Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

Companies (Accounting Standards)Amendment Rules 2016

Companies Law - F.No. 17/151/2013-CL-V - Dated:- 30-3-2016 - MINISTRY OF CORPORATE AFFAIRS NOTIFICATION New Delhi, the 30th March, 2016 G.S.R. 364(E).-In exercise of the powers conferred by clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956) read with section 210A and sub-section (3C) of section 211 and of the said Act, the Central Government, in consultation with National Advisory Committee on Accounting Standards, hereby makes the following rules to amend the Co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

standards of accounting or any addendum thereto as specified in rule 3 of these rules; (b) Act means the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013), as the case may be; ; (ii) for clauses (d) and (e), the following clauses shall be substituted, namely:- (d) Financial Statements means financial statements as defined in sub-section (40) of section 2 of the Companies Act, 2013; (e) Enterprise means a company as defined in sub-section (20) of section 2 of the Companies .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t, 2013 , respectively. 5. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS for Accounting Standard (AS) 2 , the following Accounting Standard shall be substituted, namely:- Accounting Standard (AS) 2 Valuation of Inventories (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g for inventories other than: (a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Construction Contracts); (b) work in progress arising in the ordinary course of business of service providers; (c) shares, debentures and other financial instruments held as stock-in-trade; and (d) producers inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are meas .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e inventories are excluded from the scope of this Standard. Definitions 3. The following terms are used in this Standard with the meanings specified: 3.1 Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. 3.2 Net realisable value is the estimated selling price in the ordinary course of business less the es .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

process. Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment. Measurement of Inventories 5. Inventories should be valued at the lower of cost and net realisable value. Cost of Inventories 6. The cost of inventories should comprise all costs of purchase, cost .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts of Conversion 8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Un allocated overheads are recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed product .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is de .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

est and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories. Exclusions from the Cost of Inventories 13. In determining the cost of inventories in accordance with paragraph 6, it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred. Examples of such costs are: (a) abnormal amounts of wasted mate .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pecific identification of their individual costs. 15. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been purchased or produced. However, when there are large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs is inappropriate since, in such circumstances, an enterprise .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate. The formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold fi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rise. Techniques for the Measurement of Cost 18. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions. 19. The retail method is often used in t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ble Value 20. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. The practice of writing down inventories below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ot appropriate to write down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular business segment. 22. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date. 24. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ted in measuring inventories, including the cost formula used; and (b) the total carrying amount of inventories and its classification appropriate to the enterprise. 27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are: (a) Raw materials and components (b) Work-in-progress (c) Finished goods (d) Stock-in-trade (in respect of goods .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

talic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. This Standard deals with the treatment in financial statements of (a) contingencies, and (b) events occurring after the balance sheet date. 2. The following subjects, which may result in contingencies, are excluded from the scope of this Standard in view of special considerations applicable to them: ( .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2 Events occurring after the balance sheet date are those significant events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity. Two types of events can be identified: (a) those which provide further evidence of conditions that existed at the balance sheet date; and (b) those which a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nguish between an event which is certain and one which is uncertain. The fact that an estimate is involved does not, of itself, create the type of uncertainty which characterises a contingency. For example, the fact that estimates of useful life are used to determine depreciation, does not make depreciation a contingency; the eventual expiry of the useful life of the asset is not uncertain. Also, amounts owed for services received are not contingencies as defined in paragraph 3.1, even though th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

able. 4.4 The estimates of the outcome and of the financial effect of contingencies are determined by the judgement of the management of the enterprise. This judgement is based on consideration of information available up to the date on which the financial statements are approved and will include a review of events occurring after the balance sheet date, supplemented by experience of similar transactions and, in some cases, reports from independent experts. 5. Accounting Treatment of Contingent .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t of a contingent loss, then disclosure is made of the existence and nature of the contingency. 5.4 A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter-claim or claim against a third party. In such cases, the amount of the provision is determined after taking into account the probable recovery under the claim if no significant uncertainty as to its measurability or collectability exists. Suitable disclosure regarding the natu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uations existing at the balance sheet date. 6. Accounting Treatment of Contingent Gains Contingent gains are not recognised in financial statements since their recognition may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such gain is not a contingency and accounting for the gain is appropriate. 7. Determination of the Amounts at which Contingencies are included in Financial Statements 7.1 The amount at which .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

each contingency can be separately identified, and the special circumstances of each situation considered in the determination of the amount of the contingency. A substantial legal claim against the enterprise may represent such a contingency. Among the factors taken into account by management in evaluating such a contingency are the progress of the claim at the date on which the financial statements are approved, the opinions, wherever necessary, of legal experts or other advisers, the experie .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

contingencies may be the warranties for products sold. These costs are usually incurred frequently and experience provides a means by which the amount of the liability or loss can be estimated with reasonable precision although the particular transactions that may result in a liability or a loss are not identified. Provision for these costs results in their recognition in the same accounting period in which the related transactions took place. 8. Events Occurring after the Balance Sheet Date 8.1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n adjustment may be made for a loss on a trade receivable account which is confirmed by the insolvency of a customer which occurs after the balance sheet date. 8.3 Adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date, if such events do not relate to conditions existing at the balance sheet date. An example is the decline in market value of investments between the balance sheet date and the date on which the financial statements are approved. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

enable users of financial statements to make proper evaluations and decisions. 8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no ob .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sider whether it is proper to use the fundamental accounting assumption of going concern in the preparation of the financial statements. 9. Disclosure 9.1 The disclosure requirements herein referred to apply only in respect of those contingencies or events which affect the financial position to a material extent. 9.2 If a contingent loss is not provided for, its nature and an estimate of its financial effect are generally disclosed by way of note unless the possibility of a loss is remote (other .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a charge in the statement of profit and loss if: (a) it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and (b) a reasonable estimate of the amount of the resulting loss can be made. 11. The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in paragraph 10 is not met, unless the possibility of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erprise) is not appropriate. 14. If an enterprise declares dividends to shareholders after the balance sheet date, the enterprise should not recognise those dividends as a liability at the balance sheet date unless a statute requires otherwise. Such dividends should be disclosed in notes. 15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

following information should be provided: (a) the nature of the event; (b) an estimate of the financial effect, or a statement that such an estimate cannot be made . 7. In the principals rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , Accounting Standard (AS) 6 shall be omitted. 8. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 10, the following Accounting Standard shall be substituted, namely:- Accounting Standar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ncial statements can discern information about investment made by an enterprise in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them. Scope 2. This Standard should be applied in accounting for property, plant and equipment except when another A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nt and equipment used to develop or maintain the assets described in (a) and (b) above. 4. Other Accounting Standards may require recognition of an item of property, plant and equipment based on an approach different from that in this Standard. For example, AS 19, Leases, requires an enterprise to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

into additional biological assets. Agricultural Produce is the harvested product of biological assets of the enterprise. Bearer plant is a plant that (a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than a period of twelve months; and (c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. The following are not bearer plants: (i) plants cultivated to be harvested as agricultural produce (for ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

use as firewood. Such incidental scrap sales would not prevent the plant from satisfying the definition of a bearer plant. Biological Asset is a living animal1 or plant. Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applica .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sposal at the end of its useful life or expects to incur when settling a liability. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm s length transaction. Gross carrying amount of an asset is its cost or other amount substituted for the cost in the books of account, without making any deduction for accumulated depreciation and accumulated impairment losses. An impairment loss is the amount by which the carrying amount of an asset exc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Useful life is: (a) the period over which an asset is expected to be available for use by an enterprise ; or (b) the number of production or similar units expected to be obtained from the asset by an enterprise. Recognition 7. The cost of an item of property, plant and equipment should be recognised as an asset if, and only if: (a) it is probable that fu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ment. Thus, judgement is required in applying the recognition criteria to specific circumstances of an enterprise. An example of a unit of measure can be a project of construction of a manufacturing plant rather than individual assets comprising the project in appropriate cases for the purpose of capitalisation of expenditure incurred during construction period. Similarly, it may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies and to apply the criteri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of, or service it. Initial Costs 11. The definition of property, plant and equipment covers tangible items which are held for use or for administrative purposes. The term administrative purposes has been used in wider sense to include all business purposes other than production or supply of goods or services or for rental for others. Thus, property, plant and equipment would include assets used for selling and distribution, finance and accounting, personnel and other functions of an enterprise. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uture economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognised as an asset because without them the enterprise is unable to manufacture and sell chemicals. The resulting carrying amount of such an asset and related assets is revi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rpose of such expenditures is often described as for the repairs and maintenance of the item of property, plant and equipment. 13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Similarly, major parts of conveyor system, such as, conveyor belt .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 74-80). 14. A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carryi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

prise to determine the carrying amount of the replaced part/ inspection, it may use the cost of the replacement or the estimated cost of a future similar inspection as an indication of what the cost of the replaced part/ existing inspection component was when the item was acquired or constructed. Measurement at Recognition 16. An item of property, plant and equipment that qualifies for recognition as an asset should be measured at its cost. Elements of Cost 17. The cost of an item of property, p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ilar liabilities , the obligation for which an enterprise incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. 18. Examples of directly attributable costs are: (a) costs of employee benefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with AS 2 or AS 10 are recognised and measured in accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets. 20. Examples of costs that are not costs of an item of property, plant and equipment are: (a) costs of opening a new facility or business, such as, inauguration costs; (b) costs of introducing a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment: (a) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity; (b) initial operating losses, such as those incurred while demand for the output of an item builds up; and (c) cost .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in the statement of profit and loss and included in their respective classifications of income and expense. 23. The cost of a self-constructed asset is determined using the same principles as f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment. 24. Bearer plants are accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to construction in this Standard should be read as covering activities that are necessary to cultivate the bearer plants be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of ne .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nge as a result of the transaction. An exchange transaction has commercial substance if: (a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or (b) the enterprise-specific value of the portion of the operations of the enterprise affected by the transaction changes as a result of the exchange; (c) and the difference in (a) or (b) is significant relative to the fair value of the assets ex .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gnificant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an enterprise is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident. 29. Where several items of property, plant and equipment are purchased f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ant and equipment may be reduced by government grants in accordance with AS 12, Accounting for Government Grants. Measurement after Recognition 32. An enterprise should choose either the cost model in paragraph 33 or the revaluation model in paragraph 34 as its accounting policy and should apply that policy to an entire class of property, plant and equipment. Cost Model 33. After recognition as an asset, an item of property, plant and equipment should be carried at its cost less any accumulated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ich would be determined using fair value at the balance sheet date. 35. The fair value of items of property, plant and equipment is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified valuers. 36. If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an enterprise may need to estimate fair .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years. 38. When an item of property, plant and equipment is revalued, the carrying amount of that asset is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset. The amount of the adjustment of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in accordance with paragraphs 42 and 43. 39. If an item of property, plant and equipment is revalued, the entire class of pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

aneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date. 42. An increase in the carrying amount of an asset arising on revaluation should be credited directly to owners interests under the heading .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

balance existing in the revaluation surplus in respect of that asset. 44. The revaluation surplus included in owners interests in respect of an item of property, plant and equipment may be transferred to the revenue reserves when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an enterprise. In such a case, the amount of the surplus transferred would .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of an item of property, plant and equipment to its significant parts and depreciates each such part separately. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease. 47. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tern and/or useful life of its parts. 49. An enterprise may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item. 50. The depreciation charge for each period should be recognised in the statement of profit and loss unless it is included in the carrying amount of another asset. 51. The depreciation charge for a period is usually recognised in the statement of profit and loss. However, sometimes, the future econo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e with AS 26, Intangible Assets. Depreciable Amount and Depreciation Period 52. The depreciable amount of an asset should be allocated on a systematic basis over its useful life. 53. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) should be accounted for as a change in an accounting estimate in accordance with AS 5, Net Profit or Loss for the Period, Prior Period Items and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

charge of the asset is zero unless and until its residual value subsequently decreases to an amount below its carrying amount. 57. Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is retired from active use and is held for disposal and the date that the asset is derecognised. Theref .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ften result in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset: (a) expected usage of the asset. Usage is assessed by reference to the expected capacity or physical output of the asset. (b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

asset. (d) legal or similar limits on the use of the asset, such as the expiry dates of related leases. 59. The useful life of an asset is defined in terms of its expected utility to the enterprise. The asset management policy of the enterprise may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng stands does not affect the determination of the depreciable amount of the building. 61. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it. Depreciation Method 62. The depreciation method used sho .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in accordance with AS 5. 64. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the residual value of the asset does not change. The diminishing balance method results in a decreasing charge over the useful life. The un .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits of the asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in cost should be accounted for in accordance with paragraphs 67-68 below. 67. If the related asset is measured using the cost model: (a) subject to (b), changes in the liability should be added to, or deducted from, the cost of the related asset in the current period. (b) the amount deducted from the cost of the asset should not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess should be recognised immediately in the statement of pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y alter the revaluation surplus or deficit previously recognised on that asset, so that: (i) a decrease in the liability should (subject to (b)) be credited directly to revaluation surplus in the owners interest, except that it should be recognised in the statement of profit and loss to the extent that it reverses a revaluation deficit on the asset that was previously recognised in the statement of profit and loss; (ii) an increase in the liability should be recognised in the statement of profit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ay have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Any such revaluation should be taken into account in determining the amounts to be taken to the statement of profit and loss and the owners interest under (a). If a revaluation is necessary, all assets of that class should be revalued. 69. The adjusted depreciable amount of the asset is depreciated over its useful life. Ther .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Compensation for Impairment 71. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up should be included in the statement of profit and loss when the compensation becomes receivable. 72. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hen it becomes receivable; and (d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard. Retirements 73. Items of property, plant and equipment retired from active use and held for disposal should be stated at the lower of their carrying amount and net realisable value. Any write-down in this regard should be recognised immediately in the statement of profit and loss. Derecognition 74. The carrying am .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

76. However, an enterprise that in the course of its ordinary activities, routinely sells items of property, plant and equipment that it had held for rental to others should transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets should be recognised in revenue in accordance with AS 9, Revenue Recognition. 77. The disposal of an item of property, plant and equipment may occur in a variety of wa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

unt of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an enterprise to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. 79. The gain or loss arising from the derecognition of an item of property, plant and equipment should be determined as the difference between the net disposal pr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ation rates used. In case the useful lives or the depreciation rates used are different from those specified in the statute governing the enterprise, it should make a specific mention of that fact; (d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and (e) a reconciliation of the carrying amount at the beginning and end of the period showing: (i) additions; (ii) assets retired from active use and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fferences arising on the translation of the financial statements of a non-integral foreign operation in accordance with AS 11, The Effects of Changes in Foreign Exchange Rates; and (ix) other changes. 82. The financial statements should also disclose: (a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities; (b) the amount of expenditure recognised in the carrying amount of an item of property, plant and equipment in the course .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other enterprises. For similar reasons, it is necessary to disclose: (a) depreciation, whether recognised in the statement of profit and loss or as a part of the cost of o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rty, plant and equipment; (c) useful lives; and (d) depreciation methods. 85. If items of property, plant and equipment are stated at revalued amounts, the following should be disclosed: (a) the effective date of the revaluation; (b) whether an independent valuer was involved; (c) the methods and significant assumptions applied in estimating fair values of the items; (d) the extent to which fair values of the items were determined directly by reference to observable prices in an active market or .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

carrying amount of temporarily idle property, plant and equipment; (b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use; (c) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had the assets been carried under the cost model; (d) the carrying amount of property, plant and equipment retired from active use and not held for disposal. Transitional Provisions 88. Where an entity has in pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, plant and equipment acquired in an exchange of assets transaction should be applied prospectively only to transactions entered into after this Standard becomes mandatory. 90. On the date of this Standard becoming mandatory, the spare parts, which hitherto were being treated as inventory under AS 2, Valuation of Inventories, and are now required to be capitalised in accordance with the requirements of this Standard, should be capitalised at their respective carrying amounts. The spare parts so .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t the amount outstanding in the revaluation reserve against the carrying amount of that item. However, the carrying amount of that item should never be less than residual value. Any excess of the amount outstanding as revaluation reserve over the carrying amount of that item should be adjusted in revenue reserves . 9. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 13, the following Accounting Standard shall be substituted, namely:- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

osure requirements.2 2. This Standard does not deal with: (a) the bases for recognition of interest, dividends and rentals earned on investments which are covered by Accounting Standard 9 on Revenue Recognition; (b) operating or finance leases; (c) investments of retirement benefit plans and life insurance enterprises; and (d) mutual funds and venture capital funds and/or the related asset management companies, banks and public financial institutions formed under a Central or State Government Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

than one year from the date on which such investment is made. 3.3 A long term investment is an investment other than a current investment. 3.4 An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise. 3.5 Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm s length transaction. Under a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

depend on the reported results of this activity. 5. Some investments have no physical existence and are represented merely by certificates or similar documents (e.g., shares) while others exist in a physical form (e.g., buildings). The nature of an investment may be that of a debt, other than a short or long term loan or a trade debt, representing a monetary amount owing to the holder and usually bearing interest; alternatively, it may be a stake in the results and net assets of an enterprise s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets, although the common practice may be to include them in investments.3 8. Investments other than current investments are classified as long term investments, even though they may be readily marketable. Cost of Investments 9. The cost of an investment includes acquisition charges .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n cost of the investment is determined by reference to the fair value of the asset given up. It may be appropriate to consider the fair value of the investment acquired if it is more clearly evident. 12. Interest, dividends and rentals receivables in connection with an investment are generally regarded as income, being the return on the investment. However, in some circumstances, such inflows represent a recovery of cost and do not form part of income. For example, when unpaid interest has accru .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

idends receivable only if they clearly represent a recovery of a part of the cost. 13. When right shares offered are subscribed for, the cost of the right shares is added to the carrying amount of the original holding. If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the profit and loss statement. However, where the investments are acquired on cum-right basis and the market value of investments immediately after their becoming ex-right is lower than the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vides a prudent method of determining the carrying amount to be stated in the balance sheet. 15. Valuation of current investments on overall (or global) basis is not considered appropriate. Sometimes, the concern of an enterprise may be with the value of a category of related current investments and not with each individual investment, and accordingly the investments may be carried at the lower of cost and fair value computed categorywise (i.e. equity shares, preference shares, convertible deben .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ecline. Indicators of the value of an investment are obtained by reference to its market value, the investee s assets and results and the expected cash flows from the investment. The type and extent of the investor s stake in the investee are also taken into account. Restrictions on distributions by the investee or on disposal by the investor may affect the value attributed to the investment. 18. Long-term investments are usually of individual importance to the investing enterprise. The carrying .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

or in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and Equipment. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property. Disposal of Investments 21. On disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognised in the profit and los .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sfers are made at the lower of cost and fair value at the date of transfer. Disclosure 25. The following disclosures in financial statements in relation to investments are appropriate:- (a) the accounting policies for the determination of carrying amount of investments; (b) the amounts included in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies*), and rentals on investments showing separately such income from long term and current in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (e) other disclosures as specifically required by the relevant statute governing the enterprise. Main Principles Classification of Investments 26. An enterprise should disclose current investments and long-term investments distinctly in its financial statements. 27. Further classification of current and long-term investments should be as specified in the statute governing the enterpri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he fair value of the securities issued (which in appropriate cases may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition cost of the investment should be determined by reference to the fair value of the asset given up. Alternatively, the acquisition cost of the investment may be determined with referen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t, but not on an overall (or global) basis. 32. Investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually. Changes in Carrying Amounts of Investments 33. Any reduction in the carrying amount and any reversals of such reductions should be charged or credi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) profits and losses on disposal of current investments and changes in the carrying amount of such investments; and (iii) profits and losses on disposal of long ter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

STANDARDS , for Accounting Standard (AS) 14, the following Accounting Standard shall be substituted, namely:- Accounting Standard (AS) 14 Accounting for Amalgamations (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. T .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist. Definitions 3. The following terms are used in this standard with the meanings specified: (a) Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 2013 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of assets or for a known liability. (e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Share holders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transfer .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. (f) Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions specified in sub-paragrap .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies. Explanation Types of Amalgamations 4. Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamations are amalgamations in the nature of 'purchase'. 5. An amalgamation is classified as an amalgamation in the nature of merger when all the conditions listed in paragraph 3(e) are satisfied. Ther .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pany does not amount to a mutual sharing of risks and benefits. 6. Others believe that the substance of an amalgamation in the nature of merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former independence of the amalgamating companies, the manner of their amalgamation, the absence of planned transactions that would undermine the effect of the amalgamation, and the continuing participation by the management of the transferor company in the ma .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iples as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase. The Pooling of Interests Method 10. Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts (after making the adjustments required in paragraph 11). 11. If, at the time of the amalgamation, the transferor and the transferee companies have conflic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company. 13. Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transf .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ce Sheet Date]. Treatment of Reserves on Amalgamation 16. If the amalgamation is an amalgamation in the nature of merger , the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the General Reserve of the transferee company, the Capital Reserve of the transferor company beco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and the amount of share capital of the transferor company is adjusted is reserves in the financial statements of the transferee company. 17. If the amalgamation is an amalgamation in the nature of purchase , the identity of the reserves, other than the statutory reserves dealt with in paragraph 18, is not preserved. The amount of the consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negati .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

serves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes. Though, normally, in an amalgamation in the nature of purchase, the identity of reserves is not preserved, an exception is made in respect of reserves of the aforesaid nature (referred to hereinafter as statutory reserves ) and such reserves retain their identity in the financial statements .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e company by a corresponding debit to a suitable account head (e.g., Amalgamation Adjustment Reserve ) which is presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed. Treatment of Goodwill Arising on Amalgamation 19. Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to inco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ife of the business or industry; (b) the effects of product obsolescence, changes in demand and other economic factors; (c) the service life expectancies of key individuals or groups of employees; (d) expected actions by competitors or potential competitors; and (e) legal, regulatory or contractual provisions affecting the useful life. Balance of Profit and Loss Account 21. In the case of an amalgamation in the nature of merger , the balance of the Profit and Loss Account appearing in the financ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

scheme of amalgamation sanctioned under the provisions of the Companies Act, 1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Disclosure 24. For all amalgamations, the following disclosures are considered appropriate in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

value of net identifiable assets acquired, and the treatment thereof. 26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained. Main Principles 28. An amalgamation may be either - (a) an amalgamation in the nature of merger, or (b) an amalgamation in the nature of purchase. 29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied: (i) All the assets and liabilities of the transferor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

se equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

graphs 33-35. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36-39. The Pooling of Interests Method 33. In preparing the transferee company s financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the ama .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eported in accordance with Accounting Standard (AS) 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. 35. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves. The Purchase Method 36. In preparing the transferee company s financial statements, the assets and liabilities of the trans .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee company s financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve. 38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortis .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed. Common Procedures 40. The consideration for the amalgamation should include any noncash element at fair value. In case of issue of securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves Specified in A Scheme of Amalgamation 42.* Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transfe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Disclosure 43. For all amalgamations, the following disclosures should be made in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 45. For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiabl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tatements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained . 11. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 21, the following Accounting Standard shall be substituted, namely:- Accounting Standard (AS) 21 Consolidated Financial Statements5 (This Accounting Standard includes pa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary (ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources. Scope 1. This Standard should be applied in the preparation and presentation of consolidated financial statemen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on amalgamation (see AS 14, Accounting for Amalgamations); (b) accounting for investments in associates (at present governed by AS 13, Accounting for Investments6 ); and (c) accounting for investments in joint ventures (at present governed by AS 13, Accounting for Investments7 ). Definitions 5. For the purpose of this Standard, the following terms are used with the meanings specified: 5.1 Control: (a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the vot .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

atements are the financial statements of a group presented as those of a single enterprise. 5.6 Equity is the residual interest in the assets of an enterprise after deducting all its liabilities. 5.7 Minority interest is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent. 6. Consolidated financial statements normally include consolidated balance sheet, consol .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ubsidiaries need not be included in the notes to the consolidated financial statements. For preparing consolidated financial statements, the following principles may be observed in respect of notes and other explanatory material that form an integral part thereof: (a) Notes which are necessary for presenting a true and fair view of the consolidated financial statements are included in the consolidated financial statements as an integral part thereof. (b) Only the notes involving items which are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d in separate financial statements of the subsidiary and/or a parent having no bearing on the true and fair view of the consolidated financial statements need not be disclosed in the consolidated financial statements. An illustration of such information in the case of companies is attached to the Standard. Presentation of Consolidated Financial Statements 7. A parent which presents consolidated financial statements should present these statements in addition to its separate financial statements. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

legal entities. Scope of Consolidated Financial Statements 9. A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Sta .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

xists when an enterprise controls the composition of the board of directors (in the case of a company) or of the corresponding governing body (in case of an enterprise not being a company) so as to obtain economic benefits from its activities. An enterprise may control the composition of the governing bodies of entities such as gratuity trust, provident fund trust etc. Since the objective of control over such entities is not to obtain economic benefits from their activities, these are not consid .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

as director without the exercise in his favour by that enterprise of such a power as aforesaid; or (b) a person s appointment as director follows necessarily from his appointment to a position held by him in that enterprise; or (c) the director is nominated by that enterprise or a subsidiary thereof. (ii) the governing body of an enterprise that is not a company, if it has the power, without the consent or the concurrence of any other person, to appoint or remove all or a majority of members of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng body is nominated by that other enterprise. Explanation: It is possible that an enterprise is controlled by two enterprises - one controls by virtue of ownership of majority of the voting power of that enterprise and the other controls, by virtue of an agreement or otherwise, the composition of the board of directors so as to obtain economic benefits from its activities. In such a rare situation, when an enterprise is controlled by two enterprises as per the definition of control , the first .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tes under severe long-term restrictions which significantly impair its ability to transfer funds to the parent. In consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements. Explanation: (a) Where an enterprise owns majority of voting power by virtue of ownership of the shares of a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

dered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment is considered at the time of acquisition of the investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near future, and subsequently, it is decided to dispose off the investment, such an investment is not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther enterprises within the group is not justified because better information is provided by consolidating such subsidiaries and disclosing additional information in the consolidated financial statements about the different business activities of subsidiaries. For example, the disclosures required by Accounting Standard (AS) 17, Segment Reporting, help to explain the significance of different business activities within the group. Consolidation Procedures 13. In preparing consolidated financial s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stment in each subsidiary is made, should be eliminated; (b) any excess of the cost to the parent of its investment in a subsidiary over the parent s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements; (c) when the cost to the parent of its investment in a subsidiary is less than the parent s portion of equity of the subsidiary, at the date on which i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d balance sheet separately from liabilities and the equity of the parent s shareholders. Minority interests in the net assets consist of: (i) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and (ii) the minorities share of movements in equity since the date the parent-subsidiary relationship came in existence. Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nsolidated balance sheet keeping in view the objective of consolidated financial statements to present financial information of the group as a whole. In view of this, the consolidated reserves disclosed in the consolidated balance sheet are inclusive of the parent s share in the post-acquisition reserves of a subsidiary. 14. The parent s portion of equity in a subsidiary, at the date on which investment is made, is determined on the basis of information contained in the financial statements of t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ch financial statements and the date of investment in the subsidiary. 15. If an enterprise makes two or more investments in another enterprise at different dates and eventually obtains control of the other enterprise, the consolidated financial statements are presented only from the date on which holding-subsidiary relationship comes in existence. If two or more investments are made over a period of time, the equity of the subsidiary at the date of investment, for the purposes of paragraph 13 ab .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

overed. 17. Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full. Unrealised profits resulting from intragroup transactions that are included in the carrying amount of assets, such as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intragroup transactions that are deducted in arriving at the carrying amount of assets are also eliminated unless cost cannot be recovered. 18. The financial statements us .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

than six months. 19. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as that of the parent. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not mor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rtions of the items in the consolidated financial statements to which the different accounting policies have been applied. 21. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements. 22. The results of operations of a subsidiary are included in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the consolidated statement of profit and loss as the profit or loss on the disposal of the investment in the subsidiary. In order to ensure the comparability of the financial statements from one accounting period to the next, supplementary information is often provided about the effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date and the results for the reporting period and on the corresponding amounts for the preceding period. 23. An invest .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rests in the income of the group should also be separately presented. 26. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ents, investments in subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. Disclosure 29. In addition to disclosures required by paragraph 11 and 20, following disclosures should be made: (a) in consolidated financial statements a list of all subsidiaries including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held; (b) in consolidated financial statements, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is/are different from that of the parent and the difference in reporting dates. Transitional Provisions 30. On the first occasion that consolidated financial statements are presented, comparative figures for the previous period need not be presented. In all subsequent years full comparative figures for the previous period should be presented in the consolidated financial statements. Illustration Note: This illustration does not form part of the Accounting Standard. Its purpose is to assist in c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

have been invested. (iii) The name(s) of small scale industrial undertaking(s) to whom the company owe any sum together with interest outstanding for more than thirty days. (iv) A statement of investments (whether shown under Investment or under Current Assets as stock-in-trade) separately classifying trade investments and other investments, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Companies Act, 2013, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any). (vii) In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production. (viii) Value of imports calculated on C.I.F. basis by the company during the financial year in respect of : (a) r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends were due and the year to which the dividends related. (xii) Earnings in foreign exchange classified under the following heads, namely: (a) export of goods calculated on F.O.B. basis; (b) royalty, know-how, professional and consultation fees; (c) interest and dividend; (d) other income, indicating the nature thereo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

context of its objective and the General Instructions contained in part A of the Annexure to the Notification.) Pursuant to this Accounting Standard coming into effect, all paragraphs of Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, that deal with contingencies (viz., paragraphs 1 (a), 2, 3.1, 4 (4.1 to 4.4), 5 (5.1 to 5.6), 6, 7 (7.1 to 7.3), 9.1 (relevant portion), 9.2, 10, 11, 12 and 16), stand withdrawn except to the extent they deal with impair .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

should be applied in accounting for provisions and contingent liabilities and in dealing with contingent assets, except: (a) those resulting from financial instruments9 that are carried at fair value; (b) those resulting from executory contracts, except where the contract is onerous; Explanation : (i) An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Thus, for a contract t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

easured as a provision as per this Statement. The application of the above explanation is illustrated in Illustration 10 of Illustration C attached to the Standard. (c) those arising in insurance enterprises from contracts with policy-holders; and (d) those covered by another Accounting Standard. 2. This Standard applies to financial instruments (including guarantees) that are not carried at fair value. 3. Executory contracts are contracts under which neither party has performed any of its oblig .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

this Standard. For example, certain types of provisions are also addressed in Accounting Standards on: (a) construction contracts (see AS 7, Construction Contracts); (b) taxes on income (see AS 22, Accounting for Taxes on Income); (c) leases (see AS 19, Leases) . However, as AS 19 contains no specific requirements to deal with operating leases that have become onerous, this Statement applies to such cases; and (d) retirement benefits (see AS 15, Accounting for Retirement Benefits in the Financi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s liabilities which can be measured only by using a substantial degree of estimation. The term provision is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard. 8. Other Accounting Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requ .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ion. 10.2 A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 10.3 An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation. 10.4 A contingent liability is: (a) a possible obligation that arises from past events and the existence of which will be confirmed o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise. 10.6 Present obligation - an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not. 10.7 Possible obligation - an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is cons .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

esire to maintain good business relations or act in an equitable manner. 12. Provisions can be distinguished from other liabilities such as trade payables and accruals because in the measurement of provisions substantial degree of estimation is involved with regard to the future expenditure required in settlement. By contrast: (a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and (b) ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise. In addition, the term contingent liability is used for liabilities that do not meet the recognition criteria. Recognition Provisions 14. A provision should be recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable es .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ate by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. On the basis of such evidence: (a) where it is more likely than not that a present obligation exists at the balance sheet date, the enterprise recognises a provision (if the recognition criteria are met); and (b) where it is more likely that no present obligation exists at the balance sheet date, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eporting period and not its possible position in the future. Therefore, no provision is recognised for costs that need to be incurred to operate in the future. The only liabilities recognised in an enterprise s balance sheet are those that exist at the balance sheet date. 18. It is only those obligations arising from past events existing independently of an enterprise s future actions (i.e. the future conduct of its business) that are recognised as provisions. Examples of such obligations are pe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a certain type of factory). Because the enterprise can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognised. 19. An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

obligation arises only when the legislation is virtually certain to be enacted. Differences in circumstances surrounding enactment usually make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted. Probable Outflow of Resources Embodying Economic Benefits 22. For a liability to qualify for recognition there must be not only a present obligation bu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ources embodying economic benefits is remote (see paragraph 68). 23. Where there are a number of similar obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

imate of the obligation that is reliable to use in recognising a provision. 25. In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognised. That liability is disclosed as a contingent liability (see paragraph 68). Contingent Liabilities 26. An enterprise should not recognise a contingent liability. 27. A contingent liability is disclosed, as required by paragraph 68, unless the possibility of an outflow of resources embodying economic benefits .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lly expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in accordance with paragraph 14 in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable es .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ver be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. 33. A contingent asset is not disclosed in the financial statements. It is usually disclosed in the report of the approving authority (Board of Directors in the case of a company, and, the corresponding approving authority in the case of any other enterprise), where an inflow of economic benefits is probable. 34. Contingent assets are .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

decommissioning, restoration and similar liabilities that are recognised as cost of Property, Plant and Equipment. The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss. 36. The estimates .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

The risks and uncertainties that inevitably surround many events and circumstances should be taken into account in reaching the best estimate of a provision. 39. Risk describes variability of outcome. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgments under conditions of uncertainty, so that income or assets are not overstated and expenses or liabilities are not understated. However, uncertainty does not justify the creation of exces .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts 41. Future events that may affect the amount required to settle an obligation should be reflected in the amount of a provision where there is sufficient objective evidence that they will occur. 42. Expected future events may be particularly important in measuring provisions. For example, an enterprise may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognised reflects a reasonable expectation of technically qua .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ew technology for cleaning up unless it is supported by sufficient objective evidence. 43. The effect of possible new legislation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice usually makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what leg .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g rise to the provision. Instead, an enterprise recognises gains on expected disposals of assets at the time specified by the Accounting Standard dealing with the assets concerned. Reimbursements 46. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised when, and only when, it is virtually certain that reimbursement will be received if the enterprise settles the obligation. The reimbursement shoul .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ty may either reimburse amounts paid by the enterprise or pay the amounts directly. 49. In most cases, the enterprise will remain liable for the whole of the amount in question so that the enterprise would have to settle the full amount if the third party failed to pay for any reason. In this situation, a provision is recognised for the full amount of the liability, and a separate asset for the expected reimbursement is recognised when it is virtually certain that reimbursement will be received .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

52. Provisions should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed. Use of Provisions 53. A provision should be used only for expenditures for which the provision was originally recognised. 54. Only expenditures that relate to the original provision are adjusted against it. Adjusting expendit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at certain assets of the operation may be impaired. An enterprise tests these assets for impairment under Accounting Standard (AS) 28, Impairment of Assets. Restructuring 58. The following are examples of events that may fall under the definition of restructuring: (a) sale or termination of a line of business; (b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another; (c) changes in management structure, for exampl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

haser has been identified and there is a binding sale agreement. Until there is a binding sale agreement, the enterprise will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment under Accounting Standard (AS) 28, Impairment of Assets. 62. A restructuring provision should include only the dir .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e sheet date. Such expenditures are recognised on the same basis as if they arose independently of a restructuring. 64. Identifiable future operating losses up to the date of a restructuring are not included in a provision. 65. As required by paragraph 44, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring. Disclosure 66. For each class of provision, an enterprise should .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits; (b) an indication of the uncertainties about those outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events, as addressed in paragraph 41; and (c) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement. Provided th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

c) the possibility of any reimbursement. 69. In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfill the requirements of paragraphs 67 (a) and (b) and 68 (a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rare cases, disclosure of some or all of the information required by paragraphs 66-70 can be expected to prejudice seriously the position of the enterprise in a dispute with other parties on the subject matter of the provision or contingent liability. In such cases, an enterprise need not disclose the information, but should disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. Transitional Provisions 73. All the existing .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ng Standard. Provisions and Contingent Liabilities Where, as a result of past events, there may be an outflow of resources embodying future economic bene fits in settlement of: (a) a present obligation the one whose existence at the balance sheet date is considered probable; or (b) a possible obligation the existence of which at the balance sheet date is considered not probable. There is a present obligation that probably requires an outflow of resources and a reliable estimate can be made of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gnised (paragraph 26). No disclosure is required (paragraph 68). Reimbursements Some or all of the expenditure required to settle a provision is expected to be reimbursed by another party. The enterprise has no obligation for the part of the expenditure to be reimbursed by the other party. The obligation for the amount expected to be reimbursed remains with the enterprise and it is virtually certain that reimbursement will be received if the enterprise settles the provision. The obligation for t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

reimbursement is not recognised as an asset (paragraph 46). No disclosure is required. The reimbursement is disclosed together with the amount recognised for the reimbursement (paragraph 67(c)). The expected reimbursement is disclosed (paragraph 67(c)). Illustration B Decision Tree The purpose of the decision tree is to summarise the main recognition requirements of the Accounting Standard for provisions and contingent liabilities. The decision tree does not form part of the Accounting Standard .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Standard to assist in clarifying its meaning. It does not form part of the Accounting Standard. All the enterprises in the Illustrations have 31 March year ends. In all cases, it is assumed that a reliable estimate can be made of any outflows expected. In some Illustrations the circumstances described may have resulted in impairment of the assets - this aspect is not dealt with in the examples. The cross references provided in the Illustrations indicate paragraphs of the Accounting Standard that .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l be some claims under the warranties. Present obligation as a result of a past obligating event -The obligating event is the sale of the product with a warranty, which gives rise to an obligation. An outflow of resources embodying economic benefits in settlement - Probable for the warranties as a whole (see paragraph 23). Conclusion - A provision is recognised for the best estimate of the costs of making good under the warranty products sold before the balance sheet date (see paragraphs 14 and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g event is the contamination of the land because of the virtual certainty of legislation requiring cleaning up. An outflow of resources embodying economic benefits in settlement - Probable. Conclusion - A provision is recognised for the best estimate of the costs of the clean-up (see paragraphs 14 and 21). Illustration 3: Offshore Oil field An enterprise operates an offshore oil field where its licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

heet date, however, there is no obligation to rectify the damage that will be caused by extraction of the oil. An outflow of resources embodying economic benefits in settlement - Probable. Conclusion -A provision is recognised for the best estimate of ninety per cent of the eventual costs that relate to the removal of the oil rig and restoration of damage caused by building it (see paragraph 14). These costs are included as part of the cost of the oil rig. The ten per cent of costs that arise th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

custom and a desire to maintain good business relations or act in an equitable manner. An outflow of resources embodying economic benefits in settlement Probable, a proportion of goods are returned for refund (see paragraph 23). Conclusion - A provision is recognised for the best estimate of the costs of refunds (see paragraphs 11, 14 and 23). Illustration 5: Legal Requirement to Fit Smoke Filters Under new legislation, an enterprise is required to fit smoke filters to its factories by 30 Septe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f a past obligating event -There is still no obligation for the costs of fitting smoke filters because no obligating event has occurred (the fitting of the filters). However, an obligation might arise to pay fines or penalties under the legislation because the obligating event has occurred (the non-compliant operation of the factory). An outflow of resources embodying economic benefits in settlement - Assessment of probability of incurring fines and penalties by non-compliant operation depends o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

an enterprise in the financial services sector will need to retrain a large proportion of its administrative and sales work force in order to ensure continued compliance with financial services regulation. At the balance sheet date, no retraining of staff has taken place. Present obligation as a result of a past obligating event -There is no obligation because no obligating event (retraining) has taken place. Conclusion - No provision is recognised (see paragraphs 14 and 16-18). Illustration 7: .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

fits in settlement No outflow of benefits is probable at 31 March 2005. Conclusion -No provision is recognised (see paragraphs 14 and 22). The guarantee is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (see paragraph 68). (b) At 31 March 2006 Present obligation as a result of a past obligating event -The obligating event is the giving of the guarantee, which gives rise to a legal obligation. An outflow of resources embodying economic benefits in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

23). Where an enterprise gives guarantees in exchange for a fee, revenue is recognised under AS 9, Revenue Recognition. Illustration 8: A Court Case After a wedding in 2004-05, ten people died, possibly as a result of food poisoning from products sold by the enterprise. Legal proceedings are started seeking damages from the enterprise but it disputes liability. Up to the date of approval of the financial statements for the year 31 March 2005, the enterprise s lawyers advise that it is probable t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n is recognised (see definition of present obligation and paragraph 15). The matter is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (paragraph 68). (b) At 31 March 2006 Present obligation as a result of a past obligating event -On the basis of the evidence available, there is a present obligation. An outflow of resources embodying economic benefits in settlement - Probable. Conclusion - A provision is recognised for the best estimate of the amou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e balance sheet date, no obligation to replace the lining exists independently of the company s future actions - even the intention to incur the expenditure depends on the company deciding to continue operating the furnace or to replace the lining. Illustration 9B: Refurbishment Costs -Legislative Requirement An airline is required by law to overhaul its aircraft once every three years. Present obligation as a result of a past obligating event -There is no present obligation. Conclusion - No pro .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ample by selling the aircraft. Illustration 10: An onerous contract An enterprise operates profitably from a factory that it has leased under an operating lease. During December 2005 the enterprise relocates its operations to a new factory. The lease on the old factory continues for the next four years, it cannot be cancelled and the factory cannot be re-let to another user. Present obligation as a result of a past obligating event -The obligating event occurs when the lease contract becomes bin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Accounting Standard. Its purpose is to illustrate the application of the Accounting Standard to assist in clarifying its meaning. An illustration of the disclosures required by paragraph 67 is provided below. Illustration 1 Warranties A manufacturer gives warranties at the time of sale to purchasers of its three product lines. Under the terms of the warranty, the manufacturer undertakes to repair or replace items that fail to perform satisfactorily for two years from the date of sale. At the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the information required is not given because it can be expected to prejudice seriously the position of the enterprise. Illustration 2 Disclosure Exemption An enterprise is involved in a dispute with a competitor, who is alleging that the enterprise has infringed patents and is seeking damages of ₹ 1000 lakhs. The enterprise recognises a provision for its best estimate of the obligation, but discloses none of the information required by paragraphs 66 and 67 of the Standard. The following .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

[F. No. 17/151/2013-CL-V] AMARDEEP SINGH BHATIA, Jt. Secy. NOTE:- Principal rules were published in the gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 7th December, 2006 vide G.S.R. 734 (E), dated the 7th December, 2006 and last amended vide G.S.R. 914 (E) dated the 29th December, 2011. * All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting Standards prescribed by the Central Government. Fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. 2 Shares, debentures and other securities held as stock-in-trade (i.e., for sale in the ordinary course of business) are not investments as defined in this Standard. However, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provisions of this Standard, to the extent that they relate to current investments, are also applicable to shares, debentures and other securities hel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version