant activities when determining power over the investee. B53 For some investees, relevant activities occur only when particular circumstances arise or events occur. The investee may be designed so that the direction .....

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ing or an event occurring does not, in itself, make those rights protective. Application examples Example 11 An investee s only business activity, as specified in its founding documents, is to purchase receivables and service them on a day-to-day basis for its investors. The servicing on a day-today basis includes the collection and passing on of principal and interest payments as they fall due. Upon default of a receivable the investee automatically puts the receivable to an investor as agreed .....

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ey fall due and passing them on to investors. Therefore, only the investor s right to manage the assets upon default should be considered when assessing the overall activities of the investee that significantly affect the investee s returns. In this example, the design of the investee ensures that the investor has decision-making authority over the activities that significantly affect the returns at the only time that such decision-making authority is required. The terms of the put agreement are .....

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stee are considered, it is determined that the only relevant activity is managing the receivables upon default. The party that has the ability to manage the defaulting receivables has power over the investee, irrespective of whether any of the borrowers have defaulted. B54 An investor may have an explicit or implicit commitment to ensure that an investee continues to operate as designed. Such a commitment may increase the investor s exposure to variability of returns and thus increase the incent .....

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its involvement with the investee. B56 Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of an investee. Variable returns can be only positive, only negative or both positive and negative (see paragraph 15). An investor assesses whether returns from an investee are variable and how variable those returns are on the basis of the substance of the arrangement and regardless of the legal form of the returns. For example, an investor can ho .....

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The amount of variability depends on the investee s ability to generate sufficient income to pay the fee. B57 Examples of returns include: (a) dividends, other distributions of economic benefits from an investee (eg interest from debt securities issued by the investee) and changes in the value of the investor s investment in that investee. (b) remuneration for servicing an investee s assets or liabilities, fees and exposure to loss from providing credit or liquidity support, residual interests .....

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operations or assets, to enhance the value of the investor s other assets. Link between power and returns Delegated power B58 When an investor with decision-making rights (a decision maker) assesses whether it controls an investee, it shall determine whether it is a principal or an agent. An investor shall also determine whether another entity with decision-making rights is acting as an agent for the investor. An agent is a party primarily engaged to act on behalf and for the benefit of another .....

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When assessing whether it controls an investee, the investor shall treat the decision-making rights delegated to its agent as held by the investor directly. In situations where there is more than one principal, each of the principals shall assess whether it has power over the investee by considering the requirements in paragraphs B5-B54. Paragraphs B60-B72 provide guidance on determining whether a decision maker is an agent or a principal. B60 A decision maker shall consider the overall relation .....

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other interests that it holds in the investee (paragraphs B71 and B72). Different weightings shall be applied to each of the factors on the basis of particular facts and circumstances. B61 Determining whether a decision maker is an agent requires an evaluation of all the factors listed in paragraph B60 unless a single party holds substantive rights to remove the decision maker (removal rights) and can remove the decision maker without cause (see paragraph B65). The scope of the decision-making .....

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and the level of involvement the decision maker had in the design of an investee. For example, if a decision maker is significantly involved in the design of the investee (including in determining the scope of decision-making authority), that involvement may indicate that the decision maker had the opportunity and incentive to obtain rights that result in the decision maker having the ability to direct the relevant activities. Rights held by other parties B64 Substantive rights held by other pa .....

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rties) those rights are not, in isolation, conclusive in determining that a decision maker acts primarily on behalf and for the benefit of others. In addition, the greater the number of parties required to act together to exercise rights to remove a decision maker and the greater the magnitude of, and variability associated with, the decision maker s other economic interests (ie remuneration and other interests), the less the weighting that shall be placed on this factor. B66 Substantive rights .....

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any rights exercisable by an investee s board of directors (or other governing body) and their effect on the decision-making authority (see paragraph B23 (b)). Remuneration B68 The greater the magnitude of, and variability associated with, the decision maker s remuneration relative to the returns expected from the activities of the investee, the more likely the decision maker is a principal. B69 In determining whether it is a principal or an agent the decision maker shall also consider whether t .....

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ude that a decision maker is an agent. Exposure to variability of returns from other interests B71 A decision maker that holds other interests in an investee (eg investments in the investee or provides guarantees with respect to the performance of the investee), shall consider its exposure to variability of returns from those interests in assessing whether it is an agent. Holding other interests in an investee indicates that the decision maker may be a principal. B72 In evaluating its exposure t .....

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when a decision maker holds subordinated interests in, or provides other forms of credit enhancement to, an investee. The decision maker shall evaluate its exposure relative to the total variability of returns of the investee. This evaluation is made primarily on the basis of returns expected from the activities of the investee but shall not ignore the decision maker s maximum exposure to variability of returns of the investee through other interests that the decision maker holds. Application e .....

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per cent pro rata investment in the fund and receives a market based fee for its services equal to 1 per cent of the net asset value of the fund. The fees are commensurate with the services provided. The fund manager does not have any obligation to fund losses beyond its 10 per cent investment. The fund is not required to establish, and has not established, an independent board of directors. The investors do not hold any substantive rights that would affect the decision-making authority of the f .....

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rvices that is commensurate with the services provided and has also made a pro rata investment in the fund. The remuneration and its investment expose the fund manager to variability of returns from the activities of the fund without creating exposure that is of such significance that it indicates that the fund manager is a principal. In this example, consideration of the fund manager s exposure to variability of returns from the fund together with its decision-making authority within restricted .....

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a market-based fee for its services equal to 1 per cent of assets under management and 20 per cent of all the fund s profits if a specified profit level is achieved. The fees are commensurate with the services provided. Although it must make decisions in the best interests of all investors, the fund manager has extensive decision-making authority to direct the relevant activities of the fund. The fund manager is paid fixed and performance-related fees that are commensurate with the services prov .....

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nd manager also has a 2 per cent investment in the fund that aligns its interests with those of the other investors. The fund manager does not have any obligation to fund losses beyond its 2 per cent investment. The investors can remove the fund manager by a simple majority vote, but only for breach of contract. The fund manager s 2 per cent investment increases its exposure to variability of returns from the activities of the fund without creating exposure that is of such significance that it i .....

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xample 14B The fund manager has a more substantial pro rata investment in the fund, but does not have any obligation to fund losses beyond that investment. The investors can remove the fund manager by a simple majority vote, but only for breach of contract. In this example, the other investors rights to remove the fund manager are considered to be protective rights because they are exercisable only for breach of contract. Although the fund manager is paid fixed and performance-related fees that .....

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ce on those economic interests in the analysis, and the more likely the fund manager is a principal. For example, having considered its remuneration and the other factors, the fund manager might consider a 20 per cent investment to be sufficient to conclude that it controls the fund. However, in different circumstances (ie if the remuneration or other factors are different), control may arise when the level of investment is different. Example 14C The fund manager has a 20 per cent pro rata inves .....

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lated fees that are commensurate with the services provided, the combination of the fund manager s 20 per cent investment together with its remuneration creates exposure to variability of returns from the activities of the fund that is of such significance that it indicates that the fund manager is a principal. However, the investors have substantive rights to remove the fund manager-the board of directors provides a mechanism to ensure that the investors can remove the fund manager if they deci .....

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folio of fixed rate asset-backed securities, funded by fixed rate debt instruments and equity instruments. The equity instruments are designed to provide first loss protection to the debt investors and receive any residual returns of the investee. The transaction was marketed to potential debt investors as an investment in a portfolio of asset-backed securities with exposure to the credit risk associated with the possible default of the issuers of the asset-backed securities in the portfolio and .....

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rofits) if the investee s profits exceed a specified level. The fees are commensurate with the services provided. The asset manager holds 35 per cent of the equity in the investee. The remaining 65 per cent of the equity, and all the debt instruments, are held by a large number of widely dispersed unrelated third party investors. The asset manager can be removed, without cause, by a simple majority decision of the other investors. The asset manager is paid fixed and performance-related fees that .....

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affect the investee s returns-the removal rights held by the other investors receive little weighting in the analysis because those rights are held by a large number of widely dispersed investors. In this example, the asset manager places greater emphasis on its exposure to variability of returns of the fund from its equity interest, which is subordinate to the debt instruments. Holding 35 per cent of the equity creates subordinated exposure to losses and rights to returns of the investee, whic .....

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the issuers of the assets in the portfolio. Various transferors sell high quality medium-term asset portfolios to the conduit. Each transferor services the portfolio of assets that it sells to the conduit and manages receivables on default for a market-based servicing fee. Each transferor also provides first loss protection against credit losses from its asset portfolio through over-collateralisation of the assets transferred to the conduit. The sponsor establishes the terms of the conduit and .....

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hancement provided by the sponsor absorbs losses of up to 5 per cent of all of the conduit s assets, after losses are absorbed by the transferors. The liquidity facilities are not advanced against defaulted assets. The investors do not hold substantive rights that could affect the decision-making authority of the sponsor. Even though the sponsor is paid a market-based fee for its services that is commensurate with the services provided, the sponsor has exposure to variability of returns from the .....

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significantly affect the conduit s returns (ie the sponsor established the terms of the conduit, has the right to make decisions about the assets (approving the assets purchased and the transferors of those assets) and the funding of the conduit (for which new investment must be found on a regular basis)). The right to residual returns of the conduit and the provision of credit enhancement and liquidity facilities expose the sponsor to variability of returns from the activities of the conduit th .....

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behalf (ie they are de facto agents ). The determination of whether other parties are acting as de facto agents requires judgement, considering not only the nature of the relationship but also how those parties interact with each other and the investor. B74 Such a relationship need not involve a contractual arrangement. A party is a de facto agent when the investor has, or those that direct the activities of the investor have, the ability to direct that party to act on the investor s behalf. In .....

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from the investor. (c) a party that has agreed not to sell, transfer or encumber its interests in the investee without the investor s prior approval (except for situations in which the investor and the other party have the right of prior approval and the rights are based on mutually agreed terms by willing independent parties). (d) a party that cannot finance its operations without subordinated financial support from the investor. (e) an investee for which the majority of the members of its gove .....

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estee as a deemed separate entity if and only if the following condition is satisfied: Specified assets of the investee (and related credit enhancements, if any) are the only source of payment for specified liabilities of, or specified other interests in, the investee. Parties other than those with the specified liability do not have rights or obligations related to the specified assets or to residual cash flows from those assets. In substance, none of the returns from the specified assets can b .....

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how those activities are directed in order to assess whether it has power over that portion of the investee. When assessing control of the deemed separate entity, the investor shall also consider whether it has exposure or rights to variable returns from its involvement with that deemed separate entity and the ability to use its power over that portion of the investee to affect the amount of the investor s returns. B79 If the investor controls the deemed separate entity, the investor shall cons .....

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or assesses its power over an investee. For example, changes to decision-making rights can mean that the relevant activities are no longer directed through voting rights, but instead other agreements, such as contracts, give another party or parties the current ability to direct the relevant activities. B82 An event can cause an investor to gain or lose power over an investee without the investor being involved in that event. For example, an investor can gain power over an investee because decis .....

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) (eg if a contract to receive performance-related fees is terminated). B84 An investor shall consider whether its assessment that it acts as an agent or a principal has changed. Changes in the overall relationship between the investor and other parties can mean that an investor no longer acts as an agent, even though it has previously acted as an agent, and vice versa. For example, if changes to the rights of the investor, or of other parties, occur, the investor shall reconsider its status as .....

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shall consider all facts and circumstances when assessing whether it is an investment entity, including its purpose and design. An entity that possesses the three elements of the definition of an investment entity set out in paragraph 27 is an investment entity. Paragraphs B85B-B85M describe the elements of the definition in more detail. Business purpose B85B The definition of an investment entity requires that the purpose of the entity is to invest solely for capital appreciation, investment i .....

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tity may present its business as providing medium-term investment for capital appreciation. In contrast, an entity that presents itself as an investor whose objective is to jointly develop, produce or market products with its investees has a business purpose that is inconsistent with the business purpose of an investment entity, because the entity will earn returns from the development, production or marketing activity as well as from its investments (see paragraph B85I). 5[B85C An investment en .....

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subsidiary, if these activities are undertaken to maximise the investment return (capital appreciation or investment income) from its investees and do not represent a separate substantial business activity or a separate substantial source of income to the investment entity: (a) providing management services and strategic advice to an investee; and (b) providing financial support to an investee, such as a loan, capital commitment or guarantee. 6[B85E If an investment entity has a subsidiary that .....

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subsidiary at fair value through profit or loss in accordance with paragraph 31. ] Exit strategies B85F An entity s investment plans also provide evidence of its business purpose. One feature that differentiates an investment entity from other entities is that an investment entity does not plan to hold its investments indefinitely; it holds them for a limited period. Because equity investments and non-financial asset investments have the potential to be held indefinitely, an investment entity sh .....

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or portfolios of investments, including a substantive time frame for exiting the investments. Exit mechanisms that are only put in place for default events, such as a breach of contract or non-performance, are not considered exit strategies for the purpose of this assessment. B85G Exit strategies can vary by type of investment. For investments in private equity securities, examples of exit strategies include an initial public offering, a private placement, a trade sale of a business, distributio .....

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ntity may have an investment in another investment entity that is formed in connection with the entity for legal, regulatory, tax or similar business reasons. In this case, the investment entity investor need not have an exit strategy for that investment, provided that the investment entity investee has appropriate exit strategies for its investments. Earnings from investments B85I An entity is not investing solely for capital appreciation, investment income, or both, if the entity or another me .....

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sive, rights to acquire assets, technology, products or services of any investee; for example, by holding an option to purchase an asset from an investee if the asset s development is deemed successful; (b) joint arrangements (as defined in Ind AS 111) or other agreements between the entity or another group member and an investee to develop, produce, market or provide products or services; (c) financial guarantees or assets provided by an investee to serve as collateral for borrowing arrangement .....

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hat are not related parties of either the entity, another group member or the investee; (ii) are not at fair value; or (iii) represent a substantial portion of the investee s or the entity s business activity, including business activities of other group entities. B85J An investment entity may have a strategy to invest in more than one investee in the same industry, market or geographical area in order to benefit from synergies that increase the capital appreciation and investment income from th .....

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ing the equity method for its interests in associates or joint ventures. In order to demonstrate that it meets this element of the definition, an investment entity: (a) provides investors with fair value information and measures substantially all of its investments at fair value in its financial statements whenever fair value is required or permitted in accordance with Ind ASs; and (b) reports fair value information internally to the entity s key management personnel (as defined in Ind AS 24), w .....

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have some non-investment assets, such as a head office property and related equipment, and may also have financial liabilities. The fair value measurement element of the definition of an investment entity in paragraph 27© applies to an investment entity s investments. Accordingly, an investment entity need not measure its non-investment assets or its liabilities at fair value. Typical characteristics of an investment entity B85N In determining whether it meets the definition of an investmen .....

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ns. An entity may hold a portfolio of investments directly or indirectly, for example by holding a single investment in another investment entity that itself holds several investments. B85P There may be times when the entity holds a single investment. However, holding a single investment does not necessarily prevent an entity from meeting the definition of an investment entity. For example, an investment entity may hold only a single investment when the entity: a) is in its start-up period and h .....

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ly, an investment entity would have several investors who pool their funds to gain access to investment management services and investment opportunities that they might not have had access to individually. Having several investors would make it less likely that the entity, or other members of the group containing the entity, would obtain benefits other than capital appreciation or investment income (see paragraph B85I). B85R Alternatively, an investment entity may be formed by, or for, a single .....

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interests that have been redeemed; or (c) is in the process of liquidation Unrelated investors B85T Typically, an investment entity has several investors that are not related parties (as defined in Ind AS 24) of the entity or other members of the group containing the entity. Having unrelated investors would make it less likely that the entity, or other members of the group containing the entity, would obtain benefits other than capital appreciation or investment income (see paragraph B85I). B85U .....

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entity is typically, but is not required to be, a separate legal entity. Ownership interests in an investment entity are typically in the form of equity or similar interests (eg partnership interests), to which proportionate shares of the net assets of the investment entity are attributed. However, having different classes of investors, some of which have rights only to a specific investment or groups of investments or which have different proportionate shares of the net assets, does not preclu .....

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income, expenses and cash flows of the parent with those of its subsidiaries. (b) offset (eliminate) the carrying amount of the parent s investment in each subsidiary and the parent s portion of equity of each subsidiary (Ind AS 103 explains how to account for any related goodwill). (c) eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that .....

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te adjustments are made to that group member s financial statements in preparing the to ensure conformity with the group s accounting policies. Measurement B88 An entity includes the income and expenses of a subsidiary in the from the date it gains control until the date when the entity ceases to control the subsidiary. Income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the at the acquisition date. For example, depreciation expense recognis .....

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es not reflect the possible exercise or conversion of potential voting rights and other derivatives, unless paragraph B90 applies. B90 In some circumstances an entity has, in substance, an existing ownership interest as a result of a transaction that currently gives the entity access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the parent and non controlling interests in preparing is determined by taking into account the eventual exerci .....

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are accounted for in accordance with Ind AS 109. Reporting date B92 The financial statements of the parent and its subsidiaries used in the preparation of the shall have the same reporting date. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent to enable the parent to consolidate the financial information of .....

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ths, and the length of the reporting periods and any difference between the dates of the financial statements shall be the same from period to period. Non-controlling interests B94 An entity shall attribute the profit or loss and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent and to the noncontrolling interests even if this results in the non-cont .....

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he carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognise directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received, and attribute it to the owners of the parent. Loss of control B97 A parent might lose control of a subsidiary in two or more arrangements (transactions). However, sometime .....

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m a single transaction designed to achieve an overall commercial effect. (c) The occurrence of one arrangement is dependent on the occurrence of at least one other arrangement. (d) One arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. An example is when a disposal of shares is priced below market and is compensated for by a subsequent disposal priced above market. B98 If a parent loses control of a .....

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ted in the loss of control; (ii) if the transaction, event or circumstances that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners, that distribution; and (iii) any investment retained in the former subsidiary at its fair value at the date when control is lost. (c) reclassify to profit or loss, or transfer directly to retained earnings if required by other Ind ASs, the amounts recognised in other comprehensive income in rela .....

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d in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or liabilities, the parent shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. If a revaluation surplus previously recognised in other comprehensive income would be transferred directly to retained earnings on the disposal of the asset, the parent shall transfer the revaluation surplus directly to ret .....

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easuring any goodwill or gain from a bargain purchase that arises from the deemed acquisition. All subsidiaries shall be consolidated in accordance with paragraphs 19-24 of this Ind AS from the date of change of status. B101 When an entity becomes an investment entity, it shall cease to consolidate its subsidiaries at the date of the change in status, except for any subsidiary that shall continue to be consolidated in accordance with paragraph 32. The investment entity shall apply the requiremen .....

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ommissioning, Restoration and Environmental Rehabilitation Funds, contained in Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, makes reference to this Standard also. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 110 and the corresponding International Financial Reporting Standard (IFRS) 10, , issued by the Internationa .....

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. 2 Different terminology is used, as used in existing laws eg, the term balance sheet is used instead of Statement of financial position and Statement of profit and loss is used instead of Statement of comprehensive income . 3 Appendix C of IFRS 10 dealing with effective date, transition and withdrawal of other IFRSs has not been included in Ind AS 10, due to the following reasons: (i) Effective date is not relevant as the date of application will be notified under the Companies Act. (ii) Trans .....

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110: (i) Paragraph 4(b) (ii) Paragraph 4(c) ] - Notes:- 1. Substituted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, (iv) its ultimate or any intermediate parent produces that are available for public use and comply with Ind ASs. 2. Omitted vide F. No. 01/01/2009-CL-V(Part) - Dated 30-3-2016 before it was read as, |(b) post-employment benefit plans or other long-term employee benefit plans to which Ind AS19, Employee Benefits, applies. (c) an investment entity need n .....

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