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Regulatory Deferral Accounts

Ind AS - 114 - Rule - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 114 - Indian Accounting Standard (Ind AS) 114 (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 Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to custo .....

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te regulation; and (ii) help users of the financial statements to understand the amount, timing and uncertainty of future cash flows from any regulatory deferral account balances that are recognised. 3 The requirements of this Standard permit an entity within its scope to continue to account for regulatory deferral account balances in its financial statements in accordance with its previous GAAP when it adopts Ind ASs, subject to the limited changes referred to in paragraph 2 above. 4 In additio .....

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if it: (a) conducts rate-regulated activities; and (b) recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP. 6 An entity shall apply the requirements of this Standard in its financial statements for subsequent periods if and only if, in its first Ind AS financial statements 1 , it recognised regulatory deferral account balances by electing to apply the requirements of this Standard. 7 This Standard does not addre .....

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t balances that arise from all of the entity s rate-regulated activities. Recognition, measurement, impairment and derecognition Temporary exemption from paragraph 11 of Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors 9 An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of Ind AS 8 when developing its accounting policies for the recognition, measurement, impairment and derecogn .....

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entities that recognise regulatory deferral account balances, either as separate items or as part of the carrying value of other assets and liabilities, in accordance with previous GAAP, are permitted to continue to recognise those balances in accordance with this Standard through the exemption from paragraph 11 of Ind AS 8, subject to any presentation changes required by paragraphs 18-19 of this Standard. Continuation of existing accounting policies 11 On initial application of this Standard, a .....

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ith paragraph 11 consistently in subsequent periods, except for any changes permitted by paragraphs 13-15. Changes in accounting policies 13 An entity shall not change its accounting policies in order to start to recognise regulatory deferral account balances. An entity may only change its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances if the change makes the financial statements more relevant to the economic decision-ma .....

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criteria in paragraph 10 of Ind AS 8. However, the change does not need to achieve full compliance with those criteria for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. 15 Paragraphs 13-14 apply both to changes made on initial application of this Standard and to changes made in subsequent reporting periods. Interaction with other Standards 16 Any specific exception, exemption or additional requirements related to the interaction of this Stand .....

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e with an entity s accounting policies that are established in accordance with paragraphs 11-12 in order to reflect that balance appropriately in the financial statements. For example, the entity might have rateregulated activities in a foreign country for which the transactions and regulatory deferral account balances are denominated in a currency that is not the functional currency of the reporting entity. The regulatory deferral account balances and the movements in those balances are transla .....

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. These presentation requirements separate the impact of recognising regulatory deferral account balances from the financial reporting requirements of other Standards. 19 In addition to the items that are required to be presented in the balance sheet and in the statement of profit and loss in accordance with Ind AS 1 Presentation of Financial Statements, an entity applying this Standard shall present all regulatory deferral account balances and the movements in those balances in accordance with .....

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ces as current or non-current. Instead, the separate line items required by paragraph 20 shall be distinguished from the assets and liabilities that are presented in accordance with other Standards by the use of sub-totals, which are drawn before the regulatory deferral account balances are presented. Classification of movements in regulatory deferral account balances 22 An entity shall present, in the other comprehensive income section of the statement of profit and loss , the net movement in a .....

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t and loss , for the remaining net movement in all regulatory deferral account balances for the reporting period, excluding movements that are not reflected in profit or loss, such as amounts acquired. This separate line item shall be distinguished from the income and expenses that are presented in accordance with other Standards by the use of a sub-total, which is drawn before the net movement in regulatory deferral account balances. 24 When an entity recognises a deferred tax asset or a deferr .....

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s a discontinued operation or a disposal group in accordance with Ind AS 105 Non-current Assets Held for Sale and Discontinued Operations, the entity shall present any related regulatory deferral account balances and the net movement in those balances, as applicable, with the regulatory deferral account balances and movements in those balances, instead of within the disposal groups or discontinued operations (see paragraphs B19-B22). 26 When an entity presents earnings per share in accordance wi .....

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t the entity can charge customers for the goods or services it provides; and (b) the effects of that rate regulation on its financial position, financial performance and cash flows. 28 If any of the disclosures set out in paragraphs 30-36 are not considered relevant to meet the objective in paragraph 27, they may be omitted from the financial statements. If the disclosures provided in accordance with paragraphs 30-36 are insufficient to meet the objective in paragraph 27, an entity shall disclos .....

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Explanation of activities subject to rate regulation 30 To help a user of the financial statements assess the nature of, and the risks associated with, the entity s rate-regulated activities, an entity shall, for each type of rate-regulated activity, disclose: (a) a brief description of the nature and extent of the rate-regulated activity and the nature of the regulatory rate-setting process; (b) the identity of the rate regulator(s). If the rate regulator is a related party (as defined in Ind A .....

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on); (ii) regulatory risk (for example, the submission or approval of a rate-setting application or the entity s assessment of the expected future regulatory actions); and (iii) other risks (for example, currency or other market risks). 31 The disclosures required by paragraph 30 shall be given in the financial statements either directly in the notes or incorporated by cross-reference from the financial statements to some other statement, such as a management commentary or risk report, that is a .....

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l account balances are assessed for recoverability and how any impairment loss is allocated. 33 For each type of rate-regulated activity, an entity shall disclose the following information for each class of regulatory deferral account balance: (a) a reconciliation of the carrying amount at the beginning and the end of the period, in a table unless another format is more appropriate. The entity shall apply judgement in deciding the level of detail necessary (see paragraphs 28-29), but the followi .....

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d or assumed in a business combination, items disposed of, or the effects of changes in foreign exchange rates or discount rates; (b) the rate of return or discount rate (including a zero rate or a range of rates, when applicable) used to reflect the time value of money that is applicable to each class of regulatory deferral account balance; and (c) the remaining periods over which the entity expects to recover (or amortise) the carrying amount of each class of regulatory deferral account debit .....

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ce with Ind AS 112 Disclosure of Interests in Other Entities for an interest in a subsidiary, associate or joint venture that has rate-regulated activities and for which regulatory deferral account balances are recognised in accordance with this Standard, the entity shall disclose the amounts that are included for the regulatory deferral account debit and credit balances and the net movement in those balances for the interests disclosed (see paragraphs B25-B28). 36 When an entity concludes that .....

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statements shall be entitled to apply the requirements of the previous GAAP in respect of its such rate regulated activities. Appendix A Defined terms This appendix is an integral part of the Standard. First Ind AS financial statements The first annual financial statements in which an entity adopts Indian Accounting Standards (Ind AS) , by an explicit and unreserved statement of compliance with Ind AS. First-time Adopter An entity that presents its first Ind AS financial statements. Previous GA .....

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Chartered Accountants of India (ICAI) shall be considered to be the previous GAAP. Rate-regulated Activities An entity s activities that are subject to rate regulation. Rate regulation Cost of Service Regulation as defined in the Guidance Note on Accounting for Rate Regulated Activities. Rate regulator Regulator as defined in the Guidance Note on Accounting for Rate Regulated Activities. Regulatory deferral account balance A Regulatory Asset or a Regulatory Liability as defined in the Guidance .....

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t are subject to statutory or regulatory restrictions through the actions of a rate regulator, regardless of the type of entity or the industry to which it belongs. B2 An entity shall not apply this Standard to activities that are selfregulated, ie activities that are not subject to a pricing framework that is overseen and/or approved by a rate regulator. Continuation of existing accounting policies B3 For the purposes of this Standard, a regulatory deferral account balance is defined as the bal .....

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of the rate regulation. Consequently, such an item is recognised as income or expense as incurred, unless another Standard permits or requires it to be included in the carrying amount of an asset or liability. B4 In some cases, other Standards explicitly prohibit an entity from recognising, in the balance sheet, regulatory deferral account balances that might be recognised, either separately or included within other line items such as property, plant and equipment in accordance with previous GAA .....

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ferral account debit balance when the entity has the right, as a result of the actual or expected actions of the rate regulator, to increase rates in future periods in order to recover its allowable costs (ie the costs for which the regulated rate(s) is intended to provide recovery); (b) recognising, as a regulatory deferral account debit or credit balance, an amount that is equivalent to any loss or gain on the disposal or retirement of both items of property, plant and equipment and of intangi .....

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discounted basis that uses an interest or discount rate specified by the rate regulator. B5 The following are examples of the types of costs that rate regulators might allow in rate-setting decisions and that an entity might, therefore, recognise in regulatory deferral account balances: (i) volume or purchase price variances; (ii) costs of approved green energy initiatives (in excess of amounts that are capitalised as part of the cost of property, plant and equipment in accordance with Ind AS 16 .....

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s borrowings). B6 Regulatory deferral account balances usually represent timing differences between the recognition of items of income or expenses for regulatory purposes and the recognition of those items for financial reporting purposes. When an entity changes an accounting policy on the first-time adoption of Ind AS or on the initial application of a new or revised Standard, new or revised timing differences may arise that create new or revised regulatory deferral account balances. The prohib .....

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rdance with paragraph 11 and would not represent the introduction of a new accounting policy. Similarly, paragraph 13 does not prohibit the recognition of regulatory deferral account balances arising from timing differences that did not exist immediately prior to the date of transition to Ind AS but are consistent with the entity s accounting policies established in accordance with paragraph 11 (for example, storm damage costs). Applicability of other Standards B7 An entity that is within the sc .....

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rds interact with the requirements of this Standard. In particular, the following paragraphs clarify specific exceptions to, and exemptions from, other Standards and additional presentation and disclosure requirements that are expected to be applicable. Application of Ind AS 10 Events after the Reporting Period B8 An entity may need to use estimates and assumptions in the recognition and measurement of its regulatory deferral account balances. For events that occur between the end of the reporti .....

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tivities, including its rateregulated activities, to identify the amount of income tax that is to be recognised. B10 In some rate-regulatory schemes, the rate regulator permits or requires an entity to increase its future rates in order to recover some or all of the entity s income tax expense. In such circumstances, this might result in the entity recognising a regulatory deferral account balance in the balance sheet related to income tax, in accordance with its accounting policies established .....

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d tax amount within the total deferred tax asset (liability) balances. Instead, the entity shall present the deferred tax asset (liability) that arises as a result of recognising regulatory deferral account balances either: (a) with the line items that are presented for the regulatory deferral account debit balances and credit balances; or (b) as a separate line item alongside the related regulatory deferral account debit balances and credit balances. B12 Similarly, when an entity recognises the .....

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line items that are presented in the statement of profit and loss for the movements in regulatory deferral account balances; or (b) as a separate line item alongside the related line items that are presented in the statement of profit and loss for the movements in regulatory deferral account balances. Application of Ind AS 33 Earnings per Share B13 Paragraph 66 of Ind AS 33 requires some entities to present, in the statement of profit and loss , basic and diluted earnings per share both for pro .....

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this Standard shall present additional basic and diluted earnings per share amounts that are calculated in the same way, except that those amounts shall exclude the net movement in the regulatory deferral account balances. Consistent with the requirement in paragraph 73 of Ind AS 33, an entity shall present the earnings per share required by paragraph 26 of this Standard with equal prominence to the earnings per share required by Ind AS 33 for all periods presented. Application of Ind AS 36 Impa .....

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count balances. This test might be required because the CGU contains goodwill, or because one or more of the impairment indicators described in Ind AS 36 have been identified relating to the CGU. In such situations, paragraphs 74-79 of Ind AS 36 contain requirements for identifying the recoverable amount and the carrying amount of a CGU. An entity shall apply those requirements to decide whether any of the regulatory deferral account balances recognised are included in the carrying amount of the .....

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Standard provides an additional exception. B18 Paragraphs 11-12 require an entity to continue to apply its previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, if an entity acquires a business, it shall apply, in its consolidated financial statements, its accounting policies established in accordance with paragraphs 11-12 for the recognition and measurement of the acquiree s regulatory deferral acc .....

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ecognition, measurement, impairment and derecognition of regulatory deferral account balances. Consequently, the measurement requirements of Ind AS 105 shall not apply to the regulatory deferral account balances recognised. B20 Paragraph 33 of Ind AS 105 requires a single amount to be presented for discontinued operations in the statement of profit and loss. Notwithstanding the requirements of that paragraph, when an entity that elects to apply this Standard presents a discontinued operation, it .....

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o profit or loss; or (b) as a separate line item alongside the related line item that is presented for movements in the regulatory deferral account balances related to profit or loss B21 Similarly, notwithstanding the requirements of paragraph 38 of Ind AS 105, when an entity presents a disposal group, the entity shall not include the total of the regulatory deferral account debit balances and credit balances that are part of the disposal group within the line items that are required by paragrap .....

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in those balances that are related to the disposal group or discontinued operation within the related regulated deferral account line items, it may be necessary to disclose them separately as part of the analysis of the regulatory deferral account line items described by paragraph 33 of this Standard. Application of Ind AS 110 Consolidated Financial Statements and Ind AS 28 Investments in Associates and Joint Ventures B23 Paragraph 19 of Ind 110 requires that a parent shall prepare consolidated .....

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ordance with this Standard, it shall apply the same accounting policies to the regulatory deferral account balances arising in all of its subsidiaries. This shall apply irrespective of whether the subsidiaries recognise those balances in their own financial statements. B24 Similarly, paragraphs 35-36 of Ind AS 28 require that, in applying the equity method, an entity s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstanc .....

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to the reporting entity, the profit or loss that was allocated to noncontrolling interests of the subsidiary during the reporting period. An entity that recognises regulatory deferral account balances in accordance with this Standard shall disclose the net movement in regulatory deferral account balances that is included within the amounts that are required to be disclosed by paragraph 12(e) of Ind AS 112. B26 Paragraph 12(g) of Ind AS 112 requires an entity to disclose, for each of its subsidia .....

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an entity is required to disclose for all other associates and joint ventures that are not individually material in accordance with paragraph 21(c) of Ind AS 112. B27 In addition to the information specified in paragraphs 12, 21, B10, B12-B13 and B16 of Ind AS 112, an entity that recognises regulatory deferral account balances in accordance with this Standard shall also disclose the total regulatory deferral account debit balance, the total regulatory deferral account credit balance and the net .....

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